Author Topic: Does general society being massively in debt make things better for mustachians?  (Read 2825 times)

strider3700

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The news was reporting that households in my province now have an average of $39,000 in consumer debt(everything but mortgages)  which is up $14,000 from last summer.   When you take mortgages into account people owe a hell of a lot more but theoretically mortgage debt is ok in the governments books.  They are however worried about this consumer debt.   

My household has 0 consumer debt, a within control but not small mortgage and we're now accumulating cash.   That means someone out there owe's $78,000 in consumer debt just to balance me out.

I'm wondering if everyone else being in worse financial shape then I am is likely to become an advantage?   My thought is people could be forced to cut back radically and that will lower demand decreasing prices.  I'm just not sure if this is how things actually go when the general public owes way to much money.   Am I going to be able to buy investments at firesale prices?  I know the realestate market crashed in the US and made for great bargain shopping but things are different in Canada.   You can't walk away from your mortgage so walking away from your house is far less likely.   Even if housing did plummet in value I don't foresee it as an investment of choice but never say never.


plantingourpennies

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From an investment point of view, when any asset market (stocks, bonds, RE, small businesses) is full of non-mustachians doing silly things with leverage (debt) and driving up prices we're at a disadvantage because we can't put our capital to good use. When the bubble bursts, there are big opportunities for those with cash and knowledge.

From a societal point of view, massive consumer debt makes me worry about what sort of future we're leaving for the next generation.

Interesting about Canada-is mortgage debt literally a "death-pledge" that can only be discharged on upon payment? Nobody was walking way from RE here either until they realized how bad the situation was-it made more sense for them to take the credit hit than to continue the payments. Even if a person cannot walk away, I assume the bank takes it back at some point if they don't continue paying.

If you think a bubble is coming, start saving and educating yourself. The bust was very good to me and my family because our debt structure was low, even though we didn't see the bubble, or understand that it would burst.

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Mr. Pop
PlantingOurPennies- Our experience with personal finance.

strider3700

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My understanding is if you give they keys to your house back to the bank,  they will take the property and sell it for as much as possible.  After it sells they'll take the money and apply it against your mortgage.  If you don't cover the mortgage you get to make payments on the remainder to the bank.   I used to work with a guy that told me this happened to him.   The job market dried up, he went to the bank and told them he was moving out of town to find work and can't make the payments on the condo. They took it back sold it almost 2 years later for less then he owed and he made payments for 5 years on the remaining amount which was something like $30,000

I don't know if declaring bankruptcy gets rid of that debt or not.

iamlindoro

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It depends on the state.  If your state is a "no recourse" state (like California and North Carolina), then generally speaking they can't come after you for the remainder of the debt under most circumstances.  You take the credit hit (and it's a big hit), but that's it.  In those states, it can make strategic default very appealing for those deep under water.

chucklesmcgee

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I do a lot of microlending on Prosper.com, so it's just fantastic when other people want to buy stuff they can't afford. You want a motorcycle? A vacation? Consolidate all your other debt? At 26% interest? Sure, here you go! :-)

There's a smug sense of satisfaction I get climbing up the financial food chain when you go from being owned to owning others. It's great when people are massively in debt, so long as they're massively in debt to me.

Khao

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There's a smug sense of satisfaction I get climbing up the financial food chain when you go from being owned to owning others. It's great when people are massively in debt, so long as they're massively in debt to me.

That's sick and twisted, but I love it! You sound like a crooked financial advisor. I just wish I could do the same in Canada :( No love for P2P lending here

Matte

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I wish Canada had that p2p lending! I think the consumer debt is bad because it inflates prices.  Especially stuff like anything house or car related or services, without cheap credit I think mechanics, building contractors and others would be on way thinner margins. 

okits

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There's a smug sense of satisfaction I get climbing up the financial food chain when you go from being owned to owning others. It's great when people are massively in debt, so long as they're massively in debt to me.

That's sick and twisted, but I love it!

Yeah, sorta feel the same way.  :)

If the massive indebtedness contributes to more violent economic cycles (bigger bubbles, bigger crashes) I'm on the side favoring more stability.  Sure, playing the cycle can be profitable, but the economic gyrations are stressful and the uncertainty is just that: uncertainty.  Plus, with bigger crashes I think there's more human misery (people who don't know how to manage their finances and end up with their asses out on the street when they lose their jobs.  Some of them will have kids, and it's definitely not the kids' fault.)

That being said, money in the bank means freedom and choice, so if everyone had equivalent freedom and choice, would the value of yours as a Mustachian decrease (is the value of this relative?)  Too late for me to really picture it in my head, I'm just wondering if the real value of FU money is when the people around you don't have any.

igthebold

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Insofar as being massively in debt creates an unstable risk-intolerant society, I'd say no. However, there are benefits to being able to move more nimbly than others.

Jamesqf

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I don't think it makes things better overall, any more than my enjoyment of my own health is increased when everyone else is sick.

plantingourpennies

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There's a smug sense of satisfaction I get climbing up the financial food chain when you go from being owned to owning others. It's great when people are massively in debt, so long as they're massively in debt to me.

