People used to actually buy new cars – as in paid for them, when they acquired them. Money and title changed hands. The car was theirs. Now people finance cars, which – interestingly enough – is probably the main reason why very few people can afford to buy a new car.
Or a used one, for that matter.
Financing is a way to spend more than you can afford and that’s why every new car comes standard with features that used to be optional, back when people had to consider whether they could afford to buy things like air conditioning, power windows and automatic transmissions. Let alone climate control and heated seats. All very nice to have, if you don’t have to go into debt for years to have them.
Now you haven’t got a choice – because most people are willing to go into debt for years in order to have those things. It’s also why the government gets way with imposing all the things it “mandates” – that buyers have to pay for but which most of them could never come up with the money to pay for.
So they finance them – and that makes it all seem “affordable.”
It’a arguably one of the best tricks since the devil convinced most people he doesn’t exist.
The result is an unprecedented crisis of affordability. The average price paid for a new car has gone up about $15k over the course of about three years to nearly $50,000. The wheels that have been set in motion will not stop turning until the wheels come off this ride. The manufacturers – that is, the car companies – have oriented their business model around financing ever-more-expensive cars rather than offering affordable cars, their prices (and roster of equipment) kept in check by the ability of their customers to pay for them. The government is no longer restrained by the costs it imposes – including the ruinous costs of “electrification” – because serial debt-financing makes it seem “affordable.”
And – for a time – it worked. The duration of the typical new car loan more than doubled – from three years (this was back in the ’70s) to six-seven years today. Many people were able to convince themselves (with gentle help from the dealership’s finance department) that they could afford a debt (and interest) load that would have made people blanche, once upon a time.
To understand why, consider what the monthly payment for the typical $50,000 new car would be if it had to be paid over three rather than six-seven years. It would cost about $1,400 per month, not counting interest.
Probably not one in 1,000 Americans could afford that.
And yet, almost every American car buyer is persuaded they can afford it, by spreading those payments out over six-seven years.
In one sense, this may be true. In that – yes – the monthly payments are more manageable. But it doesn’t mean you’re paying less. It only means you’re paying longer – to own a depreciating appliance, which is what a car (however appealing) is. It is not like a house, which will almost always at least retain value – and usually increase in value. It is reasonable to speak of a home as an investment. It is preposterous to believe a car is one. It isn’t – anymore than a new washing machine or microwave oven is an investment. All of these are things bought to be used for a time and – inevitably – thrown away after a time.
A financially smart person does not “invest” in such things. He buys them.
The trouble – now – is being able to, courtesy of all the people who’ve bought into debt. It is literally not possible to buy a new economy car, for instance – because none such exist. They have been replaced by what are styled entry level cars and these cars all come standard with equipment that used to be extra-cost, back when people who knew they couldn’t afford air conditioning or power windows didn’t have to finance these things. People who could afford the extras bought them. But because they were once optional, only the people who could afford them bought them.
Their cost, at least, wasn’t imposed on everyone else.
Now, of course, it is. Also the cost of government, which most people seem unable to see now that everyone is obliged to pay for it.
Debt is like cancer in that eats away people’s financial security – including people who think they’re doing ok because they can “afford” a car they can only pay for if they sign up for payments for the next six-seven years. At the end of which they’ll have an appliance with a residual value of perhaps 40 percent of its original selling price.
An appliance that is probably about to cost them even more, too – as all that equipment is now six-seven years old and time is not kind to power everything (and now, LCD everything). How much is a smartphone you financed today worth three years from today.
Some might say we were better off when a wall phone cost $30 and lasted for decades – and an economy car may not not have had power everything, air bags or AC but it was paid for after three years.
Or maybe even on the day you bought it.
. . .
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Only tangentially related to the topic: I’ve known people who lease cars, and I’ve had many more people who claim it makes economic sense. They always chant the slogan: “Never buy something that decreases in value; rent it instead.” I could never “see” that, and still can’t. Obviously, any car — even the ones that aren’t devices — depreciates over time and use, which is why my practice has been “buy ’em used and drive ’em until they incur a cost-prohibitive repair that I can’t undertake myself, after which, off to the boneyard.” I can’t see how leasing can save the driver from covering the depreciation. Unless the entity that leases the car to him is truly stupid, the lease payment has to be big enough to cover depreciation, as well as profit to the leasing entity. It has to be cheaper to cover the depreciation yourself, and not pay the profit. Am I missing something here?
