The real impact of interest rates on consumers isn’t what you get on your savings, but what you have to pay on your mortgage and other loans.
In the 1970s and early 1980s, interest rates were, by our current standards, insane. As per this site, the prime rate hit 10% in October, 1978, and was 20% by December, 1980. It went down some, then popped back up to 20% in '81, and stayed above 10% until '85.
And, of course, consumer and business loans are based on that rate. I was a teenager in the late '70s, and I remember my parents fretting about their mortgage rate skyrocketing. And, in early '79, my family broke ground on building a new hardware store (a business which my father and my uncle owned); the interest rate on the loan they had taken out to fund the construction doubled between groundbreaking in the spring, and opening the store in October. The store never made money as a result, my family took a financial bath, and the store closed after 3 1/2 years.
Interest rates are a two-edged sword. Low rates help some people and hurt others, and so do high rates.
In general, however, low rates are good. A low rate makes it cheaper for businesses to borrow money. And as long as the economy is good, it’s generally better for a business owner to expand his business using other people’s money rather than his own.
Low rates also make it easier for people to buy houses.
Somewhat off-setting that – and bringing in the second half of your post – some people have the economic equivalent of PTSD after having lived through what is for most people a literally once-in-a-lifetime economic storm.
The policies of Trump and the previous Republican-controlled Congress have been fueling the economy by running up the deficit and the national debt. (So much for Republicans being fiscally responsible. :rolleyes:) This when times are good and we are not in a recession.
So what happens when the next downturn happens, as they inevitably do?
Trump was explicitly told by his advisors that his economic policies will likely cause significant harm to the nation’s economy in a few years (in the form of a ballooning national debt), and his answer was that he would no longer be in office then, so who cares? :rolleyes:
To put it in more personal terms, is a person good at managing their finances if they are running up their credit cards? Because that is what our nation is doing right now. (The national debt was 76.4% of GDP at the end of 2018, and is expected to rise to nearly 100% of GDP by 2028. That’s analogous to an individual with a credit card debt that is the same as their annual salary.)
And a fair amount of the economic “growth” has been the result of polluting industries being deregulated, allowing them to make short-term profits from degrading the environment. Another form of burning the furniture.
People who approve of the incumbent president are more likely to believe the economy is good, and white people are more likely to approve of the current president. I don’t think it’s any more complicated than this.
Absolutely nothing happened to the economy in November 2016, but there was a substantial realignment in who thought it was doing well.
Well, others have alluded to the things he’s done up thread, but here’s the basic list:
[ol]
[li]Cut Taxes[/li][li]Cut Regulations[/li][li]Imposed Tariffs[/li][li]Renegotiated Trade Deals[/li][/ol]
Now, it’s debatable how much effect any of those have had on the economy, and as you see above, there’s arguments to be made that they will all hurt in the long term, even if they buoy the economy in the short term, but those are the things he’s done on which the Trump supporters would hang their argument.
There are two different questions, How is the economy right now?, and how will it be in the future? It may be a bad idea to burn the furniture but you can’t say that the room isn’t getting hot.
Trump and his GOP have given big tax cuts for corporations and the rich. This has fired up corporate profits, stock prices, and employment. This stimulus has been so huge that it would be weird if the economy didn’t respond “favorably.”
As Ann Hedonia and zoid imply, this stimulation has been akin to feeding meth pills to a truck driver; He stays awake and alert in the short-term, but these policies may backfire in a longer term.
Interest rates are very low. The world’s economies are closely tied together; interest rates are even lower in other countries; this also feeds the American boom and keeps the Dollar strong. Recessions in other countries keep imported producer prices from rising, and this (along with the lack of negotiation power of American wage-earners) keeps inflation in check. The low interest rates may come back to haunt, but at present they contribute to the Boom.
Employment is very high, but many of the jobs are low-paying. Asset prices are high, but much of America lacks assets. Do working-class people whose wages are improving very little hear about stock prices and employment stats and think the economy is booming even if they’re falling behind personally? I don’t know — are there studies of this question?
To answer OP, many of those doing poorly are non-white. Among whites doing poorly, many are young people with little effect on opinions of the punditry. Homeless whites and other under-performers also lack access to the voice of white punditry.
So the economy is doing quite well, at present, for many whites. And anyway, I think, many whites interviewed about the economy will respond as their politicians and preferred pundits tell them to.