That's sick and twisted, but I love it! You sound like a crooked financial advisor. I just wish I could do the same in Canada :( No love for P2P lending here

I would rather try to educate somebody about their habits than enjoy taking advantage of their ignorance. The idea of having "smug satisifaction...from...owning others" makes me queasy. That others are publicly clambering to do the same doesn't help.

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Mr. PoP
PlantingOurPennies- Our experience with personal finance.

KingCoin

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The other major problem is that, when the bubble pops, the government often rides to the rescue. This will usually come in the form of tax financed bailouts/relief, easy money/low interest rates, or inflation.  These options effectively transfer wealth from lenders and asset holders to debtors (true of taxes, inflation) or reduce favorable investment opportunities (think negative real interest rates and an artificially propped up housing market).

chucklesmcgee

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There's a smug sense of satisfaction I get climbing up the financial food chain when you go from being owned to owning others. It's great when people are massively in debt, so long as they're massively in debt to me.


I would rather try to educate somebody about their habits than enjoy taking advantage of their ignorance. The idea of having "smug satisifaction...from...owning others" makes me queasy. That others are publicly clambering to do the same doesn't help.

Best,
Mr. PoP

Well, I do both, giving out financial advice here and elsewhere to those who ask and listen, and giving out loans to people who don't. :-) One's free and the other's not. And hey, it's a free country. If they didn't want to borrow from me they don't have to. And if I wasn't lending they'd have to go somewhere else with a higher interest rate.

marty998

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If everyone was mustachian the value of goods & services would adjust. Since everyone has buckets of cash stored away the market will adjust prices of goods and services accordingly. (you can afford to pay more, so I'm going to charge you more)

The other major problem is that, when the bubble pops, the government often rides to the rescue. This will usually come in the form of tax financed bailouts/relief, easy money/low interest rates, or inflation.  These options effectively transfer wealth from lenders and asset holders to debtors (true of taxes, inflation) or reduce favorable investment opportunities (think negative real interest rates and an artificially propped up housing market).

Hit the nail on the head - that is how mustachians suffer - their capital base gets eroded. Those loose with the pursestrings benefit at our expense.
« Last Edit: November 26, 2012, 12:30:12 AM by marty998 »

strider3700

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I thought the depression came about when people basically saved all of their money rather then spend it because they were never sure they would be able to make more.  Since noone was spending prices dropped which meant merchants cut back and people lost their jobs as well manufacturers reduced output so more people were out of work and not wanting to spend their money unless necessary, rinse repeat...

This is why when the economy goes into recession governments start spending like it's going out of style  basically to convince everyone that things are all good and go ahead and spent because you can make more next week.

C40

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It certainly helps some of us directly (those investing in REITs or P2P loans) but hurts in other ways (inflated prices)

Another aspect of our (U.S.) society that helps us is the massive amount of perfectly good stuff that so many people buy and then get rid of before it is worn out. There is a huge network of thrift stores where you can buy all kinds of things at huge discounts. We have Craigslist, EBay, and Freecycle. Some of the more adventurous can get nearly all of their food from dumpsters behind Trader Joes or Whole foods stores. These opportunities don't exist in places like South America, Africa, or parts of Eastern Europe and Asia.

tooqk4u22

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If everyone was mustachian the value of goods & services would adjust. Since everyone has buckets of cash stored away the market will adjust prices of goods and services accordingly. (you can afford to pay more, so I'm going to charge you more)

You have the laws of supply and demand backwards.  When people are saving all their money and not buying goods and services then demand is low and prices fall until such time that an equilibrium is achieved again. It doesn't matter if everybody has more money if nobody is spending it.

The other major problem is that, when the bubble pops, the government often rides to the rescue. This will usually come in the form of tax financed bailouts/relief, easy money/low interest rates, or inflation.  These options effectively transfer wealth from lenders and asset holders to debtors (true of taxes, inflation) or reduce favorable investment opportunities (think negative real interest rates and an artificially propped up housing market).

Hit the nail on the head - that is how mustachians suffer - their capital base gets eroded. Those loose with the pursestrings benefit at our expense.

+1 on this.  This is what happened with the housing market...people who put saved after-tax dollars, put up a down payment, and paid their bills had their wealth transferred to those who put nothing down, cashed out equity, and bought cars and electronics and trips, alll of it tax free. 




« Last Edit: November 28, 2012, 10:08:17 AM by tooqk4u22 »

fubared

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I live in Vancouver and the majority of my friends have crippling debt loads. Mortgages, student loans, car loans, LoC and credit cards. They all have nicer stuff but I enjoy my freedom. Debt is the way of life here and encouraged by some of their parents. I just hope that with mortgage lending tightening there will be a lot more affordable RE. I believe the flexibility of not having a debt load is priceless and will help us take advantage of a lot of opportunities while everyone else goes bankrupt or tries to pay off their debt.