How long will it be before people make monthly payments on toothbrushes? It’s not all that far-fetched when you consider that many are already making them on lawn mowers.
John Deere doesn’t even tell you what some of these cost in their advertisements; just how much you’ll pay each month. Probably because you really don’t want to know what they cost, that being a measure of what you cannot afford to pay.
Some of these ads do not tell you how many months you’ll be paying, either. The lure – tantalizing to the innumerate – being that it is “only $49 per month.”
Why, that sounds like a deal! I can afford that! Anyone can afford that. Which explains why so many cannot afford to buy anything. Including lawn mowers, which people used to regularly pay cash for, because lawn mowers didn’t entail monthly payments.
How about “0 percent financing” . . . for 60 months”?
This is for a riding lawn mower, mind. It cuts the grass. It does not fly. It doesn’t even move faster than a sprightly man can walk. It doesn’t have AC or even a stereo. It has a cupholder.
But it is “compliant” with all the latest federal emissions and saaaaaaaaaaaafety regulations and yes, these apply to riding lawnmowers, too. These include – so far – the “feature” that automatically shuts off the engine whenever the operator gets off the mower. Or mows on uneven terrain that causes his weight to shift, causing the underseat nanny to cut off the engine, which then coughs back to life as the operator’s cheeks resume equilibrium.
Mowers also automatically shut off when Reversed – unless a special key is turned or button held. It will not be long, surely, before back-up cameras and monitors are required – and along with them, more low, low monthly payments.
For the benefit of the innumerate, 60 months works out to five years of making payments. On a riding lawn mower. That is about two years longer than people used to make payments on cars – which now routinely take 72 months to pay off, by which time they have depreciated to less than half what you paid for them.
That $49/month riding mower? If financed for five years – at “0 percent interest” – your tab works out to just shy of $3,000.
For a freakin’ lawn mower.
No wonder people can’t afford to buy cars. They are making payments on lawn mowers!
Which may not even have a “John Deere” engine underneath the green (probably plastic) hood, either. “Deere” riding mowers sometimes come with Kawasaki or Kohler-made engines, not that there’s anything wrong with either. But it reminds me of back in the day when GM sometimes put Chevy engines in Cadillacs – without charging the Cadillac buyer Chevy money for them.
Some of these easy monthly payment deals include fuel-injected (and so, electronically controlled) engines – once again, for a lawn mower. Which accounts in part for Deere’s shyness about advertising how much these riding lawn mowers cost as opposed to what you’ll pay per month . . . for the next half-decade.
You can also get a Rollover Protection System – just like your convertible BMW and almost as expensive for just that reason. Which would be ok, if it were optional. It isn’t. And the cost is part of the deal.
Loans for small tractors with front-end loaders extend to 72 months – six years, for the numeracy-challenged. But the good news is . . . “0 percent” interest!
The bad news? The diesel engines in these small tractors are “Tier-4 compliant,” which means they are nearly as complex, maintenance-intensive and difficult to maintain yourself as the diesel engines used in on-road vehicles, like cars and trucks. Assuming you can find one with a diesel engine.
These things are off-road vehicles used intermittently rather than regularly. Whatever their “emissions” may be, they are almost certainly irrelevant in any meaningful air-quality or “climate-changing” way. One could perhaps form a factually valid argument about the need to wrap on-road diesel engines in regulatory Saran Wrap but doing the same to a diesel tractor that mostly just sits until there’s a hole that needs to be dug or a field to be cut is as pointlessly spiteful as forcing healthy people to walk around wearing Face Diapers.
But it’s why a small tractor requires a six-year-loan. It is also probably why Deere doesn’t even publish what the monthly payment is for this one. They do publish that you’ll be eligible for $3,900 off whatever the MSRP is, if that makes you feel any better about it.
It makes me feel poor.
PS: “Actual operating horsepower and torque may be less,” the fine print saith. Better read it. Also, that 10 percent down may be part of the deal and that “taxes, freight and set-up” could affect your monthly payment.
Which means, of course, that they will.
. . .
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I was doing database programming for a company that did sub-prime auto loans back before the recession. Management came to us, in a panic, asking how many digits we had for the “months” field of the loan database. “Two, obviously”, I said. They said they were about to write loans for more than 99 months and could we please make the field size 3. I said, “For a car?” Insane.
Hi Baxter,
I’m appalled – but not surprised. An eight-year loan was probably inevitable given the average transaction price of a new car – appx. $35,000 as of this year. This is about what a typical person earns, pre-tax, in an entire year.
100 months is eight years, four months. Sheesh. Even if the owner experiences no problems and is diligent with maintenance, that’s still, at 15,000 miles/year (1,250 miles per month), 125K miles on the car. Now, granted, you might luck out and have to do no more than a few brake jobs (normal with brake pad wear) and a few minor repairs (an alternator or starter may give out), BUT, if anything serious goes on, like a transmission failure, the ECM gives out, or, “Gawd” forbid, the engine “spins a bearing”, the car is “toast”, as a rebuild will well-exceed what the thing is worth. Worst of all, at times, even with rides only 10-15 years old, some parts already become “unobtanium”, as the vehicle manufacturer obviously would rather sell you a new ride than keep your old one alive, and if that particular part was discontinued, the supplier has no particular incentive to do another production run. Sometimes the aftermarket fulfills this need…and sometimes it DOESN’T.
Still, once your ride is paid off, I say just drive it until financially or even literally the wheels fall off. Its resale value may be meaningless, but as long as it’s functional transportation, you don’t have much to lose…except another car payment every month you operate the “paid off” vehicle! INVEST those “missed” car payments. After all, the distinction between a wealthy man versus one that isn’t…when a man is NOT wealthy, he works FOR his money…but when he’s wealthy, his money works for HIM. We need look no further than Warren Buffet living in Omaha, NE, and driving an Oldsmobile HIMSELF to his office, or the late Sam Walton driving himself to his office in Bentonville, Ar, in a ten year-old Ford pickup.
Douglas, you say till the wheels fall off. No big deal. Even if the spindle is ruined, just get another. In fact, if it’s the front end, just get some good spindles off a wreck and put in new bearings. You’ll be out $600 probably but not necessarily that much. The pickup I drive had all sorts of wandering when I bought it almost with pocket change.
Put it up on a lift and the tires flopped from side to side. And as luck would have it, the spindles were ok so a new set of bearings and as and old actor used to say “away we go”. It did require a new driveshaft seal eventually. New u joints and a new seal “away we go again”.
I used to do all my a/c work myself but my vacuum pump died and I didn’t want to work on it, jacking it up for some pieces and standing on a box for others so I just had it done. At $1050 for everything but replacing the condenser, the evap and fan, it blew like a new one…..after replacing the filters that were pretty much dirt. I do need to replace the valve cover gaskets and the front end parts are pretty much done but that’s all less than $300 and she’ll drive like knew blowing such cold air you can’t run it on recirculate at the highest speed for very long on the hottest day.
Oh yeah, I had to replace the water pump at 230,000 miles but that was no biggee. You can tell it’s a farm truck before you get close enough to see the farm truck license plates but that don’t mean much. If that LS takes a dump, you can pick up a used on for $500 and just break it down to check it out and put in new rings, make sure the valves and springs are good and go ahead and put in that new cam with more grunt than the original and lifters and you’re ready to go another 400,000 miles. Oh, you will have to eventually replace the transmission and transfer case but by then everything will be new but the body and a set of door gaskets goes a long way to make it sound like it’s new.
Doug, Eight,
Hmmmm….they say that the average ‘home buyer’ only keeps a house for 5 years these days….so even if one were to live in their car, 8+ years would be a bit of a stretch for a car!
Remember their end game: To get you to live with not only a perpetual car payment, but one which is ever increasing, because you have to constantly roll over what you lose when you trade you 3 or 4 year-old jalopy in on a new one, ’cause the average car they’re making today ain’t gonna last 8+ years, but rather has to be traded as soon as the warranty is up, ’cause it’s to ‘spensive to fix.
Nunz, back in the 80’s I could have given cash for a Jag like my ex-boss had….making payments. I chose to drive a Chevy, a car that had no secrets from me. I had a Nissan. It was the most expensive truck I ever had judging from a repair cost. I was done with it when it cratered not pulling a load or hauling one but overheating in Texas heat. I got rid of it and can still honestly say I’ve never had a new vehicle. I never wanted one. If I want one ,I can buy cheap and make it much better than from the factory. Probably few people take an almost new engine, tear it down and have it made into an indestructible engine with gobs more power.
That Nissan, when I broke a part, cost me a huge amount of money even though I couldn’t extend the fenders because it was such thin material. If you wanted to modify anything, be prepared to add metal to the inside and outside. It was a little POS and got less mileage than my El Camino with 400 hp. The first mod I did to it involved a cowcatcher and that was a great move. The 2nd mod I did to it was to sell it cheap.
Eight, I just don’t “get” the money many people spend on vee-hickles- much less if they can’t afford those vee-hickles. I look back with fondness on just about every vehicle I’ve ever owned, including my $125 ’78 LaSaber, and $200 6cyl. Camaro- Hell, I wish I had those cars today!
I love the 20 year-old trucks I have now, and they owe me nothing, I’ve never owed anything on them. Even when cars were made somewhat good, I never saw the sense to buying new. Yeah, if I were a traveling salesman who drove 80K miles a year, maybe……..but just to putz around and go shopping? LOL! I just can’t see paying so much, and losing so much value due to depreciation, and for what? The damned things don’t do anything that my vehicles can’t- and usually in-fact do less!
Like most other things now-a-days, I JUST DON’T GET IT! -Like you mentioned elsewhere, like yourself, I should’ve been born at least 100 years ago, ’cause this society just doesn’t make sense to me.
Nunz, you’re exactly correct. I was told by many people when I was just a kid I was born 100 years too late.
Nothing in life made any sense. I’m not a guy who couldn’t do without pussy but I found my best friends had 4 legs. They weren’t backstabbers and didn’t make demands. Oh, they’d follow me like children and I’d keep them happy with foods they liked by going out to farms where they’d overplanted things like corn, peas and beans. I’d spend hours harvesting them by hand and taking them to my animal friends. It was always hard for me to sell them.
My grandfather on my mother’s side was the best I ever saw with animals. The the govt. abducted him as a slave for their war in WW1, he must have been the best muleskinner in the army. He was a great man, always good to everyone and every animal, pet or livestock.
I never knew of him to kill anything but my grandmother had the most lethal weapon to whip off a chickens head as it passed by. Those people knew how to live off virtually nothing. When she’d get that chicken on the table in a bowl, it wouldn’t take long before we were gobbling chicken like we’d never eaten before. I have one thing I held against her and my mother. They ate my best friend, Cocky, the best damned friend I ever had. He’d drink the water I squirted him out of my water gun, take the table scraps stole for him and would run everyone off that even got close to me. My mother couldn’t do one damned thing to me unless she brought me in the house. He ran off everyone he didn’t like. The laundry guy and the newspaper man, and the milkman did their thing as quickly as possible.
The day I came home and he wasn’t there I panicked and looked and looked for him. It just wasn’t like him to not be there for me. Then my mother told me he was the guest for dinner at my grandparents house. I still hold that against them all. He kept roving bands of dogs away and clean the yard of grasshoppers. I was heartbroken but I never let on. To be completely honest, I intended to do something to make them regret taking him away. He did nothing to those who left me alone but he was hell on those I didn’t like.
It was like I never needed to say who I didn’t like. He’d go after them. I never trusted anyone after that. We’d grown up together and he was my best friend. Imagine losing your best friend to be supper at someone’s house. My grandfather would never have done that and my mother was too scared to take him on one on one. I learned early in life my dad and granddad were the only people I could trust. I never felt any other way even after they were all dead. Killing Cocky was beyond the bounds . They all knew it and I’d hope they regretted it. I had one dog and we were inseperable. I came home to find him gone. He had bitten a neighbor boy in the ass and they’d sent him to get his head cut off to test for Rabies. I guess it never occured to them to get him a Rabies vaccination.They had hell getting me to go for vaccinations when I was in school. I took that as an act of sorry people too. Nobody could get near me with him around and I think my mother was happy to see him go. I never had another dog till I was married and he was a great dog.
Awww, Eight- That’s so sad!!!! Bad enough that anyone could do that to any pet- even “just a chicken”- but a guy and his dog!!!!! That would put me over the edge. When an aniomal expresses not just intelligence, but emotion and feelings, and you share in that, it becomes more than just a “mere animal”.
Heh, my first real encounter with a dog when I was a kid, new neighbors moved in downstairs when I was about 5- and they had this tough li’l terrier/some kind of bull mix named King.
I went running past King in the yard, and he chased me, and caught me, and bit me in the ass! Even for my somewhat hypochondriacal over-protective mother, it was no big deal in those days, before the implementation of the Safety Cult.
She took me upstairs and patched me up, and I went back out to play. The neighbor lady explained to me that I shouldn’t run in front of a dog, or it’ll try and catch me…and I went on the be great friends with King. No doctors, no shots, no cops or lawyers….. I was one of the very few people who could go to my neioghbor’s without them having to lock King in the bathroom (A few of their relatives were the only other ones).
A few years later, the husband of the couple died….and shortly thereafter they founde King dead behind the terlit- They say he died of a broken heart.
I really loved that dog- I had always loved and wanted a dog, and King was almost like my own, ’cause I was his friend- whereas he didn’t like most other people.
Around that same time, someone had brought around a cute little kitten, and my mother would have taken it…but I made pretended like I didn’t like it, ’cause I figured if we got a cat, all hope of getting a dog would be gone! (We never got a dog…should’ve taken the poor kitten- it was cute!)
