tag:blogger.com,1999:blog-30643134.post5651695866495675538..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: Debt: How am I to know the good side from the bad?Accrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger22125tag:blogger.com,1999:blog-30643134.post-87848740251065535032010-01-16T06:23:17.573-05:002010-01-16T06:23:17.573-05:00really good post,& i think it will suitable fo...really good post,& i think it will suitable for all kind of feedback.Work at home jobshttp://workathomejobs.co.in/noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-32622605172043133122009-12-29T01:16:13.588-05:002009-12-29T01:16:13.588-05:00Nice analysis! Just a minor correction - It's ...Nice analysis! Just a minor correction - It's 37.5X not 37.5/X<br /><br />RoshanRoshanhttps://www.blogger.com/profile/06970522076893422991noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-88817552617213362132009-12-25T03:03:21.911-05:002009-12-25T03:03:21.911-05:00I can't figure out is why you would pretend to...I can't figure out is why you would pretend to be, and what your true identity is... nonetheless, all that is your choice as this is your blogHot Dealshttp://www.dealshunt.comnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-18281136657217753462009-12-15T01:58:26.852-05:002009-12-15T01:58:26.852-05:00I have question , When does the student get loans?...I have question , When does the student get loans?ShowMoneyhttp://www.showmoney.netnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-3916807315414329102009-12-15T00:24:00.892-05:002009-12-15T00:24:00.892-05:00AI,
First of all, I am a huge fan and follow your...AI,<br /><br />First of all, I am a huge fan and follow your posts religiously. Thank you for the invaluable insights.<br /><br />On this topic, however, I must say, I disagree. And here's why:<br /><br />You would find most people in most countries other than the U.S. to think of debt as something inherently bad (because of the interest, which is thought of as money wasted), i.e. a necessary evil that let's you patch things up in tough times but something to get rid of as soon as you possibly can in good times..<br /><br />In the U.S. there's a new meaning of debt - making money using debt - and a whole new mentality associated with it. It shows up in so many different forms: living beyond normal means, buying on margin, or leveraging -- it's all the same and it's everywhere, from the ordinary citizen, through the corporation, to the federal government. <br /><br />Theoretically, you are right about how it should all work, except that debt is not just a math figure, but a psychological statement as well. And that's the reason people don't just payoff their debts at bonus time, but more often just roll them over. Same with corporations, same with the government. It's a never ending viscous cycle, that can only be resolved in one of two ways - inflation/devaluation of the currency or write-offs/losses/restructuring. <br /><br />The analogy to me is with an alcoholic. Imagine for a moment that tomorrow the government postulates a 80% drop in alcohol prices - do you expect things to remain the same. Your theory will say, no worries, people will continue to drink just as much and just as regularly. But give it a year or two, and you will start to see the dire consequences, much the same as with debt. It simply calls for irresponsible behavior. Ultimately, it comes down to the inherent human trait to seek the easy end out - economists call it utility maximization. But the truth is that we are not capable of policing ourselves - something absolutely required when dealing with alcohol as well as with debt - and prices do the job for us. The invisible hand of the market ultimately finds the exact point at which society accepts the risks and rewards from delivering the good. Except one day, when an authority postulates this is how it's going to be. Which brings my second point.<br /><br />There's something wrong when people borrow money to try to make money. Houses are not bought to be lived in, stocks are not bought to be voted, but simply to make money off them. Let me clarify this: nothing wrong with professionals borrowing to make money - they supposedly know the risks and whether the risk/reward is there. <br /><br />But the real issue with the latest crisis is that it's not just the professionals who are in the game of making money off of debt - it's everyone. It's the doctor speculating on margin with his investment portfolio, the masseuse holding 5 RE properties in FL, or the college boy day trading with his credit card. People no longer rely on what they are trained for to earn their living, but on speculation. That to me is the real evil of the last few years - debt distorts true relative values in the economy, in so many ways. <br /><br />To me, people should be forbidden from participating in the market unless they have experience, education, required to deal with it. But then the financial industry should be 1/4 of what it is now. Only then could it serve its purpose - to allocate capital in an efficient way, and not by robbing a municipality via an IRS. <br /><br />To be honest, I'll go as far as saying, where is the market economy in all that?<br /><br />sorry for the long post. looking forward to hearing your thoughts..