Debt theory and "maxed out"
I've not seen the movie "Maxed out" yet, but seems interesting, especially since the producer didn't expect a serious topic of human pain, just thought how foolish we are.
I thought of my own perspective on debt. There's one side of "perfection" where you "ought to" be able to save first and never go into debt. The idea of "paying interest" is a sort of "scam" where a person WITH money MAKES MORE by taking advantage of those who don't have enough. There's plenty of religious "opinions" on the morality lending money and charging interest.
And myself, being a lender, to my brother, I long ago learned it is useless to "pretend" I'm loaning money when I have no WILL to demand it back. Lenders automatically put themselves in a position of weakness if they have any compassion (or guilt) at all!
On the other side, I see there are expenses, like a HOME, which is NEEDED, and since you still have to live somewhere, is potentially worthy to borrow money to purchase. The "potential" is a tricky issue, based on how much rent costs, and whether the cost to own a home is managable.
At least "heartless" lenders can "take heart" in their long term investment, knowing they can foreclose and usually get their money back on a resale. ALTHOUGH being a 30-eyar fixed 5.2% mortgage lender seems risky if inflation hits, although I suppose at least all the early payments are interest.
Well on "debt theory" I'm more thinking in terms of "unsecured credit" - i.e. credit cards. The game has taken off incredibly well, and might seem to benefit everyone involved. People who need money now get it, and pay a hefty interest charge. You'd THINK that people who see the charge and pay it down, but even 20% is still a small monthly charge for a modest sum, so easy to get used to holding a balance for a while.
So I see the "theory" is on human nature to (1) Worry about new things abstractly (2) Get used to things that offer a small short term cost and a large short term benefit.
The difficulty with money is because it IS ABSTRACT, it has no natural limits or scales to measure. You can look at a tree or a mountain and say "Wow, that's big!", but what's big with money? Sure, there are "benchmarks" - like annual income. BUT what's the difference between owing a mortgage for 3 times your income versus owing credit card debt for 1 times your annual income? Which is bigger? Both are "damned" big, and certainly monthly minimum payments are a good standard. But again, if I have a 1 year income CC debt, and I charge more each month than the minimum payment, the balance goes UP. Comparatively mortgages always go down. So CC debt has a "freedom" that allows long term costs to pile up far longer than the borrower intended from the start.
I remember watching a program on debt, and one young woman said "I like to keep a savings" as a reason to hold CC debt. So she'd hold $5000 in savings, $10000 in CC debt, and feel secure because she can make the minimum payments. It was astounding to me since I like the savings idea, but don't get the "security" in paying high interest debt (say an extra $750/year). A rational person says that's dumb, but apparently there's unseen emotional security.
Since getting a mortgage I've had to question how much money to pay down the debt and how much savings to keep, and I admit having "cash" has some security, MORE since I can't borrow back against a mortgage, but when I can I do feel good to make extra payments, AND I can still get a home equity loan if I really had a reason.
I suppose the other side of the CC debt is there's no one standing over you shaking their head and telling you what you can't do - like would happen if you lost your job and tried to get a home equity loan. A CC company is happy if you want to live off of it for 6 months, job or not, as long as you can make the minimum payments.
Myself I know enough about my lack of discipline that probably I don't trust myself down the slippery slope of CC debt, even if I could ignore the interest, which I agree still seems small in the short term. I just don't know how to mentally budget my life when I have unlimited access to money. I'm afraid I could always justify "next month" I'll pay down the balance, and yet year after year keep increasing my balance. The credit card company OUGHT to say something like a good daddy, but they offer a different message - they RAISE your credit limit! Even if you don't have a job, as long as their measures look good - making your payments faithfully.
Speaking of "maxed out", the U.S. goverment raise its debt ceiling to $9T in March 2006, and looks like it'll be "maxed out" by mid-June 2007!
http://www.brillig.com/debt_clock
Government debt is completely opaque to understanding. $29k/American? Does that mean I can CUT MY INCOME TAXES by 20% if I "pay off" my $29k share? Nope. And good thing I have no kids!
Most annoying I see DEBT/GNP graphs showing the graph holding steady around 60% of GNP, it looks like smooth sailing!
http://en.wikipedia.org/wiki/United_States_public_debt
Well, I admit it is curious. What does it mean if GNP has increased at the same rate as the debt?
http://www.infoplease.com/ipa/A0104575.html
2000 2001 2002 2003 2004 2005
GNP $9,817 $10,100 $10,480 $10,987 $11,734 $12,487
Debt $5,674 $5,807 $6,228 $6,783 $7,379 $7,932
% 57.7% ............................. 63.5%
The GNP increased 27%, 4.9%/year.
The Debt increased 40%, 6.9%/year.
Anyway, the disturbing thing is that the government borrows from SS surpluses now, which will have to be repaid later. We are playing "credit card", making "minimum payments" each month and charging MORE.
Someday soon our "minimum payments" are going to grow and so we'll have even less to put towards the balance. We're going to have to keep borrowing more and more since taxpayers are permanently pissed now, so even reasonable tax increases are rejected.
And meanwhile pie-in-the-sky economics can pretend we can "grow" our way out of debt, somehow secretly allowing inflation to work its wonders. Who knows, I certainly accept lenders are crazy to think government bonds are a secure investment, unless indexed by inflation.
Anyway, I mainly wanted to paint some of the "emotional landscape" of debt and see what it looked like. The economy hasn't crashed yet, so our debt must not be too bad. That's the "empirical" way to test debt.
