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Americans Hold Over $4.1T in Consumer Debt

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Re: Americans Hold Over $4.1T in Consumer Debt

#151

Post by yuhong »

bbcbasic wrote: post #100

Debt is money. Money is debt. You borrow money and it's fresh new money, expanding the money supply. If everyone pays back their debts, then (nearly) all of the money is gone. You don't have $1000 in your checking account. You have an IOU from the bank for $1000. You can then 'spend' the money by transferring the IOU to someone else. But it is never guaranteed transferable for something real. It relies on everyone el…

My favorite is government budget deficits. Take for example Medicare and drugs. Where does the money Medicare use to buy drugs comes from.

Re: Americans Hold Over $4.1T in Consumer Debt

#153

Post by [deleted] »

specialist wrote: post #119
Shivetya wrote: post #78

Earlier quoted context omitted.

A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt. from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of t…

"A large amount of individual debt is wholly optional." And a lot isn't. Apart from my mortgage, ALL of my debt is accrued when I'm too sick to work, and the medical bills pile up. Some huge fraction (1/3?, 1/2?) of bankruptcies are caused by medical related expenses.

[deleted]

Re: Americans Hold Over $4.1T in Consumer Debt

#154

Post by FullMtlAlcoholc »

fixxer wrote: post #130
FullMtlAlcoholc wrote: post #93

Earlier quoted context omitted.

> convince otherwise rational people to make an irrational decision This is a myth that economics will not let go of. Almost all human decisions are influenced by emotions. Here's two examples: [A] Would you rather receive $49 or have a 50% of receiving $100? - The rational decision would be to choose the 50% chance since your expected value would be $50. Most people go for the $49, humans are irrationally risk-avers…

You are defining rational behavior as ignoring variance and accepting expectation as a gauranteed outcome for a trial. I don't want to be a jerk, but you are wrong to a phenomenal degree.

You're not being a jerk. I should've put quotes around rational to highlight that this was the common thinking at the time in the field. That was just a extremely example of Prospect Theory. Before this was presented as a better model to understand human behavior, the prevailing theory didn't take into account that humans are even risk averse with gains and more likely to take risks with losses. My main point was that it took psychologists to present a model of man that resembled reality

Cumulative Prospect Theory takes this into account and states that people tend to overweight extreme, but unlikely events, but underweight "average" events, but I digress

I was just trying to show the base irrationality of the human mind. Here's another example. Consider you have two offers for the New York Times:

[A] $59 – Internet Only Subscription $125 – Internet and Print Subscription

[B] $59 – Internet Only Subscription $125 – Print Only Subscription $125 – Internet and Print Subscription

Both offers are the same, with the exception of including the “print only” subscription in Offer A. Despite the fact that not a single person chose that unattractive offer, its impact was dramatic – In a study, 62% more subjects chose the combined print and Internet offer, and predicted revenue jumped 43%. The print-only offer was the decoy, and served to make the combined offer look like a better value. This is called decoy marketing and is only one of an arsenal of tools that is used to take advantage of the irrational mind. You'll see this everywhere so it pays to identify it.

Re: Americans Hold Over $4.1T in Consumer Debt

#155

Post by CPLX »

FullMtlAlcoholc wrote: post #93
Shivetya wrote: post #78

Earlier quoted context omitted.

A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt. from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of t…

> convince otherwise rational people to make an irrational decision This is a myth that economics will not let go of. Almost all human decisions are influenced by emotions. Here's two examples: [A] Would you rather receive $49 or have a 50% of receiving $100? - The rational decision would be to choose the 50% chance since your expected value would be $50. Most people go for the $49, humans are irrationally risk-avers…

Your argument is nonsensical. Your scenarios have differences in risk. Transferring risk from one party to another is the entire basis of our financial system. To assume risk is irrelevant in step one is to fundamentally misunderstand how economic decision making works.