Hi James,
Yup. Here’s how I see it: When you lease, you are making regular payments each month and you never stop making them. You are thus always paying – and never owning. That is not how you build wealth. When I last bought a vehicle – my ’02 Nissan – some 15 years ago,I paid for it in cash. Since then, I have made zero payments on it. Occasionally, I am obliged to spend money on it – but that is not the same thing as being obliged to make payments. Also, I own my truck. It is entirely mine. There is value in that, too.
When a lease is not a lease. I had a coworker his prior employment was a leasing agent. He scoffed at the consumer “leases” offered for cars. The point of a leased piece of equipment was to NOT tie up capital needed to operate the business. When you’re bringing 3 to 4 grand to the table for your “lease” that ain’t no lease. Nice up front profit benefits “them” not you.
I’d consider not repairable when corrosion has compromised your ride. At least before all the computer controls, may have to include the unobtainable electronics now as well in that decision. My buddy’s second hand ‘99 Jeep lives on with his kids, he got it from another friend that had done both an engine and trans transplant years back. The rig was “sound mind” (computer) and “body” (no rust).
Leasing was originally intended for businesses, not individuals. When I was a kid, my uncle had a leased car, one leased by the business that employed him (he was in adverting). It made sense (like tax reasons etc) for that business to not have to have that much capital in cars for their employees (as a perk, he could use it generally like it was his own personal car).
I was told on one job I was at that I was rich because I drove a twenty year old car. I’ve also been told I was poverty stricken by a family member perhaps because I live well within my means and he chose not to.
John Kable : Sage advice from my late Father: “Don’t spend money you don’t have on things you don’t NEED.
I can afford new cars but see no reason to buy a depreciating asset when a well maintained used car could run for decades. I replace cars when their rusted out and a large mechanical repair bill would be pointless. My house was paid off a long time ago also.
I was in Mexico last month and could buy a new small Hyundai WITH AIR for $12K.
Hi Sam,
Yup.
And in New Zealand, you can buy a brand-new V8 LandCruiser for about $40k.
Interesting. Is it possible to buy one and drive it back to the States? Or does Uncle make that impossible somehow?
If it’s full of illegals, they’ll probably wave you in.
Check the 25 year rule. Son in law brought two non US compliant rigs home from Europe, of course both over 25 years old. Now legally titled and licensed here in WA.
What is really wild, is that my great-uncle’s first house was $30,000. New cars cost that much and more these days.
[…] Guest Post by Eric Peters […]
I’m waiting for auto loan forgiveness offered from a politician to buy my vote.
Dan,
Just Watch.
That’ll show up about 5-10 years *after* I pay off the note. (Luckily I got in just before prices & interest rates went through the roof).
Just like student loan forgiveness did, and mortgage debt forgiveness will.
I think the EV bubble is finally bursting. Front page of the DailyMail today. EVs are WORSE for environment that ICE cars. Whoops! That wasn’t suppose to happen. Please hug a radical environmental lefty freak today as they are going to be upset about this news.
https://www.dailymail.co.uk/sciencetech/article-13155147/ev-pollution-worse-exhaust-emissions-study.html
Those people won’t know. They don’t read the Daily Fail, it is about as well regarded as Faux News is on the Left.
But tge Daily Mail does have scanty clad vixens.
A $50,000, 5 year loan on a new car with a 6.24% interest rate would cost you $8,000 extra over the life of the loan. A 7 year loan would cost you almost $12,000 extra.
They should put that info on the sticker.
Some cars do appreciate in value.
In 1990, I purchased a 1988 Trabant for the equivalent of 200$US (+$1000 shipping). 10 years later, I sold it for $2.500 (and could have gotten $3.500 had I not had I not sold it to the first guy who paid me full asking price).
Today, a 601S Trabbi in the same condition sells for about $11.000.
Insurance rates go up on a car under financing as well. Another reason not to finance and insteas buy a $10k used car and deal with the inevitable mechanical problems.
I’ll take mechanical problems all day over the stupid electronic gremlins.