<br /><br />wish you all the best!alkatlonnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-24989213319486821582009-12-12T18:19:32.627-05:002009-12-12T18:19:32.627-05:00I am extremely dubious about debt. My general rul...I am extremely dubious about debt. My general rule of thumb is that "debt" is a four letter word. When apporached in that vain one is likely to avoid all kinds of problems. Are there exceptions? Of course. But it is important to recall that that they are exceptions. <br /><br />Credit cards are scams and their perveyors are IMHO theives. I live a somewhat more low key lifetsyle than most. If I don't have the money for something then I don't buy it. Period. Yes it means I have only one car (it was used and I paid cash). I rent my residence, I don't own (or more accurately the bank does not own me). And I dine out rarely. <br /><br />But I sleep well at night knowing that I have only one debt (which I am paying off as fast as my circumstances permit). <br /><br />Sorry, but those attempting to persuade me of the idea of "good debt" and "bad debt" are fighting a loosing battle. All debt is "bad." Sometimes it may be the lesser of evils (emergencies do happen). But it is never good for the debtor.John (Ad Orientem)https://www.blogger.com/profile/14329907942477160166noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-91921531218546522292009-12-12T17:10:55.288-05:002009-12-12T17:10:55.288-05:00While you have outlined benefits for credit/debt i...While you have outlined benefits for credit/debt it would make sense that these positive results would arise from a stable economic system both at the business and consumer level. The greater violatity within the job market and business conditions would over time begin to negatively impact debt service and therefore erode the benefits.ronaldhttps://www.blogger.com/profile/15434598599683516372noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-72876473055216493692009-12-12T16:50:12.543-05:002009-12-12T16:50:12.543-05:00First of all I want to say that I agree 100% with ...First of all I want to say that I agree 100% with this: "Obviously too much leverage can be bad, but not enough leverage could be bad as well."<br /><br />I think that "trading debt is good" is too strong a statement. The whole issue of long-run and short-run in Keynes hinged around an important issue: there is no such thing as liquidity of an asset for the community as a whole. Many if not most financial assets are too risky to be truly liquid assets. For this reason there are limits to the amount of debt that can be supported by these assets. (There's a 50% margin limit on stocks for a reason.) This means that liquidity risk imposes a constraint on achieving arbitrage-free prices -- and that this is just the nature of financial markets.<br /><br />Relying on the Fed to support asset markets that are not naturally liquid (all the time) strikes me as dangerous.<br /><br />Also an example of public debt is good: Venice paid off its public debt some 400 to 600 years ago and ended up issuing more debt just so widows and orphans funds (etc.) would have something safe to invest in.csissokohttp://syntheticassets.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-57916717885186411612009-12-12T16:24:44.994-05:002009-12-12T16:24:44.994-05:00"I don't see what the difference is betwe..."I don't see what the difference is between saving to buy the TV in the first place vs. saving to repay the debt."<br /><br />It makes a big difference to the individuals involved: <br /><br />A person with debt cannot react to unexpected changes in his demand (unexpected baby? Too bad you already spent your next year of income on that TV!)<br /><br />A person who convinces someone to buy their good with debt receives the full value today instead of the full value in the future or the discounted present value today.<br /><br />"its safe to say that without debt, there really couldn't be a housing market. People just wouldn't be able to lay out the kind of cash needed to purchase a home"<br /><br />This does not seem apparent to me at all. Sometimes people need/want to sell a home. They can only sell it for what people can afford to pay.<br /><br />I think that explains why a home that cannot sell for $1 in Detroit sells for half a million dollars in Manhattan.Erickhttps://www.blogger.com/profile/02652955951641649620noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-7861317124741277452009-12-11T23:43:13.815-05:002009-12-11T23:43:13.815-05:00AI - Great post.
I wonder what pricing would be ...AI - Great post. <br /><br />I wonder what pricing would be like without debt? If there is no potential to pull consumption forward (i.e. no consumer debt), do consumer prices adjust to account for actual (not potential future) saving levels? I think so.<br /><br />If you can't borrow, I think TV and house prices are very different (read: lower).<br /><br />I agree with you on corporate debt, I just question whether consumer debt is beneficial or merely causes price inflation.<br /><br />APRAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-16908018503857061712009-12-11T14:56:27.239-05:002009-12-11T14:56:27.239-05:00The most appropriate yardstick is in the usage. If...The most appropriate yardstick is in the usage. If the credit will be invested, it may be good debt. If it merely will be spent, it's very likely bad debt.OSRhttps://www.blogger.com/profile/09454944574511999653noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-24946558594771208182009-12-11T13:28:06.425-05:002009-12-11T13:28:06.425-05:00My title is just a Star Wars reference. I take it ...My title is just a Star Wars reference. I take it you are new here? :)<br /><br />On Wall Street... if you allow mis-pricing you can get mis-allocations of capital which can be just as problematic as too much leverage. Obviously too much leverage is bad. But no leverage is bad too.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-82788785770202810092009-12-11T12:58:08.485-05:002009-12-11T12:58:08.485-05:00With respect to Wall Street debt, I question the a...With respect to Wall Street debt, I question the argument that arbitrage is necessary for prices to find their "correct" levels. Even assuming that the arbitrageurs are right about the "correct" price, does the value added by having that "correct" price reached sooner - rather than relying on the slower process of price adjustment due to shifts in long-side demand only - outweigh the potential value lost due to the instability created by leverage. Even if the debt-funded arbitrageurs are "right", they can still get caught in a short-term liquidity squeeze.o. natehttps://www.blogger.com/profile/08803577223028106635noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-1091673961803007292009-12-11T11:30:04.569-05:002009-12-11T11:30:04.569-05:00Two lines of thought: 1) I wonder if the RISK cre...Two lines of thought: 1) I wonder if the RISK created by debt (for example, the risk a consumer will fail to repay a loan for whatever reason) doesn't OFFSET the benefits of the multiplier effect. At the least, risk tempers the multiplier, and at the worst it more than offsets the multiplier (when added to the loss of spending power due to interest). Also, the risk seems to be realized in clusters (for example, during economic downturns there are widespread defaults), thus creating systematic risk that acts as a risk multiplier. 