Since I’ve grown up, I’ve never been without a dog, and have always fed stray cats..and now have a bunch of cats too!
Heck, I had a couple of steers- a Jersey and a Holstein, who were becoming like pets….. The holstein would folly me home, and I’d have to bring him a carrot…….
Eric…thx for the gobsmack. 🙂
My brother just got a small Deere,20 or 25 HP,diesel with all the tier4 aftertreatment.Only about 30hrs on it and display already shows 60% full with no way to put it into parked regeneration.Been working for Cummins over 40 yrs and aftertreatment is the biggest cause of downtime and operating costs on modern engines.
And as far as financing, I’m just gonna say this: if you can’t afford to pay for something in full, then you can’t afford it PERIOD.
Blue, if everyone would adopt that simple, sound principle, half the problems in this world would be solved overnight!
“It will not be long, surely, before back-up cameras and monitors are required…”
Don’t forget seat belts, airbags, mirrors, turn signals, collision avoidance, and blind spot monitoring. Because seeing out of an open-air “cab” can be difficult sometimes. Plus, you might have some asshole trying to scream past you on your own property.
One last bit from the link within Frank Shostak’s article I posted:
“Savings has nothing to do with money.”
https://mises.org/library/you-cant-create-more-savings-printing-more-money
If our “money” was backed by Gold at a 1/1 ratio, prices would steadily decline. The supply of Gold is limited, so the more product, the less Gold it’s worth. Gold is infinitely divisible, so however much there is can be divided to accommodate increased production. The result would be a complete lack of any need for interest on savings. Your savings would automatically increase in value as the Gold you saved would be worth more product next year. A thing that would seriously impact any need for a loan. Instead we have fiat currency that rewards borrowing, because the money you pay back is worth less than what you borrowed. Savings is punished using the same inflation tool, since savings interest is less than the rate of inflation. Which is why the rush to Wall Street, a casino owned by the bank cartel, in which as usual the house always wins. We are forced to become gambling addicts if we are frugal enough to actually save fiat currency. It doesn’t pay to keep it lying around. Or, buy Gold and silver, brass and lead.
Even though you wouldn’t need interest, banks would have to pay it because uncle Jerome couldn’t print it, and give it to the banks for free.
I guess, due to people simply being ignorant or willfully blind to Austrian Economics and the works of mises.org it’s rather popular to view wealth in some form or another contrary to natural law, which helps confuse the regular guy, while enabling the Power Elite.
The last housing bust was led by Prime homeowers. PRIME. It”s a simple fact most banker types downplay or ignore. It’s popular to view Sub-Prime loans as being the problem and lead indicator when it simply wasn’t so.
As soon as housing prices stopped going up, degenerate gamblers, er I mean, homeowers, mailed in the keys to the banks and began walking away. Prices plunged as a result. (It’s all well documented at Ben Jones’ blog. His blog is Very unpopular with banker-types and such.)
I suspect the same thing will happen again, eventually, and the price of lawnmowers will follow.
Also, nope, ‘depreciating liability’ is not a word I made up. It’s been in use for quite some time. I’m not surprised banker-types are confused by the term.
Anyway, if there’s anyone whose eyes haven’t glazed over reading my bit, here’s a really good title Frank Shostak has out there describing in really really simple terms what wealth is, and, is not:
https://mises.org/library/understanding-true-credit-and-false-credit
Let me make sure I understand this. The 2008 financial crisis was caused by primary homeowners taking out 30 year fixed rate loans? It was caused not by the loosening standards of the banks providing 7 to 10 amortized interest only loans to people who couldn’t afford them? The subprime market is not to blame per your clarification. It resides on those that followed the rules because they handed the keys back to the bank? Nothing like blaming the victim, I suppose.
The majority of homes that went into default were those with subprime mortgages and investment properties. Not only did I work closely with BOA during this time as they went in and began foreclosing on the properties, I also handled the taxes in the cancellation of these debts. The people that lost their homes were over leveraged. They had three mortgages on one home. Why? Because the banks were handing out free money with very few credit checks. Banks were really not suppose to allow more than the financing of 80% equity in a home (with a few considerations made by the FHA or VA). The first bank financed the 80%, then it was sent to a second bank (usually a finance company) that was willing to put the cash up for another 10%, and finally some really really foolish bank would come in with an offer of a variable line of credit to finance the remains 10%. The interest rate at that time on variable loans were sashaying between 6 to 9%. The banks believed even providing loans to homeowners who could not even afford a small down payment that they would make out like bandits because home prices continued to skyrocket.
The mortgage crisis was caused by those who could not afford the loans (the subprime). When these people stopped paying the banks began issuing credit default swaps tying in subprime loans with prime home loans. These credit default swaps then were traded four and five times. By the time they made it to the final holder these CDS were filled with nothing but junk loans that were deemed uncollectable.
This is simply false: “The majority of homes that went into default were those with subprime mortgages” Your anecdotal evidence is insufficient for your conclusion.
As I mentioned, the facts are nicely documented at http://housingbubble.blog/
Which article should I be reading, helot, that backs up your theory? I don’t have time to read through an entire blog.
RG, you’re on the money…so to speak. The best thing the average person can do to understand it is to watch a movie that wasn’t pushed by Hollywood at all but should have been. It’s called The Big Short and it’s a true story. The amount of crime in the system is nothing short of breath-taking.
Hi Eight,
Yes, I love the Big Short. I thought I was pretty familiar with the financial crisis since I dealt with banks, realtors, and taxpayers throughout the ordeal and even I was surprised on how manipulative our banking system is. The literally conned the American people. If one isn’t angry at the financial cartels by the end of the movie I would advise rewatching it.
Raider Girl, by the end of the movie I wasn’t only astounded but mad as hell that the banksters were performing illegal acts they knew were illegal and the govt. knew those were illegal acts but rewarded them with billions of dollars. The movie left me mad as hell. I had worked my ass off and spent a lot of money to get the list of houses I had sold roofs to the owners and instantly the list was gone with the exceptions of a few houses that were being roofed. It was one of those things where I’m practically gasping and then so damned mad I had to take a walk. You know the small banks were shunned and the developers were ruined.
So tell me why does the DOJ exist? To get paid off as well? I can guarantee Obama didn’t need to watch the movie.
I have to agree. Back then, it was a macho thing brought on by Bushco and the Fed that everybody would be a homeowner. When the FED went bust. as usual, we, the people unwillingly bailed them out. They just raised our taxes and took off with billions of booty. It was reminiscent of the dot.com bust but worse. The dotcom bust hurt my dad terribly. I remember a time he was losing $16,000 a day.
That was all on the FED too. They destroyed the middle class like spraying poison on grasshoppers.
I lost my ass in 08 and never recovered. It was a time I adopted the song by Commander Cody. I was down to Seeds and Stems again too. Everybody tried to tell me, there was no way to get high. They don’t seem to understand I’m too far gone to try. Now these lonely miseries, are all I can do, and I’m down to seeds and stems again too, go the down to seeds and stems again blues.
I was listening to Commander Cody and Lost Airmen from day one. I found their music in a record store on University Ave. and fell in love with it. Right after that a guy we didn’t know left a note on our door wanting to meet and greet. We did and it continued. Joe Ely wrote a song about it. His lyrics were censored and what he wrote about me was never produced. They were afraid the Feds would come after me. They shouldn’t have worried, they did later on.
I am now known as “The” BP. Several years ago I was looking at postings on a trading site. I recognized one person and asked about what he had for sale. It was a still and he replied “Is this the Real BP”. I replied, the one and only. We hadn’t seen each other in years. He said it was hard to operate a still in this little county. I replied it was hard to do anything in this little county to which he got a good laugh since I wasn’t a resident of that town but was a resident of the county. He was aware of what we had suffered and responded in kind. I miss seeing him since he’s a good guy but we lost contact way back when, a decade ago. I didn’t buy the still although I would have liked to do so. Amazing the US is the only country of any size that doesn’t allow anyone to make their own shine.
I had a friend from Tennessee, met him in the patch. He knew what was going on as I did. Every time he’d go home, he’d bring back a batch of shine and damned if it wasn’t great. He said the road he lived on in the mountains had 14 people who made shine.
A guy I worked with would pick me up every day and take me home.
We often shared a quart on the way back….in a commercial vehicle. We’d be buzzed extremely well by the time we made that 200 mile trip.
Hi RG,
I think you’re right. Anecdotally, the people who bought my house in Sterling for more than twice what I paid for it went into default less than two years later.
Hi Eric,
It was pretty popular (especially in a high end market such as NOVA) that many people actually had three loans on one house. Personally, I don’t think the banks took enough of a beating. They made unjustifiable loans and had the American taxpayer bail them out. Nothing incites me more than hearing the words “to big too fail.” Bad choices should have repercussions. The credit rating agencies (the overseer of these banking and insurance institutions) such as Fitch and Moody’s also got away scot free.
Hi RG,
One of my enduring gripes is how the PTB change the rules during the game. When we bought our house (1974) we needed 20% down, which was the hardest part, plus the banks wouldn’t factor in my wife’s income into whatever their “affordability formula” was at that time – the rationale being she might get pregnant and stop working – even though we could easily make the payments on my income alone. Talk about misogyny! Bottom line was we couldn’t even make a bid on the house we really wanted, so had to get a fixer upper instead. Actually it turned out to be a great location where we landed so I’m grateful for that but it sure did piss me off to see the banksters giving big mortgages to 7-11 clerks and paperboys.
I imagine you’ve seen the movie “The Big Short”, everyone of those crooks should have gone to jail and had their assets sold off and distributed to their victims.
Hi Mike,
I love the Big Short. It is one of my favorites. 🙂
Actually, in this day and age I still don’t include my income on anything that hubby and I buy. Actually, we haven’t taken a loan since 2013 (refinanced the house), but even then I never included my income, because I learned with me working for myself we would get the run around. The banks wanted to see financials, tax returns, my first born, a blood sample, and whatever else they could think of. I refuse to give them that information. Happy to give W2s, payroll stubs, but I don’t need my tax return in some banks computer somewhere for all to see. It is bad enough I have to send it to the IRS and the state. Nobody else gets it. I don’t deny that I work. I just tell the banks to base it off my husband’s income and that has always worked. They try to be sneaky and slip in the 4506-T. I always tell the lender we aren’t signing it. For some reason the loan has always gone through without them. The attorney’s and notaries are always surprised that I am able to get away with it.
It would appear I spoke before I had read far enough. I liked the part in TBS where they go to a large neighborhood in Florida where only some houses were occupied and they almost all had been at one time.
Some people were simply living in them and keeping the utilities on and nobody even cared, they were so far off the books they had been forgotten about. Some people were paying for theirs…..to people who didn’t even own them. That’s a great scene where they’re going to take a look at a nice looking house and had to jump a fence to get in the back door only to find a pool full of alligators waiting for slow meat. They were lucky I’m sure to not get in the front and walk to the glass doors you know led to the pool. Alligators wouldn’t even have noticed the doors.
The acting was really good. I love Christian Bale’s character Michael Burry. Burry called this out back in 2004 seeing what was going on in the subprime market. The guy was right on.
Also, Steve Carrell’s character Mark Baum is excellent. I sympathize with his character – the entire movie you can feel his disgust with the banking industry and how upset he is finding out how conniving the bastards are and how they were so close to taking down America.
I was never a big fan of banks, but this movie just left a lasting impression on me that I did not even want to deal with them in a personal or professional role.
I despise banks and have not had a bank account for a very long time.
Hi Jason,
I despise banks as well; I will shortly post a short anecdote as to why. But how do you exist economically without a bank account? It is very hard to get paid – or cash payments – without a bank account; at the least, the bank will charge a fee to cash a check – even theirs – and will make it huge hassle, regardless.
Eric, I have a cash business so it’s usually not a problem.
Occasionally someone wants to give me a check. When that happens I can either cash the check at the bank its drawn on (can be a hassle), can take it to a check cashing outfit (costs a few percent) or can just sign it over to a creditor like the electric company or the phone company. I don’t take credit cards. (Also I don’t receive federal “stimulus” checks having not filed a tax return since the mid-1970s, and do not participate in Socialist Insecurity or Medifraud.)
I buy money orders to pay bills.
Been doing things this way for so long that to me this is the normal way to operate.
Jason – I feel obligated to needle you. RU SURE you’re a member of the TRIBE? I’ll take your word for it, but you are one UNIQUE fellow, to say to the say.
As for running a strictly cash business, you might do well to not open brag about it on the Internet. While perhaps you’re just too “small potatoes” for the IRS or your state to waste time on, you never know when some bureaucrat will go to the trouble, either to earn that promotion or b/c the agency wants to make an EXAMPLE of someone.
However, I agree wholeheartedly with you that this is a great reason WHY personal income taxes, instead of being allowed by the questionable 16th Amendment, should be repealed and strictly OUTLAWED. Although certainly tax revenue will come from somewhere, the intrusion on people’s private lives alone ought to be odious enough to any freedom-loving folk. Add to that the cost of having to compile and report tax information, and the burden of parasitical “services” like accountants and ta attorneys.
Parasitical accountants and tax attorneys! I am shocked, Doug, just shocked.
But, very just like lawyers and doctors, we aren’t too bad when you need us. 😉
Although I’ve been around members of “the tribe’ most of my life, being an insular group (they don’t proselytize) I don’t know that they would even want me! Not to mention that I’m really not interested in giving up bacon (yum!) or undergoing a rather painful operation. The former means I won’t be going Muzzie any time soon either. 🙂
After more than 40 years of being out of “the system” I’m at the point where I really don’t give a damn about the IRS or their nasty little siblings in the states. Best to go to the federal pen though if it comes down to it. Fed minimum security prisons have much better conditions than the gulags of the states. (I know people who have been “guests” of both kinds of places.) That’s probably because Club Fed where the government’s own criminals wind up when one of their own needs to be made an example of.
