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home prices and money supply
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guest
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PostPosted: Tue May 06, 2008 7:03 pm GMT    Post subject: Reply with quote

SAMZ:

In theory investment creates jobs... so with higher capital gains come lower investment.

Less jobs= less income

and at what point do you implment it? 50k in boston is not much, while in rural kansas it is great...
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue May 06, 2008 7:11 pm GMT    Post subject: Reply with quote

I think you're right. When I look at all these economic formulas, I wonder about deformation of fundamentals due to internal and external factors.

Changes in taxation, regulation i.e. rent control etc. are totally important factors when interpreting the numbers.

I'm thinking now about potential versus kinetic energy. When a little kid is on a swing going downward there is a buildup of kinetic energy and speed (almost like increased activity in home sales). When the kid is at his peak, the kinetic energy is being subtracted by potential energy going the opposite direction. During this subtraction process, the kid on the swing slows down toward the top. (kind of like the slowdown of sales activity now) When the negative potential energy outweighs the kinetic you hit an inflection point, peak, and then a kinetic energy going back down.

Endogenous and exogenous factors add to the push or pull in flow. They could inhibit or induce activity. More restrictive lending could slow it down, and lower mortgage rates might induce more buying activity. Certain state of affairs veiled issues before. For example, if we had people that couldn't pay their mortgages, we never saw the full extent because in many cases people could sell their homes for a gain or refinance. So when people say that we're in a recession and cite foreclosure statistics, in reality because people don't have the options to refinance or take Home Equity Lines of Credit (HELOC's), we are now recognizing these folks and they are showing up as statistics. It is fundamentally based in part on the fact that house prices are dropping. A good percentage of folks before might have been in the same situation but it never got recorded because they just simply took out a second mortgage or something and yanked out equity...

Further, even if I'm upside down a bit on the value of my home, what does it matter as long as I can pay my mortgage.

Falling prices on top of a recession is a disaster because as someone put earlier, solvency is what creates the situations which force people to sell. Who knows what Barney Frank's new legislation will do to forestall the large ARM reset solvency contingent? I think that there is a lot of wealth out there that wants to find a home in investment, so one man's suffering is another man's investment and buying opportunity. There is indeed lots of suffering, but because the money supply is growing, that money is going somewhere and is out there. In my view, the wealthy who have the money will need to spend it, and if we get inflation, people's debt will become less and less of their take home pay so solvency will be addressed by deflating the value of the dollar and therefore deflating the magnitude of debt.
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samz



Joined: 19 Feb 2008
Posts: 102
Location: Medford, MA

PostPosted: Tue May 06, 2008 7:18 pm GMT    Post subject: Reply with quote

admin wrote:
samz wrote:

My proposal, which would certainly be impossible to implement, would be to rebalance the tax code to encourage production rather than speculation: lower the income tax and increase the capital gains tax (including capital gains on a home sale).


Lower capital gains rates may encourage speculation, but they also encourage investment, which can be a good thing. Production and investment can both be valuable.


I agree with you, in principle, but I don't buy it as an argument against raising the capital gains tax. Investment in production is a good thing, but it's still basically making money without doing anything. At the very least, the company *doing* the production -- and therefore making the investment worth something-- should have the better tax benefit.

I'm really put off by people making boat-loads of money by simply buying something, and then selling the exact same thing for a profit. How does that contribute to anything? It's a huge problem now because the things being bought/sold are essentials like food and fuel. I've seen estimates that 30% to 40% of the price of oil is the direct result of market speculation.

Quote:

What would you think about having a consumption tax (national sales tax) in place of both income and capital gains taxes? I'm just thinking out loud - I haven't thought this through.


I'm not sure about this -- it's so radically different from what we have now it's really hard to predict what would happen. For example, right now we rely on retailers to collect sales tax. If that tax went up a lot (as it would have to), we'd probably see a lot more people trying to cheat the system. I think enforcement would be next to impossible.

Again, I think the key is to think about the incentives: what economic behaviors would be encouraged or discouraged by a high national sales tax?

Quote:

What bugs me most about the capital gains tax is that part of your tax is due to the fictitious gains which result from inflation. The government can therefore claim a large chunk of your assets by simply devaluing the dollar. I'd go for higher capital gains rates if gains attributable to inflation were excluded.
- admin


That's a great point. It would make a lot more sense if they applied the capital gains tax after adjusting for inflation -- which should be easy because you have to report the time period of the investment.
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samz



Joined: 19 Feb 2008
Posts: 102
Location: Medford, MA

PostPosted: Tue May 06, 2008 7:29 pm GMT    Post subject: Reply with quote

guest wrote:
SAMZ:

In theory investment creates jobs... so with higher capital gains come lower investment.

