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PostPosted: Fri Oct 11, 2013 8:12 am
 


neopundit wrote:
Lemmy wrote:
neopundit wrote:
If you could save money at 3.5% and borrow at 3%, would you ever pay off your debt, or would you borrow as much as possible?

You find me a lender who'll pay a higher rate on savings than on lending and I'll eat my shoe.



You're not the government. It was an analogy.

But there have been opportunities when home prices have risen faster than mortgage rates which would have the same effect.


Only if the home prices stayed high. Home prices can drop as well with interest rates not following. Then it doesn't work out so well if you're not in it for the long term.....and even then, they may not come back up. See Detroit.


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PostPosted: Fri Oct 11, 2013 8:19 am
 


Lemmy wrote:
You're missing a key piece of puzzle in your logic.



It seems you fail to understand how debt works in the economy. If the debt-financed asset purchase you make increases in value or produces income at a rate greater than the interest paid on said debt, you win. That's why you assume debt. It isn't a global conspiracy to bone the little guy.

It's like borrowing $10,000 to start Facebook, and it becoming a multi-billion dollar company. Or do you assume that any entity that has every incurred debt spirals into bankruptcy?


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PostPosted: Fri Oct 11, 2013 8:21 am
 


Dude, I'm a professor of economics [BA(Guelph), MA(Western), PhD(MIT)]. I'm pretty sure I have a fair grasp on how debt works in the economy.


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PostPosted: Fri Oct 11, 2013 8:23 am
 


Gunnair wrote:
Only if the home prices stayed high. Home prices can drop as well with interest rates not following. Then it doesn't work out so well if you're not in it for the long term.....and even then, they may not come back up. See Detroit.


Of course, you actually have to sell your home and realize those gains. Otherwise, it's all paper.

Again, it was an analogy to demonstrate how debt can produce positive economic profits.


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PostPosted: Fri Oct 11, 2013 8:26 am
 


Lemmy wrote:
Dude, I'm a professor of economics [BA(Guelph), MA(Western), PhD(MIT)]. I'm pretty sure I have a fair grasp on how debt works in the economy.


And you don't understand how a 3% mortgage on a home increasing in value by 4% annually creates positive results on the balance sheet?

Interesting.


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PostPosted: Fri Oct 11, 2013 8:28 am
 


neopundit wrote:
Lemmy wrote:
Dude, I'm a professor of economics [BA(Guelph), MA(Western), PhD(MIT)]. I'm pretty sure I have a fair grasp on how debt works in the economy.


And you don't understand how a 3% mortgage on a home increasing in value by 4% annually creates positive results on the balance sheet?

Interesting.

Your analogy is oversimplified, smartass. You're ignoring too many variables to make such a statement. What's the rate of inflation? How much debt service is there already, etc, etc, etc...


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PostPosted: Fri Oct 11, 2013 8:41 am
 


Lemmy wrote:
Your analogy is oversimplified. You're ignoring too many variables to make such a statement. What's the rate of inflation? How much debt service is there already, etc, etc, etc...


No, you're over-complicating it for some reason.

Inflation? Who cares, use real rates of growth and interest then. That's besides the point.

The conversation began with "debt is bad, it needs to be paid off", to which I argued that is hardly the case. Under many circumstances debt can produce positive economic results, mainly by purchasing assets that produce income and/or increases in value at a rate higher than the interest paid on the debt.

When the economy is growing at 3% and the government paying 2% average interest rates, debt service shrinks, does it not?

If you really are an economics professor, I'm going to assume you aren't teaching that "debt is how the banking cartel takes our money", which is opinion you seem to be trying to defend.


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PostPosted: Fri Oct 11, 2013 8:44 am
 


I'm not defending any position yet. There are costs and benefits of running debts. But you haven't even hit on the primary justification for running debts yet, so I'm still trying to feel out whether you have any idea what you're talking about or not. If you want to have a serious discussion about debt with an economist, you better bring more than you're bringing so far.

neopundit wrote:
Inflation? Who cares, use real rates of growth and interest then. That's besides the point.

Inflation is the KEY justification for debt. You spend at current dollar value, but repay at future dollar value, so inflation makes a portion of debt "free" money. You're ignoring the best argument in support of your "debt is good" hypothesis.


Last edited by Lemmy on Fri Oct 11, 2013 8:49 am, edited 1 time in total.

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PostPosted: Fri Oct 11, 2013 8:48 am
 


Lemmy wrote:
Your analogy is oversimplified, smartass. You're ignoring too many variables to make such a statement. What's the rate of inflation? How much debt service is there already, etc, etc, etc...


I see you added an edit to call me a name. That's nice.

Admittedly, I'm no professor, I only have a lowly MA in Econ. And i work in a mostly unrelated field now.

I'm not quite understanding how the amount of previous debt service has any bearing, ceterus peribus, on the asset side of the balance sheet outgrowing the liabilities side, and therefore creating wealth, in the analogy I've provided.


Last edited by neopundit on Fri Oct 11, 2013 8:55 am, edited 1 time in total.

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PostPosted: Fri Oct 11, 2013 8:50 am
 


Quote:
And you don't understand how a 3% mortgage on a home increasing in value by 4% annually creates positive results on the balance sheet?

Interesting.

You asked to be called a smartass.


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PostPosted: Fri Oct 11, 2013 8:52 am
 


Lemmy wrote:
If you want to have a serious discussion about debt with an economist, you better bring more than you're bringing so far.


I was talking with people who claim the debt needs to be paid off, and that it's the tool of the global banking conspiracy.

These are ridiculous ideas to propagate.


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PostPosted: Fri Oct 11, 2013 8:54 am
 


neopundit wrote:
I assume you paid cash for your house then?


Not the first one but we paid cash for the next three and we've paid cash for every car we've ever owned. We also pay cash for vacations and etc.

See, the best way to save money is to not spend it on something utterly useless like interest.


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PostPosted: Fri Oct 11, 2013 8:56 am
 


neopundit wrote:
Lemmy wrote:
If you want to have a serious discussion about debt with an economist, you better bring more than you're bringing so far.


I was talking with people who claim the debt needs to be paid off, and that it's the tool of the global banking conspiracy.

These are ridiculous ideas to propagate.


You need to read up on the creation of the Federal Reserve in the USA. It's a private company that holds the US by the short hairs.


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PostPosted: Fri Oct 11, 2013 8:57 am
 


It needn't be an all or nothing showdown. There are benefits of running debts. There are costs. Debt is neither an absolute good nor an absolute evil. But debt must be managed and, I submit, that our current debt level is a net problem. It doesn't NEED to be paid off, but most Canadians would net-benefit from lowering our national debt.

But you don't need any understanding of economics (or much of anything else, for that matter) to dismiss conspiracy nuts.


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PostPosted: Fri Oct 11, 2013 9:02 am
 


BartSimpson wrote:

See, the best way to save money is to not spend it on something utterly useless like interest.


The hole in your idea is that interest is inherently useless. This is false.

Paying interest on a vacation = stupid

Paying interest on a lathe for your machine shop = smart


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