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A Lot, People On Here Do Not Know What Debt Is

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I am getting increasing frustrated that a lot of people on this site seem to think that debt is a magical pixie that lives in imagination land and that shareholders are evil moustache twirling 1930’s throwback sat cackling in front of the fire.

You cannot forgive debt, you cannot give everyone £10,000.

Debt and savings are two sides of a single coin. And it is a time travelling device. When you save what you are doing is taking the excess from your current work and putting into the future where you will later spend it. When you borrow you are taking from yourself benefit from work that you have not yet done. You are spend money that your future self is going to have to do.

IMO, there is not really any bad form of saving, barring the ridiculous scenario where you save so much from your current income that you let yourself stave.

There is also good debt. The key here is to remember that your taking from your future self, so if you’re being sensible you will match any future burden to a future benefit.

The classic example here is a mortgagee. You take on debt now that future you is going to have to pay off, but that’s OK, because future you gets the benefit of having somewhere to live. The duration of your benefit actually exceeds the duration of your burden. Because after 25 years your debt is paid but you still have somewhere to live.

The classic bad debt is where the duration is revered. My office had a cute young lass fill in as a temp secretary a while back. She was 21 years old and had £21,000 of debt on her credit cards built up over the last 3 years. She was earning about £15,000 a year and spending over £22,000 a year. Here the duration of debt way exceeds the benefit. It took 3 years of benefit taking. But assuming in the future she is able to live on £12,000 a year, it will take at least seven years to pay back. Plus I didn’t even bother to factor in interest, most likely it would be double that.

So where does that money come from?

From people pushing money into their future as previous mentioned.

If I decide I want to be able to live comfortably even after I retire I need take benefits now and save them to take as an older person. Like a pension.

Typically I will give my savings to a professional pension company who know that over a lifetime the stock market and bonds significantly out perform a simply savings account, even factoring periodic crashes.

In the UK the biggest investors in the stock market bar far are the pension companies. These are the guys that truly hold the clout. Which is why it always amuses me no end when I hear people ringing in to news programs decrying the evils of shareholders and the dirtiest of all dirty words ‘profits’. The very same people making these claims almost certainly have a pension fund. And those pension funds almost certainly invest in BP, or whoever the villain is that week. The funniest is when Bob Crow sounds off against ‘the profits of UK big companies’ yet this is exactly how the RMT pension fund makes its returns. If he actually had his way and scrapped ‘profits’ his members would be penniless in their old age.

If you then look at the accounts of UK companies you will find that pension funds dominate the shareholder lists. So the shareholders are the UK population more or less.

That said the stock market can be volatile (no surprise to hear this at the moment I’m sure). The closer one gets to retirement the more monet will be taken out of the market and place in bonds and cash.

The older you are the more cash and near cash your assets are. Like Bond.

So if we look at what is becoming increasing popular on this site:

Give everyone £10,000:

This has to come from somewhere. You either fund it through government debt, which as we saw earlier is taking the benefit from the future. i.e. your kids will have to work extra hard in years to come to pay off your benefit now. This is morally bankrupt.

The other way is to print that £10,000. What you do here is increase the amount of money in the system without actually generating it through hard work. You trigger inflation by upping the price of everything uniformly. Or to put it another way you decrease the value of money. Where this becomes relevant to the above is that money is the mechanism for debt and savings. So by giving everyone £10,000 decrease the value of money and make debt lower and savings lower. This is good for people in debt who just got paid by the savers. It transfers wealth from those that have spent too much to those that are hoping to spend their past benefits in the future. Its robbing Peter to pay Paul, and it is moral bankrupt.

Forgive debt

Lets say we forgave the banks all their debt and all the people with a mortgage.

As we saw above debt is not imaginary. Its real and it belongs to real people like you and me on the high street today. If you cancel debt you take away peoples savings, people’s pensions, and people’s future. It would be a massively redistribution of wealth from those that are typically feckless and or young, to those that are typically prudent and or old.

It would be no different from saying that we are going to seize the assets of everyone over 50 and hand them out to the young. In fact that is almost exactly what it is. I generalize slightly by using age as a proxy. But the spirit is the same. Similar things happened under the Nazi’s. Eastern Europeaners and Jews had their assets and homes, the ones that worked for them, and given to others that did not work for them. Again by forgiving any debts we are robbing Peter to pay Paul. And it is morally bankrupt.

This is before I even start on the moral hazard problem. Essentially if you know you can run up debts and get away with it, you and a great deal more people will abuse the system and it will fail. Like the people that think we should forgive all 3rd world debt. All that will happen is it will be impossible for 3rd world countries to invest using debt again. The cure is worse than the disease.

Reality

The debts have to stand, all debts even mortgages and bank debts.

If you decide you’re going to support the financial system, which I think we do, the least bad option is to use government debt. It is going to be cruelly unfair on the next generation, but at least people who have worked and saved won’t have their assets stolen. It should also serve as a generational reminder against socialist style economic management.

Where Gordon Brown went wrong

G.B made some clangers, my top 4.

