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How I think about debt

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Re: How I think about debt

#51

Post by Joel_Mckay »

Debt is essentially sacrificing future well-being for immediate access to some product or service utility normally inaccessible from current market conditions.

Even if a specific type of debt load is not necessarily a liability for personal profit, it is assuredly someones problem eventually...

The theory debt doesn't matter only applies to 0.04% of the population dodging tax burdens with structured financial instruments. The interest rates should be set over 14.2% (and we know it), as aristocratic gambling-culture has stolen living-standard value from great-great-grandchildren not even born yet.

The poignant question is 'could anyone do anything about the trends', and the short answer is a simple 'No'.

https://en.wikipedia.org/wiki/Tragedy_of_the_commons

Have a great day, =3

Re: How I think about debt

#52

Post by k__ »

adverbly wrote: post #49

This is an overly simplistic model which happens to have applied very well to Japan but would break down if applied in other economies where inflationary risk is present. I'm pretty sure there's a joke about there being three types of economies: developed, undeveloped, and Japan. Cash is useless if the value of the cash goes down by 10,000% and you don't have an inflation adjusted revenue stream. You have to do somet…

What about deflationary currencies?

Re: How I think about debt

#53

Post by bluGill »

adverbly wrote: post #49

This is an overly simplistic model which happens to have applied very well to Japan but would break down if applied in other economies where inflationary risk is present. I'm pretty sure there's a joke about there being three types of economies: developed, undeveloped, and Japan. Cash is useless if the value of the cash goes down by 10,000% and you don't have an inflation adjusted revenue stream. You have to do somet…

There are more assets than cash. cash is the most accesible, but others exist and are useful to have.

Re: How I think about debt

#54

Post by dehrmann »

francisofascii wrote: post #26
tombert wrote: post #6

I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…

People don't realize how risky housing is compared to other investments. It is risky because it is SO MUCH MONEY and it is not diversified at all. If your house loses half its value, that represents hundreds of thousands in losses. And don't think that can't happen. You buy a penny stock for $2K and lose half, no big deal compared to your house. BUT, we need housing, we need a stable school for our kids, or a comfort…

If you ask a financial advisor for advice on investing half your net worth on 5x leverage in an liquid asset with one customer and one location, they'd think you're crazy.

Re: How I think about debt

#55

Post by nineplay »

You can take money and pay off your mortgage or you can take that same money, throw it in a low cost index fund, and keep the mortgage. Most people are going to end up better off with the later. Cash has the illusion of being safer but start talking about inflation and it starts to lose its luster.

Re: How I think about debt

#56

Post by adverbly »

k__ wrote: post #52
adverbly wrote: post #49

This is an overly simplistic model which happens to have applied very well to Japan but would break down if applied in other economies where inflationary risk is present. I'm pretty sure there's a joke about there being three types of economies: developed, undeveloped, and Japan. Cash is useless if the value of the cash goes down by 10,000% and you don't have an inflation adjusted revenue stream. You have to do somet…

What about deflationary currencies?

I don't think there have been any currencies that have been deflationary for 100+ years so it's impossible to say. Obviously currency risk is what you have to watch out for though if you're not able to consistently both spend and collect from this single currency over the lifetime of your business.

Re: How I think about debt

#57

Post by lurking15 »

Brajeshwar wrote: post #13

Today, I started picking up what I started some time back -- the book “Debt: The First 5,000 Years” by David Graeber goes deep into the details of Debt. I've heard good reviews and I hope this is a good book as they say. https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

I feel like Graeber's book is another (left leaning) fad to glom on to, like Piketty's book some years back.

I found this book, The Price of Time by Edward Chancellor [1], very useful for understanding the development of money and debt over history. It's so detailed and clearly extensively researched.

[1]: https://www.harvard.com/book/the_price_of_time/

Re: How I think about debt

#58

Post by vlunkr »

CalRobert wrote: post #21
tombert wrote: post #19

Earlier quoted context omitted.

I thought Dave Ramsey was pretty much completely wrong about student loan debt, at least if I remember his position on it being "you shouldn't have student loans". But I agree that most debt is probably bad to have.

It might be extreme but 15 years ago he was telling people not to be so flippant about taking on enormous amounts of debt for degrees with a questionable payback and I think he was right. I always thought the snowball method was dumb but as time goes on I can see how it makes sense psychologically, even if not mathematically.

> I can see how it makes sense psychologically, even if not mathematically

He acknowledges this. It's about the psychological effect of seeing your list of debts grow smaller. I think a big part of his audience are people who have historically been very bad with money, which is why some of his advice seems strange to people who are already financially responsible. People with a bunch of maxed out credit cards and loans on ATVs and crap.

Re: How I think about debt

#59

Post by Nifty3929 »

phkahler wrote: post #46
leononame wrote: post #12

Earlier quoted context omitted.

I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to…

>> If you can't pay, they'll take your house and everything else until they decide that the debt is paid. This is new. Mortgages in the US traditionally took just the home as collateral. Thanks for the reminder that this is now a thing to look out for, as I may need to borrow one more time than I ever expected.

I think it's actually the reverse. The house is the only collateral, but traditionally you would still owe the deficit if the collateral couldn't be sold to pay off the whole loan. This is what's changed in recent decades. A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house.

Re: How I think about debt

#60

Post by gbalduzzi »

adverbly wrote: post #49

This is an overly simplistic model which happens to have applied very well to Japan but would break down if applied in other economies where inflationary risk is present. I'm pretty sure there's a joke about there being three types of economies: developed, undeveloped, and Japan. Cash is useless if the value of the cash goes down by 10,000% and you don't have an inflation adjusted revenue stream. You have to do somet…

I don't read OP article as "keep all your worth in cash".

Asset allocation is of course extremely important, but the main point made in the article is not having debt

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