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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

#201

Post by jimmywanger »

snowwrestler wrote: post #199
jimmywanger wrote: post #197

Earlier quoted context omitted.

> When you rent, you are also paying interest on a loan--just not your loan. Actually, you're paying somebody who also might be paying interest on a loan. What happens to money after you pay it is immaterial. You're not paying interest on a rent debt you've accumulated. > The point is, a mortgage creates leverage and it's silly to ignore that when thinking about return. You're spinning it in terms of pure rewards. Wh…

> Of course, if you can find an investment that's guaranteed to go up, of course you should leverage yourself to the hilt. It's worth pointing out that the post I'm replying to stated that housing prices generally track inflation, which is upward. My point is simply that leverage permits a return higher than inflation under those circumstances. I wouldn't claim that housing prices are some sort of "sure thing," and I…

> It's worth pointing out that the post I'm replying to stated that housing prices generally track inflation...

Well, my point is that if you leverage yourself in an investment that just tracks inflation, you're running in place. Leverage doesn't do anything in real terms here. The number value in your bank account might go up, but your real purchasing power doesn't.

That was my point, that in this situation leverage doesn't help you, and that fundamentally if you're trying to use leverage in this situation, you're hoping that housing prices rise faster than inflation does.

Re: Americans Hold Over $4.1T in Consumer Debt

#202

Post by closeparen »

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…

Nit: observed values converge on expected values over many trials. If you asked me which strategy I'd like to play 100,000 times, I'd take the 50% chance. Just once, I'll take the $49.

Re: Americans Hold Over $4.1T in Consumer Debt

#203

Post by specialist »

cmdrfred wrote: post #189
specialist wrote: post #119

Earlier quoted context omitted.

"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.

Sorry for delayed response. I had to reread your comment to understand.

My burn rate is very low.

When I'm not working, it's because I'm sick, meaning no income. I'm too stubborn or principled or stupid to take unemployment (unless I'm actually looking for work). And I'm not sick enough for disability.

During those times I chew down my savings. This last round, I dipped into my 401k. (I had 6 months savings, expected to be out of work for 2 months, stretched to 10, had some major expenses come up.)

Then I get somewhat healthy, pay off my new medical bills, save what I can. Until next time.

Rinse, lather, repeat.

Re: Americans Hold Over $4.1T in Consumer Debt

#204

Post by grandalf »

gshubert17 wrote: post #187
sokoloff wrote: post #108

Earlier quoted context omitted.

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.

Exactly, I think another way of describing this is a bubble.

Re: Americans Hold Over $4.1T in Consumer Debt

#205

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Re: Americans Hold Over $4.1T in Consumer Debt

#206

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Re: Americans Hold Over $4.1T in Consumer Debt

#207

Post by FullMtlAlcoholc »

CPLX wrote: post #176
FullMtlAlcoholc wrote: post #157

Earlier quoted context omitted.

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"

> That even a layman would find it nonsensical is exactly my point. I have a degree in economics and both my parents are professors of economics, so I have some perspective on this. Economics as a discipline has never really been confused about risk in the way you describe.

Let's look at it another way and the so-called "sunk cost" fallacy. I have somewhat expensive tickets to an NBA game. On the night of the game, I'm sick and there's a blizzard. If I paid for those tickets, I'm damn well going to that game. If they were given to me, I'm staying in. Study after study shows that most people also would act in this matter. That this type of behavior was considered irrational made me think that a lot of economists in the past didn't try to understand actual human behavior. BTW - this is not comparable to an investment situation

I have a degree in economics too and my main complaint is that I wish those in the field treated it with more rigor, more like a scientific or engineering field... explicitly state the simplified assumptions and limits on the models. And don't proclaim that your model is correct without experimenting. It's not as much a problem as it was in the past, but people like Hayek advocated for whole changes in society based upon ideology and philosophy without any experimental evidence. I understand it is difficult to conduct experiments, but if that is the case, stop being so certain and adamant in your position without evidence

Re: Americans Hold Over $4.1T in Consumer Debt

#208

Post by codingmyway »

barrkel wrote: post #92
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…

Alice and Bob don't help or hinder your argument in any way. It just seems like a non sequitur. Selection of choice to rent vs buy typically isn't driven by net wealth change considerations; rather, it's an investment in an area, because the transaction costs of house purchases are much higher than changing rental leases, and thus you need to stay in a bought house longer to spread the costs. In particular, houses bo…

It varies. Personally if I am renting I want to minimize that outgoing when saving for a nicer place to buy. I came close but quantitative easing killed that for me but the intention was there and now I'm back renting a cheap a place that suits my circumstances.
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