Hard to believe that just a few generations ago when one bought a house they either paid cash for it or if they did take out a mortgage it was for no more than FIVE years. Look what has happened since that is no longer the case: Home ownership is becoming unobtainable for many, and it is the norm now to pay for 30 years for a home which results in one paying two times the price of the house in just interest alone, for the already ridiculously overpriced house. In many places, such as here in the northeast, half a million bucks just buys you a dumpy “starter house” with absurd property taxes. And thanks to such banksterism, now the same is the case with cars. At least with real estate, your “investment” will likely at least hold it’s value or even appreciate (But not after considering the interest and taxes). But with cars, you’re in the same boat only with an asset which is guaranteed to depreciate, and quite quickly. I can’t see EVER having a car payment. Funny, but I buy older used vehicles, and they have been very reliable and inexpensive to maintain. I keep them a long time, while my neighbors are always getting rid of their new cars in a few years, and losing even more money every time.
I’m a political refugee from communism that moved to the US in the early 1980’s. In a world where you have nothing, no prospects, debt is an awful idea, and that’s the mindset which I brought to the US, doing my best to live debt free, even if that means living very modestly, and trying to save money for the future, because nobody’s going to look after me in my old age except myself, since we came to the US with nothing and have no family assets.
Doing what I did, living within my means, is precisely what US monetary policy punishes. Costs go up due to inflation, taxes go up to “help” those who didn’t find some way to cope with it, at the cost of those who did. Living debt free buys you piece of mind, but greatly delays your ability to acquire some asset that rises with inflation.
It’s foolish to borrow to buy a depreciating asset like a car, particularly an EV, however, while our spendthrift government runs the printing presses like they do, debt is a way to get some hard property or start a business, whatever. I went deep into debt 12 years ago to buy a house, and in those 12 years, my fixed rate loan hasn’t gotten more expensive, while the house has appreciated and my income has grown – inflation is eating up my loan. In the last days of communism in eastern Europe, you could pay down all your debts by selling a pig or a cow because inflation had devalued debt so much. You just have to be realistic about debt as a tool It’s not a way to buy something you can’t afford, but a reasonable way to fund investment in an inflationary economy.
‘[Debt] is a reasonable way to fund investment in an inflationary economy.’ — OppositeLock
Four researchers with impeccable Establishment credentials, including a former US Treasury secretary and an International Monetary Fund staffer, argue that inflation is seriously understated:
‘Consumer borrowing costs in the U.S. have skyrocketed over the last couple of years. Interest rates — whether on credit-card debt, car loans, or mortgages — are higher than they’ve been in decades.
‘Particularly revealing is a cost-of-housing index the authors calculated by taking into account both the mortgage rate and the average cost of a home. They find that the cost of housing in the U.S. has more than doubled since the pandemic, in contrast to the CPI, which has increased by around 20% over the same period.
‘The authors calculate that had the CPI fully reflected higher borrowing costs, it would have peaked at 18% in November 2022 and still be around 8%. Until 1983 the CPI included consumer borrowing costs. The Bureau of Labor Statistics reflected these costs by “taking house prices, mortgage interest rates, property taxes and insurance, and maintenance costs as inputs.” — Mark Hulbert, MarketWatch
https://archive.ph/Vhnwr#selection-703.81-703.323
Bad enough that persistent inflation euchres wage earners. Worse that Big Gov LIES about how bad it is, then blames the victims. That nonsense is about to stop.
*hangs ‘Biden’ piñata and reaches for his Louisville slugger*
Well, yes. If your money is losing value fast, you don’t want to have money and you want to have physical goods and debt, because the physical goods gain nominal value, while the debt loses real value.
The government is a real crook, though. If you’re running an 8% inflation, over 10 years, your money would have lost 54% of its value. Look at it from the other side – your house doubled in dollar value (nominal value) bit its real value as a house hasn’t changed.
You then sell the house, and that represents a capital gain tax. The feds will tax you at around 40% (+ your state).
So, in 10 years, they’ve taken 1/2 of the value of your money, then when you sell an inflated asset, they take 1/2 of that. So, in the end, the gov’t got 75% of the money that you put into your house.
The first $500k in cap gains on a primary residence for a couple is tax free.
Yeah, fair enough. Where I live, property values are skyrocketing, so my little 1400 sqft 1950’s starter home has appreciated by $2M in 12 years. I was thinking of the cap gains on the $1.5M remaining. I realize this isn’t typical. I also wish there was some way to cash in on this equity without borrowing against it!
Whoa. That’s lotto winnings!
Capital gains have never been adjusted for inflation in the tax code. Therefore, you are taxed on capital gains that are not really gains at all but are just asset price increases due to inflation.
