So the truth is consumers are NOT paying down their debts. They are defaulting on their debts. Every G*& D*mn pop up ad I see is either telling people how to lose 50 pounds or how to get of debt. WTF??!!
How much debt is acceptable? For the VAST majority of consumers the answer is:
Damn Near Zero.
Think about it: If one is saving for a rainy day, retirement, financial security... and one is an Average Joe (like me) - what are the circumstances in which debt of any sort is acceptable?
Let's start with:
Student Loan Debt - UNACCEPTABLE (unless it is for an advanced degree in a profession where the advanced degree IS THE BARRIER TO ENTRY - surgeons, lawyers, engineers in certain fields come to mind... women's studies? African American Studies? Not so much). If you have folks with money, good for you... If not, go to state schools, work, beg, borrow, or steal... but do not go into debt for an undergrad degree.
Car Loan Debt - UNACCEPTABLE. Buy used, small, and cheap... and take a loan if you have to - then work 3 jobs until you pay it of. Don't know how to change oil or spark plugs? Or change a flat? You have NO BUSINESS owning a car. Live near work, rent cars when needed - commuting is for suckers.
Mortgage Debt - In a world with declining real estate? HAHAHAHAHAHAHAHAHA! HEHEHEHEHEHE!! HOHOHOHOHOHOHOHOHO!! Coach surf, live with parents, friends, rent a basement apartment.
Credit Card Debt - For What? Lunch Out? Those cute little shoes? Songs for your I-pod? You bought an I-Pod?? WTF FOR??!! If you are in debt, you don't need to be entertained; you need more income, and you will be plenty entertained juggling those 3 jobs. There are plenty of jobs to be had - they just aren't full time, no one wants to pay the healthcare bill for overweight Americans, and even fewer are interested in having to fund your retirement when you claim disability. I had a part time job doing fencing at my farm this summer, and I had the darnedest time getting anybody to show up for work paying $15 per hour. When I told the first guy that his cell phone and texting had to go (I was holding 70 lbs of barbed wire while he made his evening plans) he didn't show up the next day. He texted me to leave his pay in my mail box so he could pick it up, I presumed at a time that would not inconvenience his social plans...
Times ARE tough. Want to get ahead? Live small, stay clear of debt, hustle like crazy.
There was a sign in my boss' office at Bear Stearns that went something like this:
“Every morning in Africa, a Gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a Lion wakes up. It knows it must outrun the slowest Gazelle or it will starve to death. It doesn't matter whether you are a Lion or a Gazelle... when the sun comes up, you'd better be running.” - Unknown
American's have forgotten the lost of art of getting up early, hustling all day, being humble, and packing a lunch. Its time to get back to basics. Blocking and tackling.
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24 comments:
In academic circles, the saying is "Publish or perish."
Today, I suspect that an appropriate saying for Americans in general is "Produce or perish."
Interesting to note that American Student loan debt has now surpassed credit card debt.
http://www.finaid.org/loans/studentloandebtclock.phtml
As for me being totally out of debt is the one advantage I do have.
I think you are going overboard the other way again. There is several means of acceptable debt. Not everyone lands on Plymouth Rock with a gazillion dollars to spend. Some debt (educational, house) is more acceptable than others (credit card, boat, vacation).
The last 30 years has been just a case of people borrowing WAY more than they could afford to pay back (lets leave the lack of real jobs out of the discussion for a minute). It is the job of the bankers to determine how much money a person can legitimately borrow. And don't tell me the nonsense going on on Wall Street and amongst the wealthy of this country didn't have a thing to do with the orgy of debt offered to the public, designed to push millions into debt servitude, which was just fine with some people of the moneyed class.
I have borrowed a lot to rebuild my 100 year old house ($100,000). I didn't have to borrow for college, but I would have (looking back). I've tried not to borrow for ritzy vacations, new clothes, new cars, granite countertops, or any other "wants." Buying a used car is NO GUARANTEE you wont spend thousands of dollars repairing the damn thing. I've spent $7,000 over 7 years keeping a 1992 Buick running.
