We live in a society driven by debt.
Cars, for example, have become hugely expensive (even on the low end) relative to what people can afford – because of the easy availability of credit. Which is the nice word used to speak about debt, intended to encourage us to get into it.
It takes at least $15,000 or so to drive home in a “cheap” new car, once all is said and done. And the “cheap” car will have to be registered, plated and insured.
It runs into money.
And most new cars cost a lot more money. Which most people haven’t got. So they get debt. A loan. Which, when it becomes commonly resorted to as a way to live beyond one’s means as a lifestyle, drives up the cost of life for everyone. Including those who try to live within their means – or better yet, below them.
When most people (when enough people) are willing – are eager – to go into hock for the next six years in order to have a car with an LCD touchscreen, leather (and heated) seats, six air bags, a six-speaker stereo, electronic climate control AC and power everything – which pretty much every new car now comes standard with – the car companies build cars to satisfy that artificial demand.
Artificial because based on economic unreality. That is a good way to think about debt. It is nonexistent wealth.
You are promising to pay with money you haven’t earned yet.
And maybe won’t.
The car market has become like the housing market – which has also been distorted by debt to a cartoonish degree. The typical new construction home is a mansion by 1960s standards. Not that there’s anything wrong with living in a mansion. Or driving a car with heated leather seats and climate control AC and a six-speaker surround-sound stereo and six air bags and all the rest of it. Provided you can afford it.
Most people can’t.
Normally, that fact would keep things in check. There would be mansions, of course – and high-end cars, too. But only for those with the high-end incomes necessary to afford them. Everyone else would live within their means. We wouldn’t be living in this economic Potemkin village that appears prosperous but is in fact an economic Jenga Castle that could collapse at any moment.
There would be a lot less pressure to “keep up with the Joneses”… as they head toward bankruptcy and foreclosure.
As society heads that way.
Like the housing industry, the car industry has ceased building basic and much less expensive cars because of easy and grotesque debt-financing.
Which is tragic.
There ought to be (and would be) a huge selection of brand-new cars priced under $10,000 were it not for the ready availability of nonexistent wealth (.e., debt and credit).
Cars many people could pay cash for.
Brand-new cars.
Not shitboxes – as the late great Brock Yates christened them.
They would have the build quality/body integrity and quality paint jobs that are now standard equipment with every new car, because of generally improved (and largely automated) manufacturing techniques, such as robotic welding and painting. Part of the reason yesterday’s low-cost cars felt shoddy – and rusted early – was because they were shoddily (and spottily) constructed. By often-aggrieved line workers, who maybe got a little too drunk the night before and so weren’t being very careful the next day, while fitting panels to the car.
It’s not like that today – and irrespective of price point. The humblest new car is built to a much higher standard than top-of-the-line luxury cars once were. Those costs have been amortized; build quality would not regress if debt-financed flim-flam went away. To think it would is like thinking we’d go back to corded wall phones.
They would have reliable, efficient – and not balky/hard-starting/stalling – engines, too. Because the cost of simple (throttle body) electronic fuel injection – an exotic technology back in the shitbox days – no longer is.
It’s everywhere – economies of scale have made it so.
Probably our less-than-$10k-car would have things like power windows and AC, if you wanted it. But wouldn’t it be nice if it were optional?
None of this is pie-in-the-sky.
Such cars are being sold all over the world right now, just not in the Western world – which is in debt up to its eyeballs.
Because the debt lifestyle has been normalized. There now exists social stigma to live below one’s means. To not give the appearance of wealth one doesn’t have by purchasing – on credit – things one can’t really afford.
That – as much as the regulatory burden of government – is what’s driving up the cost of life for all of us. Including those still trying to live within our means.
