John Kenneth Galbraith wrote that all financial crises are the result of “debt that, in one fashion or another, has become dangerously out of scale.” The recent financial crisis was no exception, with everyone—homeowners, private-equity investors, our biggest banks—taking on enormous amounts of debt. If it’s frustrating that the government is footing the bill to clean up the mess, it’s even worse that the government helped pay for the debt binge that created the mess in the first place, thanks to a tax system that actually subsidizes borrowing. Debt didn’t get dangerously out of scale because the system was broken. It got out of scale, in part, because the system worked.
The government doesn’t make people go into debt, of course. It just nudges them in that direction.
ndividuals are able to write off all their mortgage interest, up to a million dollars, and companies can write off all the interest on their debt, but not things like dividend payments. This gives the system what economists call a “debt bias.” It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments.
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I like how in the last sentence a house is still considered an "investment." That's old style thinking. Buying a house now is a gamble, at best. A person in my life complained for two years about being a renter. The other day I was able to tell her that now she's been revealed as the smart one, and that I'm upside down on my house.
ReplyDeleteYou seem to forget that the "average Joe" can ( and is ) walking ( sometimes running ) away from their debt just as fast - - (our gov't has taught us well)! These "people" have come to the realization of " what's the worst "they" can do to me once I have exhausted the "system" ( which in some cases can be 10 - 11 years on the 'dole') send me to county lock-up -- Ha! it's already at 200%
ReplyDeleteof capacity ! BLUF ( Bottom line up front) this country was built on the back of morality; you cannot own it; you cannot sell it - you cannot borrow it and you sure as hell can't buy it - which; good people is why we are where we're at right now - read it again; I guaran damn tee !!!!
A house is not an investment. It is an anchor of debt. Yes, it would have been great to buy a house in 1996 and sell it in 2005. But now that is not the case and it won't be the case for a long, long time. Possibly forever.
ReplyDeleteGlad I woke up in time to not get suckered into a debt payment. Now is the time to be leasing/renting. If you own, sell while you still can.
Peter Schiff explains how the mentality that a home must always appreciate in value is still believed by the sheeple. He does a great job of explaining why he RENTS although he is a multi-millionaire.
ReplyDeleteDebt? What debt?
ReplyDeleteI never work.
I print money all my life.
I even sell money at 10% discount.
My kids never go to stupid sheep schools.
My kids print money too.