That’s BEAUTYFUL, Jason (Not having a bank account, etc.).
O’d always done the same- ‘cept for the last 20 years I got a credit card (for the interweb) and a checking account (Never keep more than a couple of grand in it), and I think the time may be coming when I may be getting rid of both (or at least the checking account).
THAT is practical Libertarianism! We don’t have to wait for the world to be made into a place where we’re allowed to be free- we can actually reclaim a lot of lost freedoms for ourselves right now, just for the cost of some inconvenience and not being allowed to play on Uncle’s playground.
I was never more free than I was as a teen- even living in NYC then- when I didn’t have a bank account nor driver’s license nor really any papers (‘cept a boat registration and clamming license!)- nor credit card or anything.
The more privacy we give up; the more we subject ourselves to Uncle’s/corporate scrutiny and rules, the less free we become.
Yep, we disqualify ourselves from some convenioences, perks and goodies….but that is a small price to pay for the level of freedom we gain.
I have NEVERE filed a tax return (I don’t even have to- keep my “income below taxable level), and I will NEVER narc on myself nor be a tax slave no matter what- They’ll have to kill me- and like ol’ Alexander Solzhenitsyn said, I will make the cost of them doing that very high.
Archie Bunker: “That’s the good thing about the Jews- they don’t want you!”
**” RU SURE you’re a member of the TRIBE?”**
If Jason were a woman, he’d be a shiksa! 😀
Raider Girl. I just saw a YT about how Biden’s trying to spin the federal tax to take everyone’s land. 100 acres valued at $400K, ridiculous. They can just come evict me, one round at a time.
Helot,
Slick Willy forced the banks to loan money to people who could never legitimaterly qualify to borrow it (Because they couldn’t afford to pay it back). You had people with mortgage payments that were 50-75% of their income, or more! THAT brought a huge horde of new home-buyers into the market- causing greater demand for a commodity that was in limited supply, which forced prices up; caused people to be willing to bid higher prices (Since many of those buyers were playing with Monopoly money- as both those with sub-prime and prime loans were banking on endless RE appreciation, and thus were thinking they’d just sell in the future and pay off their mortgages and new second mortgages with part of the “huge profit” from the sale).
That also caused developers to start furiously building new houses, to try and catch up with the demand.
Of course, after a couple of years when the welfare recipients and factory workers with $250K mortgages stsarted defaulting en masse, suddenly there were a ton of foreclosures on the market with no buyers- thus causing prices to implode, and making it hard to impossible to sell the scads of newly built houses just starting to flood the market- in some places, like CA.’s Inland Empire, you had entire subdivisions of unfinished new houses just abandoned. Places like Lehigh Acres, FL. at the height of the crisis had 42% of it’s housing stock in foreclosure! (My friend picked up a nearly new house there, with inground pool, for $50K- a house that had sold a couple of years prior, when new, for $170K!).
Yes, there were plenty of prime mortgages involved too- but they didn’t cause the crisis- they were merely accessories- as stated above, many people with primes took second mortgages, or refied paid-off houses, or bought additional properties while borrowed money was cheap and easy to get (Money they would not have qualified for prior to Slick Willy’s loosening of standards)- banking on selling in the future at greatly inflated prices- but of course, prices fell instead of increasing, after a brief period, and thus even many ‘primers’ were upside down- owing substantially more on their property/ies than they were worth, and even if they didn’t have to go into involuntary foreclose (which many did, due to the economic circumstances the collapse of RE created) many just walked away- I mean, who wants to be in debt for a house they bought for $450K at the height of the market, when that house drops in value to $285K, even if you’re prime? Just walk away and buy a similar or better house, and halve your mortgage payment, and maybe catch some appreciation when things recover. So thus, the subprime fiasco affected virtually everyone who had a mortgage. And the primes didn’t cause it, because the primes were around long before ’08, just as they are now- but the behavior we saw in the early ’00s was an aberration, caused by….GOVERNMENT and it’s monopoly over currency/banks.
I see that resistance to the truth is a bit strong here.
Mr. Jones left his older blog online for reference, you can find out how Prime led the fall, if you so choose. (Send me a big stack of cash and I’ll look it up for you.) Or, ask around on his new blog?
He has been documenting the bubble since 2004 or so, he knows this area better than anyone I know of. Some truths are harder to comprehend than others, for sure.
Here’s his older blog http://thehousingbubbleblog.com/index.html
Anyway, “goobermint” didn’t cause it, and all the rest of the sheet going on now, rather; such a thing as regulatory capture by powerful individuals and groups enabled it, combined with the failure of Christian churches as an institution to prevent it, of which, only Christian churches are a way out of this giant mess. To see that, you’d have to read some of the latest from Bionic Mosquito. But, that’s hard and takes time.
Thanks for reading and for the replies.
Have a nice day.
Hi Helot,
I knew a lot of people back in the early 2000s who “refi’d” their homes to get cash for whatever. Several of these lost their homes when the whole thing imploded.
Some are ok with the risk of being leveraged and make money this way. I hew to the old-fashioned view that one ought not to gamble with one’s home, which ought to be primarily a place to live and not a thing to be leveraged. Once you’ve paid off your home, then perhaps set aside money that would have gone toward the mortgage and use it for investments and so on. But never touch the house. That way, you’ll always have one.
“But never touch the house. That way, you’ll always have one.”
In a country that USED to respect the rule of law and private property, that was sage financial advice. However, is YOUR property ever “yours”? Don’t pay the annual “mulcting” known as property tax, and just see how long it remains “yours”. And even strictness in payment of ones taxes is no guarantee of enjoyment of “your” property. Zoning laws can be bad enough to amount to a “taking” of your property. For example, you can have had a patch of ground some miles out of town, and long been making a few bucks by raising turkeys. Then, some developer who’s got friends on the County Board of Commissioners builds a 300-unit “upscale” residential development, which street lights spoil your once nice view of the night sky, and your peace is disturbed nightly by whatever crap goes on “over there”. Let alone the traffic jams in the AM and PM on the once “quiet” two-lane road, and, BTW, when said traffic causes the county to expand the road to four-lane, YOU get presented with an assessment for, say, fifty grand on your 200 feet on frontage for “improvements” which you neither asked for nor will you benefit from. So, either you empty your portfolio to pay it off, or take out a mortgage AGAIN on “your” property.
Never mind that at least the State shelved the idea of constructing a bypass highway that would have run through “your” property, subjecting it to seizure under eminent domain, and you’d spend years and huge legal fees to get anything remotely near “fair market value”, since the State that would steal it from you gets to decide what’s “fair”. Thanks to the “Kelo” SCOTUS decision of 2005, passed during the misguidance of the POTUS that you term “The Chimp” (my epithets for Bush 43 being LESS dignified), the County, since the developer that built the 300 homes that already have proved a bother to you had approached you to buy “your” property, and either he was unwilling to meet your price or you weren’t interested in selling, persuaded the Board to condemn “your” property for “redevelopment”. This, BTW, after several years of being harassed for complaints about the “smell” of YOUR turkey hatchery, and the roadside stand that your wife operated to sell garden produce and fresh eggs, a spot well-known to locals, is continually inspected and “cited” by the County “Health” inspector. Although you hire an attorney to fight it, it ends up being more a battle of how much you’ll get for what was once “your” property, as the issue of the County being able to just take it for the sake of raising more taxes has, unfortunately, been long-decided.
https://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
Eric, the events of last November only served as an “in-your-face” reminder to Americans that their country is NOT “theirs” anymore, and hasn’t been for quite awhile. It’s now a place run by the “Golden Rule”, so if you have LESS gold than the others…look out!
All true, Doug – no argument.
That said, I bought a place in a rural area not likely to be visited by the ills you mention while I live – or over my dead body.
eric, I don’t know how the IRS collects anything since they have no right to wages of US citizens.
I got along fine with an auction company that had no problems dealing in cash. I hid my cash, genrally 10-15k in the console of my pickup.
I’d go to auctions and buy stuff for a few pennies on the dollar, sometimes less. I still have a barn full of electrical and a/c parts I valued at about 15K at one time. Then the IRS made everyone report all exchanges of money at auctions.
I bought thousands of dollars of electrical and a/c components for nearly nothing. I still have most of it since the people I sold it to stopped buying from people not on the seller’s list. Just e me and and I probably have what you want.
8, the IRS does it with fear, intimidation, brainwashing (the “fairshare” and “take home pay”) as well as bringing overwhelming force to bear when it suits them. Even the federal judges are afraid of the IRS, particularly after Judge Claiborne was made an example of back in the 1980s.
Morning, Eight!
It’s simple: Force. Threats and intimidation based on that force. Pay us – or else. Most of us pay because if we don’t there is the threat of overwhelming force we’ve got no chance at all of combatting. Assuming we have anything that can be taken, that is. You can flip them the bird if you’ve got nothing to seize. They probably won’t bother with you, in that case, because it’s all about the money.
To me, this illustrates the Satanic immorality of government and those who are complicit with it:
The fact that someone can be a professional leech- i.e. be given someone else’s money to pay for their and their whole family’s support- i.e. be handed continual free money, food, rent, medical care, child care, edumacation, heat, phone service, yada yada, and that is ‘perfectly fine’ and sanctioned by government…..but yet it is a ‘crime’ to merely keep the fruit of your own labor or investments with which you support yourself and your fambly.
THAT is Satanic, immoral, and absurd. It is the diametric opposite of private property; it is the4 legitimization and institutionalization of theft. It is punishing the productive and rewarding leeches.
And just like the ‘Rona BS, terrorism theater, and all of Uncle’s other ‘wars’- (and even his real wars) the very victims of it who if they were to oppose it could easily stop it tomorrow, instead are willing participants and complicit co-conspirators who will gladly help Uncle condemn you to the gulag and take even more of what is legitimately yours if you have the audacity to resist being robbed.
eric, we got a letter years ago telling us we owed them. They didn’t say for what reason nor a given amount. We had no choice but to ignore it for the most part. When you’re broke, you’re broke.
To this day we still don’t know any specifics. They finally closed it out as far as I can tell.
The truth is though I learned a few years ago that if you want to sue them you have to wait in line for years they have so many suits against them.
The law clearly states they can’t take money from legal citizens and not for paychecks and other sources of income. It specifically says it applies only to foreigners who make money in the US. I still don’t understand how they can charge anyone making legal money in the US.
Eight, you goofball! You’re acting like ya think that they’re actually subject to their own laws!
Hi Douglass,
The Kelo decision was the biggest abomination ever against property rights by SCOTUS, but they’re fully aware of who pays their salaries. As you’re probably aware the development of that stolen property never went forward, adding insult to the injury of the homeowners who lost their property.
LOL
This is brilliant, helot. Mr. Jones antidotal evidence you will take to the bank, but mine is irrelevant? You then feel the need to extort me for cash when I ask you what article backs up your theory.
Nice.
What can you say to someone who is in the midst of a delusion?
Back when subprimes were fiat-ed into existence, I saw people on Long Island who barely made $10/hr. buying $275K houses. (“I can use my entire pay/welfare check, get a part time job to buy food and pay the electric bill, have Funny Uncle Joe move in and use his crazy check, li’l Leighsuh and Brittyneigh can babysit and walk dogs….”) and before as year was up, they were hopelessly behind in payments….it’d take a while- but by year 2 they’d get foreclosed on, and by then, there were already so many foreclosures, they could stay in the house another 3 years, squatting, ’cause the banks would rather have that than half of the houses on every block being empty.
—>Read my lips: THAT COULD NOT HAVE HAPPENED IF THE BANKS WERE NOT FORCED TO LEND MONEY TO THOSE WHO COULD NEVER QUALIFY TO BORROW IT UNTIL SLICK WILLY MANDATED IT. That is why we never had such a real-estate crisis until such time that subprimes were mandated.
Nunz, it’s not because the banks were forced to do anything. Money was cheap and they had a corner on the market. Did you not notice in 08 they not only lost their asses but the govt took our money and paid them billions for their fuckup? It’s always a win/win thing for big banks/
Thing was though, Eight, they were forced- starting in the late 90’s. Of course they didn’t lose and got bailed out….banks are just a government franchise; they’re the ‘licensed’ dispensers of thin-air dollars, just like pharmacies are the licensed dispensers of pills- only all of the banks products come from Uncles slave plantation- like Fannie-Mae and FHA……
This is all so silly.
Payments on a lawnmower.
My Dad taught me right: making a monthly payment doesn’t mean you can afford it.
That’s goes for everything from cars to credit cards and, yes, lawnmowers.
I’d rather get an old lawnmower and rebuild the engine and running gear than go into a “payment plan” for something I’m using less often than some of my old muscle cars.
Ditto, James –
It’s my rule to never buy anything I can’t afford to buy. Which means, if I can’t pay for it in full, then I cannot afford it. I have credit cards and use them sometimes as a convenience. But I never carry a balance. And I never put anything on the card that I know I cannot pay off in full when the statement comes.
Some people use debt to leverage their buying power – to make investments and thereby make money. That can work, I readily concede. But it can also fail, catastrophically. I’d rather not have to worry about being able to make payments. One of the reasons I’ve been able to avoid Face Diapering myself is because no one owns me. I don’t have to work, except for myself – and my boss doesn’t make me wear a Diaper!
Eric – I use general rules with regards to spending:
1) Do you have to ASK how much it costs? Then either you can’t afford it, or you have no idea of the item’s true value (i.e., you haven’t done your “due diligence”).