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Off-topic, but I just had to alert you guys to the latest in hip, new urban commuting… The PajamaBoy Scooter! (my name for it, anyway)
https://www.indiegogo.com/projects/xcape-folding-e-scooter-for-smart-urban-commuting#/
Here’s one of the promo photos. How would you caption it?
http://tinyurl.com/zxocabs
I remember the “good old days” in the ’80s when I drove an ’85 Golf GTI which had more than 150000 miles (the guy whom I sold it to put over 300000 miles on it before the transmission crapped out). My first new car was an ’89 Acura Integra that I just loved: simple, reliable, practical, trouble-free and great resale value. After that I’ve been lucky to have company cars since ’92 and haven’t ever missed having a car payment.
I haven’t driven an inch or bought a drop of gas, since Sept. 30, 1987, and have never had any problems! I just walk, ride the bus, rarely call a taxi or about once in 4 yr average, hire a mover.
God, how much have I saved, and avoided losing in foregone interest? At least 200K, cumulated!
Tatiana, I just have to ask “Where do you live and what do you do in life?”
Tatiana, you must live in a place like NYC. where the cost of living more than eclipses the cost of vehicle ownership (and where the cost of vehicle ownership is outrageous!)
Long story short: I’ve never made much money (I prefer time and freedom to money). I live simply. Never buy anything that I can’t pay cash for. Minimize/eliminate taxes. I live very nicely on what would be considered “the poverty level”. Meanwhile, I see people who earn many times what I do, struggling; having no cash; always borrowing; living beyond their means; getting entitlements; spending all of their time working; and yet they have no quality of life –oh, but they do drive a late-model or new car, and have all the gadgets, which they seem to equate with quality of life.
I don’t even understand what keeps these people going! Squandering their lives, just to pay [often unnecessary] bills and have the latest junk. It doesn’t make them happy, and yet, not only do they keep persisting at it, they pursue it even more heartily!
Funny thing is, these people always think that I’m rich (despite my income being a mere fraction of theirs) because I always have cash, and don’t work much, and keep my stuff clean and in good shape.
I know a lady who works in a fast food place. Just bought a brand new Chevy. She’d blown-up several other GM products in the recent past, with well under 100K miles on them, but she keeps on buying them! I guess if it doesn’t work…just keep on doing it!
“…She’d blown-up several other GM products in the recent past, with well under 100K miles on them”
Mercy! I’d almost pay money to hear the particulars on this! Might you furnish any of the details?
Oh, nothing very interesting Al. Just the usual, like GM’s propensity for blown head gaskets (and then killing the car by continuing to drive it until it seizes up); Not changing the oil; Letting her kid drive the car (He always ends up wrecking them). The head gaskets are a recurring theme though.
I think she buys new cars, because growing up (we both grew up in the same town) her mother always had the crappiest hoopties with bald tires and interiors filled with garbage and cigarette butts[literally]. She thinks she is buying a respectable image by buying new (but the cheapest) cars, even though she doesn’t take care of them, or live a life worthy of respect.
I feel no shame in driving my 17 and 18 year-old clean and well-cared for vehicles. I’d hope that if anyone respects me, they do so because of my character, and not because of what I drive. I drove one of my old hoopties for 15 years. This woman, by contrast, rarely has a car for more than a year or two.
I find this stuff interesting, too. It’s mind-boggling the way some people think. “My kid’s a criminal, and I’m a middle-aged woman who can muster nothing better than a fast-food job; we’re white trash and live on debt…and reliable transportation is beyond us, but at least the other dirtbags will be impressed when they see the shiny new $16K Chevy econobox in the driveway, next to the yard that we don’t maintain.”.
I’m not a “car guy”, yet I’m a regular reader, namely because you make great points and I agree with most of your views. Heck, I’ve even added clover to my vocabulary, but honestly I still prefer “f***ing zombies”, much to my wife’s chagrin.
We don’t own any cars these days, having given up our suburban home for an apartment in Manhattan, a short-lived indulgence for the wife’s benefit. At least I’m hoping it’s short-lived. I’m three years in and I’m praying my next lease signing in February will be the last year I suffer here, but I digress. On Long Island, cars are an absolute necessity, with public transport being unreliable and barely existent. Most families have two, three and often many more cars.