There is nothing wrong with loaning money nor borrowing money. You just have to know when to stop. And the special people loaning their money need to not get bailed out by their buddies in Congress.
Sorry I missed any presentations you made at the World Oil Conference, westerntexas. I was in the hospital with a subdural hematoma in the spine. :)
Here are my thoughts at the moment. Everyone tells me that deflation is the wave and they point to this or that data point, but I don't think they have went shopping in like 2 yrs. My daughter is almost 18 months and I was buying clothes at Kohl’s (not a high end retailer at all) and pants for 2t were 20$ a pair. It is like this everywhere for every Item except homes.
So here is my supposition: we will go into a high inflation environment. I say this because the debt you are talking about will never be paid back, in turn not really lowering the buying power of consumers because they repudiate debt by bankruptcy or just not paying it and spending money on other things. I know 5 people close to me in bankruptcy or just out. Their buying power is not lower, but higher. They might not buy a new car, even though one just bought a brand new 45,000 truck, but they will buy millions of other small items. I think we are seeing the first wave of inflation soon, well maybe! As Jeffers says you can’t fight the trend.
Jeffers, I love that quote
Bur:
Blocking and tackling... you do your thing, I'll do mine... I can only speak from my own experience... If you save 20 to 25% of your income, in 25 years you will have one hell of a lot of money, and it will be all you need to fund the rest of your life precisely because by doing so you have learned to live small - and experience large. If you are really paying attention, you will come out of it in good shape, too... because that's all it is... just paying attention to your life...
MIght I also suggest emphasizing your love life... the French have a great saying:
"Life is half over before we even know what it is..."
Enjoy! Because:
"We are not here for a long time... we're her for a good time". Kurt Cobain (Normally I would not quote a young suicide... but I like the line... dopey bastard... he must of missed the memo....)
Dex:
Witnessing increases in prices in such things as: tuition, taxes, fines, certain food products, textbooks, health care co-pays, etc., I know drives the public nuts with visions of inflation. However, these are PENNIES we are talking about.
The big dollar items: houses, commercial property, autos, certain energy products (natural gas, & oil at times) are dropping in price and are the DOLLARS we are talking about. Because they hugely overwhelm the little things listed above in overall dollars, we are in deflation and will be for awhile. There is no inflation in the total numbers.
It's just a question of looking at the bigger picture. It's not easy to do, though. Tell an older person they dont need a social security increase while lots of prices in their lives are rising.
My parents are "silent generation" (born between 1930-45.). They witnessed the destruction of the adults around them because of the Depression. They have been rabid about avoiding debt, and while we had a nice childhood, we had no airline vacations, no pool, no nice cars, no cable, no room additions. We kids didnt know the difference, but they could have borrowed a little to improve our lives from time to time, instead of relying on baling wire to fix the refrigerator every year. ;)
Dex,
If and when they don't pay back that debt, that's $$$ that's destroyed. If a bank holds the mortgage (if banks still hold such things), the bank is out of $$ and out of luck (and maybe depositors too, depending on the FDIC, etc.) If a pension fund or somebody else holds the mortgage, they're out of that $$$ too. Sooner or later, all those destroyed dollars might add up.
The "little" things like groceries and other consumables are inflating, while the big ticket stuff is deflating. I guess it depends on which one you, I, and the overall economy weigh more.
On your lions and gazelles. The gazelles don't have to run faster than the lions. They just have to run faster than the slowest gazelles.
That called gaming the system and is American as apple pie.
It's Grifter Nation. Ain't never been anything else despite the countless ways we BS ourselves.
Just Another Grifter
Bur,
Looking at your 3:07PM admonishment to go into debt for housing and your 8:17PM statement that housing is dropping like a rock I have to wonder; are you trying to sell your house? Or, perhaps you have been listening to Lloyd Blankfein and drinking the cool-aid.