2) WHY are you “whipping out the plastic?”. If it’s b/c you’re busting the budget to buy something, especially UNPLANNED (i.e, on a WHIM), and you’re BORROWING with the credit card to make the purchase, then how, pray tell will you pay the bill when it comes due?
The corollaries to these general rules are that (a) OF COURSE you know what an item SHOULD cost, more importantly, what’s your WILLING to pay and (b) There is use of a credit card in situations where you’re mitigating the fraud risk, such as handing it to a server to pay for your meal or buying stuff online.
The one situation where I absolutely recommend paying cash, as in literal folding currency, is when fueling up. Doing so has three benefits:
1. In many places, the “cash” price is discounted vs. credit. Or, if you pay with currency, you don’t get dinged for a transaction fee.
2. There has been a problem with illegal card readers inserted in those gas station pumps that have them, at times with the attendant’s connivance. Folks have used their ATM cards and found their bank accounts drained before they even left the premises.
3. With the ability to track a late model vehicle via built-in cell phone or transponder (the 2011 Fusion I’d leased some years ago controlled my max speed and “tattled” on me, yet another reason to NEVER LEASE), paying with currency makes it harder for the PTB to track your movements. The state-of-the-art of the latter-day Surveillance State is something that would have been a Stasi Kommandantur’s wet dream.
Douglas, we got our bank account hacked a few month back by a card reader getting fuel. Now I go in and tell the cashier I want to fuel up on X pump, go fuel and come back in and let them run the card through the machine nobody can hack.
I’m pretty sure I’ve seen a card reader removed and replaced in the morning and was back there in the evening when the same guy in the same work truck changed the readers again. He’d just made a great day’s pay. The cashiers couldn’t even see what he was doing since he had a work bed and the pickup was between them and the pump. I doubt they would have known about it anyway.
As far as mowers go, I bought a Troy Bilt 5 or 6 years ago. It did fine for 2 years and then something went agly with the electronics. I cranked it up and it died. It’s never made another try since. I’d be more worried about it but as it sits there in the sun, I realize I’d just be wasting money since the cattle like the grass around the house the best and I can avoid the patties and not have to worry about fertilizing. It’s just the longhorns that screw things up, like the finish on the car but I don’t worry about it since it had so many problems with the doors I’d spend $500 to fix and it would only work a little time. The driver’s door has had 5 openers and has had the inside workings replaced and I still can’t get in it. The wife can somehow open the passenger door but I can’t. Oh well, at 300,000 miles we haven’t lost much. We used to keep the gate shut to the farm but now we don’t worry about it since the wife is crippled and nothing can be done for her.
Frank Abagnale (Leonardo DiCaprio’s character in “Catch me if you can”) Explains it the best. Use a credit card for these transactions. If your debit card number is stolen you’re liable. If you’re credit card is stolen, the credit card company is liable. Just because you have a credit card, doesn’t mean you can’t pay off the balance at the end of the month. I have been doing this for years.
3 months ago we were hacked getting fuel. The credit union my dad was instrumental in creating told me they were on the line for those several hundred dollar expenditures. I was relieved but mad at the same time.
They did a great job of killing my card before it got totally out of hand. I was grateful for it but they are, by law, made to pay for these things.
Now when I fuel up I go inside, tell them the pump I want turned on, fuel up and go inside and pay. They have my license plate so they’re not worried I’ll drive away. Besides that, I’m the guy everyone trusts, totally not going to be charged for anything. OK, if you believe that I have beach front property in west Texas I’ll let go for cheap.
I don’t know how it works in other states but that’s the way it works at least for credit unions. I have friend who do the BOA thing. Their accounts were hacked for thousands each they had to eat. I’d advise everyone to not use those banks that get our money given to them as we just have.
There are really good banks everywhere. The friends who lost their butts with BOA lived in the same town that had the oldest bank in Texas and a spotless record.
So stupid me, I asked why they used BOA. Oh, stupid me again, they were all over the place and needed a place they could access easily. Of course they only lived in 2 places and never went anywhere. They were/are, simply stupid. Banks have ratings. Regardless of where you are, there are banks that are rock solid, just not those that get paid hundreds of billions every time we have a public screwing in this country. You can tell just by looking up which banks are part of the 7 banks given license to steal in 1913. Woodrow Wilson said he was afraid he’d just given the country away. I don’t believe that. He knew without a doubt what he was doing and made a fortune for doing so.
Get with it. We are surrounded by thieves, especially in the banking system. Once again, I advise you to watch the movie “The Big Short”. It puts it all into perspective.
For your friends that got taken at the pump, and then the BofA that refused to make it good, I’d say they should file a class-action lawsuit against it. If nothing else, at least the negative publicity, even if the matter never goes to trial, will likely earn them something for their trouble, and send a message that they won’t take that crap lying down.
The price probably jumps to $20k once you add attachments. You really have to be a serious lawn and garden hobbyist to justify one. Very small market for these machines – surprised they still exist.
And yeah, I highly doubt they last as long as the previous generations.
“I don’t know anyone that is purchasing an interest only or negative amortization home loan that many used in 2005-2007.”
There’s a whole lotta fraud, zero down & ninja loans happening right now, which ain’t much different and is quite the same as the last housing bubble. Ben Jones does a great job highlighting all the absurdity taking place.
RE: “All assets have the possibility of being depreciable – homes, boats, cars, furniture, artwork, gold/silver, cash, minerals, oil, etc.”
Notice I wrote, ‘depreciating LIABILITY’ There’s no other party on the other end of owning PM’s or anything you own outright, and doesn’t require maintenance and up keep or a big fat yearly tax and insurance requirement.
A person doesn’t even need to buff their gold, the way a roof or bearing needs replaced when they leaks or squeaks.
RE: “Honestly, if we really want to look behind the curtain debt to wealth would be a more equitable solution.”
Ahh, yeah, you may or may not enjoy Ben Jones’ blog, ’cause the above – the way I’m reading it – is exactly the ruinous thinking which enabled the last housing bubble, and this one, too.
Frank Shostak is one of my favorite Mises.org writers, he often says: real wealth – is savings.
Hi Helot,
Which banks are offering interest only or negative amortization loans? I have worked with most of the major banks out there (especially this year due to the amount of refinancing taking place). The banks requirements have become even tighter than usual. It is 15, 20, or 30 year fixed or bust. Not even small community banks or finance companies such as Mr. Cooper or Quicken are offering these type of loans.
Is depreciating liability a word you made up? Depreciation is an expense, not a liability. If you are referring to accumulated depreciation that is a fixed asset account, not a liability account. In accounting accounts must balance. If an individual or business makes a purchase it either goes on the balance sheet as an asset or the income statement as an expense depending if it has a useful life of one year or more. If it is financed it is then added to the liability account, but it is still an asset. If it is paid for then the cash account is credited, but the purchase is still either an expense or an asset. One cannot depreciate a liability only an asset.
Wealth is rarely ever taken into consideration when it comes to financing, that is the problem. A true view of someone’s net worth would illustrate if they could or could not afford the item that they were purchasing. The 2007-2008 financial crisis was caused by lending institutions not verifying the assets or income of the buyer. Remember the no doc and low doc loans every bank on every street corner in America was offering? The banks verified nothing, because the home builders were providing the banks very generous kick backs to push these loans through. If the banks actually verified they would have found that their buyer already had three mortgages charged to the hilt on three investment homes that they owned and their primary was carrying a first mortgage, second mortgage, and an additional line of credit.
Also, how is real wealth savings? One could have $10 million dollars in the bank tonight and wake up tomorrow morning with the dollar crashing and their wealth is now zero.
Real wealth is something that no one can take away from you….education and knowledge, a wonderful family life, liberty, the pursuit of happiness, not money in the bank. I am not insinuating that no one should save or watch their pennies. I believe we should live the life that we can comfortably afford, but real wealth does not rely on a fraudulent system where one’s assets could be absolved in a fell swoop.
Morning, RG!
I agree with you that knowledge, family and liberty have great value – obviously! But so also tangible items of value under your immediate control, such as land and a home and the things needed to keep your family free (and fed)!
I have long argued that the single greatest affront to liberty is the tax on property. The denial in principle of a person’s natural right to ever truly own a piece of land, his home. The other affronts – even the income tax – are incidental in comparison. If you can own your home/land – beholden to no one – you can be free and your family secure.
That has been taken away from Americans by Marxists – American Marxists, including your neighbors who support forcing you to pay for “the schools” you don’t use by forcing you to pay taxes in perpetuity on the home/land you can never truly own.
Good morning, Eric,
I realize tangible items are a means of pleasure, but are they wealth? Someone who has lots of assets and very little debt is rich, but are they wealthy? Not necessarily. Wealth is more psychological of how someone feels, not what they have. That is why we hear sayings such as “a wealth of knowledge”, “a wealth of education” not “a wealth of houses.”
An interesting fact: the average American’s net worth in 2020 was $748k. That is pretty high. Net worth is someone’s assets less their liabilities. We can analyze this data one of a few ways: 1. Many Americans are richer than what we believe, but maybe most of their assets are illiquid or 2. The rich are so rich that these figures are actually altered making the average American seem richer than what they are. 3. Data is like a balance sheet, it is constantly changing and can only provide us a look at a particular time because assets and liabilities fluctuate continuously so the numbers are therefore, irrelevant.
Hi RG,
I hugely doubt that the average American has a net worth of $748k. That flies in the face of stats regarding home ownership (not legal title, ownership) and how much ready cash the average person can lay hands on. I would be willing to bet that the figure stated is based on the value of their home – which most people do not own.
Wealth can be defined in many ways; one way I’d define it is not being beholden to debt. Which gives one time and freedom of action. That is a form of wealth of incalculable value.
There are a ton of retirees who live in extremely high value homes that they bought with gold-backed dollars in the 1960s, and paid off the mortgage with fiat dollars in the 1970s and 80s. They bought CDs that paid out guaranteed double digit interest during the Volcker fed and just roll them over. They have pension income, Social security income, and are scared to death of outliving their savings (because they watched as their parents did), so they live like paupers.
*Average net worth*
1 x Ultra rich $750,000,000
1000 x poor -$5,000 = -5,000,000
-$5,000,000 + $750,000,000 = $745,000,000
$745,000,000 / 1001 = $744255 average net worth.
Just an example but makes clear how ‘average net worth’ can be meaningless with mega millionaires in the formula.
I would be interested to see the actual figures for the $US individual net worth. Probably not too far from my example. Few people I know are much above net-$0 at the moment.
Hi RG. Where’d you find that 748k number? Just so ya know, I really respect your thoughts and opinions, and I very much enjoy reading your posts. I must say, however, that I find that number very difficult to believe. Most of the people I know are in debt up to their eyeballs with mortgages and car payments. They live paycheck to paycheck. Hell, half of them admit that they never even bothered to contribute to a 401k or any retirement account. I can’t fathom how they would have accumulated 3/4 of a million dollars on average.
Hi Floriduh,
I retrieved that information from the Federal Reserve. I am attaching the study that they conducted below. It is from the Fed’s Survey of Consumer Finances.
https://www.federalreserve.gov/publications/files/scf20.pdf
There is no doubt that the number is enhanced by including the richest Americans, but that is the means number that they provided.
I tend to believe that you are right, but I deal with the other end of the scale, the well off – individuals with hundreds of thousands or millions in retirement, incomes averaging $200k and above, paid off assets, many with rental properties, business owners, etc. So if I look at these figures on who I represent and what I see on a daily basis this isn’t shocking to me, but I also realize my outlook is cloudy and not reflective of the economy as a whole.
Oh, well you got it from the Fed, now I know fer sher it ain’t true!😉
Hi RG, as you note the high incomes skew the “average” to the high side. I believe the “median” , which is where half make more and half make less, would be more realistic. Tried to find what it is but not sure where to look.
Hi Mike,
There is no doubt that the number isn’t correct. I believe in the same report they stated that if you took out the wealthiest Americans the net worth averages $121K.
I don’t believe that figure either, not that I believe it is too high or too low, but it is impossible to determine someone’s wealth without everyone’s cards showing. These studies try to generalize it based on the number of homes in the US and try to estimate the amount held in the stock market and bank accounts. It is impossible to calculate.
We all know someone who doesn’t trust the banks and has $20K under their mattress, maybe someone else has been collecting gold coins over the last forty years, someone else owns a Monet, or the drug dealer who has 100 eight balls of cocaine for resell (I guarantee his $35K is not being included in total net worth).
Not to mention that assets are variable and ever changing. Someone can say that their house is worth $380K, but there is no guarantee they would be able to sale it for that amount. I won’t even mention the many businesses and people that deal in cash only.
The other thing I noticed (just from the job that I do) is we never take into account the fringe benefits that someone receives whether through their employer, the state, or the tax code.
The poor receive many benefits including the EITC (Earned Income Tax Credit) where if the taxpayer has two or three children it is very easy for them to walk away with an extra $5K, $6K, $8K worth of refundable tax credits on an annual basis. Of course, they are never taxed on it, but the taxman will happily double tax the people that receive Social Security.
I am a firm believer in numbers, but realize they are very easy to misconstrue without all applicable data being embodied.
Eric,
Do you believe your assets are under your complete control or does the government just allow you them until they need them? An example of this is eminent domain. I realize the government or commercial enterprise is supposed to pay a FMV of the item that they are taking, but does an individual truly have any say? I think we could all agree the answer is no. What the government wants they take which then means we really don’t own anything. Maybe the WEF slogan of “You will own nothing and will be happy” is already here.
Morning, RG –
Of course. I’m very aware that my home/land could be seized at any time by the government. That said, it’s incidental to the point I’ve been trying to make regarding the normalization of debt to finance a facade of affluence. The person who owns his smaller/less prestigious home and his paid-for but older/not-as-fancy vehicle is far freer in some very meaningful ways than the person who is in debt and must make payments to maintain his facade of affluence beyond his actual means.