My wife and I do quite well, and both earn salaries just passing the six-figure mark. That sounds like a lot, but it doesn’t go far here, so we opt to be careful with what we spend. I cannot tell you how many times I have been laughed at, mocked and been the butt of some not-so-kind jokes due to my car preferences. I drove a good deal (25k+ miles annually), so a lease wasn’t an option. To avoid going into hock, I’d buy functional, safe and reliable cars with no pizzazz. My last purchase was a Dodge Caravan. Not a Grand Caravan mind you. Just a “Caravan”. It had sliding doors you needed to open yourself, a radio (no CD) and “roll up windows”. I bought in 2002 and got rid of it when I moved in 2013. Six years of “payment free” driving.
Listening to others, you’d swear we were on food stamps. I’d bring my daughter’s friends home from soccer tournaments and they’d struggle to figure out how to open the sliding door. My daughter would shudder and look away when my wife or I would say “you have to pull it”, rather than just pushing a button. My brother would tell people, “my brother is so cheap….” or “he drives a van with roll up windows” and they’d all laugh.
Funny thing is my kids have traveled the world with us and seen five continents. Both went to private universities and left with les than $20K in student loans. My son now flies F/A-18 Hornets for the Marines, a far cry from the sh*tmobile he drove at home. Who knows what my daughter will do, nut I know that neither one of them will be debt slaves.
I learned to laugh at the jokes, but the joke’s on the tellers now.
Good stuff, Ken!
Ken, that was a great comment. I have a question though, where do you find fucking zombies? My declining sex life has me considering options I never had or maybe just never considered. Then again, trying to remember my entire sex life, I believe I have fucked a zombie or a few and didn’t realize it……and vice versa I’d bet.
Wait, wait, wait. Just yesterday it was sex in the back seat of a Clovermobile. Then you make a play for Tatiana. (Which may be an admirable pursuit. But “Tatiana” might just be a screen name for Charlie for all you know.) Now you are willing to go for a zombie. Things must be tough in Texas.
Ary, I was trying to envision that type of life and where it might exist. I’ve been all over and there’s some great places but none fit in that category. Lots of great places but nothing quite soothes my soul like the Milky Way in a Texas sky. The stars at night really are big and bright deep in the heart of Texas. You drive or ride. 30 miles to the store is one hell of a walk. People living side by side gives me nightmares.
Hi Eight,
Advice I give all my burned-by-sex/our dicks and the women we screw up with (metaphorically as well as literally):
When you get the urge, beat off. The urge goes away – and you haven’t got yourself in trouble… again.
Sometimes it seems women are zombies waiting to pounce. But they’re so much like cars I feel like the moth drawn to the flame. Like your favorite hotrod if I’m not looking for that last bit of performance I’m shining and buffing them and trying to keep them from seeing me riding that other model I just gotta try out. If they could only be cool to my quest to try other ones for a change . Hell, they’re always wanting something different.
Back in college a couple roommates and I were contemplating what we’d do that Friday night. It was the age old question and one guy summed it up by saying, and this was all inclusive of women, drugs, and any kind of partying “let’s do something new and exciting”. About 3 beats later we were bout to bust a gut laughing. It’s still a good laugh for us to this day.
Just as I posted the previous comment Commander Cody started singing “What’s The Matter Now?” That fairly well sums up the woman situation.
Or, get involved in the swinger “lifestyle”.
The wife and I have been in it for almost two years and love it. I have more fun and excitement now than at anytime in my 58 years. My wife and main girlfriend are the best of friends. The catch? She gets to do the same. I don’t care- we are all adults, right? And once you realize it’s just sex, everything is good.
Contrary to popular wisdom, my wife and I are closer now than we’ve been in years.
There’s plenty of web sites out there, guys. The best I’ve found are SLS.com and SDC.com. We’ve gotten to the point that we rarely use the websites anymore, with all the good friends we already have.
I used to work with a guy that bought $500 cars. He figured if he got 2-3 months out of it, he was ahead of the game. Me, I couldn’t stand all the waiting in line at the DMV every 10 weeks to get it registered/titled/etc.
