We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
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Sunday, November 27. 2011
How much do people love credit?
Politicians love it, because they can pay for votes today, and the next generation can worry about it after they have retired. I can buy a boat today, and hope I keep my job so I can pay it off over the next five years. Or I could buy a tiny 1 BR condo in NY, and pay if off over 15 years while taking an interest deduction from my crippling federal, state, and city income taxes. Businesses need it, in fact, require it, for investment purposes, in the hopes that they can grow. Banks love it, because they can lend the money and profit from the interest. Students love it: they can go to school now, and hope to pay off their loans in the future. Christmas shoppers love it, of course, because Santa is credit.
In the end, using credit makes people, and governments, debt slaves, slaves to bond markets and slaves to banks who offered the loans. This is annoying to debtors, who have already enjoyed spending the money and are peeved, if not in trouble, because they owe it. The bond market now controls the global economy, not because "it" wants to, but because of governments and people willingly, freely, democratically, taking on debt to pay the bills instead of taxing the heck out of the people who work. Borrowing is all voluntary, the loans are from one's neighbors, - and it is a big house of cards.
I was raised by parents who refused to ever go into debt. They viewed it as a temptation for the weak. They never even had a credit card. They saved for 15 years to buy a modest house, and never viewed it as an investment. They made it home, and live there now while the trees they had planted become enormous, dwarfing their home. They have hardly ever gone anywhere, or had much fun or adventure as I think of it, but they love their church and their little town where everybody knows them. A simple life. In my adult life, I have learned to take out loans for no reason, and to pay them back after a few months, just to have a good credit rating. A good credit rating, today, is like a grade in reality living. Someday, I might want to use some credit, but today I do not. I use credit cards as if cash, to keep my rating perfect.
I might need a loan, someday.
Easy money is dangerous. Living within your means, whether as a family or as a government, is just no darn fun. There's always a good excuse or rationale for taking on more debt. I fear that the world will soon see the economic consequences of excessive debt in which everybody has borrowed from his neighbor, and his neighbor from him. A bank, after all, contains nothing but one's neighbor's money, leveraged.
"I'll gladly pay you Tuesday for a hamburger today":
Back in Black
Our national fascination with holiday shopping is once again at 'all in' mode. Black Friday has passed, Cyber Monday is upon us. Cyber Monday was originally a fictional concept, with online retailers suggesting for years that the Monday after
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Love the old Popeye cartoons from the 30s. They couldn't be made today.
That's my idea of opera. And in 6 minutes and 44 seconds, including the overture.
A good credit rating, today...
Requires a record of borrowing. Last time I went in for a mortgage I didn't have much of a credit rating because I seldom borrowed money.
Most do not understand the gift of inflation our government has given us. Inflation is nothing more than the devaluing of our dollar. But, it can work for you like this:
You buy a house with a 30 year morgage. Fixed rate. But, by the time you get to the payments in years 15-30, the value of the dollar is less, so you are paying back the loan with devalued dollars.
Works like this: You buy a house today for $150,000. Payment is $1,000.
In 15-20 years, the house is worth $200,000-250,000. Any your $1,000 payment is not so much of a struggle anymore because you make 3X as much money per year. Inflation.
IN this case, you would not be very smart to never borrow money, because you are paying the man back with cheaper dollars than when you bot the house.
I know that right now, with the economy in flux, this example does not seem fit, but, historically, it has been a mistake to not borrow for long term perchaces.
"I was raised by parents who refused to ever go into debt. They viewed it as a temptation for the weak."
So you are saying they never had a mortgage to purchase a home but paid cash? Or maybe they always rented? Few people are rich enough that they can buy a house by paying cash in full. And those who are very rich probably want just a bit more house than is within their current means so they, too, buy on credit just like ordinary folks.
It often makes sense for a government to buy on credit by issuing bonds. The city of Harrisburg, PA, to the contrary, if a local government wants to build a trash-to-energy power plant, it makes sense for it to issue bonds to raise the required capital. That way, the time period of the financing matches the service life of the facility, and those who receive the benefits are the ones who pay the cost. If the construction costs were instead paid up front in cash, the costs would be borne entirely by those who were taxpayers prior to construction while all the benefits would accrue to those who became (or were) residents after the construction. That hardly seems fair to me.
