
U.S. personal income posts first drop in over three years - SolaceQuantum
https://www.reuters.com/article/us-usa-economy-spenidng/u-s-personal-income-posts-first-drop-in-over-three-years-idUSKCN1QI4P7
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zaroth
The drop coincides with the market tanking at the end of last year, due to the
Fed badly miscalculating their rate hike policy.

TFA omits this context, and glaringly doubles down on the omission when they
state;

“The report from the Commerce Department on Friday also showed inflation
pressures remaining tame, which together with slowing domestic and global
economic growth _gave more credence to the Federal Reserve’s “patient” stance
towards raising interest rates further this year._ ”

The Fed caused tremendous damage at the end of Q4 with their breakneck rate
hikes in the face of record-low inflation. They sucked over a trillion dollars
out of the economy which is why the numbers are down.

To write that this gives credence to the Fed’s “patient” stance is
wallpapering over the real story, and it smells politically motivated.

~~~
kadendogthing
How was it miscalculated? We can't sit there and leave interests rates low
forever. It's a mitigating tactic, not a tenable one. We've been doing this
for _years_. It's long, long, long over due for fed interest rates to come
back up. Because right now all it's really doing is building a credit bubble.

Real wages and real purchasing power must keep going up. And for that to
happen the upper 1% are going to have to take a nice hit for the economy to
truly correct. Both effectively need to happen at the same time. The FED is
essentially signalling to policy makers that the time to up minimum wage is...
was, yesterday.

I want to challenge you to really dive into your perspective and defend why
you think the fed miscalculated here, and why you think leaving interest rates
low isn't going to have extremely negative effects if we don't start changing
course now. If not now, when?

~~~
djyaz1200
"We can't sit there and leave interests rates low forever" ...says who? What
force dictates that the equilibrium for rates must be higher? Yes that's
historically been the case but that doesn't mean that's the right path for us
now and in the future. I would argue that low interest rates will be and need
to be the new normal.

Interest is the ultimate rent seeking activity. The fed funds rate is a form
of price fixing for banks whereby they collectively decide how much interest
they can extract from the economy without killing it. Why must this be the
case, the economy should be allowed to run much hotter for much longer.

Inflation is less of a risk now because of technology + globalization, right
now we are experiencing significant deflationary pressure as products and
labor converge towards global pricing/wages.

Our economy and government will be in very serious trouble if we have to pay
higher interest on our significant national debt, so the government has a big
interest (pun intended) in keeping rates low to protect its own financial
solvency.

Finally, high interest rates imply money is scarce and that's far from the
case now. Having large sums of money is not what it used to be, you're
competing against a lot of other people and organizations seeking to deploy
that money productively for a return. This generates downward pressure on
market interest rates as evidenced by European Central banks going below zero
to negative rates.

~~~
dodobirdlord
> "We can't sit there and leave interests rates low forever" ...says who?

Certainly it can be done, but if 2008 proved anything it was the theory that
lowering interest rates would provide Keynesian stimulus and mitigate the
impact of a recession. One of the perks of controlling the interest rate is
that you can use it to apply counterpressure to the business cycle, pushing
down bubbles and pulling out of recessions. If the interest rate is stuck near
0, you can't really do that, so it's in the interest of economic stability to
bring it back up again.

~~~
ams6110
2008 was more a consequence of lowering lending qualification standards (or
just ignoring them altogether) than it was low rates. Doesn't matter so much
what the interest rate is, if you are lending money to people who can't pay it
back.

~~~
finnh
I believe OP was talking about the stimulus/recovery, not the cause of the
crash.

------
leereeves
Wages up, investment income down?

This sounds like cause for average people to celebrate. Wonder why the
headline is focused on the negative aspect...

~~~
witcherchaos
US wage is growing though. Money is flowing into US at an unprecedented rate
due to:

a.) Fed raising interest rates to a normal level. Government bonds are now
earning close to some of the faster developing countries, without the risks.

b.) Brexit impacting the growth of EU. Germany narrowly avoids
recession....for now. But grew only 1.5% in 2018. There's still the matter of
a possible US tariff on EU automobiles. And Italy/Greece/Spain debts are still
a thing.

c.) Chinese economy is crumbling. GM dropped crashed 15% in China in 2018.
Ford dropped 36%. iPhone sales dropped 13%. Louis Vuitton dropped 20%. Overall
car sales dropped 13%. Stock market dropped 22%. Real estate sales in January
2019 dropped 44%.

d.) Asian countries impacted by China's fall. South Korea's export to China
dropped 14% in 2018. Japan dropped 8%. Taiwan dropped 10%. Singapore dropped
8%.