“…an apartment in Manhattan…”
I can not begin to describe how the notion of “an apartment in Manhattan” makes me puke. I mean….I don’t consider that to be in the United States. That may as well be somewhere in France….or Venezuela…or Cambodia.
I thing I would consider eating a 12 guage. I have absolutely nothing in common with anyone living in “Manhatten”.
With the financing that manufacturers offer, it’s enticing to take a loan on a new car even when you don’t need it. I’m totally into debt free living – I own my house, four cars and two motorcycles without any loans. I am currently shopping for a new car. My current daily driver (bought new 17 years ago) has 245k miles on it but its transmission is on its last legs. Even though I could pay cash, there is a .9% financing for five years available. At that rate it makes some sense to pay it off in inflated dollars (current official rate is 2% but it’s actually much higher) even though I hate the idea of having a loan hanging over my head. I still haven’t decided if that’s what I want to do.
This guy reviews a $7,000 Chinese car after six years of ownership:
https://www.youtube.com/watch?v=fJtKgeNM66w
My wife and I lag about 15-20 years on our cars…but even so we are considering doing without cars for daily living. My wife already lives in easy walking distance to her job, and I am considering a change too. Ending our daily dependence on cars would save us about 5 years of worklife, at our present rate. And it only gets more expensive as time goes on.
The only way to beat the debt-regulation game is not play it. Walk, ride bikes, arrange your life so you dont need a car.
Not going to have much choice anyway, those of us on the bottom will not be able to afford them anymore.
I’m with you, Andy.
Another option is to go old (and paid for) as I do. I’m actually in the midst of considering whether to buy a late ’70s (ish) El Camino or maybe a slightly newer truck as my daily driver. I would budget about $5k for this. Not only would such a vehicle be paid for in full at time of purchase but it’s a vehicle I can keep going entirely myself, inexpensively.
Eric, do you want a 73-77 or the newer style? West Texas is replete with the newer ones. Not sure why there’s so few of the others except not that many were made and they got driven into the ground. If it wasn’t killed outright in a big wreck it was turned into a drag car. They had a great weight distribution for drag racing. I’d give my left one for a Laguna front clip.
Hi Eight,
I’m leaning toward the newer style, mainly because they are cheaper. But also because they’re just modern enough to be great everyday cars, too. The ideal would be one with the 350/305 and the four speed OD auto. But I’d be fine with a TH50, too.
eric, there wasn’t a great deal of difference in the two other than size and engine size plus the computer controlled carb that’s easily chunked for a QJ and an HEI distributor. Put some tube headers, dual exhausts, a better flowing intake and the 305’s make decent power. Changing front end bushings for WS6 parts and a rear sway bar makes then handle much better. I’m not sure the front end will hold as large a tire as the previous model but if it will that would be a big plus too. The trailer tow package on mine has 7.5″ wheels that tuck back under that would probably work well. You might not be able to find beauty rings for them since they’re different from any GM rings I ever found. Of course 15″ aftermarket wheels are probably cheap enough to come by. Holley has out a new stand-alone TBI that “learns” for $800. The increase in low-end to mid-range torque would be worth it in everyday driving.
“Walk, ride bikes, arrange your life so you dont need a car.”
That’s great! I’m all for you enjoying this position. However, just leave people like me, that own more vehicles than I need, alone.
“…those of us on the bottom…”
I’ve never been on the bottom. I don’t ever plan on being on the bottom. I find no physical comfort, convenience or automatic morality by being on the bottom.
Living debt-free means living free. Our “betters” are not about to allow that.
To become debt-free is a priceless goal.
That said, there’s a Big Difference between an auto load and a mortgage.
Real Estate may not be as fabulous as R E Agents would have you believe. But in most cases, your house will not depreciate in value. It’s more likely to appreciate at a rate slightly above that of inflation. Second, the interest portion of each mortgage payment on your residence is still tax deductible.
Cars depreciate fast and hard. And car payments are generally not deductible.
So it should be a much higher priority to free yourself from car loans. And it’s not rocket surgery. Buy used and pay cash. Or my favorite approach…..buy a high quality new car, and keep driving it for a couple of decades after the loan is paid off.