Less jobs= less income


OK, but is that really what happens? What I've seen over the last couple of decades is that when you lower capital gains tax you get "investment" in things that don't contribute to production or jobs at all. Much of the money seems to go into things like the stock market, commodities futures, and other vehicles for speculating on market movement. These things don't add jobs -- in fact, they hurt income by driving up the prices of essentials like food, fuel, and housing (remember the housing bubble? Wink )

People with money are always going to want to invest it somewhere. Just because there's a higher capital gains tax, doesn't mean they'll start stuffing it in their mattresses. Perhaps the worst case is that it drives investment to other countries.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue May 06, 2008 7:30 pm GMT    Post subject: Reply with quote

Add to your comments how we use the GDP as a basis to benchmark certain acceptable levels i.e (% of GDP) If the GDP is skewed by goverment spending, devaluation of the currency etc. we could be drifting further from what we think we know.

http://en.wikipedia.org/wiki/Gross_domestic_product
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john p



Joined: 10 Mar 2006
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PostPosted: Wed Jul 09, 2008 2:23 pm GMT    Post subject: Reply with quote

Why are the banks so afraid of inflation? What on earth were they thinking was going to happen when they flooded the economy with money?

Take a look at the money supply. Take a look at the M3

http://en.wikipedia.org/wiki/Image:Components_of_the_United_States_money_supply2.svg

The banks have flooded the economy with money and now that it is starting to get to the people they are acting fearful of "inflation". The truth is that prices are adjusting to the increased money supply and the ownership rich are pissed that they can't keep all of the money themselves; they would prefer that we remain indentured servants.
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PostPosted: Wed Jul 09, 2008 6:00 pm GMT    Post subject: Capital Gain Taxes Reply with quote

Two observations-

1. Do folks hear really think that Infation is cause by Investor/speculators?

Samz- you do realize that if the Airline Companies hadn't been speculating with Jet Fuel/oil futures they would be in even worst shape.

What about the Specultors that are Union pension funds. With out this Investing/speculating many of the Pension Funds wouldn't keep pace with inflation and won't have the money to pay future retirees.

Who decides when prudent Inflation hedging ends and speculating begins. Most public employee pensions have 5-15% of asset in Hedge funds that have speculative investments.

The Federal Reserve causes inflation by increasing the Money supply. The Dollar buys less and less when there are more and more $ circulating. Look at how the Federal Reserve is allowing Investment Houses to trade in Mortgage Backed Paper for Treasuries. These Treasuries lead to more Cash on the street and more speculation.

But, no one has the Political will to allow any financial institutions to fail.

2. Capital Gains - Increase capital gains tax will drive more dollars into assets that minimize the Tax consequences. this means there are fewer dollars to fund companies here in the USA. Funding a new company is highly speculative and there are thousands of failures for every Microsoft.

Wouldn't we prefer to have the Companies that solve our Energy crisis to be here in the USA?
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Former Owner
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PostPosted: Wed Jul 09, 2008 6:00 pm GMT    Post subject: Capital Gain Taxes Reply with quote

Two observations-

1. Do folks hear really think that Infation is cause by Investor/speculators?

Samz- you do realize that if the Airline Companies hadn't been speculating with Jet Fuel/oil futures they would be in even worst shape.

What about the Specultors that are Union pension funds. With out this Investing/speculating many of the Pension Funds wouldn't keep pace with inflation and won't have the money to pay future retirees.

Who decides when prudent Inflation hedging ends and speculating begins. Most public employee pensions have 5-15% of asset in Hedge funds that have speculative investments.

The Federal Reserve causes inflation by increasing the Money supply. The Dollar buys less and less when there are more and more $ circulating. Look at how the Federal Reserve is allowing Investment Houses to trade in Mortgage Backed Paper for Treasuries. These Treasuries lead to more Cash on the street and more speculation.

But, no one has the Political will to allow any financial institutions to fail.

2. Capital Gains - Increase capital gains tax will drive more dollars into assets that minimize the Tax consequences. this means there are fewer dollars to fund companies here in the USA. Funding a new company is highly speculative and there are thousands of failures for every Microsoft.

Wouldn't we prefer to have the Companies that solve our Energy crisis to be here in the USA?
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Thu Jul 10, 2008 1:00 am GMT    Post subject: Reply with quote

The double taxation of dividends is also annoying. Taxes also hinder investment. I hold funds that have made money and want to reallocate but can't because the tax loss wouldn't be worth it. So the money stays where it is.
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admin
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Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Wed Aug 20, 2008 1:14 pm GMT    Post subject: Reply with quote

Check this out - M3 is now shrinking in real terms:

http://globaleconomicanalysis.blogspot.com/2008/08/m3-contraction-future-is-now.html?ref=patrick.net

- admin
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