e.) Uncertainties and high debt ratio in developing countries, prompting money
to seek safe harbor. Tariff and protectionism impacts.

f.) lastly, US is growing at a healthy 3% in 2018

~~~
pas
How does the Fed interest raise helps with more money flowing into the US?

I mean okay, money flows into US "saving accounts", but due to higher interest
rate a lot of investments will be put on hold, no?

The Fed raised the target federal funds rate, which is the rate of the
interbank overnight repo market, which is basically the "back office" clearing
house between the accounts of creditors and debtors. And all of this means
that the NY Fed's trading desk does a lot of open market transactions to reach
that goal. (It converts cash in banks' reserve accounts into US Treasury
bonds, thus forcing banks to increase their reserves - to meet requirements,
hence forcing banks to loan reserves from other banks, which pushes up the
overnight repo rate.)

How does this effect the US Treasury bond auction rate? (In theory banks [and
other primary dealers that participate in the auction] just use loans (excess
reserve) to buy bonds, so if excess reserve is less, then fewer banks are
able/willing to buy bonds, so yes, that pushes up rates, but the target-FFR
increase only affected US banks, and US T-bills are bought by a lot of foreign
entities.)

~~~
appsonify
all I know is they raise interest rates, it absorbs up the money supply in
circulation due to the attractive yields on the Ts

also the whole trope about 'China owning most of US T-bills' is actually
false, there is apparently T-bills that are specifically sold to foreign
nations, and then there are the real T-bills that not many countries own. The
other one is an IOU and may not be honored, say during wartime.

~~~
pas
They raise the rates indirectly, by selling T-bills on the secondary market,
which simply sucks money out of the circulation. (Which makes simply makes
debt more expensive, and that leads to T-rate increase.)

> also the whole trope about 'China owning most of US T-bills' is actually
> false,

They are just the largest foreign holder, and it was noteworthy because of the
rapid rise in the distribution of foreign debt holders.

Anyway, my thought process was that even if the US money supply drops, it
should not influence T-bill auctions, because the whole world likes it (due to
being the least risky investment). But it's very likely that the T-rate was
low because banks and other investors exploited the low FFR. Now that's gone,
the system settled in a higher equilibrium (as foreign and other investors had
no real reason to change their behavior).

------
asatterfield54
New year + tax return tends to lead people to spend a bit more. Anecdotally
I'd expect the downward spending trend to continue. Majority of the customers
I interact with (barista programmer checking in) I know are asking themselves
"do I need this?" before they buy. Most have cancelled their Amazon Prime
subscription and stopped buying there altogether, which for many was the
equivalent of an online shopping spree.

~~~
random_kris
sorry for a weird question but how does one decide to be a barista programmer?
is it because you like being barista or is it because programming doesn't pay
enough?

~~~
asatterfield54
Burn out and tired of writing CRUD all day in an office.

~~~
AnimalMuppet
Honest question. Is being a barrista _better_ , or just _different_?

------
SolaceQuantum
_" Income was weighed down by decreases in dividend, farm proprietors’ and
interest income. Wages increased 0.3 percent in January after rising 0.5
percent in December."_

I have no education in economics, but does this imply that it is becoming less
lucrative to invest money? (Also, later in the article, it says that
purchasing dropped sharply in December. How is it that wages are growing, job
market is hungry for more labor, but consuming is dropping?)

~~~
WillPostForFood
The Personal Consumption Expenditures number from the Federal Reserve is
seasonally adjusted. A decline in a seasonally adjusted number can actually a
lower than expected increase.

------
jotjotzzz
Waiting on the trickles of the "trickle down" economics. I bet CEO salaries
are doing just fine.

~~~
hugh4life
"U.S. personal income fell for the first time in more than three years in
January as dividends and interest payments dropped"

It hit the people with stocks and money in the bank the most.

~~~
C1sc0cat
Or you know people with pension funds

~~~
Wh1skey
And people who buy from the rest of us

------
dv_dt
I thought real wages had already posted drops. The numerical drop might be
expected w/ real wages as a leader.

------
coinward
Do these measurements consider inflation?

------
scottlocklin
Tax rates in high income states went up (limits on deductions for housing and
state income taxes); no surprise.

~~~
vonmoltke
Tax rates and deductions have nothing to do these income and wage numbers.

~~~
scottlocklin
If you read the article, you'd know that the commerce department was talking
about disposable personal income, which is post tax. Pre-tax, personal income
went up.

[https://www.bea.gov/data/income-saving/personal-
income](https://www.bea.gov/data/income-saving/personal-income)

