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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

#141

Post by tradersam »

nashashmi wrote: post #126

IMO, the biggest problem with so much debt is the amount of interest embedded in the agreement of it all. Let's say that the average interest rate is 4% and that none of the debt is double counted, e.g. one debt leading back to another debt at a different interest rate. The total interest revenue on the debt is $161 billion dollars. Where does that money come from?! It needs to pop up out of thin air, like someone ne…

You somewhat described the process of money-creation, which is what keeps the economy going, but you rated it as toxic.

Re: Americans Hold Over $4.1T in Consumer Debt

#142

Post by jimmywanger »

curtis wrote: post #74
uiri wrote: post #72

Earlier quoted context omitted.

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…

> A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Most people who own homes only own the one they live in. If they did not own that home they would have to pay rent. So to figure out the overall value of the investment, you'd need to add up not just all the money it's going to cost the owner, but also subtract all the money the the owner…

> So to figure out the overall value of the investment...

The value of an investment has nothing to do with how much use you get out of it. You're conflating investments with assets.

The value of an investment is how much you can sell it for and how much money it bring you (dividends, etc). The value of an asset is how much value you're currently getting out of it.

The fact that you'll have to pay money for rent is immaterial. You can count that as paying rent to yourself by owning a house.

The equation is simply costs should be less than outlay. If rent <= property taxes + interest on down payment + property taxes + amortized closing costs + opportunity cost for not being able to easily move + repair costs - tax benefits, you win. Otherwise, you're losing.

Re: Americans Hold Over $4.1T in Consumer Debt

#143

Post by flukus »

jimmywanger wrote: post #142
curtis wrote: post #74

Earlier quoted context omitted.

> A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Most people who own homes only own the one they live in. If they did not own that home they would have to pay rent. So to figure out the overall value of the investment, you'd need to add up not just all the money it's going to cost the owner, but also subtract all the money the the owner…

> So to figure out the overall value of the investment... The value of an investment has nothing to do with how much use you get out of it. You're conflating investments with assets. The value of an investment is how much you can sell it for and how much money it bring you (dividends, etc). The value of an asset is how much value you're currently getting out of it. The fact that you'll have to pay money for rent is i…

> The value of an investment has nothing to do with how much use you get out of it. You're conflating investments with assets.

A house can be both.

Re: Americans Hold Over $4.1T in Consumer Debt

#144

Post by mathattack »

rootusrootus wrote: post #133
mathattack wrote: post #51

Earlier quoted context omitted.

Yes. If anything, the bigger issue is national debt. It can be broken out into investments versus borrowing for transfer payments, but either way the #s come out much higher. And it's easier for consumers to walk away from debt in a bankruptcy than it is for a country.

That is a difficult comparison. If all of my debt was denominated in a currency that I explicitly controlled the supply of, I wouldn't need to declare bankruptcy, I'd just increase the supply of money so I was solvent. At this time, the cost to the nation of servicing the debt is around what, 6 percent of income? I bet a lot of consumers (more than half) would find that to be very affordable.

Yes - interest rates on our debt is low. But increasing the money supply will eventually come with inflation, and with that higher interest rates.

Eventually people will stop lending countries money. If they don't - that's even scarier. (A lack of viable investment alternatives)

Re: Americans Hold Over $4.1T in Consumer Debt

#145

Post by tradersam »

MomentarySanity wrote: post #99
IshKebab wrote: post #24

Earlier quoted context omitted.

Does America really have low wages? Granted, the lack of a minimum wage is crazy, but the median household income is $56k. Compare that to £23k in the UK.

We have a minimum wage. It's $7.25/hr at the Federal level, so that's the baseline.

I don't know why you're being downvoted, this is accurate.

Re: Americans Hold Over $4.1T in Consumer Debt

#146

Post by kasey_junk »

madengr wrote: post #128
milesvp wrote: post #114

Earlier quoted context omitted.

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…

Well in 30 years you'll at least own it. Would suck to be renting in your late 60's and paying for that on retirement income.

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

Re: Americans Hold Over $4.1T in Consumer Debt

#147

Post by nashashmi »

tradersam wrote: post #141
nashashmi wrote: post #126

IMO, the biggest problem with so much debt is the amount of interest embedded in the agreement of it all. Let's say that the average interest rate is 4% and that none of the debt is double counted, e.g. one debt leading back to another debt at a different interest rate. The total interest revenue on the debt is $161 billion dollars. Where does that money come from?! It needs to pop up out of thin air, like someone ne…

You somewhat described the process of money-creation, which is what keeps the economy going, but you rated it as toxic.

It is toxic if new money is not printed. And if it is printed, who gets to spend it?

Re: Americans Hold Over $4.1T in Consumer Debt

#148

Post by mjevans »

slg wrote: post #37
mrgriscom wrote: post #34

Earlier quoted context omitted.

It sounds like the actual most dangerous problem was people financing homes on unsustainable lending terms, literally requiring the home value to go up so you could refinance before your ARM teaser rate expired.

Fault for that goes both ways, towards to people who took the loan and the people who gave the loan. The people who gave the loan knew a lot more about the specific details and risks, so I find it hard to blame the people who took the loan.

That is exactly why /those/ institutions should have 'defaulted' and gone in to orderly holding/liquidation. They are the experts that performed malpractice on society at large.

Re: Americans Hold Over $4.1T in Consumer Debt

#149

Post by bla2 »

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…

The median household probably has to pay taxes too.

Re: Americans Hold Over $4.1T in Consumer Debt

#150

Post by HarryHirsch »

ericd wrote: post #121
FullMtlAlcoholc wrote: post #113

Earlier quoted context omitted.

I completely agree. A bird in hand is worth 2 in the bush and all that. However, even today economic theories do not take this into account and assume rationality === choosing the highest expected payoff. I.E. we're all statistical savants

Yep, your main point that economics' rational man is a complete fiction is absolutely correct.

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 either.

University economics is a religion, not a science, it offers up myths instead of testable predictions on observable reality. High finance is a different deal, but they surely don't build their models on university textbooks.

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