Last week I asked what happens after our real estate financing and ownership accounting system fails. Here's one guy's answer:
The Coming Collapse of the Real Estate Market Charles Hugh Smith (October 14, 2010)
"The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse."
"The real estate market will collapse as the imbalance of buyers and sellers swings to extremes. Buyers vanish as trust in the institutions of real estate finance and property rights has collapsed, and millions of distressed/defaulted mortgages don't get paid. Underwater sellers have a stark choice: either dump the house for cash (assuming the bank allows a short-sale and eats a massive loss) or stop paying the mortgage and see what happens."
http://www.oftwominds.com/blogoct10/foreclosure-collapse10-10.html?source=patrick.net
Dan,
With the large inventory of houses on the market now, and the continuation of houses being added in the near future, I've told my brother and his lovely wife to wait as long as possible to buy a house. And when they can't wait anymore, to borrow the money to buy a decent house for themselves ... not as an investment, but as a house. You can't wait forever, but most can wait awhile.
Two comments:
Debt is for investment, not consuming. Buying a kit of tools on your credit card is ok if it enables you to get a job. Car finance is OK for that van to get you to work, especially if its a signwritten advert for your new business too. On a bigger scale, importing oil to invest in infrastructure which generates more wealth (like China is doing) is ok too. The problem comes when you borrow to maintain a lifestyle.
Secondly a housing collapse is a great thing for real people, because housing at 10 times gross income is unaffordable. Housing should average 3 - 4 times median income, and rents should be 5% or 6% of value for a stable market to exist longterm. Loans should be no more than 80% of value (20% deposit, which is the Law in France, for example)and over no more than 25 years. Then one person (or a family) can work and afford to own or rent a decent home. High real estate prices and high development land prices are a bank and government ripoff, a back-door tax to transfer wealth from the average family to the financial services industry.
90% of homeowners are staying in their homes. Although I see that the general point that houses for sale are going down in value, Cars are not cheaper, gas is not cheaper, food is not cheaper, clothes are not cheaper, etc. These same tradable items would be the most likely to see the inflation would they not? Most are made overseas and would reflect exchange rates. I don't know why housing would be that important in that sense. Although I see what Steven B is saying, that is real money that those people can spend on Items besides housing. So maybe housing stagnants forever, if everything else doubles in price then for most people the effects are that they already own a home and every other item has went up in price (inflation). Plus the banks are not being allowed to fail. THe government loans money to them to buy bonds and they are living on the difference between. My point being that they are not letting any money out of the system. We might see the results of that soon. Have you seen oil, silver, gold, food and energy prices in general, Scary. What happerns if we see just a slight pickup in the velocity of money?
Dex:
It seems that these things are getting more expensive to you because... you are so YOUNG! (you lucky b*st*rd!). To folks my age, compared to prices 25 to 30 years ago... well, I can't believe how cheap things are! Are they as cheap as they were a few years ago... don't know... but compared to when I was a teenager or in my 20's../ Oh... My... Word.... things are very inexpensive.
Jeffers,
I Suppose this could be true. haha
I do remember 97cent gasoline when I was in High School ;)
Dex,
I agree. While we are in an economic collapse, the government spends and the FED prints money. Hell, they have bought MBSs at face value full knowing they are worth pennies on the dollar. That is how they create money without lending it. They buy securities that they know will NEVER pay off. While asset values are stagnant to falling, commodities are rising because of the loose cash floating around. The dollar is losing value in relation to foreign currencies and commodities are rising, especially oil. The cost of oil affects prices throughout the economy. This reduces discretionary income all around. We are becoming poorer by the day, and it is not about to stop. We are having price inflation. There will be no wage inflation while 16% of the workforce is unemployed. There will be no asset inflation either, until the foreclosure backlogs are cleared. Forget it.