But in truth, is he really freer? What is the difference between the debt man and the government? Nothing. They both can repo at anytime. We live in an illusion that we are free because we don’t carry debt. I think it is very hard, even for libertarians, to comprehend that this country no longer has a free market system.
I think we perpetually hope that if we “own” everything we can get lost in the skyline and hope they won’t or can’t find us. How many paid off farms did the Soviet’s leave alone when communism was introduced to the USSR? In retrospect they came in and took everything – paid off or not.
Don’t get me wrong I also suffer from the illusion that deep down in my happy place that I truly own my home, my cars, my artwork, my guns, my clothes, etc. Honestly, I have probably made it easier for them….no middle man to deal with. I have also tied myself down with assets believing in the long run that I would get a fair price for them. I may or may not. Maybe the last year has made me more pessimistic. We have seen government in action. We have seen her destroy businesses and livelihoods that were supposedly not hers to destroy, but she did nevertheless. Do we really own anything?
Such has been the nature of things since the dawn of time. Recognition of private property only exists where the property holder has the legal and/or physical means of defending it. Note that even in the hallowed Constitution that the taking of property, rights, and even one’s very life is not strictly prohibited, but subject to “due process of law”. It’s that “due process” thing that’s become rather…SQUISHY. Suffice it that it’s become the great loophole in which the all-powerful “Gubmint” can take all you have, including your LIFE, at its whim. Freedom has become an illusion.
I understand the gummint can take everything you have at any time for any reason. Been there, done it.
I have a home not worth anything where it is but the land is worth mucho. We were hounded by the IRS for money we owed….except they never said why we owed it. Now they say” forget it” or something along those lines.
Whether we own the farm or not, they’re not keen to come after it. I suppose if they decide to do so, we’ll have some sort of shitty, probably ending in a shoot-out.
We’re in a valley so they have us at a disadvantage. But I have been known to shoot yotes at 100 yds with my .38 Super Combat Commander and have shot yotes at 300 yds.
I don’t really want to think about those things. They can have the damned farm when the wife and I are gone. What do you farm when you’re dead? We’ve pretty much had it out with LEO’s of various types. I just stood and dared them the last time to fuck with me when they were highly armed and I and the wife weren’t armed at all, just feet and fists.
This country has gone to the scrum of the earth. I don’t especially like one neighbor but for the most part, we all get along, most probably because it’s a mile or two between us. I treat my neighbors as they treat me which means they fuck with me and I am about to fuck with one of them with the state and the federal EPA. The owner of the property is my neighbor but rents to a person who doesn’t care about how his neighbors feel. When you can’t grow a garden or keep fruit trees alive because of overspray of various chemicals then there’s little good back and forth. I’m about to take one to court and if that doesn’t work, I’ll take the judge to court since he lives only 3 miles from me. I’m not saying it will be a court of law as he sees it.
**”But in truth, is he really freer? What is the difference between the debt man and the government?”**
The debt man is DEFINITELY going to come if you don’t make the payments; and the interest you pay in the meantime is yet another major tax; The obligation to make payments means that you must generate income at a certain level, which you also must pay taxes on.
The government may or may not confiscate your property- the majority of ‘Mericans have managed to avoid that thus far- but no one escapes the banker, unless they pay and pay and pay……
Hi Nunz,
Good morning.
You mean like what happens when someone doesn’t pay their real estate taxes or their income taxes?
Do you believe Lowe’s is coming for your $1500 refrigerator if you don’t pay it? Do you believe the county won’t bother you if you don’t pay your personal property taxes totaling $1500?
The government is allowing you the pleasure of using your own assets. If we don’t pay the tax they will come for the asset. It is no different than the banker. Let’s be honest, most are more fearful of the government than the banker, which is why they pay their taxes first and everything else second.
Morning, RG!
A difference here is that the banker/lender is optional; one need not be in hock to them. In which case, they have no power to threaten you with anything. This also means, moreover, that one is more free to give the finger to an employer who demands Diapering, say. When you don’t need as much money, you have much more freedom.
Now, granted, the government is always holding a sword of Damocles over the head of a property owner. You pay them – or else. But if you don’t also have to pay the bank/lender, you can probably afford to pay the government.
Good morning, Eric. 🙂
I think we can argue the case that one is freer when they have nothing tying them, whether it is a home, a car, a boat, a relationship, a family, etc.
I am helping the WEF make their case. ;).
Why do we own assets? We can’t take them with us when we die. What is the point of toiling each and everyday to be tied down to something? We then have to save or rise for work every morning to pay the taxes on something which we foolishly believe we own, but really only have the pleasure of using.
Our minds have been ingrained that assets are worthwhile things to have. That being rich is something to strive for. Is it? Basically one is paying for the use of something until they pass and then it becomes the states until the executor of the estate pays countless fees and taxes for them to release it to go to someone else who foolishly believes they own it as well until they pass.
It is a sick cycle.
Morning, RG!
Your points are entirely valid. “Stuff” chain us, certainly. But it is also freeing to have a place you can call your own, even if the government forces you to pay to maintain the fiction of ownership. One can still pee off the back deck (well, I can – no neighbors to see me do it).
And having a paid-for car, while still requiring the money to pay the taxes/fees, is freeing in that it makes it easy to go wherever I like anytime I like.
What I wish were possible for all of us is true ownership. The right to buy – and so, own – a piece of land beholden to no one. That one could retire to, live entirely free of the need to earn money except as necessary to pay for things one cannot otherwise easily acquire. But without the legal compulsion.
It’s a nice dream, at any rate 🙂
Hi RG,
What Eric said- The lender is optional. It is another layer (a voluntary one at that) of servitude and potential forfeiture which one should gladly eliminate if they can.
To someone like myself whose property taxes are <$300 per year, the tax man's threat is negligible- though despicable.
I don't have to do much to pay that property tax- and I don't have a choice, since it is not voluntary, and one can not truly own private property in this country today- but if my place were financed, I'd be obligated to work harder, and to generate income 'no matter what'.
Think of the person who made their livelihood by owning a restaurant in a place like NY or CA which is now prevented from doing business; or the landlord who has a 10 unit apartment building but is now prohibited from evicting anyone, even if they haven't pasid rent in a year. He will not only lose his business(apartment bldg) but will likely lose his home and other financed assets as well (We haven't even begun to see the full ramifications of what has transpired over the last year, yet!)- while someone like Eric or myself who is not in debt, does not have to fear losing our stuff, nor are we forced to wear a mask or take a shot in order to keep a job lest we lose everything.
Debt is as much slavery as is government tyranny- but it is slavery which people freely choose to submit.
RG, I’d have said ARABLE land, but that’d also depend upon having the means to DEFEND it. Just as it’s been since the dawn of time. You’d best believe that when Moses was given a HUGE “demotion” and no longer a Prince of Egypt, but having to wander out in the Sinai, when he came to Jethro’s well, the old sheepherder welcomed having another strong young fellow, not only as perhaps a suitable husband for one of his daughters, but also to help defend the well, the herd, and their grazing lands. Hence also why Jacob was “blessed” to have so many sons (his rather loose interpretation of marriage being a factor to sire them), as at least he’d soon has his own army, even though several of his sons, Judah especially, were some real conniving bastards.
Its amazing how the attitude to debt has changed in about a generation. Maybe its just me – but when I was a kid I remember in my family we never got anything (but real estate) on debt. And (yes it may sound snobbish today) but we looked down on people who got stuff on credit… yes they had better stuff but about a decade or so of my parents doing this we had pretty nice stuff as children – and always paid for cash.
On a separate note I remember as a kid there was something called lay away at K mart. I suspect the current buy now pay later model basically killed that…
I do love the modern phenomenon of placing a bold figure next to the product being advertised. You look at the tractor, and next to it appears $3,900. That used to be how things were advertised. There was a brand, a model, a picture and a price. Simple.
“Hmm, that sounds like a reasonable price for such a tractor.” you think.
Then you read “off MSRP”, and realize then, that the price must actually be at least an order of magnitude higher, if they’re taking that sum OFF MSRP.
“Hard pass” is the next thought.
People who take on debt are slaves not only to their lenders, but to their employers. Employers that may say, get the jab to keep the job. Uh oh.
This whole issue of payments forever or why Americans are broke is, on the surface, an issue of personal economic preferences, risk tolerance, and financial savvy. Reasonable people can have different approaches. Taking advantage of 0% financing for 12 months on a new fridge from Lowe’s that you pay off on time doesn’t mean you are living beyond your means or are a financial illiterate. It shouldn’t really matter to me what choices other people make with regard to their own finances, provided they don’t aggress against me or my property and fully bear the responsibility of those choices.
Yet, and I am guessing this is at least part of where Eric is coming from, I have noticed that there tends to be a correlation between the amount of appreciation for political freedom and liberty a person has and their level of economic profligacy or aceticism. To some extent, financial freedom begets overall freedom. And like the unfree authoritarian collectivist political system we live under, the parasitical financial system that encourages profligacy tends to create adherents to that system that don’t feel enserfed (even if they are) and don’t see anything wrong with it. Furthermore, you don’t really know who’s truly overextended and, in my experience, very few suffer real consequences. It is a parasitical system after all, not a kill the host system (yet, although maybe since last year).
Personally, I’ve existed in both paradigms and my transition from, let’s call it a “matrix” lifestyle of 60 hr. work weeks, long commutes, big income/debts, including new cars and payments forever, to an intentional family-focused liberty oriented lifestyle coincided with a move to self employment and preferences for the value of time over money and outright ownership of assets vs. debt schemes.
Debt slaves DO effect the financially prudent. They drive prices ever higher to the point that nobody can afford anything without incurring debt, those born with silver spoons excepted. If usury was abolished product pricing would have to conform to the market. There would be “starter” homes and affordable new cars since people couldn’t buy what they can’t afford.
All of it comes from unlimited money printing from the FED. The zero percent financing on something you would buy anyway makes sense, but it’s enabled by unlimited dollars. It wouldn’t be possible with sound money. What would be possible is real savings rates. The price inflation of everything besides salaries is also the result. With this much unprecedented manipulation of the market, there really isn’t anything that makes sense. Whether you buy GameStop or stash the dollars under your mattress, it’s a risk either way. Anyone that says they can make a logical argument for what the future will hold is lying. There is no good way to predict it.
**” Taking advantage of 0% financing for 12 months on a new fridge from Lowe’s that you pay off on time doesn’t mean you are living beyond your means “**
It kinda does. The 0% gives you absolutely no benefit over just paying for it outright- so it reaqlly would only appeal to someone who doesn’t have the cash- or someone who could afford the $285 Roper scratch n’ dent or the $125 used fridge, but who instead wants to $1200 side-by-side. Then you have to give Lowe’s all of your personal info (which gets shared by several other institutions), and then when ya miss a payment because ya went on that “free” cruise to Timeshare Island…they jack the interest up to 29%…… (And then they don’t even carry the $300 Roper, because no one buys ’em because they can all “qualify” for the $1200 ones 🙂 )
Again, why do you care? If it doesn’t affect you or you disagree, don’t do it. This isn’t doctrine but preference.
Did the RE bubble of ’08 us evren if we didn’t participate?
Lots full of $75K pick-up trucks affect us too- assuming we desire to buy a simple $25K one that no one cares to make because there are enough people willing to go into massive debt for the others.
Ditto a lack of $1500 cars for the teenage driver, ’cause they’re all bought-up by the BHPH lots and sold for $4K on payments, etc.
I would argue the 08 financial crisis consequenced those who deserved it (bailouts of cronies by gov’t notwithstanding). With respect to cars, it sounds like the market is responding to consumer preferences that you disagree with. What’s the alternative? “Mandating” thrift? That starts to get kinda communistic.
Hi Zek,
I don’t especially care whether others choose to live beyond their means/go into debt they cannot support. What I object to is the collectivized consequences of that. The losses incurred by these people are reflected in the general increase in prices; which also go up because of the artificially created “spending power.” It is among the main reasons – the other being government – why one cannot buy a simple, inexpensive new car or even find one with a manual transmission. The financialization of everything is hugely responsible for the mess America is in.
Part of the fix is to recover the cultural values of thrift and of being careful with one’s money. Another part is to insist that those who are not – including credit issuers – be held solely responsible for any costs incurred by their profligacy.
There is a chicken or egg element to this. Is there a voluntary element to our marketplace? Or is it all imposed from the top down? I start from the position that it’s a mixture (moving more to top down), so while not a pure free market, there is still a voluntary aspect to it. Nunzio mentioned willing buyers. For all the market distortions you mention, no one is forcing anyone to buy anything. For instance, your preference (and mine and others here) is to drive older paid off vehicles. If the majority of others acted similarly, I believe the offerings would change. The market would react. But they don’t. For reasons perhaps we dislike or disagree with.
I understand your points but, obvious gov’t interventions and unaccountable deadbeats aside, I think there is an almost anti-market aspect to ascribing collectivized harm or consequences to you and everybody else from the voluntary purchasing preferences of others. I worry about the implications of that when applied in other contexts by people who believe in gov’t as the fix.
Trouble is they’re not really voluntarily purchasing preferences so much as Keeping-Up-With-The-Joneses-itary preferences.
A consumer majority made up of braindead yuppies simply going along with whatever is put in front of them by the corporate crony-capitalist govt-regulated market. They don’t know what they want until they’re told what they should want or until they see what their neighbor’s got.
We all know govt aint the fix, it’s the root of the problem.
Individuals can’t have organic, genuine preferences of their own until they stop collectively chasing after every stupid widget that the youtube ads dangle in front of them just because that’s what they see other retards giving in to.