1: Raid on savings. One of the very first things G.B did was to increases taxes on pensions and savings. This reduces incentives to save.

2: Sold savings: G.B sold off this countries assets like gold and foreign reserves when he had no need to and at the bottom of the market. He sold the stored wealth of the nation.

3: Massively ramped spending: G.B answer to all society’s ills is too set a target, then throw money at it. This has lead to big pay inflation in the public sector and big increase in numbers. Yet many of these people serve no purpose. They have to be paid for by those that do generate wealth.

4: Encouraged a bubble: ‘No more boom and bust’ the treasury repeatedly published growth projections that suggest an infinite growth is asset prices and incomes. Everyone from mortgage lenders to businesses to borrowers used these figures to plan for the future. G.B believed his own spin and thought that he could spend far more than he earned because future growth would meet the tax shortfall.

We have had recessions before, but usually we have been well placed to make the adjustments quickly. But as a result of G.B Britain is now going to spend a many years as the sick man of Europe. Just like the last time we had a Labour government.

Edited by KingBingo

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I'ts like short selling, the money comes form the markets who pay for borrowing the shares ad the interest on that. Then if the price falls you can buy them back and the pension company get's it's money.

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Well put. In olden days debtors were put into prison until their debts were paid. Or if you couldn't pay your way there was the workhouse.

We've allowed the asset strippers to loot the country. We have no manufacturing base. How are we going to work our way out of debt? What can we manufacture that others might want to buy?

Failing that, what's left to sell? Nothing.

I fear the bailiffs knocking on the door of the UK and demanding payment.

We're in deep sh*t

It's the workhouse

or debtor's prison

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You cannot forgive debt,

.........

It would be no different from saying that we are going to seize the assets of everyone over 50 and hand them out to the young.

So you can forgive debt then. It's just that you wouldn't like it?

Much better we have a decade or two of depression and maybe a world war than we redistribute some wealth.

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Debt and savings are two sides of a single coin. And it is a time travelling device. When you save what you are doing is taking the excess from your current work and putting into the future where you will later spend it. When you borrow you are taking from yourself benefit from work that you have not yet done. You are spend money that your future self is going to have to do.

A point adjacent to the thrust of your post -

This is more or less how the incentives regarding debt work if the market has no or few (small) coercive elements

However a significant portion of the real estate market the incentives worked something like this -

"I will take on a large debt to buy real estate, not because I feel i can pay it back with my production or the efficiency i add, but because i feel that those who are producing can be forced to pay me a higher price for somewhere to work unmolested, because there is a more or less fixed supply of such places."

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The Banks are broke and they should have gone bankrupt, and the debt defaulted. The depositers money must be protected and moved to a bank guaranteed by the Goverment. What this Goverment is doing, is risking the whole economy by taking on debts that are maybe 4 times our GDP, in fact no one knows the figures, the banks won't tell the truth. Until the debt is defaulted this will get a whole lot worse.

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You can 'forgive' debt. If someone owes you £1000, but can't, and you waive the debt, they no longer owe you that £1000. You end up £1000 worse off, technically, but that's probably £1000 you were never going to get anyway.

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Forgive me if I'm wrong, but somebody is trying to provoke a reaction and they're getting it.

Don't know why but it's bugging me.

I think it's sad.

Surely there's a good reason for it?

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The Banks are broke and they should have gone bankrupt, and the debt defaulted. The depositers money must be protected and moved to a bank guaranteed by the Goverment. What this Goverment is doing, is risking the whole economy by taking on debts that are maybe 4 times our GDP, in fact no one knows the figures, the banks won't tell the truth. Until the debt is defaulted this will get a whole lot worse.

I understand the practical arguments for protecting depositers, and being one myself I benefit from this. But people put money in a bank get paid interest, partly in respect of the risk that they might not get it back. There is a guarantee scheme, above which funds are not guaranteed, and this is the contract that people signed up for when they made their deposits. Why should a taxpayer bail out a bank to the benefit of someone that was investing money in that bank, knowing that there was a risk to their investment? I cant think of a moral justification for this. I can see a moral justification for depositors suiing the bankers personally until they lose the shirts off their backs for being so wreckless with depositors cash, but as a taxpayer, I dont want to pay for their folly in any way at all.

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What is the score with the Mr Parry impersonation? I don't get it.

This is one thing I havent figured out yet. What would happen if it turned out Barclays capital were shorting Barclays shares to make profit. Would this be a conflict of interest?

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Reality

The debts have to stand, all debts even mortgages and bank debts.

If you decide you’re going to support the financial system, which I think we do, the least bad option is to use government debt. It is going to be cruelly unfair on the next generation, but at least people who have worked and saved won’t have their assets stolen. It should also serve as a generational reminder against socialist style economic management.

This is a false reality. The debts cant be paid back because poeple do not have the means of paying them back.