The Beatles explained this system beautifully in one of their greatest songs, Taxman. I still love listening to that song. It is one of the great libertarian anthems.
Hardly anyone left in USSA that lived in a world where debt was hard to obtain and products had value.
The people who lived through and had memories of the Great Depression are nearly all dead.
My grandparents always paid cash for their cars.
Granny was always critical of debt and used the term of those who did as “champagne taste on a beer budget.”
Frugality is out of style….at least for the time being.
“ Hardly anyone left in USSA that lived in a world where debt was hard to obtain and products had value “
My parents graduated high school in 1932 so right into the Great Depression. Mom still darned socks into the ‘60s. Keeping up with the Joneses was scoffed at not embraced as I grew up.
In the ‘80s the home equity loans got rolling, I had a bad feeling when I saw a bank billboard “Let your home equity fund your dream vacation!” Oh my.
Granny left HS in 1938. That generation understood the value of what they worked for.
A friend of mine told me when they cleaned out his grandfather’s house, they found several 5 gallon buckets full of bent nails – apparently in case he needed to bend and reuse them.
As Charles Hugh Smith describes, the “conveyor belt from the factory to the landfill” economy is not sustainable.
Indeed, screws, bolts, nuts, etc are NOT single use devices. Even drywall and wood screws and nails can usually be re-used. And the prices on boxes of new ones are dramatically higher today than they were 5 years ago.
Tore down a 20×32 foot granary with 10 foot framing walls. Removed all of the wood shingles, then pulled every 3d nail from the roofing boards and saved them all. That was 43 years ago, still have the nails. Saved all of the 10 foot 2×6 which were more or less number one grade. Every joist was 20 feet in length. Didn’t save the clapboard siding, but maybe should have.
Didn’t have to do it, it was more fun than work.
The 2x dimensional lumber was still good.
My body was lighter and more nimble 43 years ago.
Everything is now advertised as “only” $XXX. dollars/month, from car and mortgage payments to food deliveries. The ruling class is succeeding in getting us to provide them with a constant cash flow while never building personal wealth.
Never had a car payment. Never had decent enough employment to assure I could pay debt off, so I bought junk cars for almost nothing and fixed them myself until I had enough cash saved up to buy a new car outright (which didn’t happen until I was 41).
My strategy since then has been to only buy new if I can get the most stripped-down vehicle I can for cash, and maintain the hell out it myself and keep it indefinitely.
The problem, of course, as Eric points out is that other morons who undertake debt drive prices up. The biggest offender of all is government. Government debt is increasing at a rate of $1 trillion every three months. The government cannot pay that off so the strategy is to inflate the debt away. This deduces the value of your savings, and it it increases prices, making it more necessary to undertake debt for the stuff you need but can’t afford.
We buy a lot of cars/trucks. Cash with some exceptions.
Car and house loans have front loaded interest so you can never get out early if you need to.
I thank my wife for being crazy prudent. I’m a spender/risk taker she is the saver. We both were in the Corp word and we both knew we were the controlled and would never control our destiny. After getting capped time a time again, I think it was strike 3 and we’re out.
We started our own biz with 20K in the bank and borrowed 20K to start, and a newborn. Even our families were really pissed at us. For 10 yrs it was relative pauper living. Our night out was bring $10 to the pizza place. Years later we thought we were kings when we upped it to $20.
She paid off the house early, while all our peers were buying and living in very nice houses and living well. It was tough, but she had a plan.
I met a great car guy and he taught me how to do it at a time I was driving 40-50K a yr.
Have paid cash since. I’m guessing I’ve saved $100K in 25 yrs since. 15-20 cars?
Could we have saved driving 10+ yrs old cars. Probably, but in sales, old stuff doesn’t work.
Now, well off, while most peers are struggling. But we’ve also seen the majority divorcing, so that’s part of it too. Our challenge is making sure our kids understand all this. I would say they are doing better than their peers in knowledge about all this, but time always tells.
Yes they have front loaded interest
But (if you have money left to do it) you can earmark extra money to go towards the principal on the mortgage. Maybe not on all of them, but on a standard Fannie/Freddie one you sure can.
If you can put a few hundred into that every month, you can knock years off of the loan.
Any principal you can knock off now, doesn’t accrue interest later.
