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Yep, it will require creativity, gullibility and greed. But, then, SIVs and CDOs prove that we have that in spades. Add desperation to the mix and voila...
The economy does not need people to over spend on housing. Without people like him, housing would actually contract and become more affordable which would ultimately benefit the economy.
As it stands far too much money goes to real estate.
Exactly right. Did you not see what over spending on houses caused? Almost a complete collapse of our financial structure. Do you not think people went too far?
I'm not saying people shouldn't take on debt, I'm just saying people should not take on EXTREME debt like most people did. You are again confusing where I stand. All this does is make us go backwards. We need to let the greedy banks fail, let GM fail, let Chrysler fail, go through a tough time for a while and then come out stronger and with a clear head. Again, we need to stop OVER CONSUMING. I don't care if that means we only have 3 breakfast places to eat at instead of 10. Or 1 mall to go to instead of 5, etc. The US is getting fat, lazy, dumb, and greedy. Too many people with their hands out after they made bad mistakes and not enough people innovating/ making things.
As user ID says, your mindset should remain the same during a bubble and after a bubble. Regardless, you have to make smart decisions.
Your right its anecdotal, can you link to the study that shows that more innocent people are getting hit?
It really depends on who you consider "innocent". Generally speaking, more and more people, even those far removed from the crisis has been "hit". So as more an more people get effected by the global recession, I'm sure there are "innocents" among them. IMF Survey: Poor Countries Need Extra Help to Get Through Global Crisis
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And no, if the currency gets hit not everyone will get hit. Same with taxes. The are obviously ways hedging against a crashing currency and taxes are not that hard to avoid.
Ok, agreed, but not everybody is savvy enough to evade taxes or can afford to hedge on currency plays. I guess they're just ignorant then and deserve whatever comes to them.
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Yes....and?? Why does this change whether going into debt makes sense or not?
Again, you look at real interest rates regardless of the environment. What you're talking about has no barring on the issue of whether it makes sense for an individual or business to go into debt.
No, I'm talking about interest rates as part of the environment and a major factor as to whether it makes sense to incur debt or not. Cost of debt is an important factor to determine whether or not you'd make a return over costs (NPV).
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This sort of thinking is the source of your problems. Things are no more uncertain now then they were during the boom. The future is always uncertain, there is no meaningful way in which the future is "less certain" sometimes but not others. Banks are not raising raises because of they are uncertain, they are raising rates based on a variety of projections.
Agreed, no one can predict the future. But, with some measure of certainty (margin of error - statistics) people can forecast future possibility/probability through cause and effect, analysis, and schedules. Hence some measure of future certainty.
Yup, and they are projecting more defaults... as a result... increasing margins - increasing the cost of debt. More expensive debt is a major factor in deciding on whether or not incurring debt is feasible.
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The cost of debt always varies and the cost of the debt is obviously a consideration one needs to take when one uses debt. But again, this is always the case.
If cost of debt is more expensive during a deflationary period... then it is a major factor in considering whether to incur debt or not.
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There is no contradiction. My point is that the same considerations apply regardless of the economic environment. You want to place special restrictions on borrowing when there is a recession, but this makes little sense. You built debt when you were in the intoxication of the boom, yet shun it in a recession even when it could benefit you.
I'm not placing "special" consideration during a recession, except that during a recession cost of debt is more expensive. Whether the extra costs merit incurring debt or not depends on the individual.
** Ok, I read my previous posts and see the confusion. It's not the "recession" per say that should prevent you from taking on more debt, but the "conditions" resulting from a recession that effects the costs of debt that may influence the execution of your decision.
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Hogwash. I demonstrated no such thing. Its not about timing, its about strategically using debt. Again, the same considerations apply regardless of the timing.
If you are basing this on my analogy then you misunderstood the analogy. The point is that people act emotionally, they get intoxicated by the herd, etc. When people get intoxicated in the euphoria of a boom, they start to act stupidly. They stop taking calculated risks and start making stupid gambles. But the recession hits, then they get drugged by the recession and stop taking any risks. They act stupidly in both conditions, they should act the same in both. My comment was about psychology, not timing.
Please explain strategically using debt? and what are the conditions?
In my perspective, I shun personal debt in a recession or an expansion. My personal debt strategy is to have No debt. My tactic, is to pay down debt in both a recession or an expansion. Why would I fall in love with debt in an expansion?? The purpose of incurring debt is to acquire fundamental shelter, transportation, and education. Any additional debt on the personal level is in the most part frivolous.
It really depends on who you consider "innocent"....
Sure, but my point was simple. What you are saying is not backed by anything. I don't see many innocent people getting hurt, rather the opposite. Perhaps, in the future that will change, but I don't see it yet.
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Originally Posted by chuck22b
Ok, agreed, but not everybody is savvy enough to evade taxes or can afford to hedge on currency plays. I guess they're just ignorant then and deserve whatever comes to them.
I'm not talking about what people "deserve", rather the simple fact that an increase in taxes, or a collapse in the currency will not hurt everyone.
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Originally Posted by chuck22b
Cost of debt is an important factor to determine whether or not you'd make a return over costs (NPV).
The cost of debt is a factor regardless of the economic environment. You keep talking about the nominal rate being lower than the real rate, as if that matters. It does not. What matters is the real rate and how it relates what you want to do with it.
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Originally Posted by chuck22b
But, with some measure of certainty (margin of error - statistics) people can forecast future possibility/probability through cause and effect, analysis, and schedules. Hence some measure of future certainty.
Again, the point was that the future is just as uncertain as it always is. You suggested that the future is some how more uncertain than it has been in the past.
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Originally Posted by chuck22b
If cost of debt is more expensive during a deflationary period... then it is a major factor in considering whether to incur debt or not.
The cost of debt is not necessarily more expensive during a deflationary period.
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Originally Posted by chuck22b
I'm not placing "special" consideration during a recession, except that during a recession cost of debt is more expensive.
But the cost of debt is not always more expensive during a recession. Not all recessions involve liquidity crises, or financial crisis in general. Even today, money can be had on decent terms.
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Originally Posted by chuck22b
Please explain strategically using debt? and what are the conditions?
The conditions are making money. You should only take on debt if the benefit you receive from it is greater than the interest. This is more clear from a business point of view, but applies to personal finance too. For example, student loan debt makes sense if your increased earning power is enough to pay off the student loans within say 5 years or so. A mortgage makes sense if owning can save you money vs renting immediately or at least in the near future.
But even in the cases that can make sense, people often screw up by over extending it. They are not actually running the numbers. Not only that, they often use debt for things that don't benefit you financially at all.
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Originally Posted by chuck22b
In my perspective, I shun personal debt in a recession or an expansion. My personal debt strategy is to have No debt. My tactic, is to pay down debt in both a recession or an expansion. Why would I fall in love with debt in an expansion??
Why would you fall in love with debt in an expansion? I don't know why would you? What debt are you paying off now? When did you build that debt?
Agree 100% with you on that. Life is going to change dramatically and I don't think people realize that.
Yea, right in time with 2012....
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Originally Posted by supernerdgirl
when is all this "dramatic shift" going to happen? it seems like we've been talking about this for the last two years straight and my life isn't any different.
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