( I agree with Eric that all cars are now built to a much higher standard. But some brands and models retain a lot more of their value than others. And the main reasons are reliability and durability.)
Indeed, Mike!
Though I have never really grokked the mortgage interest deduction’s wonderfulness. Sure, you get to take the deduction. But you’re still paying the mortgage (and interest, especially – usually for decades before you touch the principle). So you’re still paying.
One of the few smart things I ever did was to buy my place outright. I don’t have a mortgage interest deduction. But I also don’t have a mortgage.
And – truly delicious – I don’t have to pay the got-damned insurance mafia an effing cent, either!
Cue Jake Blues voice: I hate those guys.
Hi Mike, I, for one, do not believe that house values usually rise when the real inflation rate is factored in. This is just a marketing gimmick that Realtors use. If the value of houses really do go up over time, then the abandoned houses you see out in the farmland would be the most valuable and a 50 year old house would be more expensive than buying a new one. We should be saying that houses are a partial inflation hedge, not an investment, unless there will be a massive boom in the growth of your neighborhood.
Hi Brian,
Indeed.
I am dealing with this right now. And (for once) it works in my favor. The house I bought back in 2003 is only worth about what I paid for it back in 2003; maybe a bit more – but then, I have also put a lot of money and work into it. Best case – right now – is about break even.
But the upside is I still have the money I put into it… kinda (not counting inflation).
So, better than a car… maybe.
Sure, houses can lose value due to extensive deferred maintenance. The ultimate value is in the underlying land, which does not depreciate in most circumstances. In many popular neighborhoods, people will pay a lot for a property with a tear down house.
Real estate values are mainly determined by location and TIMING. There are some neighborhoods where appreciation is amazing, and others where prices are dropping. When you average everything out, I’ll hold to my belief that residential real estate appreciates slightly more than the rate of inflation.
I didn’t say that owning a house is always a fabulous investment. I said that freeing oneself of car loans should be a much higher priority than not having a mortgage.
The true value of the house itself will always decline even if it is maintained. Do you really believe that a well-maintained older house will will sell for more than a brand new one? I also had mentioned the caveat of potential increased value of land in certain neighborhoods, but even there: A lot with a brand new house will sell for more than one with a used house. But by all means continue digging your heels in. Go ahead and buy it.
“Do you really believe that a well-maintained older house will will sell for more than a brand new one?”
It happens every day, if the older house has a more desirable location. And that is often the case, because the most desirable areas are usually developed first. New houses are often built in the non prime areas, after the best land has been all taken.
Again, the majority of a home’s value is in the land, not the dwelling. But if that concept is too hard for you, go ahead and be a renter. 🙂
I am a land owner and a former landlord who was too trusting of tenants and the local legal system.
Highly desirable lakefront land around the Lake-of-the-Ozarks use to sell for $20,000 to 50,000+ per quarter acre, and the buyer would spend $200,000 to $500,000+ for a house to be built on that tiny property.
It is a very true fact that a person can make a fortune if he buys land in the right area and subdivides it before the area becomes better known by other land speculators and wealthy home buyers, but you have to be wealthy enough to obtain that land and have a better prediction on market trends than nearly all of the other speculators do unless you are a high level government person who knows what upcoming legislation is likely to be passed in your favor. The vast majority of people are not with-in this tiny group of people. My replies still stand rock solidly!
Hi Brian,
For the average non-financially-hip person who is simply trying to avoid losing too much money, I think buying a house is usually a good bet. You may not make money, but unless you are seriously unlucky, the house will usually at least retain its value (adjusted for inflation) so it serves as a kind of piggy bank that’s both somewhat protected from the vagaries of a manipulated/funny money economy and also fungible; i.e., you can usually “cash out” whenever you need to.
Hi Eric, yes, I agree. That was why I said that the house should be considered as a partial inflation hedge instead of an investment in my first reply. I should add that you will never get all of your money back if you held a mortgage on it if the real inflation rate is considered. There are some exceptions though. If you bought a fixer-upper house real cheap and fixed it up, then yes you can profit from selling it. But this is no longer comparing apples to apples like I was doing.