And then the rest of us who are interested in liberty above doodads get screwed out of practical, affordable, low-tech choices.
I mean people can always try building up a new market for whatever based around free choice.
But govt will inevitably sink its teeth in and compromise it like they’ve done everything else, goddammit.
I think the beef with it, is that it affects the market overall in terms of what’s available and affordable for those who *are* willing to pay cash and who have “zero interest” in financing stuff they can buy and own outright.
But really when I see advertisements like the tractor one Eric mentions, they seem to speak more to a pattern of conditioning people to look at things in terms of monthly payments, quite likely with the end game of getting them to gradually forgo ownership altogether..
“You’ll Own Nothing, And You’ll Be Happy”
> The 0% gives you absolutely no benefit over just paying for it outright
It depends. If the money you’d use to pay for a new fridge is earning interest (even a small amount), the longer you have it in your accounts, the more it works for you. Spreading payments over 12 months will do that, and as long as you make damn sure it’s paid in full before those 12 months end, you’ll have a paid-off fridge and maybe a few bucks extra in the bank.
If you’re not earning any interest on your accounts, though, then none of the above applies.
Hi Scott,
Financing something you have the means to pay off is nor necessarily a bad thing; the bad thing, as I see it, is the way financing encourages people to live beyond their means. They way it encourages economic enserfment. In my opinion, financing ought to be resorted to when there is no other way to realistically acquire a major item, like a home or even a car. But when it used to finance appliances and such, it is indicative of enserfment.
4000/25=160
160 silver dollars will buy a new lawn mower with the John Deere logo.
At 2.00 dollars per hour, 90 percent silver content in the dollar, coin or silver certificate paper dollar, 4000 dollars per year, 1/25th of it will buy a new John Deere lawnmower in 1960 dollars or 160 dollars.
Two weeks pay in 1960. 2000 dollars per week income in 2021, 100,000 dollars per year.
Wheat sold for 1.60 per bushel back in 1960 or 40 dollars per bushel in 2021 dollars.
In 1960, at the end of each day of work at the dealership, mechanics were paid in cash, otherwise the next day, they would be someplace else.
Fiat schmiat, not hard to see what does happen with no sound money, useless fiat doing the work for the financial world. Fiat systems provide the greatest potential for skimming operations and at your expense.
A paycheck is a skimming operation; just ignore the obvious.
The average yokel local run-of-the-mill garden variety schmuck is getting the short end of the stick, taken to the cleaners. You’re lucky enough to get to pay for it all too. How does Nancy earn her clownbucks other than through you? Anyone? Bueller?
If anybody is truly out to lunch, it is Kameltoe. She can’t care about you, just isn’t going to happen, human nature rules.
Even a fifteen dollar per hour minimum wage is far short of 25 dollars per Troy ounce for silver. Minimum wage in 1956 was one dollar silver coin per hour, 25×40=1000. If you don’t earn at least one thousand dollars of fiat per week, you are not anywhere near where it all once was. Hence all of the stimulus, the stimulus is nothing more than preventing open violent revolution.
There’s two kinds of people, peons and shitons.
At least you have a choice.
THAT, my friend, was the cornerstone of mankind’s mass enslavement- when people gave up the increase of animal husbandry, farming, trading and the practicing of independent skills(trades) to trade their time and labor for wages. Men can no longer produce for themselves; no longer profit from the increase of the ground; must rely on easily manipulated currency and artificial markets, debt, etc. are easily controlled by those whom they must serve as defacto slave masters….. They are truly slaves, who are born to provide manpower in exchange for tethered subsistence, and in addition, must pay taxes on their slave wages, when earned, spent, saved or profited from…….
The FED is pretty responsibile for everything. All the problems like “wealth inequality” come straight from uncle Jerome.
Ever consider acquiring SHEEP? They both “mow” the grass and FERTILIZE it at the same time.
I bought a used JD 345 ( liquid cooled, power steering, all hydro) with a 54″ deck low hours, nice shape, service records, stored indoors, cracked plastic hood delivered to my house $900 on Offer Up. Great mower, cheap price.
I have not earned the right to write a check for a new one so I bought what the best quality I could afford. Good enough and still debt free!
All the new garden tractors and riding mowers are plastic junk. I have a Cub Cadet model 70 mower from the 60’s when they were made by International Harvester with a one lung Kohler engine, cast frame, all steel construction and a drive shaft. Anyone with basic mechanical ability can keep it running forever. I think I paid 300.00 for it
My other tractor is a 1949 McCormick Farmall cub with a 4 cylinder flat head, woods 5ft. mowing deck, moldboard plow, wheel weights, snow plow, and tire chains that I paid 2,500.00 for. Once again a beauty of design and function and easy to keep running. They want that much and more for a plastic riding mower at the big box store
Everything is plastic junk in terns of equipment that’s meant to be tough. Plastic is cheap to make, and that has kept the prices from growing as fast as they would without sacrificing quality. This is how inflation has been hidden from us – the government is steadily degrading our purchasing power, while companies make their products cheaper than they would be if they retained quality. The plastic also offsets the additional cost of the safety nannies.
It pains me to say this, but as a former political refugee from behind the Iron Curtain, I see the US going that route, increasingly fast. When we escaped the commies, America took us in, and I was so happy and grateful, but now, the propaganda we see is far greater in scope than anything under the Soviets, the economic meddling is just as profound, it’s just that America has so much wealth and critical economic mass developed in the past, that we don’t see the damage as much. Our wealth is being drained away, and we’re slowly getting poorer. Eastern Europe and Russia didn’t have much to start with, so the damage was felt much more immediately, while we have to get much poorer before we’re starving. You’ll see this as choices in stores evaporating, then once there’s no choice, prices going up, etc.
Amen OL. I have been saying the same. It seems like what we are witnessing in the US is worse than what we expirienced under European communism last century. It appears that the so-called west is turning into not a communist nation, but a nation of useful idiots who will be slaves to communists in the future. What gets me is that it is even happening in former communist states like my home of Slovakia. These are places that should know better.
My moron ex-neighbor sold his pristine ’70s Farmall for a crappy Mahindra.
It seems like such a con, like trying to trick the poor into thinking they aren’t poor so they continue trying for the “american dream,” working hard, not rioting, etc. “How can I be poor? I have a 64-inch TV and a new tractor?” Not that I am against buying things on time, as they used to say. It just seems like there’s fewer and fewer people who can afford to buy what they want outright anymore. I’ve even seen payment plans offered for coffee makers.
The very cool item I want really bad but don’t actually need and can’t really afford is a 2020 Mustang I have to pass every day on my way to work. It’s been on the lot for quite awhile so I’m guessing it’s not being offered at a very good deal, but the fact that it’s a stick shift might have something to do with that, too.
My husband looked it up but I told him not to tell me. He very much wants me to buy it, but I’m still making payments on my 2016 car. My answer to him: I’m buying a house, still paying for my worthless college education AND have two years left on my car. A new car will just have to wait. (My house is in my name only and I make the payments.)
I paid off my 2006 and enjoyed several years of payment-free driving.
If I had been smart, I would have continued to make the payments to myself and then bought my current car for mostly cash, thus enjoying a new car payment free and saving myself the interest. And I would now have something valuable to bargain with if I wanted to trade it in on my dream car currently sitting at Hubler Ford in Franklin, Ind.
That’s the downfall for us po’ white trash folks. We don’t think ahead or have the ability to delay gratification, so we end up paying more. I have no memory of what I did with that extra $390 a month for four years. I hope I enjoyed it.
Hi Amy,
Everyone’s mileage may vary, but I have gotten pretty far down the road by never buying anything I could not pay for in full at the time of purchase – except my house. My first house. I may drive an almost 20-year-old truck and I live in the “sticks” and wear clothes I bought at thrift stores, but I’m much less po’ than most people I know because I’m not in debt to anyone.
**”trying to trick the poor into thinking they aren’t poor so they continue trying for the “american dream,”**
The sick thing is, thes people that go for this aren’t poor; the truly poor can’t get the credit, nor do they have the need for such stuff. The people who live on credit are rich…..but they waste their riches on crap and interest. I see it so often with people I know- people who literally make 10 times as much as I do…but who have no cash, because they want instant gratification, and they own nothing but depreciating assets, and nothing of real value, nor do they own anything outright.
They spend more money in a year than I make in 10, but unlike myself or Eric, they have nothing to show for it a few years down the road, other than a few toys and lots of bills. They could literally be set for life if they’d live modestly for 10 years and just save; they could own real estate outright…live where they want; not have to work hard…but instead they destroy their health faring sumptuously like kings, throwing parties for people they don’t even like, furnished with steak and shrimp and a thousand dollars worth of booze; drive new cars; have the latest electronuc gadgets (which I wouldn’t have if they were free!); buy expensive jewerly; make upgrades to theiur perfectly good homes, to the tunes of tens of thousands of dollars per pop, just to have “the latest” and keep up with the Joneses… I know one family- just blue-collar one income, who even had a mausoleum built for themselves!!!! -But they live in a horrible place….and in their 60’s now, are literally dying from chasing the American Dream, and despite the massive amounts of money they’ve spent on all of the above and much more, really have nothing of substance to show for it- not even a pleasant life.
I just don’t get it- In the minds of these types of people, what is the point of all of this? All I can think is that it is sheer greed- covetousness- They just have to have ev erything they see, for they imagine that having things will somehow make their lives good- when in-fact, it is the chasing after those things and the constant work, and stress that actually prevents them from having a good life.
I huess I’m the opposite of that- I actively don’t ant “more stuff”- I want less! I constantly look for ways to simplify my life and maximize my free time; The more *things* I have, the more space they take up, and more importantly, the more time they cause me to waste if i use them (and if I don’t use ’em, what’s the point of having them?) and the more attention they take to maintain and care for, etc. – and that’s coming from the perspective of someone who has alweays paid cash outright for everything……I couldn’t even IMAGINE making payments!!!!
I don’t consider people who make more than me rich if they have a negative net worth. They are just people that make more than me.
At the same time, we really do not know what goes on in other people’s lives, what assets they own, how much money they make, and the amount of their debt that they have. A few people are happy to share this information, many will not, because money is an uncomfortable subject for most.
What one person considers crap is someone else’s dream. I have nothing against someone who wants big houses, new cars, and fancy vacations as long as they don’t leave the rest of us holding bag (meaning unpaid bills). People can choose to live lavishly or conservatively. Personally, I don’t care. If someone is driving around in an Audi A8 doesn’t mean they can’t afford it.
You would be surprised on how many people don’t follow the Joneses. Sure, maybe a few insecure do, but honestly, most don’t care. The image of the Wall Street yuppies is fading and coming to an end. I know many millennials and Gen Zers who witnessed 2008 and have no desire to replicate it. These “kids” may go out and buy a new cell phone, but they are also have well funded investment portfolios and money set aside for emergencies. Yeah, they still live with mom and dad, but they are saving. I am surprised how many have their act together (especially Gen Zers).
**”I don’t consider people who make more than me rich if they have a negative net worth. They are just people that make more than me. “**
Ditto, RG- That’s exactly the case with a “rich” friend of mine- The guy is technically worth a few million on paper…but he doesn’t live as good as I do- and he actually envies me. But the thing is, people like him, and the people I mentioned in my earlier reply, compared to the majority of people who have ever lived on this earth throughout history, and even today, are rich…they just squander their wealth and get little benefit from it- but yet if they’d use it wisely, they could truly enjoy some substantial and long-lasting benefits.
Heck, even those living “below the poverty line”/on the dole live better than royalty ever could a mere 150 years ago. A lot of people today could be paying a mortgage on a nice house for what they spend on a cellphone and cable TV. They could buy the equipment to run a nice little one person business for what they spend on a car to drive back and forth to the factory or train station. They could feed their fambly healthy food for a week or two for what they spend on one ‘meal’ at McDogged’s or KFC,……..
It’s the financial equivalent of face-masking. Same people, clamoring for their own enslavement by trading their most precious commodities (time and privacy and freedom from interest- which is just a voluntary tax) for short-lived things of no value. And the companies which engage in this business model deserve what they get too- as they have all largely destroyed their former reputations for manufacturing quality products because they no longer do, instead they are more concerned with flooding the market with shiny things that they can use to lure-in debtors- as if their business is now more so banking than manufacturing.
Just like software these days. The average computer “owner” doesn’t own anything on their ‘puter anymore….everything is by “subscription”- a monthly fee- or if it’s “free” it’s because when you clicked that “I agree” in the EULA you’ve consented to let them spy on you. Meanwhile, software with the same functionality, which works as good or better and doesn’t spy on ya, is available for FREE….but since the names aren’t promoted in advertising, I guess it’s not cool or something………
Ya can’t eve4n blame the companies, because none of this would work if the average person had even of modicum of character or semse.
‘A small tractor requires a six-year-loan. It makes me feel poor.’ — EP
Eric’s is the instinctive response of a rational adult, who grew up when attitudes toward debt were more conservative.
Now the largest financial entity on the planet, the US fedgov, is printing $3 trillion a year of thin-air Yellenschrift.
Two ways this can go. One is demonstrated by Japan, whose bubble ended in 1990. In a static economy strangled by debt, young adults have gone on strike from having kids, correctly seeing Japan’s dim future. Rural towns are being abandoned as population plunges, not unlike Europe during the Black Plague.
But the second way opens up if central bank counterfeiters get their wish for some sustained inflation. Since the average maturity of Treasury debt is about 5.5 years, interest rates eventually will climb with inflation in a self-reinforcing manner (or if suppressed, will collapse the US dollar).
