GDP and Debt

#26
#26
therealUT said:
Not irrelevant in the least. My $200,000 would stay invested from the beginning, however, your monthly investments would drop to around $900, dropping your net return to a ballpark of $2.8M. Since that is less than half of the investment return on $200,000 invested from the beginning, I would say that is pretty relevant.
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Not getting my point, I am saying we could have thrown any number out there and gone from there.
 
#27
#27
allvol123 said:
Home ownership is not my main point. Moreover, it is everything else. A home is the only thing I would finance.

You are also assuming people owing on the 200,000 home have made room to allow for investing in their discretionary budget. More people than not seem to overspend on their house purchase.

Also, if you anyone anything, I owe absoutley no one anything. I do not consider you less obligated than me.
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Your argument still does not hold water. It matters not if the people financing the home have discretionary income to invest. The fact is, that even if they had the discretionary income to buy in cash, the smart thing to do is still finance. It matters not that people overspend their house purchases in the case of debt vs. GDP, as I am going to state that if your debt is only 71% of your annual produce, then you are not overspending. All these ifs, buts, shoulds, are not relevant because of the fact that if and but and should were satisfied, then the smart choice would still be in financing for leverage.
 
#28
#28
allvol123 said:
Not getting my point, I am saying we could have thrown any number out there and gone from there.
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And, any number would have amounted to the same conclusion: The buyer is financially better off by financing as long as rate of returns on investments are higher than the interest rate on the loan.
 
#29
#29
therealUT said:
Your argument still does not hold water. It matters not if the people financing the home have discretionary income to invest. The fact is, that even if they had the discretionary income to buy in cash, the smart thing to do is still finance. It matters not that people overspend their house purchases in the case of debt vs. GDP, as I am going to state that if your debt is only 71% of your annual produce, then you are not overspending. All these ifs, buts, shoulds, are not relevant because of the fact that if and but and should were satisfied, then the smart choice would still be in financing for leverage.
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But you leave out risk. A person with a paid for house does not worry if they lose their job or their wife or kids get an expensive illness as does a person with a mortgaged home.
 
#30
#30
therealUT said:
And, any number would have amounted to the same conclusion: The buyer is financially better off by financing as long as rate of returns on investments are higher than the interest rate on the loan.
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If the buyer has no money to invest because he spends it all on financed goods, what rate of return is he getting?
 
#31
#31
allvol123 said:
But you leave out risk. A person with a paid for house does not worry if they lose their job or their wife or kids get an expensive illness as does a person with a mortgaged home.
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No, these arguments still do not matter. If you do not have the money to pay cash for a house, then you do not have the money to pay cash for a house. By financing to buy a house, you do not waste your money pay paying rent. So, unless you plan to live without shelter, then taking a loan is the thing to do.

If you have enough money to buy a house in cash, this scenario still does not change the fact that the smart move is to still finance. If you are fired from your job, get ill, etc, then you have that money in a very liquid investment. You can withdrawal from the investment and pay off your house completely, or pay your bills as they come in, until you are once again able to work.
 
#34
#34
allvol123 said:
If you make 100 and owe 99, I don't deem that as being in great financial shape.
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The difference is that one number is relatively static (debt) while the other is recurring.

The 99 stays 99 (or goes slightly up or down depending on deficit or surplus). However, 100 is recurring every year.
 
#35
#35
volinbham said:
The difference is that one number is relatively static (debt) while the other is recurring.

The 99 stays 99 (or goes slightly up or down depending on deficit or surplus). However, 100 is recurring every year.
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Just not sure how you mean that?

I doubt either is static for long in most people's cases. Income and expenses both change.
 
#36
#36
allvol123 said:
Just not sure how you mean that?

I doubt either is static for long in most people's cases. Income and expenses both change.
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You should do one of two things: enroll yourself in a few business classes or read Wealth of Nations. These concepts are very clearly explained in both.
 
#37
#37
therealUT said:
You should do one of two things: enroll yourself in a few business classes or read Wealth of Nations. These concepts are very clearly explained in both.
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You should understand the concept of my view on freedom. If you are tied to someone or something, you are not as free as I.


So with your theories, I suppose you would finance your groceries, lawnmower, tv, and everything else.
 
#38
#38
allvol123 said:
You should understand the concept of my view on freedom. If you are tied to someone or something, you are not as free as I.


So with your theories, I suppose you would finance your groceries, lawnmower, tv, and everything else.
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Nope. The gain on the investment over the loan would most likely not exceed the inflation rate over 30 years. Thanks though.
 
#39
#39
allvol123 said:
Just not sure how you mean that?

I doubt either is static for long in most people's cases. Income and expenses both change.
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The debt is there - it is different than a deficit. For example, your mortgage probably goes down slightly each year based on your payments regardless of your income (assuming it is sufficient to make the debt payments). You debt doesn't re-occur each period however your income does.

To the extend that expenses change at a rate different than income merely suggests that one might add to the debt (if expenses exceed income) or reduce the debt (if income exceeds expenses).

Our current deficit is about 3% (SWAG - didn't want to look it up) of GDP.
 
#40
#40
I just picked a random company - Motorola as an example of the idea of leverage.

They had sales of $37 billion and debt of $19 billion. That's a percentage of 51%. It is hard to find any corporation that doesn't use the concept of leverage.
 
#41
#41
therealUT said:
Nope. The gain on the investment over the loan would most likely not exceed the inflation rate over 30 years. Thanks though.
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So I think we got off track some, I personally don't have a problem with people mortgaging a house. I said if I had to do it over, I would pay for my house with cash because I prefer the freedom of not being tied to anything.

My bigger problem is with people financing everything else which you seem to disagree with above.
 
#42
#42
Considering people usually hold on to a house for no more than five years, your long term benefits argument does not work.
 
#43
#43
CSpindizzy said:
Considering people usually hold on to a house for no more than five years, your long term benefits argument does not work.
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Is this akin to your "unpaid pages" comment?

Also, the long term benefits still works. I'll, again, provide some calculations for you, same assumptions as before ($200,000 house, $900 mortgage.)
Financing the house and investing $200,000 for 5 years:
Costs: $54,000
Return on Investment: $152,468

Buying the house in cash and investing the what would have been the mortgage payment every month:
Costs: $200,000
Return on Investment: $21,089

*Yes, I am ommitting any down payments, however, I do not think that would have a substantial effect on the difference between $152K and $21K.
 
#45
#45
therealUT said:
You can withdrawal from the investment and pay off your house completely, or pay your bills as they come in, until you are once again able to work.
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You can withdrawal from the investment? How can you withdraw say a year after buying when there is little equity in there? If you came into financial hardships, you could sell the house and take away the full cash amount to help you bail out of financial hardships. If there is nothing built up to pull from, you run the risk of getting in financial harships even more.
 
#46
#46
CSpindizzy said:
You can withdrawal from the investment? How can you withdraw say a year after buying when there is little equity in there? If you came into financial hardships, you could sell the house and take away the full cash amount to help you bail out of financial hardships. If there is nothing built up to pull from, you run the risk of getting in financial harships even more.
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You can sell your share of any stocks or mutual funds at any time you want.
 
#48
#48
Umm....we were talking about houses and now you jump to stocks and mutual funds?

How do you figure that amount of return on a house when principle payments don't even come close.
 
#49
#49
CSpindizzy said:
Umm....we were talking about houses and now you jump to stocks and mutual funds?

How do you figure that amount of return on a house when principle payments don't even come close.
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If you buy the house with cash, you are passing up on the opportunity to invest that cash in securities. It is all played out through the thread.
 
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