Unfair on the next generation - but a price worth paying, what a load of old tosh. You are basically saying, I lost some cash, please can you youngsters club together and give me some of yours because I am getting on a bit old and could do with it. Dont worry, you can do the same to your kids. My answer ti this is - no thanks. I as a taxayer are not going to make up the slack for your bad investments.

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Some bankers perhaps, but not the international banking elite. They take imaginary numbers on computers, called money, and turn it into real value by foreclosing. In other words, economic collapse is actually in their benefit. Once everyone can no longer pay, the money does become meaningless, true, but this also leaves the elites in control of everything that has real value. If the dollar collapses, the people will be left holding the empty bag, while the elites wind up with all of our real estate and natural resources. Not to mention complete domination of our precious labour force.

This is what happened in the Great Depression, and how the Constitution was suspended in 1933. In the most literal sense, you are now a slave, and have been your entire lives. Every American citizen became incorporated and is held as default payment to the receivers of the US bankruptcy in 1933.

Edited by poorman

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it sounds like it's coming very much from your personal position (I'd guess as an older saver), rather than considering the wider issues.

I'm 30. But yes, I am a net saver right now, but to a limited extent, maybe halfway there to a decent deposit (or at least what is now a decent deposit).

The wider issue is you cannot rob people of their savings to give people a get out of jail free card from their debts.

You are basically saying, I lost some cash, please can you youngsters club together and give me some of yours because I am getting on a bit old and could do with it.

Quite the opposite in fact if you read it. Please read and understand before commenting.

As for whoever said it was simplistic. Yes, it is. I tapped it out in my lunch break. I'm not trying to rewrite the Wealth of Nations. Its a quick backlash against all this tosh I keep seeing about wiping debt and handing out money.

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Quite the opposite in fact if you read it. Please read and understand before commenting.

I read, I understood, I commented. My point still stands.

edited to add - I agree the debts should still stand, but they should not be gauranteed by taxpayers, which is what you are advocating

Edited by worzel

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Depositors can't be protected

One of the imbalances in the situation is that some people (largely, the previous holders of real estate) have been enabled to make very large deposits without adding anything of value to the economy or doing anything valuable. As a result, there are some very large deposits and distinct lack of anything valuable which could back them.

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Value has evaporated. My house was worth £250K, it's probably worth a nominal £220K now. Nobody's got the £30K that's been wiped off its value, it hasn't gone anywhere it has ceased to exist. That has happened throughout the property market and to the shares of most companies too. Asset values have declined but the loans taken out against those assets haven't.

Edited by blankster

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. Its a quick backlash against all this tosh I keep seeing about wiping debt and handing out money.

the debt is being wiped out by generating inflation to devaule it in real terms this is the result of having the current system it is possible to do it so they do it the indebted masses will love them for it the savers and prudent get shafted again...only this time the debt is to big and the system will fail.

Reality

The debts have to stand, all debts even mortgages and bank debts.

If you decide you’re going to support the financial system, which I think we do, the least bad option is to use government debt. It is going to be cruelly unfair on the next generation, but at least people who have worked and saved won’t have their assets stolen. It should also serve as a generational reminder against socialist style economic management.

the goverment debt your so fond of (original post) will not sell it will be printed via QE..game over.

a very very simple concept, please watch money as debt on google video for a near complete explanation, same system over and over since sumerian clay tablet money...

get into hard assets now before its to late.

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I read, I understood, I commented. My point still stands.

edited to add - I agree the debts should still stand, but they should not be gauranteed by taxpayers, which is what you are advocating

I quite clearly say that all options are very bad, but now we are here you either have to have utter carnage now, or you defer some of the pain.

Ultimately you need to bear a substantially amount of pain now within the boundaries of safeguarding the system as a whole. I know some people on here think we can effect a total systemic collapse and then go back to bartering and farming in our back gardens, but that's just not viable and I think everyone without tin foil head wear knows this.

You need to understand I do not like the idea any more than having a leg amputated. But after you have already been shot in the leg by Gordon Brown and its gone green you have to start looking at the least worst option from there.

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I don't recall Marx ever saying what was really needed is bank deregulation for a strong socialist economy...

Your dig at socialism is just plain wrong, it is free market worship and non-regulation that has caused the giant housing bubble. The bailouts are now stopping the free market working by preventing the reckless from collapsing and the debt being written off.

A socialist leader would have destroyed the housing market by building lots of council houses or claiming private property for the state. The exact opposite of what has been happening.

All profits have been privatised, all the losses are now being socialised. Again don't recall that as a cornerstone of socialism.

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Value has evaporated. My house was worth £250K, it's probably worth a nominal £220K now. Nobody's got the £30K that's been wiped off its value, it hasn't gone anywhere it has ceased to exist.

Of course they have. Of you sold it today the person who buys it off you will benefit from the £30k.

If you don’t sell it nothing has changed hands and its all hypothetical.

If what you say was true you could increase the value of your house £100k and thinks it comes out of thin air. No, the person who buys it off you has to pull overtime for the next 25 years to pay off that extra £100k they gave you.

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  • 285 Brexit, House prices and Summer 2020

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      • down 5% +
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