Eric,
The debt issue relates to every ill in the U.S. especially and the West generally. The creation of the Fed as a central banking cartel by a bunch of bankers on Jekyll Island, GA spelled the doom of the American economy from the getgo. The effect has been to destroy both the economies of the West and the respect for individual liberty that was associated with the economic advances in western societies. It’s rapidly coming to a head now especially given U.S.G.’s participation in the forever wars in the M.E. and Ukraine. If you have not watched Tucker Carlson’s interview with Putin, it is instructive as to why the West is done and why BRICS countries are ascendant. The conflict in Ukraine has also exposed the products of the MIC in the West as being inferior and overly expensive. May fate have mercy on us all because the victims of U.S. foreign policy since WWII surely will not.
[ The creation of the Fed as a central banking cartel by a bunch of bankers on Jekyll Island, GA spelled the doom of the American economy from the getgo.]
True dat,,, but the Fed only serves as an illusion for not so bright Americans that now believe debt is wealth.
It is simply a vehicle of debt for the government.
I remember the fall of the USSR. Much of it caused by debt. Americans were laughing at them back then. Soon the Americans and West will be the laughing stock. As a matter of reference Russia paid off all that sovereign debt even though it could have skated. I can guarantee you scam America and the West will never pay off its debt. In fact they are now in the theft mode,,, robbing Russia of the 300 billion it had in the US to work within the Dollar system. Then there’s the oil and grain the US is robbing from Syria at gunpoint. The money laundering schemes with Ukraine and Israel. Gold from Venezuela. Oil from Iran.
Government is the ‘main’ culprit here. The Fed merely writes the overdraft checks. It’s clowngress spending money it doesn’t have. From what I understand the Fed is required to write the checks whether it wants to or not. Three trillion will soon become four,,, then five,,, then six,,, ad nauseam until we are finally broke and the dollar is dead on arrival.
Why do they keep doing the very thing that will doom us. Because if they were to try spending within their means there would be rioting in the streets.
Americans are now doomed to complete the socialist nightmare.
Debt is also called leverage. Like a lever multiplies work by trading distance traveled for force, debt multiplies purchasing power by trading time. When properly applied it moves worlds. When used improperly it will destroy the mechanism.
We’ve been awash in underpriced debt since 1987. Think back to that time. I was still using an Atari 800 computer which was dated, but functional. The hot new computer of the day was the Compaq 286. Steve Jobs was ready to introduce the NeXT workstation to the world. The HP laserjet printer and digital copiers were causing a revolution desktop publishing (or at least community bulletin boards and light posts). The hot cars were the Toyota Celica Supra, Honda CRX Si or maybe the VW Golf if you read the right magazines. A mobile phone call cost you a buck a minute (when gas was a buck a gallon), and long distance calls were “only” $0.25/min if you used a dial-around service.
The thing that made it possible for the economy to absorb all that cheap credit was the tech revolution that was going on. We squandered the real productivity gains from replacing secretaries and file clerks with PCs on debt payments and government spending. Clinton dumped domestic spending off on the states via block grants and used the excess to play Risk overseas. Bush the Second just made it worse. All the new money going into government went right back into the credit markets to pay for all the retirement accounts that were loaning out the debt to fuel the retirement accounts.
Look where we are now. The interest on federal debt is $1 TRILLION annually. The FED discount rate is the most important metric in the economy, destroying business plans with a single crypicly signaled phrase.
Shocking thing is, household debt to GDP ratio is around 75%!
https://fred.stlouisfed.org/series/HDTGPDUSQ163N
That means just about everyone is running their lives on leverage.How many people are stuck working indefinitely to pay down eternal debt? How many people are only making the minimum payment as listed on the amortization schedule, never even considering throwing in a few more dollars to pay down the principal?
And what does this do to business plans? An upward move on the prime rate can destroy businesses running on loans. Or worse, depending on VC funding that wants a 7% return on the fund, but now can get 5-6% on treasuries? That’s going to reset a lot of fund manager’s expectations for your new AI startup, so you better have a government customer in mind (cause they’re the sure thing deep pocket customers venture capital is looking for). Wonder why China and South Korea (and increasingly, Vietnam and India) are dominating consumer markets? Because investors want US companies to sell to the government sector, who very soon will have to buy everything domestically -because that worked out so well for the defense industry.
