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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

#181

Post by bamboozled »

cnnsucks wrote: post #170
bamboozled wrote: post #124

Honest question here, does this actually matter anymore? Do economists see it as a positive, negative or neutral thing? When I hear about debt that big I wonder if $4.1T even a real thing. I mean is it a tangible number that actually represents something of real substance?

Yes, it's real. Lenders have computers that sum lots of accounts; they're expected to do that and disclose how much they've lent. $4.1E12 isn't really that difficult to relate to. Just amortize it across the US population of 325 million. That's $12,612 per citizen. It's also about one year of Federal spending. It's a negative thing. Both individual debt load the and the rate of delinquency has been increasing, with s…

Thank you for the response!

I've actually been thinking about the implications of student debt for a while and it seems like a really terrible thing for a lot of reasons. I think it sucks people are forced into jobs they probably wouldn't otherwise do, just to pay off some debt.

The only thing I'll say about your response is that, I frequently hear about "the bubble getting ready to burst", but it never seems to happen. Similar to radical increases in housing prices, they seem to just keep rising, contrary to economists predictions about a crash. It's a totally anecdotal observation, but it's the reason I asked the question in the first place.

Re: Americans Hold Over $4.1T in Consumer Debt

#182

Post by SomeCollegeBro »

madengr wrote: post #168
kasey_junk wrote: post #146

Earlier quoted context omitted.

But you can invest the difference in something more liquid and diversified and use that income to forever pay your rent.

That's true, but most of the time it's just as expensive to rent than buy. You are paying the mortgage of your landlord, along with their salary.

Not really true, especially with multi unit housing. The mortgage is split between tenants. Rentals are generally also not responsible for fixing things like broken pipes or furnace repairs either.

Re: Americans Hold Over $4.1T in Consumer Debt

#183

Post by ensignavenger »

uiri wrote: post #72
cylinder wrote: post #63

Earlier quoted context omitted.

The loan is a liability, the degree is the asset. If the degree is unable to land the person a job, or the earnings of the job over the career do not stack up to the price of the degree, then it is an "upside down investment" just like a house with negative equity.

A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Housing prices track inflation. This is, on average, generally true; I'm not talking about a specific local market here. In order for something to be an investment, it must generate a return. After transaction costs, property taxes and other upkeep expense, the RoI of real estate is not grea…

But you also get the benefit of using the house while you own it, so if you give that a financial value, it may very well be a good investment (vs renting)... or it may still be a bad one- depends on a lot of factors.

Re: Americans Hold Over $4.1T in Consumer Debt

#184

Post by matwood »

slg wrote: post #17

The most dangerous problem with the housing crisis in 2008 was not the amount of debt. It was the feedback loop that was created by defaulting on that debt. Foreclosed homes naturally have a lower value than non-foreclosed homes. Homes are priced by looking at recent comparable home sales. If your neighbors to both your right and left have had their houses foreclosed on, the value of your home will go down. If the va…

> Homes are priced by looking at recent comparable home sales. If your neighbors to both your right and left have had their houses foreclosed on, the value of your home will go down.

It does not work quite like that. If there are a lot of foreclosures in a neighbor the prices will come down because of the additional inventory. Appraisals though are supposed to look at comparable homes, and take into account if the homes were sold under duress. A house or two in the neighborhood that either was foreclosed on, or sold much lower because the owner needed out should not impact an appraisal very much. Those are one off deals and do not reflect the market as a whole.

Re: Americans Hold Over $4.1T in Consumer Debt

#185

Post by matwood »

jdavis703 wrote: post #3
omilu wrote: post #2

Combine low wages, increasing loan delinquency, and the probable start of trade wars with mexico and china and I can't see how this doesn't turn out to be like 2008 on steroids.

Not sure why OP was being downvoted. I just bought a new truck, financed mostly with an auto loan. I couldn't remember or provide half the information required for the loan application and was told "don't worry about that." I still got approved. Another story, I recently changed rental apartments. My "credit report" was a page I printed out from a consumer credit reporting site, where I could've changed any data. My…

Not even in the same ball park as 2008. Auto loans are a lot easier to recover than a home loan. If you don't pay your auto loan they just come pick up the car. Then they get to resell the car again. This is completely different than a home loan in both value, and the process for the lender recover the collateral.

Home loans right now are still very tight. I had to provide more documentation for a simple refi with the same bank, than I had to provide in 2011 when I purchased the home. When I asked why, they responded that regulations have continued to tighten since them.