That’s the Weimar/Argentina/Zimbabwe scenario. It leads to absolute social chaos.
Just be aware that as on the Titanic, there’s a severe shortage of lifeboats on this ship of gibbering government fools.
Hi Jim,
A personal anecdote: My grandfather was a doctor, an allergist. He ran his practice out of the first floor of his house; the family lived upstairs. He could have lived in a much fancier house;he chose to live conservatively and so he not only never had to worry about money, he never had to worry about being conglomerated into a group practice to generate the money that would be necessary to maintain a more lavish lifestyle. I noticed this as a kid and it really made an impression on me.
Same for me, Eric.
When my grandmother became a widow at age 46, with two kids to feed, she learned to type and went to work at a medical clinic. When the kids (my mom and uncle) left home, she divided her debt-free house into a duplex and collected rental income forever after. She paid cash for her cars and kept them for 10 years each, when cars were less long-lived than today’s.
When she died, we found gold coins stashed in her dresser drawers — not worthless greenbacks.
Res ipsa loquitur.
There are already tooth brush services. You buy the fancy electric toothbrush and subscribe to the refills of the heads.
They want to make everything a monthly nut to pay. Then have digital currency. Then shut off people who don’t go along or say the wrong things or whatever.
Spent $1000 some years back on an Ariens 42″ tractor with a briggs & Stratton engine and a bagger attachment. Don’t really need it except for late oct- early december when the leaves used to keep me outside from 10AM till 4PM Saturday & Sunday and by monday morning it didn’t look like i did a dam thing. My push mower and electric blower weren’t cutting it.
The ptb in my town decreed all leaves must be bagged. I was doing close to 300 bags a year. The tractor along with a heavy duty backpack blower cut my work down to about 4 hours a weekend and reduced my bag consumption in half. Well worth the money. And its simple enough that i do most of the maintenance myself. Only issue i had was when i drove over a boulder and bent one of the cutting blades. This year i’m Installing a new fuel filter along with its normal oil and oil filter change.
How does your light shine in the Halls of Shambala?- Three Dog Night
https://www.electrictractor.com/electric-tractor-video/
I would buy a small electric tractor for small chores around the farmyard and for cutting the three acres of yard you need for play. A tee, a golf ball, a driver, if you make it to the creek 350 yards out there, it’s hole-in-one. lol
I paid 3500 dollars for a 1958 Ford 860, pto. three point hitch, six foot blade, two bottom plow, always starts on the first push of the start button, have to have the key turned on. The nylon line to the oil pressure gauge split and was leaking oil severely, but was an easy fix. Changed the gear oil in the gear box, made a difference. Four cylinders, 39 horsepower, one inch of plowshare needs one horsepower of pull.
Wouldn’t trade it even for a Maybach.
A Chon Deere can be bought for 1999 dollars at Home Depot.
22 horsepower, 42 inch cut.
I bought a used John Deere 80’s vintage, new seat, new battery, 17 horsepower Kawasaki air-cooled engine. Runs good, paid 500 dollars. Had to drive 350 miles round trip to purchase and haul it away, so it cost some for traveling to haul the mower back to the farm.
Nothing runs like a Deere.
PS: “Actual operating horsepower and torque may be less,” the fine print saith.
I did not know that. Kind of makes it hard to comparison shop.
Raider Girl’s comment about loans caused me to think about the farm crisis of the 1980’s, Willie Nelson and Farm Aid and all that. Wasn’t the assumption RG presented the same one the farmers had when they took out loans which eventually couldn’t be repaid? Idk.
Also made me think of those exact same arguments made during the run-up to the housing bubble in 2004 to 2008 and beyond. Not a single mention of how the underlying “asset” is actually a depreciating liability.
For example, does a farm tractor owner factor in maintenance costs and taxes when calculating the current value of a 20yr old tractor? I sure do see an awful lot of low priced used tractors on Craigslist nowhere near new prices.
I have been wondering, are there quite a few mowers just sitting and sitting there with a For Sale sign on them because, unlike a new one, they’re typically not financed? I mean, there’s probably not a lot of people out there with $4000.00 in cash sitting around to be used to buy a used lawnmower. Idk. But, $49 a month… In the Housing Bubble Blog they often referenced the, “how-much-a-month” crowd when determining what was considered affordable, and what wasn’t. Debt to income ratios never enter the minds of that crowd, apparently. The difference between an income producing investment vs. a depreciating liability never get factored either. It’s a mixed up world, except for Lola.
“Also made me think of those exact same arguments made during the run-up to the housing bubble in 2004 to 2008 and beyond. Not a single mention of how the underlying “asset” is actually a depreciating liability.”
First real estate agent i used actually told me with a straight face in 2003 to take a 5 or 7 year arm loan max out what i can afford and then refinance because and i quote “real estate never goes down in value.” Had i been some naive person i probably would have been taken to the cleaners and been bankrupted in 2008. Instead i dropped her and found an agent that listened to what i wanted and didn’t try to push something to max his own commission. So when 2008 hit as long as i kept working i didn’t have an issue, just kept paying my mortgage plus some extra. Moved out, rented my place and moved in with my girlfriend now wife. Once the market recovered enough to where i was at a decent profit for a sale i dumped the appartment and used the money as a downpayment on our current house. I still can’t help on occasion to think about how many people were taken for a ride by my first agent beleiving that real estate can never go down in value.
‘First real estate agent i used actually told me with a straight face … and i quote “real estate never goes down in value.” ‘ — Antilles
Doubtless Realtors(TM) are saying the same today, as the headlong 50% collapse in places like Phoenix and Las Vegas in 2008 now is ancient history, as irrelevant as the sacking of Rome by the Visigoths.
But in fact, real estate is back in bubble territory, ensuring that it WILL go down again in this decade to the utter disbelief of most.
Last weekend I expressed this opinion to an acquaintance who’s shopping for property, and elicited a furious tirade of anger. Ironically, this person went bankrupt after getting over-leveraged in the last real estate bubble. Go figure …
Jim, I understand housing prices are insane right now, but why do you think it is certain to go down?
Objective reason is that home prices are outpacing income, as they did in 2006. Chart:
https://ibb.co/FD09GZJ
Subjective reason is that just as in 2005-6, people I know who can’t even afford rent are desperate to find a low or zero down payment mortgage and get into a house.
Suggesting that this may not be the best move elicits not just disbelief but even anger … as in 2006.
Hi Jim,
You are trying to look at this with a historical perspective of the past (in ordinary times this would be right), but we now live in Bizzarro World.
I don’t see homes prices (or rents decreasing) anytime soon. In customary times we would have seen this bubble pop already. Here is why I don’t see the housing market bubble bursting (at least not in the near future):
1. People are still fleeing the city and blue states. The housing market has become so competitive outside the city limits that 20% of all home sales taking place today is with cash (no financing).
2. Only 17% of the buyers are investors
3. Inflation (and lack of adequate trucking transportation) has made home buying materials soar. Lumber is currently up 180% from last year.
4. The average new home (for a builder to erect) is an additional $24K-30K just to get started.
5. Building supplies are limited and are unavailable.
6. Trade labor is suffering because there are no longer enough tradesmen. Everybody went to a four year college to get a degree in history over the past generation, not to be a gas piper or a plumber. It is hard to build a house without capable and trained labor.
7. People are not taking out “funny mortgages.” I don’t know anyone that is purchasing an interest only or negative amortization home loan that many used in 2005-2007.
8. Rates are low. If they are not buying a home at a 2.5-3.5% interest rate they are refinancing the one that they are in.
Until this country addresses the need for tradesmen prices will continue to soar. My guys in construction (including my own husband) can find a job in a matter of hours. That is how badly they are needed. The average electrician in this country is 58 years old. If the guy is good at what he does the going rate is about $50-120/per hour. That is not what the customer pays to the service company, that is what the guy is making to roll out of bed each day.
Just my $.02.
Hey Jim thanks for the reply.
Everything is outpacing income though. Was that also the case back then? I wasn’t paying attention in 06 so I can’t think back to my personal experience and compare it to today.
Monthly mortgage payments are often cheaper than rent, so I get why people would at least want to put their money towards something, even if overpriced.
With the constant fiat currency supply increase, I find it hard to believe the prices of valuable things like homes, land, vehicles of all types, food, utilities, building materials, etc, wouldn’t just go up in turn.
The only thing I wish I had a crystal ball for is knowing if it’s going to crash more than the dollar. With all this printing we will see. This is where I’m on the fence. Buy now or wait? Hard decision.
I had an investment guy who tried to tell me the same thing about stocks, roughly about the same time. Seriously, dude?
I have used him for some annuities (most places who sell them won’t talk directly to the consumer), but I decided that I’d take my own advice on other things. Was able to retire at 56 when my job went poof. Wouldn’t have been if I had been all in for stocks in 2000 and 2008-9.
My Dad grew up in the Great Depression. He believed in things like annuities and life insurance policies. I won’t tell you how much cash he had squirreled away in his house when he died, but I bought a nice new car. He also put his grandkids through college/tech school. Paid off my house. Bought a nice stockpile of stuff to see us prepared for come-what-may. And 10 years later there is still money left.
I try to channel my Dad, when it comes to finances. He was a lot smarter than most investment professionals.
Freeholder,
I hope its not one of my reps that gave you that kind of advice. I’m a fan of total diversification annuities,life insurance, stocks, bonds etc. Run away from anyone who tells you nothing ever goes down. Especially stocks. That’s the kind of promissory comment that get financial professionals into hot water.
Hi helot,
All assets have the possibility of being depreciable – homes, boats, cars, furniture, artwork, gold/silver, cash, minerals, oil, etc. If you can name me an asset that has never decreased in value I am all ears. If a major focus should be on the depreciation of assets than no one would buy anything.
The farm crisis has been ongoing since the 1920s. It is a very risky investment although I applaud the small and medium farmers that stick with it. A bad storm, a drought, insects, as well as a variance in commodity prices make this one of the riskiest industries to be in, but one that is needed in this country.
I am not advocating for Mr. Farmer to go out and finance a brand new combine harvester if the one he has would do the same job, but if a newer combine would do twice the work in the same amount of time, therefore, increasing the farmer’s revenue potential, wouldn’t that be a worthy investment for consideration? I realize we are veering a little bit off the current topic of debt financing.
Also, I have a problem with the banking institutions mandating debt to income. Debt to income is the amount of money that an individuals brings in on a monthly basis less their monthly expenses. Honestly, if we really want to look behind the curtain debt to wealth would be a more equitable solution. An example of this would be most senior citizens. Most seniors produce very little income later in life, but many have an array of wealth that they saved over time. Should Mr. Brown not get his loan because he is receiving a $2K pension and $1600 from Social Security each month, but wants to buy a $400k condo in Fort Lauderdale. What happens if Mr. Brown has $2 million in diversified assets – does that change the tune? I realize many will disagree with me and say that Mr. Brown should just pay cash. Why should he?
**”I sure do see an awful lot of low priced used tractors on Craigslist nowhere near new prices.”**
Nah, REAL tractors- especially good older ones without electronics and that don’t require DEF, are like freaking gold. Those “cheap ones” ya see (Usaully small ones with loaders and backhoe attachments) are scams “It’s in the Ebay warehouse…just purchase gift cards to pay, and it will be shipped to you for free”.
A commercial/farm rated JD is a good investment IMO. I got a 32hp 4010 way back in 2002 for $12K, and it’s worth darn near that today. Beat the crap out of it doing logging duties for almost 20 years and all I’ve done is its scheduled maintenance. This was the first JD to come with E-everything, and I was worried, but I had no option at the time. It has never failed me. I am surprised. To replace my tractor today would be $19-21K, wow. But history has shown me you don’t lose anything. Maybe cause of inflation, I don’t know?
Now that X738 is a mid-grade (non homeowner) version, list is $14K. Pricey, but it can do a lot with accessories.
The X580 is a homeowner version that cost $8k, and IMO is not worth that. Assuming that $142 a month is 60 months (it doesn’t say), then the financing cost is not too bad.
And all the safety stuff on the mid-grade and down units can be hacked very easily. I would not mess with the ROPs though. Many a user gets in big trouble rolling these things over. I believe JD actually gave away their patent on their foldable ROPs so other manuf. could apply them, nice move.
Hi Chris,
But will it last 30 years? That’d be my chief worry. I have an ancient (1979) Mitsubishi diesel tractor that works as well today as it did back in ’79. I can fix anything that needs fixing myself. It hardly ever needs fixing because it’s a simple, mechanically injected diesel. It is not connected via WiFi to anything. There is no EULA.
It will probably still be running 30 years from now, too.
random sample from Craigslist:
2005 John Deere 4010 Compact 4×4 Mower Deck, Very Nice!!!! – $9,900 (Anita IA)
My 50yo D.B. has only one problem in 14 years. Just sputtered and stopped last year in -10c weather while plowing.
Took a bout 15 minutes of poking around to notice the glass water separator under decades of gunk. Removed and let the water run out. Cleaned with loose end of Tshirt. Reassembled. 20 cranks and off it went. Good for a couple more decades likely.
I would probably still be waiting for the Deere tech to reset the computer if it was new.
I would guess it would not. It has a computer and electro servo’s all over the place.
I am very surprised it went 20yrs with no issues, but I do keep it inside, which helps I’m sure. Even the forward/reverse pedals are servo style. But they have held up with abuse. BUT, this JD hydro drive system is magic to use. I can drive a pile full power and it won’t stall, very useful. I can creep at micro-speed if the job calls for it around expensive stuff. And my wife and gotta-do-everything-fast kids can run it.
I will add that my neighbor bought the same exact tractor but with a manual gear box, but I knew there was no way I could be productive the way I wanted to (back and forth plowing, 100 times a snowstorm, or back and forth 100 times moving dirt). I could do snow and dirt projects in 2x3times less time that he could, similar properties. Time is/was very important to me.