Anyway, this is getting long. Imagine what might have been if Greenspan had stuck to his Randian ideals, letting the free market decide interest rates instead of imposing artificially low rates. Would we have had the dot com bubble? Probably not, or at least not big enough to cause a recession when it popped. Would the government’s response to 9/11 have been so insane if they would have had to issue T-bills at 10% or 15%? No way. What about all the businesses that were plowed under or absorbed into bigger conglomerates? And what of consumer debt and the housing bubble? If rates had been reasonable there would’t have been a need for Premier Bush’s housing subsidies and the subsequent damage.
One immigrant to a G7 country commented….these people here are poor too….they are just deep in debt, making it look like they own something…lol
‘Would we have had the dot com bubble?’ — ReadyKilowatt
Dunno. But today we have an AI bubble, PLUS a housing bubble, PLUS a crypto bubble, all fueled with leverage.
Big Gov is riding a fraying tightrope on a broken-spoked unicycle with a 10-foot soap bubble poised precariously on its nose, as we all watch in rising alarm.
Within the next two years, this ‘turns kinetic,’ I claim. Escalated war, in particular, would send inflation into double digits fast, popping those asset bubbles with a deafening bang.
Why would double digit inflation pop an asset bubble? Would it pop the food price “bubble” too? The dollars buy less and assets get repriced in more of them. Inflation rewards borrowers by allowing them to repay in devalued dollars.
Higher inflation means a higher discount rate applied to estimated future earnings. This brings down present value.
Best example is the US stock market in 1974 and 1982, with a P/E (price / earnings) of 6 as inflation roared. Today P/E is in the 20s. A new dose of higher inflation could chop P/E in half.
This chart (1871-2011) shows that when inflation breaks out of its 0 to 3% sweet spot, high P/E ratios tend to come down.
https://tinyurl.com/mracz6jx
You’re mixing a lot of metaphors here. Inflation didn’t hurt prices on the Zimbabwe stock market during their hyperinflation. What’s the P/E ratio on groceries?
Hyperinflation eventually lifts stocks higher … but at very low P/E ratios. This happened in Venezuela and Argentina too. In US dollar terms, though, those stock investors lost big.
It’s way too early to buy US stocks as an inflation hedge. On the other hand, gold broke out to a record high today. 🙂
And it looks like the FDIC might have another bank bailout on its hands this coming weekend. NYCB chart:
https://tinyurl.com/57vrxryj
Stocks are at all time highs. It isn’t fundamentals or P/E ratios driving that. If you already owned them, you’d be keeping up with inflation because they reflect it in their ever rising nominal prices.
As we know, any bank holding US Gov’t paper at size is likely very impaired as to liquidity and/or technically insolvent. I’ll be curious to see how they parse why NYCB is different.
The Fed has to raise interest rates to pop the bubble….looks like they might lower them to help the election…
Increase rates pop the bubble…crucify borrowers, debtors…
Lower rates…hyper inflation…$100 loafs of bread,…. but….pay back debt with inflated dollars….borrowers winners….savers robbed…granny and pensioners crucified..
Lower rates…hyper inflation…$100 loafs of bread…most likely….
savers robbed…granny and pensioners crucified..this has been happening for a long time….since 1971 when gold standard was killed off….now just fiat $…..huge asset inflation….
A 5 cent loaf of bread is already $5.00 ….lol
granny and pensioners crucified…..part of the agenda….no pensions to pay then…started the attack in mar 2020…….old people are screwed…hated….a tax slave paying no tax is useless…..
The Fed took rates from 0-7+%. Stonks and RE at all time highs. At what rate of interest does the devaluation of the currency get reversed so that our money is more valuable?
Shadow stats numbers….
The CPI on the Alternate Data Series reflects the CPI as if it were calculated using the methodologies in place in 1980…(can we go back to 1980?…it was better)…
It shows inflation is 12% now today….the government stats shows about 4% inflation….
So maybe 12% fed rate now would stop inflation….dollar erosion….
The Fed has to raise interest rates to pop the bubble…maybe 12% would work…..more likely they will cut…
http://www.shadowstats.com/alternate_data/inflation-charts
Some say they might go the other way…more negative rates….like below zero further….currently 12% – 4% = -8% negative rates right now….paid to borrow….debt is profitable….
maybe the the theory is…at -20% rates…the face value of old bonds…debt would increase a lot….balancing out the balance sheet….
currently 12% – 4% = -8% negative rates right now….paid to borrow….debt is profitable….
borrow now for stocks or real estate?…..but they are very expensive….= risky…..
savers getting screwed…..
currently inflation at 12% – 4% fed rate = -8% negative real rates right now….paid to borrow….debt is profitable….
so maybe any car loan under 8% is a deal now…..better then a cash deal?…..put the cash instead in stocks at 8%?…..