2) Your title seems to suggest you're going to consider whether debt is moral, but I think what you mean is whether it's "good" in the sense of creating net economic benefit. There are probably some who would argue that incurring debt is immoral, even if it creates net economic benefit.D Deadynoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-34624038585129629962009-12-11T09:18:45.941-05:002009-12-11T09:18:45.941-05:00there are certain things from your postings that l...there are certain things from your postings that lead me to believe you are not a bond trader. What I can't figure out is why you would pretend to be, and what your true identity is... nonetheless, all that is your choice as this is your blog!!!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-67066665862294252822009-12-11T00:03:46.839-05:002009-12-11T00:03:46.839-05:00when it comes to public debt, he most important wo...when it comes to public debt, he most important word is Rollover.<br /><br />Something that's been going on since the very day our nation began borrowing.<br /><br />Anon,<br /><br />Bob DobbAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-54806682182091019722009-12-10T19:59:16.822-05:002009-12-10T19:59:16.822-05:00Debt and savings are two different sides of the sa...Debt and savings are two different sides of the same coin. For the economy as a whole it's hard to argue that savings are good but debt is bad.<br /><br />In a healthy economy households overall are net savers. Business borrows from households to fund investment which contribute to higher productivity and future income gains. Middle class younger households borrow from middle class older households who spend down savings in retirement. Developing (and generally younger) households borrow from developed (and generally older) countries.<br /><br />In an unbalanced economy corporations are net savers and lend to households who are net debtors (i.e. the "company store"). The lower class borrows from the upper class who never spend down savings. Developed countries fund developing countries.<br /><br />Which of these do you believe current best describes our economy?Kickernoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-26329215849677738962009-12-10T19:51:18.142-05:002009-12-10T19:51:18.142-05:00Anon @6:29. There would be a more pronounced multi...Anon @6:29. There would be a more pronounced multiplier if the debt is piled on top of debt, but it still doesn't get us anywhere in the long run. Its still demand pulled forward. Even if the consumer goes bankrupt, then the lender eats the loss and there is some loss of agg demand from that. I guess the simple conclusion from thinking through this is that even forgetting my libertarian tendencies, there's no justification for government aide to consumer credit creation possibly outside of housing and student loans.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-42263278862058348652009-12-10T19:11:58.378-05:002009-12-10T19:11:58.378-05:00Great post and I am sure it will garner all kinds ...Great post and I am sure it will garner all kinds of feedback.<br /><br />I see consumer debt as purchasing power wasted; why pay $30 in interest on an item? Debt used for small things is a boon to sellers and a bust for buyers.<br /><br />Homes would be attainable for many if the use of easy/cheap debt had not pushed prices far above income streams of most people. Same goes for College tuitions.<br /><br />Corporate debt is different and I would agree with most of your points. No or limited access to capital would harm business expansion, not help it.<br /><br />I do not agree with your take on Wall Street debt. Prices will always revert to "correct" at some point, lack of debt would only cause players of arbitrage (your example) to miss out. Oh well.<br /><br />Public debt could be ok except politicians are involved so every single strangle hold on their actions should be in play, including lack of easy/cheap debt.<br /><br />Remember, a jedi allows the force to direct them; they allow themselves to follow the current of the force. A sith directs the force and commands the flow.EconomicDisconnecthttps://www.blogger.com/profile/02802078645713106743noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-41237816359458127582009-12-10T18:29:04.791-05:002009-12-10T18:29:04.791-05:00The real question is not debt vs. no-debt, but how...The real question is not debt vs. no-debt, but how much debt?<br /><br />It's true the consumer who finances a TV purchase or saves for it is having essentially the same economic impact over time, just with different timing impacts.<br /><br />But what about the consumer who takes on debt to buy the tv? And instead of paying off the debt, takes on more to buy clothes? A car? Appliance upgrades? A new home? An addition to the home?<br /><br />Given the risks and damage of too much debt, one could say no-debt is a safer and perhaps better outcome. (I wouldn't.)<br /><br />So what is "too much debt"? It's debt that won't be repaid, bad debt.<br /><br />And the whole thing therefore becomes circular. Debt that goes bad is bad debt. Debt that gets repaid is not bad.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-87465183898034778962009-12-10T18:12:16.123-05:002009-12-10T18:12:16.123-05:00I would question that assumption anon 5:30 from no...I would question that assumption anon 5:30 from now on....med school will not pay off either.<br />-JKAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-87415032315543265932009-12-10T17:30:26.589-05:002009-12-10T17:30:26.589-05:00I think the core takeaway is that debt is good if ...I think the core takeaway is that debt is good if used responsibly. <br /><br />Ex of good debt: <br /><br />Taking out student loans to go to medical school.<br /><br />Ex of bad debt: <br /><br />Taking out student loans to major in Communications and English.Anonymousnoreply@blogger.com