Debt is a smaller part of what’s driving up the cost of cars. Government mandates is the big driver.
Look at how much lighter an economy car from the 60s is compared to any car now — a 60s VW Beetle was 2,300 pounds. A 2017 Beetle? 3,000 pounds. That’s 700 pounds of expensive extra material and the associated manufacturing.
And with current technology? The Tata Nano weight 1,300 pounds.
A $3,000 car.
The cheapest car you can buy in the US is a Nissan Versa Note — at around $13,000.
That’s what the feds have done — more than quadrupled the entry price for a car for poor people.
Actually it’s a bit worst than that, the type 1 bug was more like 1600 lbs and the type 3 squareback wagon more like 1850-1900. Also the air cooled vw was designed to minimize complexity to keep operating costs low. Torsion bar suspension for superior ride and minimal moving parts. Manual steering and brakes, no hydraulics and vacuum diaphragms to fail and add weight. Air cooling- no radiator, hoses, or water pumps to leak. Oil bath air cleaner, to be sure a superior filtering system was always on hand to be changed. The whole exhaust system was 2 heater boxes and a muffler. Truly a well engineered solution to provide a quality, practical wagen for der volk.
Guys lets not pretend that we would all be driving 1960 bugs or that it would be preferable to modern cars. Sure it would be nice if you were ALLOWED to buy the car you want, that goes for all the foreign market cars as well. However much of what we see in America is consumer driven and marketing. We always need bigger, faster, more options. Most base model cars barely sell.
I really like my 2000 acura tl and I loved my 1990 mustang, I’ve driven cars with manual brakes and manual steering, it sucks.
Hi Todd,
True – but I submit the base models barely sell precisely because of debt-financing! Take that away and all of a sudden people would go back to buying cars they could afford.
These would not necessarily be primitive cars like the old Beetle, either. Most cars of the 1970s had power brakes and steering. AC was common.
Today, there are brand-new cars being sold in places like China that have AC, power windows and locks, even a touchscreen… for under $10,000.
They would comply with all US “safety” and emissions standards in place circa 1995. Would that be so horrible?
Morning eric. It depends on what part of the country you live in. Most people in Texas can’t afford to arrive at work looking like they saddled ol Spot and rode in and walked the rest of the way from the livery stable. That fairly much mandates a/c and the fact that nearly every house you find has a/c guarantees nobody’s going to drive with the non-existent vent windows open.
I recall along about 1960 new houses had refrigerated a/c opposed to swamp coolers. That meant nearly every car sold and most pickups had a/c too although nobody drove pickups back then that didn’t need a pickup. They knew they’d be in heat all day and a 2/60 a/c was good enough. I didn’t have a pickup with a/c till 1980 or later. Of course everybody, well, almost, had swamp coolers in their houses even before the 60’s since 80 degrees is a boon on a 100 degree day and often a 90 degree night.
Along about 1970 or so, you could get a great deal on that car in the lot that had sat there the whole year because it had no a/c. By then if you wanted no a/c, you’d have to get a dealer to look high and low for one. Electric windows were not common in 70 either with nearly every car having hand cranks. I recall as a kid having a 52 Chevy with no a/c. Nobody really bitched about it since few cars had a/c. But our 54 had a/c as did the 57. It was common enough to see cars with swamp coolers in the windows. Probably not a lot of people have seen such but they were life-savers in the scorching heat we have most of the year. To be honest, dark tint on windows was a blessing too.
Texas wasn’t a good place to have a VW back then and in the 70’s they came out with models with a/c’s that almost guaranteed a short life for the (larger) engine. I’ve rescued my fair share of people standing beside a quite dead VW. You’d think they’d have kept a closer watch on that plethora of gauges VW put in their cars……the speedometer. They sure were fun in cool weather though and their worthiness as a landing craft in floods had no comparison in the automotive world.