He was an older gentleman and I would finish the 1-2ft on the ground and go help him. Eventually his just sat in the barn cause it was to much for him to operate, and when he died the family just sold it.
So while I agree there is huge merit for something lasting a very long time, I wouldn’t trade my 4010 e-crap on a manual anything for the life of me. I’d still be out there, haha………….
I’m now doing 4-5 of my neighbors driveways cause I can do it so fast and efficient, before they even get out of bed.
Your got me curious Eric, so I looked up some parts I bet I’ll need in the next 10 years. The one I’ll bet I need is the fwd/rvs pedal sensor, cause I abuse them, and even the pedal itself is worn. OEM sensor from JD = $200, in stock, not outrageous if it goes 20+ years.
And I was mistaken on the model, it’s a 4310, so I looked that up too, used ones are going for thousands more than I paid new, how crazy is that.
Unless you can sell it for 18k, you won’t get your money back. Of course, that’s inflation only, there is much worth in the projects it helped you finish.
You’re right. A replacement is 19-21K.
But it’s worth to me has been immeasurable.
If I just punt a a number out there, 4-8 snow plows a year, $3-5K/yr hiring contractors to do the work I’ve needed done over 20yrs, = approx. $80-100K over 20 years. $12K tractor but me doing to work (which I enjoy anyway) I’ll take it. haha….
BTW, interesting. So I was getting the 4310 ready for the winter a few months ago. Said to myself, I don’t remember when I last replaced the battery, so called the JD dealer (special size battery to fit in the tractor), expecting to bend over. $125, hmmm not too bad.
I brought the old one in and while I was waiting at the counter, I cleaned up the crud enough to find a date code. 13 years old!!! I have never seen a battery last that long, the parts guy couldn’t believe it either. And it still worked fine. I checked my records and sure enough, receipt from 2007. So the first one lasted 5 yrs, normal, then 13? crazy.
Who can explain that?
Older tractors were designed for long life. Nearly indeterminate life. I have a 1963 diesel David Brown, made in Great Britain that I paid $1800 for about 30 years ago. It served my purposes well until a couple of years ago, when it developed a transmission oil leak that bled it dry while it was parked. Since my need for it had seriously declined, I never fixed it, nor even looked closely at doing so. But after sitting idle for two years, I have no doubt that I could put the required 5 gallons of oil in the transmission, drain and refill the fuel, check other fluid levels, put a new battery in it, and it would start up and work.
Those 20-30 year-old JDs are easier to sell and worth about as much as late model ones. Everyone’s getting rid of the late-model ones, ’cause of the electronics/software/DEF, etc. I looked at a JD 5200 a couple’a years ago I could’ve had for $6500. Saw that same tractor sell recently for $12K! The older tractors held their value…not so with the newer ones.
Morning, Nunz!
Like you, I live in the country – around farmers – and I see lots of old tractors. Thirty, forty-plus. Still in regular use – because these rigs are simple, tough and easily repaired by the owner. I would be leery of a modern computer-controlled/electronic tractor unless if was new/relatively new – and assuming I had the money to pay the Deere store to fix it. And what happens when it is “no longer supported”?
Hey Ya Eric!
Heh, my first tractor (bought in ’02) was a 1949 Ferguson! Simple as a can of beans, and worked great…and I worked it pretty hard. I’d still have, ‘cept that it’d use about 30 gallons of gas to bush hog my place….vs. 7 gallons of diesel that my current (’91) tractor uses. I’m sure that tractor is still working hard for the guy I sold it to. -A now 72 year-old tractor!
Nunz, I have a 68 4020 that was named Gennie when I bought her. I was talking about her one day and a guy asked me why I named my tractor after his daughter.
I just turned it on him and said Gennie was over 30 years old when your daughter was born. Why’d you name your daughter after my tractor. Gennie doesn’t look a great deal different now than the 1st time I saw her, about 1970. The other Gennie has been dead quite a while. She needed so much high octane fuel she killed herself with it. I’d rather have an oldie than a new model.
Good morning Eric,
I am going to disagree with this and I will tell you why. I am not an advocate for debt that people can’t afford, but I have no issue with people using debt refinancing (especially at 0%) when they can put that $3k, $10k, or $25k elsewhere to make a better return on investment. If someone has $10k sitting in a CD making 2% or stocks averaging 8% why would they pull those funds out for a 0% loan? Use the 0% loan knowing that you have a better yield elsewhere. That is how one creates wealth.
Now, if you were to say that the loan is 4.9% for five years and you are only making 2% in a CD I would agree with you a person ends up with a negative return on capital and that is not a good decision or worse, if someone has no savings and they are trying to finance a large purchase, I would advise them not to put themselves in the hole further. But, using debt to create wealth it isn’t a bad strategy if the individual or business knows what they are doing.
Assuming your future is going to be the same as today. Sure, it probably will be, but I’ve been around long enough to see major (and not exactly major) catastrophes happen to quite a number of people. Maybe they get through it, maybe not. I’ve seen people get fired for really minor, stupid things. I’ve seen people or spouses get sick or injured and need very long-term care. I’ve seen people’s lives upended when a parent has a fall and cannot live on their own.
Having a bunch of monthly payments out there, even if no interest, is very risky. Of course one can just declare bankruptcy and walk away, but then what? Now you made all those payments and still have nothing. I’m coming around to the idea of living on the cheap and front loading long term costs. So installing a more efficient heating system, solar panels (with battery), learning more handyman skills so I can do my own maintenance. In this economy I see it more as a hedge than anything. Because I’ve been lucky so far but who’s to say for how much longer…
Right on. Some old school wisdom right there.
Hi RK,
It is not about declaring bankruptcy, it is about having the funds available elsewhere for a better ROI. If a catastrophe happens the funds would still be available to pay off the debt. If a catastrophe doesn’t happen then the individual/business is making more bang for their buck than they are paying for debt. I am not advocating for debt to be issued for someone who cannot afford it, I agree that is foolish. I am advocating low cost debt where an individual can make a return 2x or 3x what they are paying.
It isn’t for everyone and it is not something that I usually do, but I have done it once or twice. The cash was available if needed, but why would I take the chance of losing a return of $2800 in capital gains (over 4 years) to pull the money out when I could borrow the money at 0%?
If a purchase of a item causes you to make such a calculation, i.e. loss of income from a profit producing investment vs. cost of debt, then you really should not be purchasing the item at all.
If saving a few months financing charges is making that big a difference to your financial life, then you are not really in a sound financial position.
Eric is making the correct argument. Even if you get 0% financing for some specified finite period of time, and, you believe you can use that period of time to pay the debt off without disturbing or reducing the capital in your investments, you are STILL assuming the risk of perpetual debt slavery when you find yourself unable to pay off the debt before the finite period of 0% financing ends.
It is analogous to insurance. We all routinely insure against low probability events that are catastrophic when they do occur. Paying cash is doing the same thing.
If you will “pay it off” in six months or 12 months anyway, then there is no advantage to waiting until you have the cash available. Available means the cash you are using is not needed anywhere else. The scenario you outline is juggling your finances because you do NOT have the cash available, if your only pool of cash is in an investment.
0% is putting the noose around your neck and hoping nothing goes wrong…
Okay, then we disagree. I was thinking more LT since Eric was referring to a five or six year tractor payment, but I have played the ST game, too. I also do it with my Amex card each month. Credit cards are a form of debt financing. If you pay it off in full you were able to keep your money in the bank still accruing interest during this time. My Blue also pays me 6%, 3%, and 1% back on the purchases that I make. I usually end up about $1500-2000 in cash back at year end, too. It may not be worth some people’s time, but I really don’t have to do anything differently to generate it.
And the flip side of using that money for investing is that now you have the risk of that debt obligation and you’re subject to market forces dictating the ROI. Sure, the investment market will probably recover, but why? Technology and innovation is deflationary. The only reason we have asset inflation is because of scarcity, which technology helps resolve, or fiat currency manipulation which comes to an end.
Up until 2008, “everyone” believed that real estate would never go down (well, unless you lived in western Pennsylvania, where I watched homes go abandoned in the 1980s and 90s as the steel industry collapsed and the middle class fled to the south). Then in 2008 the currency manipulation was exposed and the house of paper collapsed. Did anyone see that coming? At the time most people I knew called me a sucker for renting, but I couldn’t figure out the valuation so I sat it out. I’m no genius, quite the opposite in fact. But when an investment sounds too much like a pitch for Amway I’m not interested. And the last 20 years of the stock market sounds a whole lot like Amway…
There is more to investing than the Stock Market. I actually have very little in the stock market. There are a lot more fun things that one can invest in without worrying if their stock certificate will be valued at zero when they wake up tomorrow – real estate is probably my favorite, but I also like coin collecting (not just silver or gold) but really unique pieces of money, artwork, antique furniture, being an angel investor in upstarts, municipal bonds in electric or water utility companies, etc. Seller financing your own real estate makes a pretty decent return as well.
Besides cars and real estate, most of these consumer loans are unsecured. They don’t take the stuff if you stop paying. That’s why the elites use bankruptcy laws to their favor all the time.
Morning, RG!
I get that. There are two issues with it. The first is the juggling of money in a precarious economy. Yes, if you debt-finance X, you will have more money on hand for Y. But what if your assumptions about how much you are able to juggle each month prove unsound? What if an unforeseen expense comes up? What if your income goes down unexpectedly?
Now you are in trouble. Things can spiral quickly when you miss a few payments.
Also – and more generally – this (subject of the article) is an example of the sickness of people living (and spending) way above their means. I don’t think it’s foolish for someone who can afford to spend $4,000 on a riding mower to do so. As by writing a check for it. I do think it’s foolish for a person who cannot afford to do so by making payments on one.
My strategy for building wealth is – don’t spend it. Live cheap. Buy cars (and lawn mowers) you can afford – and you will be able to afford
a great deal more than most people and be unchained from debt-servitude. You’ll probably be able to afford to pay off your house much sooner.
That is real wealth.
Debt-servicing is self-enserfing.
Hi Eric,
All economies are precarious. A crash can occur at anytime. Did anyone see 2020 shaping up the way it did? My argument is not for someone going into debt, but someone having the funds available, but using 0% debt to make a better ROI somewhere else. If someone gets sick, the economy’s bottom drops out, someone loses a job the money is still there to pay off the existing debt and in the meantime that individual made 2, 3, 6% on their money. I don’t agree with some financing debt who cannot afford to.
You think 2,3, or 6% earnings are profitable?
A personal catastrophe means that liquidating your investments and spending it to survive the catastrophe is what happens, not retiring debt. Is it a likely occurrence? No. But it happens all the time to many people. And if, as you imply, the hypothetical consumer is just being smart by taking advantage of cheap credit, it begs the question of why do they need to? It is much smarter to never assume even a tiny risk of perpetual debt against having an item a few months sooner.
To use your example: if your income came from a business that was shutdown by government edicts–which happened to thousands–then your cash is all going into covering expenses and losses. If someone in that position had just incurred 0% debt financing on a sizable purchase….oops.
But, they just paid cash for that sizable purchase – so what is the difference? The risk is now they don’t have the money to cover the everyday expenses for the business shutting down, because they just spent it all on an investment. How is that any better?
With debt financing I am out that particular asset not all of my assets. If a catastrophe happens the bank comes and repos that asset, but I still have the remaining cash (that I didn’t spend, because I financed) to save the rest of my business.
Yes, I do think a return of investment of 6 or 8% is pretty decent in this day and age where interest rates are at an all time low. With an inflation rate of roughly 2% (I realize that shoddy math is taking place on the Fed’s side) if I can put my money somewhere and make 6-8% consistently I am all for it. It sure as hell beats 0 which is technically a loss of wealth when factoring in taxes and inflation.
Raider Girl,
I agree with you on this on larger purchases and even some smaller needed items if the timing is off. Usually on large items like a car or tractor the payments are built in to the loan. Not so much on appliances or other items that can get you into trouble. Dryer blew last summer, right when my wife spends 2 months not receiving a paycheck. I could have just pulled the money in my brokerage account out and paid in cash but i was making a decent return on that money. I used the 0% interest for 12 months gimmick and made sure it was paid off in 6. I use the word gimmick with these because many people don’t realize that if they don’t pay in full by the end of the 0% date they owe the full interest all the way back to the beginning of the purchase, which is normally in the 22 to 29% range. Which is what the credit card company is hoping happens. That is also why they give you a minimum payment which is far below what it would cost to pay the item you purchased in full before the gimmick period ends.
Hi Antilles,
You used debt financing properly. It isn’t for the ignorant. I have done this many times with Lowes and Home Depot. I have always paid it off well before the due date. People have to know what they are signing and realize the repercussions if they ignore it.
If you have $10K in a CD earning 2% interest, then you are losing money. A lot of money. An average return on stocks of 8% is also losing money. Taxes, fees, and dollar devaluation.
Houses, cars, furniture, and gold/silver are not assets. They can be part of an asset if they are used as trade goods, but not as consumer items. Precious metals are generally understood as hedges against currency devaluation, not appreciating assets.
Hi andy,
I was trying to keep it simple so people could understand it. I don’t dispute with what you say regarding currency devaluation and if something is deemed an asset or not. The question is do you believe that debt financing can be played as a benefit or not or should someone always stick to cash (which in itself is a commodity losing value everyday)? I guess we could argue that someone is exchanging one worthless piece of junk (the American dollar) for another piece of worthless junk (whatever it is that they are buying). The argument in regards to debt financing is pretty moot at that point.
It’s all psychology. Kinda like fishing too.