Sorry, I did miss the point where you say that your parents saved up until they had the cash to buy a home. Well, all I can say is, to each his own. For them, things turned out alright.
I don't know, Agent Cooper. It doesn't strike me as unfair for one generation to bear the cost of something that will benefit the next two or three. I'm at least as worried about the flip side of the unfairness, where one generation makes the decision what to build, expecting the next generation to pay for it without their even having any input.
I dearly love Credit Cards as opposed to Debit Cards. I pay off the full balance when due. I get Points (Whatever they are). I pay no interest. I use OP money. What could go rong....
I haven't met many people who've paid cash for a house. For that matter, I haven't met many whose parents have done that. I used to work for a guy in Tucson who always paid cash for his new cars - and that's rare enough these days.
You're wise to mind your credit rating. We do that in our household: everything is charged and the cards & accounts are paid in full every month. When we want credit, we have no problem getting it. You can maintain both good financial discipline and financial flexibility that way. Regrettably, too many overlook the 'discipline' part of that approach.
A good credit rating tells the world you get the 'discipline' part, independent of income. I once had a Muslim professor at a local university apply to rent one of my houses. He resented having to fill out the background check/credit application we required. He was saving to pay cash for a house, he told me, and he didn't believe in credit - it was usury in his view.
I admired his cash-on-the-barrelhead attitude, but I wasn't going to turn my property over to him for a year unless he was willing to pay a year's rent in advance. Otherwise, I'd have been advancing him credit, since I didn't know him or his reputation. (And turning away others with verifiable credit in order to take a chance on him.)
He didn't think much of my plan. I don't think he understood the value of a credit-worthy reputation.
We always pay cash for our cars, and pay off our credit cards each month. We did buy our first house with a 15-year mortgage, but we paid it off early and have paid cash since then. It's not that eccentric, or that difficult.
It's not that it's more moral to do it our way, it's just that it's kept us out of a lot of the trouble that many people are facing today. We debt-averse types sometimes get tired of hearing how inevitable debt is. It's really not.
Seems to me nothing fundamentally wrong with credit, when used prudently and wisely. After all, its been around since the first appearance of 'money', I'm guessing. Or even before.
Bothers me when those of us who usefully and cautiously partake of it are made to seem less morally worthy than others who decline its favors. Kinda 'Pilgrimish' if you ask me.
I'm with your parents. The only reason I took out a mortgage to buy a home was because the rent payments were becoming higher than the mortgage payments were going to be.
Other than that, I try to stay out of debt, and except for once in a blue monday going in the red on my bank account for a few days at the end of the month (usually when there's a big unscheduled expense, or when my salary is delayed by something) I have managed to do so for the last decade (in 2001/2 it was a different story, when I ended up in a bankruptcy of my employer, ended up without any income whatsoever for half a year (and even then I managed to reduce the damage through help from friends and family to only a few thousand Euro, long since payed off).
I have a credit card, but don't use it as such. The full balance is payed off every month, it's used exclusively for purchases where cash or bank transfer is not an option (like webshops).
Most people in Europe at least try to live like that, and our banks would never allow us to indebt ourselves to anywhere near the degree that's so common in the USA. They (and creditors) would start legal proceedings to take posession of our homes, goods, and salary long before our debt situation got bad, would block our credit cards (in fact it's pretty much impossible to even get more than one here).
I used to have a ton of credit cards. It was a mess, too much paper. When I cancelled over half of them, turned out my cancellations damaged my credit rating.
in this country credit rating as such doesn't exist.
What does exist is a central repository of ALL debtors and their payment histories.
So everyone has a debit history rather than a credit history.
Banks and other lendors (including credit card companies) can and do check that registry. If you have too much outstanding debt, or have a history of not paying in a timely fashion, you're denied any more loans.
Of course there are unscrupulous creditors who'll hand out loans without checks, but most of those are operating on the fringes of the law (at the best of times), don't expect a lawyer or repo man if you don't pay, rather expect a bunch of guys to "teach you a lesson".
There are a lot more of grasshoppers than ants, and they can always vote to tax away the accumulated wealth of the ants.
Ain't democracy grand.
"Living within your means, whether as a family or as a government, is just no darn fun"
Living within my means (and debt free) is great. I make my decisions on what is best for me and mine not what my employer wants.
It is the getting out of debt that sucks. I paid the price for many years of over spending in the previous ones. The country (and me once more) will feel the pain.