DOUBLE DOWN asks economist and historian, Dr. Michael Hudson if any economic theory has ever suggested negative interest rates.
Not since back to the Bronze Age does he recall anything like this being suggested.
That’s because, for thousands of years, economic beings have chosen to hold debt jubilees…..writing off all debts every 7 years….it was better in the old days…..
now the slave owners just keep squeezing the tax/debt/usury slaves to death….
debt jubilee…..Negative rates achieve that a bit slower but they do the same thing eventually by bringing the volume of savings on the asset side of the balance sheet down to the volume of debt that can be repaid. Hudson believes rates will quickly go as negative as -25% and thus erase some of the debt burdens.
https://sputniknews.com/20190730/negative-25-interest-rates-1076404514.html
Jubilees are a fine idea, but they get worked into the price of things. No one is going to extend you a 30-year mortgage if Jubilee is next spring. At most, you will get a 12-month loan. As the day gets closer, you will have to cough up the entire purchase price if you want a roof over your head. Or transportation. Or food…
You know that world Klaus Schwab is talking about? The one where you will own nothing…?
“30-year mortgage”
way back in the past under the old world order….king at the top…slaves/serfs on the bottom….the slaves were provided shelter and food….no mortgage needed……and their taxes were way lower…
today under the new world order….presidents and WEF on top….slaves on the bottom….slaves have to take on huge debt for shelter…and pay very high prices for food…they are buried in debt..and the taxes are far higher then what the ancient serfs paid….
Before the control group came in and took over….and genocided the white tribes in Europe…the tribes lived happily…no mortgages or debt….just a nice simple life….after that…. 2000 years of slavery….
https://www.youtube.com/watch?v=CKOqvvdbmps
>The interest on federal debt is $1 TRILLION annually.
Meanwhile, all them shifty-eyed towelheads in the Middle East are starting to ditch he U.S. dollar in favor of other currencies, or maybe gold, when trading with countries other than the U.S. So what happens when debt service strangles your budget? Currency devaluation, that’s what. Bienvenidos a la Argentina, compadre. Oder, wilkommen nach Weimar.
Time to start rating Feddle Reserve notes in kcals/kg, not oz gold. How many wheelbarrow loads will it take to heat *your* casa, señor? Don’t worry. Your SS (“Social Security”) payment will not be decreased, citizen. It just won’t buy anything. Time to perfect that exciting new recipe for grass soup.
Leverage is when you borrow money, invest it for an higher return, use the proceeds to pay the debt, and pocket the difference.
It only works as long as you are getting a better return on the investment than the interest rate on the debt. So if you bought stonks, and the market crashes, you’re now hosed.
A wildcard to the idea of the car loan is to borrow money from your 401k and pay it back to yourself. Yes, this process favors the rich people, for sure. Typically, the way this works is that your 401k loan is paid back (to yourself) at a rate typically earned by a Money Market Fund. Currently, that is about 4.5% or so. NOW IF, you have a cash position in 401k (they call this the “Stable Value Fund” or some such), then you’re not missing out on stock market returns. If, however, you were 100% invested in equities, then your loan portion is being paid back at Money Market rates, and you’d be missing out if equities were appreciating faster than cash. Since I, myself, am getting older, and have a cash position in my 401k, then I am not “missing out” on the gap between equity appreciation and cash. Of course, in a declining equity market, then paying yourself back at Money Market rates actually makes you money! YMMV, of course.
Doing the same thing on a whole life policy is an even better idea.
For a while the establishment, along with the Biden regime & establishment media, tried to convince everyone that the economy was doing Grrrrrrrrrrrrrrreat thanks to Bidenomics. The only people I see benefitting off of “Bidenomics” are the billionaire class, while ordinary Americans are increasingly struggling to pay for daily expenses to the point they’re using credit cards. I haven’t heard anyone in the establishment STILL peddling the Bidenomics narrative recently, though I’m sure there are STILL propagandized people out there singing Bidenomics’ praises while they’re being robbed to give MORE MONEY to Keeeeeeeeeeeeeeeeeev, the military-industrial complex, the medical-industrial complex, the green energy lobby, or some other government favored lobby.