Re: Americans Hold Over $4.1T in Consumer Debt

#156

Post by refurb »

coliveira wrote: post #120
adventured wrote: post #79

Earlier quoted context omitted.

Where isn't that true in the developed world currently? Very few places. Take a look at the extreme household debt to income ratios in Denmark, Sweden, Canada, etc. Look at the completely collapsed savings rate in Japan (stacked against their catastrophic budget / public debt situation that demands ever greater funding, while the economy has near zero spare taxing capacity). Japan has seen their real standard of livi…

The difference is that in the US there little social support for people who lost their jobs. Even employed people have a comparable lower standard of life, because there are so many social services available in Eastern EU countries not available in the US. Just for the biggest example, consider that Americans have no public option for health care, so if they lose a job their lives are at risk.

You're making it seem like there are no social services in the US yet 2/3 of the federal budget pays for just that.

If make up to ~200% (varies state to state) of the federal poverty level you qualify for Medicaid which has almost no out of pocket expense for the patient.

Re: Americans Hold Over $4.1T in Consumer Debt

#157

Post by FullMtlAlcoholc »

CPLX wrote: post #155
FullMtlAlcoholc wrote: post #93

Earlier quoted context omitted.

> convince otherwise rational people to make an irrational decision This is a myth that economics will not let go of. Almost all human decisions are influenced by emotions. Here's two examples: [A] Would you rather receive $49 or have a 50% of receiving $100? - The rational decision would be to choose the 50% chance since your expected value would be $50. Most people go for the $49, humans are irrationally risk-avers…

Your argument is nonsensical. Your scenarios have differences in risk. Transferring risk from one party to another is the entire basis of our financial system. To assume risk is irrelevant in step one is to fundamentally misunderstand how economic decision making works.

You are missing the greater point. I agree with you. Before Prospect Theory, economists did assume risk was irrelevant and that one would choose either A or B for both. That even a layman would find it nonsensical is exactly my point.

I should've put rational in quotes to show sarcasm or followed rational with "defined by economists at that time"

Re: Americans Hold Over $4.1T in Consumer Debt

#158

Post by kalleboo »

adventured wrote: post #79
dpweb wrote: post #52

Earlier quoted context omitted.

The important thing really is the financial fragility of the American household. Millions of people know that they are one unexpected event away from insolvency. GDP doesn't mean anything to them. Consumer debt just puts them more at risk.

Where isn't that true in the developed world currently? Very few places. Take a look at the extreme household debt to income ratios in Denmark, Sweden, Canada, etc. Look at the completely collapsed savings rate in Japan (stacked against their catastrophic budget / public debt situation that demands ever greater funding, while the economy has near zero spare taxing capacity). Japan has seen their real standard of livi…

I don't know about the other countries but Sweden is in a ridiculous housing bubble, where even for someone with poor finances, it makes more sense to buy an apartment and just pay the interest on it (and then sell it for more than you bought it for when you move out) rather than to try find a rental apartment and pay the same amount you'd pay in interest in rent. This means that everyone has these huge home loans that look like "safe bets" (and there's no reason to expect the bubble will burst anytime soon since housing isn't being built fast enough)

Re: Americans Hold Over $4.1T in Consumer Debt

#159

Post by Spooky23 »

rootusrootus wrote: post #123
runeks wrote: post #58

Earlier quoted context omitted.

Also, the more indebted the consumer, the higher the impact of rising interest rates on consumer spending. Every time the Fed raises rates by 0.25 percentage points, consumers need to pay an additional $10B in interest per year. Consequently, the rate of interest increasing by 1 percentage point today is not the same as it increasing by 1 percentage point pre-2008 (when total consumer debt was lower).

That doesn't quite make sense. The interest on revolving debt is fixed at the level it was when you acquired the debt. Raising the rate across the board will definitely cause a lot of people to pay more, but only to the extent that they cannot stop themselves from buying more things on the card.

On secured loans sure.

Credit cards are always priced at prime+margin, based on 30-60 day average balance. That can change every 30 days.

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