So, asset values remain relatively constant when measured in ever-shrinking dollars. Everything else goes up. The rise in the stock market on the EXPECTATION of QE2 is a very bad sign.
Regards,
Coal Guy
Cars (new and used) are indeed cheaper, and houses and property are indeed cheaper, as nat gas is cheaper (oil products WERE cheaper) if only because we are awash (overflowing) in all of those things.
We overproduced in 2004-2006, when everyone thought the credit would never end. It is simple economimcs. Too much supply with less demand (from debt overhang) equals lower prices. And if the advertised price of things seems higher, there is a whole cadre of people now circling the country lowballing bids for everything, especially houses. Some people think they can get themselves a near-free house! It is all for sale.
There are no buyers, but businesses need SOME money to come in to pay their fixed costs. Merchants will sell even at a loss.
Further, inflation is not prices but money supply, and $20 trillion in credit has been removed from the U.S. system since 2007. You just can't increase prices on the major items of this economy in these circumstances. Your business will die.
A handy little website to watch commodities -- some go up and some come down ....
http://money.cnn.com/data/commodities/
Bur,
Do you have a chart showing average retail price of cars. I have seen nothing to suggest what you are asserting about car prices. THe one caveat to that is that for a 6 month period before bailouts cars were going cheap, not now though. The same truck I bought 8 yrs ago for 26000 is now based at 42,000.00. Even with a discount, rebate ect. it still prices out in the mid 30's. I have seen it with my eyes, which I trust more than anyones opinion. Plus even if the chart showed average price it would need to compare cars only in the same segment. People have switched to smaller cars, but that does not mean that the average price for similar cars has went down, just the average price for all sales. Going from steak to ground beef is not a fair comparison. The way I see it is that the only asset not inflating is housing and commercial property.
The last graph I saw on today's cost of a new car showed a flat line/slight rise in overall cost, but that was also at a time when the number of vehicles sold in the U.S. fell from 17 million units in 2003 to 10 million units today. So, if there was some "price support" just from the lack of new cars available, I'd not argue with that. But, new cars and used cars do provide the same function -- they both get you to the supermarket the same way. I'll have to look for charts on the availability of used cars these days (cash for clunkers took a few off the road), but many gas stations in Chicago have a used car sitting for sale -- sometimes more than one. Lots of overcapacity out there. I need a graph of overall used car prices today as well ...
On the auto price conundrum, look no further than Ben Bernanke:
Quote "The Federal Reserve Board on Thursday announced that the set of eligible collateral for loans extended by the Term Asset-Backed Securities Loan Facility (TALF) is being expanded to include four additional categories of asset-backed securities (ABS):
•ABS backed by mortgage servicing advances
•ABS backed by loans or leases relating to business equipment
•ABS backed by leases of vehicle fleets
•ABS backed by floorplan loans" end quote
N.B. A floorplan is inventory financing for auto dealerships, I reconciled a few of those back in the day. As long as big Ben can keep bending us over to save us from ourselves, nothing much is going to make sense.
When I needed to replace my wife’s Sedan Deville a few months ago, I punted and bought a 2001 Chevy Malibu with 84K miles for $2k, then spent a couple hundred on a tune up, tires, brake pads, etc. and it runs good as new. Actually I should say 3K because the misses was so happy she took my 2002 Caravan, told me I could drive the POS, stick it where the sun don’t shine, or whatever else I wanted to do with it besides try to get her to drive it. Then blew $1K at the spa, salon, and shoe store to assuage the indignity, but I digress. Don’t know what I’ll get out of the Malibu but my Caravan has 245K miles and is going strong. If you do basic preventive maintenance on your vehicle it will probably last longer than Bernanke can keep this up; then you can pick one up at the true cost when the market clears.
Same goes for housing. I remember the 80’s oil bust when these houses that are currently going for $150K cleared the market for $10K + or – $2K, and that time the very idea of property rights wasn’t even under assault.
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