I don't trust it, but I have to live with this too. I just hope those foreign lenders "get smart" and stop increasing our credit limit! Please!
I thought of my own perspective on debt. There's one side of "perfection" where you "ought to" be able to save first and never go into debt. The idea of "paying interest" is a sort of "scam" where a person WITH money MAKES MORE by taking advantage of those who don't have enough. There's plenty of religious "opinions" on the morality lending money and charging interest.
And myself, being a lender, to my brother, I long ago learned it is useless to "pretend" I'm loaning money when I have no WILL to demand it back. Lenders automatically put themselves in a position of weakness if they have any compassion (or guilt) at all!
On the other side, I see there are expenses, like a HOME, which is NEEDED, and since you still have to live somewhere, is potentially worthy to borrow money to purchase. The "potential" is a tricky issue, based on how much rent costs, and whether the cost to own a home is managable.
At least "heartless" lenders can "take heart" in their long term investment, knowing they can foreclose and usually get their money back on a resale. ALTHOUGH being a 30-eyar fixed 5.2% mortgage lender seems risky if inflation hits, although I suppose at least all the early payments are interest.
Well on "debt theory" I'm more thinking in terms of "unsecured credit" - i.e. credit cards. The game has taken off incredibly well, and might seem to benefit everyone involved. People who need money now get it, and pay a hefty interest charge. You'd THINK that people who see the charge and pay it down, but even 20% is still a small monthly charge for a modest sum, so easy to get used to holding a balance for a while.
So I see the "theory" is on human nature to (1) Worry about new things abstractly (2) Get used to things that offer a small short term cost and a large short term benefit.
The difficulty with money is because it IS ABSTRACT, it has no natural limits or scales to measure. You can look at a tree or a mountain and say "Wow, that's big!", but what's big with money? Sure, there are "benchmarks" - like annual income. BUT what's the difference between owing a mortgage for 3 times your income versus owing credit card debt for 1 times your annual income? Which is bigger? Both are "damned" big, and certainly monthly minimum payments are a good standard. But again, if I have a 1 year income CC debt, and I charge more each month than the minimum payment, the balance goes UP. Comparatively mortgages always go down. So CC debt has a "freedom" that allows long term costs to pile up far longer than the borrower intended from the start.
I remember watching a program on debt, and one young woman said "I like to keep a savings" as a reason to hold CC debt. So she'd hold $5000 in savings, $10000 in CC debt, and feel secure because she can make the minimum payments. It was astounding to me since I like the savings idea, but don't get the "security" in paying high interest debt (say an extra $750/year). A rational person says that's dumb, but apparently there's unseen emotional security.
Since getting a mortgage I've had to question how much money to pay down the debt and how much savings to keep, and I admit having "cash" has some security, MORE since I can't borrow back against a mortgage, but when I can I do feel good to make extra payments, AND I can still get a home equity loan if I really had a reason.
I suppose the other side of the CC debt is there's no one standing over you shaking their head and telling you what you can't do - like would happen if you lost your job and tried to get a home equity loan. A CC company is happy if you want to live off of it for 6 months, job or not, as long as you can make the minimum payments.
Myself I know enough about my lack of discipline that probably I don't trust myself down the slippery slope of CC debt, even if I could ignore the interest, which I agree still seems small in the short term. I just don't know how to mentally budget my life when I have unlimited access to money. I'm afraid I could always justify "next month" I'll pay down the balance, and yet year after year keep increasing my balance. The credit card company OUGHT to say something like a good daddy, but they offer a different message - they RAISE your credit limit! Even if you don't have a job, as long as their measures look good - making your payments faithfully.
Speaking of "maxed out", the U.S. goverment raise its debt ceiling to $9T in March 2006, and looks like it'll be "maxed out" by mid-June 2007!
http://www.brillig.com/debt_clock
Government debt is completely opaque to understanding. $29k/American? Does that mean I can CUT MY INCOME TAXES by 20% if I "pay off" my $29k share? Nope. And good thing I have no kids!
Most annoying I see DEBT/GNP graphs showing the graph holding steady around 60% of GNP, it looks like smooth sailing!
http://en.wikipedia.org/wiki/United_States_public_debt
Well, I admit it is curious. What does it mean if GNP has increased at the same rate as the debt?
http://www.infoplease.com/ipa/A0104575.html
2000 2001 2002 2003 2004 2005
GNP $9,817 $10,100 $10,480 $10,987 $11,734 $12,487
Debt $5,674 $5,807 $6,228 $6,783 $7,379 $7,932
% 57.7% ............................. 63.5%
The GNP increased 27%, 4.9%/year.
The Debt increased 40%, 6.9%/year.
Anyway, the disturbing thing is that the government borrows from SS surpluses now, which will have to be repaid later. We are playing "credit card", making "minimum payments" each month and charging MORE.
Someday soon our "minimum payments" are going to grow and so we'll have even less to put towards the balance. We're going to have to keep borrowing more and more since taxpayers are permanently pissed now, so even reasonable tax increases are rejected.
And meanwhile pie-in-the-sky economics can pretend we can "grow" our way out of debt, somehow secretly allowing inflation to work its wonders. Who knows, I certainly accept lenders are crazy to think government bonds are a secure investment, unless indexed by inflation.
Anyway, I mainly wanted to paint some of the "emotional landscape" of debt and see what it looked like. The economy hasn't crashed yet, so our debt must not be too bad. That's the "empirical" way to test debt.
I don't trust it, but I have to live with this too. I just hope those foreign lenders "get smart" and stop increasing our credit limit! Please!
posted by Ares Olympus at 9:25 PM
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