How will the economy fare over the next 9 months? Over the next 3 years? These are interesting questions but are beyond OP’s scope. And anyway, their answers are unknown.
Yes, if your house catches on fire in the dead of winter you will be really really warm for a few minutes. But you’ll freeze to death 24 hours later. This is the reason that sane people, by necessity, have an ability to imagine the future with regards to the consequences of their actions.
So the question is “If Donald J Trump told you to burn down your house because you were cold, would you do it?
Tragically, a lot of people would. Some people really dislike that aspect of life that requires them to make decision after decision after decision. So they abdicate their agency and make the decision to let someone else make their decisions for them. Especially if that person convinces them they are a supernaturally gifted genius.
Good luck in the cold. At least, please don’t burn your clothes, too. Even if Trump tells you to.
If Trump loses in 2020, it is *in Republican interests *to have a big recession kick in in 2021-2024. Usher them back into power by defeating the incumbent Democrat. So, burning the house furniture in the winter is actually beneficial to the GOP.
Perverse incentive, but that’s the four-year two-party system for you.
Yes. Last I checked most forecasters expect a recession within the next two years, but they’re evenly split whether the recession will come before or after the Election! This leads to scary interplay between economics and politics in the near term.
The GOP has the reins of power and will surely attempt further infusions (e.g. of metaphoric burning or meth) to keep the economy booming and ensure their re-election. I expect a nod to low-wage workers (e.g. payroll tax cut) during the spring or summer: House of Reps would go along. In addition to gratitude from low-wage voters, the wage hikes benefit the boom since an increase in inflation will lower real interest rates. The inflationary picture in 2021 is the big wildcard, but this will depend on the global economy.
Mortgage rates are indeed pretty low now. But credit card interest rates are still pretty high, and many Americans carry a few thousand dollars in credit card debt.
The question I think we should be asking is, “Financially speaking, are American households better off now than they were four years ago?”
I don’t know the answer to that question, but I suspect that while few are much worse off, equally few are much better off.
Meh, it’s just partisanship. Republicans used to say that Obama was doing a horrible job with the economy as he was pulling the world back from the brink of mad max world.
Trump is goosing the economy right now with tax cuts. At some point you have to pay for those tax cuts.
Interest rates are an important part of the “hurdle rate” that a project has to achieve before it gets done.
So lets say you are a company and your internal cost of borrowing is 5% and you are thinking about a new investment (lets say building a new townhouse development). You do the calculations and your risk adjusted rate of return on that project is 6% so you go ahead and build that development. But if it’s only 4% don’t.
But then interest rates drop and your internal cost of funding drops to 3%. Now that project that didn’t make sense before suddenly makes sense and you make the investment.
The argument against the interest rate cuts last year is that you don’t cut rates during a economic book because that reduces your bullets during an economic slowdown. And, no, I don’t see negative interest rates as a realistic long term policy.
It is amazing to see the difference on how the economy is being reported, even on CNBC which sometimes tries to be unbiased. The unemployment rate would be announced under Obama and there’d be a flood of guests moving the goalposts. What about the labor force participation rate? What about the U6 unemployment rate? They’d grab any macroeconomic stat to try to make things look worse.
My favorite analogy:
Weather forecaster ‘It’ll be a a delightful 82 degrees today’
Conservative: ‘Fake News! You lie. It’s 28 degrees’
Obviously one is in Fahrenheit and the other Celsius.
One thing that I find interesting is that, in my experience, the typical person has no idea what their tax rate is (myself included). I’m not talking about what tax bracket they fall into (which most people presume is their tax rate, but is instead merely the rate at which the last portion of their salary is taxed), I’m talking about their actual effective tax rate.
Meaning, people think “my taxes are lower” because they are told by politicians that they got a tax break, not because they’ve actually crunched the numbers and determined that they are paying a lower effective rate.
This spreads to other economic indicators, as well. If the talking person on the TV says that markets are soaring, well, then I can take solace that I live in a good economy. If they furrow their brow and worry about a coming recession, then I might get concerned.
So, the whole “the economy is good” argument is based on what people (who are already inclined to support Trump) have been told about the economy, and which they therefore think justifies their support. It isn’t people looking at their financial statements and drawing a conclusion from those. Even if somebody is making more money, or got a better job, I doubt that they can draw a straight line from that success and some sort of government policy that has recently been enacted.