First car I ever saw with factory AC was my grandparent’s Bonneville. Still remember how bad it stank from the cigarette smoke (don’t crack a window grandpa, can’t let the heat in) and shivering, even though it was on the gulf coast of Florida.
Way back when I worked for GM (late ’50s, early ’60s) I know that a lot of the cars built at the Arlington plant didn’t have a heater. It was an option that many southerners declined. I always found that kinda curious until I moved to Alabama.
“The General Motors Arlington Assembly Plant has been building world class vehicles in Texas since January 6, 1954. It was the company’s first air-conditioned automobile factory.”
Ary, I vied for a job there in 1970. Didn’t know a soul there. They took my application but no encouragement. I got the feeling they felt there was plenty opportunity for a healthy male in SE Asia. In fact Uncle had been courting me heavily since New Year 1968. It was the same broken record I heard nearly everywhere in that time period. In fact I was a good shot and could live off the land and had quite a list of what I considered eligible targets but didn’t need to leave this country to find.
It’s not just debt. The problem is our inability to be happy with what we have. Debt facilitates this but it’s not the sole problem. If you buy a new car and pay off in 5 years, save payments for 5 years, in 10 years you can mostly buy a new car for cash. The thing is people can’t be happy with the car they have. Need the next greatest thing. We are a country that has totally lost the ability to save. In some ways it is impossible to save now.
Maybe banking IS the problem. If it went away we’d be forced to learn to save.
And our inability to be satisfied is a planned result of saturation media marketing and advertising. Not just the ads, the whole Hollywood/TV media subliminal pitch of showing how someone thinks people live/should live.
This all started with the 30 year mortgage.
http://bebusinessed.com/history/history-of-mortgages/
Unfortunately, mortgages at the turn of the century were different from mortgages today. In the early 1900s, homebuyers typically had to pay a 50% down payment with a 5 year amortization period. This meant that those who bought a house or property typically already had a lot of money. If you were buying a $100,000 house, you would have to pay $50,000 and pay off the remaining $50,000 within 5 years.
Sounds pretty scary, right? Except that a $100,000 house was basically a mansion. My parent’s house, a 3 bedroom split level bought in the 1960s with Brenton Woods dollars (dad’s salary was about $6000/yr at the time) was only about $20,000, and that included a corner lot, extra land and a detached garage in a fairly nice subdivision. He put over 50% down and they (according to him) gave him a hard time about it. And that was after the birth of the 30 year mortgage.
The 30 year mortgage was a boon to people who already owned homes, since they could basically name their price, knowing that Uncle-backed mortgages would make it “painless” for buyers. So it was great for my grandparents. They came out great in the deal, able to retire to a nice property in Florida. But later generations basically have no choice, we either play with the now normal 30 year mortgage or hope we win the lottery.
It didn’t take long for other industries to figure out they could play the same game. Now everything can be financed. Apple has a “subscription” plan where you pay $40/month and always get the newest phone. It’s just a financing plan, and it looks great on the books because it levels out Apple’s earnings. GE Capital was once the largest division of the General Electric. GMAC was bigger than GM. Most people never even look at their loan docs. Usually there’s a line that shows the the total interest paid out on a loan, but even if it’s not there, it is easy enough to do the math and see that you’ll likely pay more for the loan than the actual price. And if pay up for decades, but miss one or two payments, well, I guess you lose it all. Sorry sucker! The only good thing about car loans is that you can get 0% financing, but even that has the same risk of repossession if you miss a few payments.
I hate my mortgage. I really hate that I really wasn’t able to buy a home with cash. So my goal is to get rid of the damn thing as soon as possible. Buying the house was a good move, just because the mortgage payment was cheaper than renting. But I check the outstanding loan balance at least once a month, hoping for the day when I can pay it off, which should be in two years or so, but it would be a major stretch. That means I’m basically a debt slave for at least the next 2 years. I can’t just up and quit my job, which seems to get worse every year, because I owe too much. So I continue to be miserable. I know most people are in the same place. I also know people who have inherited land, who lived their entire lives debt free, and are now semi-retired at 50. They’re some of the most relaxed and happy people I know.
