We shouldn't ignore the growth rate of US National Debt as a function of lower dollar valuation. With the current Administration's policies on tariffs and the "Mad Man Theory" dominating trade negotiations, Treasuries need a risk premium to attract investment. (Another thing they miss about Foreign Direct Investment. Reputational harm eventually creates markets for investment any other place.)
*I've stared at this post wondering about Subsitution Effect and the assumption about the Wealth Effect influencing spending. You may want to look into how RMDs are creating increased spending among retirees.
"Required Minimum Distributions (RMDs) are mandatory annual withdrawals from tax-deferred retirement accounts (like Traditional IRAs, 401(k)s, 403(b)s) starting at age 73. Failure to take the minimum amount by Dec. 31 (or April 1 for the first RMD) triggers a 25% penalty. They are taxed as ordinary income. "
Larry- what is the current effect of RMDs on a Macro scale? -- I see a ton of advice articles on how to avoid the 25% tax and how to digest the extra income without spending too much too early, etc.
Just removing the 4% minimum avoids the penalty. While some will overconsume with the proceeds, there is no prohibition on placing it in another investment vehicle (via rollover into a ROTH or other investment vehicle. NOT TAX ADVICE!). The IRS publishes data annually to see the net affect of inflation on withdrawls. (There are also catch-up rules to smooth the withdrawl if mistakes/mismanagement have occurred.)
Your premise is different for every person based on need. Life expectancy, survivor benefit, qualified minor? Personal/family health, area variation for COL... the list is extensive.
In a MACRO sense, it has the same stimulative effect we'll see from increased tax rebates if used solely as a consumption tool.
In his Jan 28th talk about inflation, Jay Powell mentioned tariffs but not the falling value of the dollar. Both of these, in different ways, are results of Trump administration policies.
The irony is this has occurred outside if the public eye. You have to know to look for it to know. Many of the people who are most affected may not know that they are heavily affected.
I'm not a macroeconomist, so I historically avoid most conversations like this. I appreciate how simple you made this.
As always, Michael, did a great job. Happy to have him as a contributor to Decode Econ.
Thank you, Jadrian! I have a degree in economics but my macro classes really only went to the intermediate level, so simple is all I know 😄
We shouldn't ignore the growth rate of US National Debt as a function of lower dollar valuation. With the current Administration's policies on tariffs and the "Mad Man Theory" dominating trade negotiations, Treasuries need a risk premium to attract investment. (Another thing they miss about Foreign Direct Investment. Reputational harm eventually creates markets for investment any other place.)
*I've stared at this post wondering about Subsitution Effect and the assumption about the Wealth Effect influencing spending. You may want to look into how RMDs are creating increased spending among retirees.
This is a good point and deserves its own post. Treasuries and the risk premium will make our debt more expensive to service.
"Required Minimum Distributions (RMDs) are mandatory annual withdrawals from tax-deferred retirement accounts (like Traditional IRAs, 401(k)s, 403(b)s) starting at age 73. Failure to take the minimum amount by Dec. 31 (or April 1 for the first RMD) triggers a 25% penalty. They are taxed as ordinary income. "
Larry- what is the current effect of RMDs on a Macro scale? -- I see a ton of advice articles on how to avoid the 25% tax and how to digest the extra income without spending too much too early, etc.
Just removing the 4% minimum avoids the penalty. While some will overconsume with the proceeds, there is no prohibition on placing it in another investment vehicle (via rollover into a ROTH or other investment vehicle. NOT TAX ADVICE!). The IRS publishes data annually to see the net affect of inflation on withdrawls. (There are also catch-up rules to smooth the withdrawl if mistakes/mismanagement have occurred.)
Your premise is different for every person based on need. Life expectancy, survivor benefit, qualified minor? Personal/family health, area variation for COL... the list is extensive.
In a MACRO sense, it has the same stimulative effect we'll see from increased tax rebates if used solely as a consumption tool.
Thank you!
In his Jan 28th talk about inflation, Jay Powell mentioned tariffs but not the falling value of the dollar. Both of these, in different ways, are results of Trump administration policies.
The irony is this has occurred outside if the public eye. You have to know to look for it to know. Many of the people who are most affected may not know that they are heavily affected.