When dogs can get a 500k home loan and then sell the house a month later for 600k I might start believing we are back in 2008.

Re: Americans Hold Over $4.1T in Consumer Debt

#186

Post by mcguire »

cylinder wrote: post #60
NumberSix wrote: post #30

The United States has a total resident population (as of January 23, 2017) of 324,420,000 people (about 324 million). Source: https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta... Thus, $4.1 trillion in consumer debt works out to $12,638 per person. The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Note…

Looking at principal balances is all wrong. GDP means nothing in this instance either. What matters, and what lenders look at, is debt serviceability. Lenders don't want principal paid back, ideally you just keep paying interest for life. Let's say median household: Income: $4000/mo Rent: $1500/mo Other necessities: $2000/mo Let's say $500/mo "disposable." It's from this that the interest needs to be paid to service…

See Fisher's theory of debt deflation: https://en.m.wikipedia.org/wiki/Debt_deflation

Re: Americans Hold Over $4.1T in Consumer Debt

#187

Post by gshubert17 »

sokoloff wrote: post #108
nugget wrote: post #64

Earlier quoted context omitted.

There are debt forgiveness programs like PSLF that I expect to become wildly more popular in the future. We're only ever a Presidential election away from dramatic changes to student loan treatment.

And with that the risk of the permanent destruction of the market for student lending in the future, meaning college will go back to being a upper-class game.

If there wasn't so much student-loan money available, would there be more incentives for some colleges to reduce their costs and make their product more affordable.

Right now, colleges provide the service (education) and credential (degree). If independent third parties could provide believable credentials, there would be more incentives to find cheaper ways of delivering the services.

Re: Americans Hold Over $4.1T in Consumer Debt

#188

Post by mcguire »

slededit wrote: post #171
HarryHirsch wrote: post #150

Earlier quoted context omitted.

He's a convenient fiction though. Since to homo oeconomicus a certain expense of USD 500 and the 50 % chance of a USD 1000 expense are the same, expect him to be rolled out to sell you high-deductible health insurance and health savings accounts. H. oeconomicus is the model human, consequently he isn't cashflow constrained, and the fact that HSAs double as tax shelters for the wealthy doesn't concern the Ideal Man ei…

> University economics is a religion, not a science That's a bit harsh. Is every field that employs simplified approximations of complex systems a religion as well? With that definition even physics is out and that's one of the more concrete sciences.

If it does not admit that it's simplified assumptions are simplified assumptions and seek to improve them, then yes. Which does not apply to physics.

Economics has a weird tendency to invoke "outside shocks" to explain why their models fail, and seems to have difficulty identifying those shocks.

Re: Americans Hold Over $4.1T in Consumer Debt

#189

Post by cmdrfred »

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.

It may have been that debt that ended up on the books, but what do your monthly expenditures look like in terms of vehicles, eating out, entertainment, etc? If you have cash on hand to pay those expenses you have cash to pay your debit. This may not be your personal case but I have seen this a lot.

Re: Americans Hold Over $4.1T in Consumer Debt

#190

Post by mcguire »

milesvp wrote: post #114
uiri wrote: post #80

Earlier quoted context omitted.

Let's say we have two individuals - Alice and Bob - who each own a house. Each house has the same price on the real estate and on the rental markets. If Alice lives in Bob's house and pays rent to Bob and Bob lives in Alice's house and pays rent to Alice, their balance sheets are the same as if Alice lived in her own house and Bob lived in his own house. Excluding the rent income and rent expense (which offset), thei…

This only works in some magical tax depreciation scheme. In reality, monthly mortgage costs in an area are going to be market driven as are rental prices for the exact same property, and while the two axis aren't completely orthogonal they are somewhat independent. My experience is that in any given year in most regions rent income will not cover house payments/taxes/upkeep without tying up absurd amounts of down pay…

But not totally independent. Renting almost has to be more expensive than buying.

In a first approximation, if rent is much less than owning + expenses, the property owner will have to sell or go bankrupt, which will reduce property values. If rent is much greater, then property owners have an incentive to increase the rental market, lowering rents and raising property values. At a theoretical level, owning carries more uncertainty than renting.

Of course, weird circumstances can upset things: a decrease in acceptable uncertainty can cause rents to go up faster than the market can otherwise adjust, for example.

My past experience says that renting costs more than owning, but bit by much.

But I don't know what you think an inordinate down payment is.

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