My late grandparents told me the story of how they financed their first house. It was the mid 1930’s just before the feds got involved so there wasn’t the government backed loans yet. Back then people buying homes would pay cash, borrow from well to do friends or relatives, or there were (mostly ethnic groups) organizations (both for- and non profit) that would finance homes along with (mostly community) banks (very, very few would qualify for bank loans in those days though).
The depression had made real estate more affordable again (after the 1920’s boom). They found a nice 3 bed one bath house for $5000 (NJ outside NYC). They borrowed what they needed from a great uncle (I think they had $500 themselves), who showed up at the closing with all of the money in CASH. He had hidden it in various places on his body in case he got held up on the way he wouldn’t lose it all. My grandma recounted how long it took him to remove it from his shoes, hat, bands around his arms and legs etc. But he had the whole $4500 on his self.
They promised to pay it back over a 15 year period, no mortgage on paper, an entirely handshake deal, I don’t even think he held the deed. After about 12 years of paying him back, he told them they had paid back enough, that the debt was paid up, the house was entirely theirs. Grandma figured he only got back the amount they borrowed from him, that they never really paid any interest on it.
They lived in that house until the mid 1980’s when they sold it for about $160,000. The bought a house here in the Chicago area for half that, and put the rest towards their retirement investments which just about covered their COL the rest of their lives. Imagine doing that now. Not possible. And my grandparents had some of the worst the depression threw at people.
Living off interest. Now in the era of ZIRP that’s impossible.
I had system that worked up until the crash. My interest on savings paid the interest on mortgage and I pocketed the tax deduction.
Of course there was the tax on the interest earned too… it was retention of liquid capital I was concerned with.
Brent,
Try NEGATIVE. Zero is too high.
SPDRS blog – it’s out in the open, if people just read it…
On the 50% down hassle. Banks etc probably had minimum loan amounts. I’ve run into that problem twice. Once with buying and another with refinancing. I wasn’t borrowing enough to make it worth it to them.
I hate having a mortgage as much as you do.
Thusly, I paid off my mortgage before age 50 ! And then I got divorced some seven years later !
Guess who got a house with no mortgage ? In exchange for keeping my 401k – – which was doing well at the time. In fact my 401K was doing so well, she got $100K out of that, too !
My 401K has since gone down a lot and I have a new quarter-million dollar mortgage with the finest woman I have ever met.
I’d rather be with her, and have a mortgage, than be with my ex and have no mortgage.
Still, I hate my mortgage, but not my ex.
SnowieGeorgie
But it will be easier for some to buy those expensive cars.
“The US will forgive over $108 billion in student debt—wildly more than anyone thought.
In a 100-page report (pdf) released today, the Government Accountability Office said it’d forgive $108 billion in debt for the borrowers of government loans who have fulfilled their obligations under the Obama administration’s income-driven repayment plans. That number is much higher than what the US government originally expected.”
Bernie’s Kids are doing OK, even if he didn’t get the nomination.
SNL did a good skit on this several years ago:
https://youtu.be/832aYrzTPMg?t=4m5s
That would be funnier if the actors weren’t millionaires. I mean, I like Steve Martin, but it came off a little condescending.
Most of those millionaire are also living far beyond their means as well. Some of the most broke people I know are high income people.
That’s the beauty of social competition. No matter how much you make you have to appear to make more than other people. The more people make the more debt they take on to compete. The debt system is of course mathematically constructed towards those ends. Just because a person makes $200K/yr does not mean he should be freed from debt slavery. He might not show up for work if that happened. So social structures still make him compete and in debt he goes.
There is a certain beauty to the system that is to be admired. It is so very effective and so very subtle that most people don’t even realize they are in it. There is so much complexity going on with so many facets that the way scientific management of society has developed it is quite impressive.
Debt is only the half of it. Gov’t regulations is the other. Throttle body injection would not meet today’s ridiculous emission standards, not to mention the costs of “safety” items like 35 airbags that will shrapnel you to death ‘if’ you get into a wreck. No Tata motors for thee.