The control group slave owner billionaires…. own blackrock, state street and vanguard which own the whole planet….they have done very well with this engineered asset inflation…lol…the poor debt/tax slaves just get poorer…..
slavery is the most profitable business…..
boycott everything they own…and never obey them…ever….
If you can write off a car lease as a tax deduction…if you are in outside sales or other situations….leasing can be better…Get a 2 or 3 year lease….when the lease expires, turn it back in….
in a lease you are just paying for the use of the car, the depreciation…you pay for the 1st half of the car….at the end of the lease you can decide if you want to buy the 2nd half….
If you can’t write it off….buy something inexpensive for cash….look for something that won’t depreciate or might appreciate….a collectible car….
If you like cars look for something that is a driver’s car…fun to drive…and try to find something you can repair yourself….then learn everything about the car, do your own repairs if possible….buy some tools, the best investment in your life….buy something well engineered and reliable, durable….try to find something older, pre all the electronic crap. totally analog….
For example, for fun, buy a Porsche 924…they are well engineered and reliable, no electronic crap, they don’t depreciate, probably will appreciate…Porsche 944 is also good
Something more practical…a VW Mk3 or Mk 4 Golf, with a manual transmission…..they are well engineered and reliable, they are reasonably priced, there is lots of used parts available, new parts are cheap, they are simple, they can be worked on, they might not depreciate now, VW Mk1 and Mk2 Golfs are good too, but they are collectible so more expensive.
The simplest car to work on?….a Super 7…they are the most stripped down, basic, analog car in the world…easy to work on…..which is the best kind….
All new cars…EV’s are the worst…do not buy one…….or lease only…they are far too complicated, unreliable, electronic filled/controlled crap, can’t be repaired, probably dangerous, a total nightmare….
Thing is, you’re almost always limited by total miles per year traveled when you lease. That’s fine if you’re using it for your sales job and need to impress clients, but if you use it for vacations and other trips those penalty miles add up pretty quickly. When you turn it in you might have a pretty big bill due.
It is possible to get a lease with high or no mileage limit.
Regardless anything would be cheaper then paying the real depreciation on these new cars….EV’s are far, far worse….and the huge repair bills…lol….they can’t even fix this crap…..
Buying these new cars is a no go….full stop….they are far too complicated, unreliable, electronic filled/controlled crap, can’t be repaired, probably dangerous, a total nightmare….lease or just buy an old used car….
Leases have other benefits….when you crash and the insurance company says….we will only give you $10,000 for you new $60,000 car…it is the owners problem…the lessor ….you just walk away…..
there are other benefits also……if you crash and kill a dentist….and the judgement is $10,000,000.00…the lessor, the owner…not you…. gets sued for the 10 million….you walk….that is the #1 reason to lease……
if you crash and kill a dentist….and the judgement is $10,000,000.00…..also the reason not to own a car…..
Some new cars like Toyotas (and probably others) will last for 200,000, 300,000 miles still with routine maintenance. Eric’s latest review mentions one and it’s in the mid $40k’s. In fact it’s what I drive for outside sales. Was able to depreciate the whole vehicle (w bonus depreciation) in year 1. *this is not tax advice, consult your cpa etc. etc.
Are you an attorney? Are you saying if you are at fault in an accident, you have no liability because you have leased the vehicle?
Your point about the payout may be valid though, but you would get the same benefit if you were financing the vehicle. The lien holder has an interest in getting the fair payout from the insurer as well as the leasing company would.
if you crash and kill a dentist….and the judgement is $10,000,000.00…the lessor, the owner…not you…. gets sued for the $10 million….you walk….that is the #1 reason to lease……
but if you are convicted of a criminal act…like dangerous driving…and you own the car….all insurance is void….you pay everything…..
if you leased….you don’t own the car and it is not your insurance either….so the lessor would probably have to pay….
I don’t know the current situation….but….a long time ago Honda quit leasing in New York….because of this issue….too many 5 million dollar payouts….
when you crash and the insurance company says….we will only give you $10,000 for you new $60,000 car…and you have a bank loan or a manufacturer loan….the bank doesn’t care….they can do nothing to get more money from the insurance company…you are screwed…you will pay…period…the #1 reason to not buy/own a valuable car….buy a beater….
if you crash and kill a dentist….and the judgement is $10,000,000.00…the lessor, the owner…not you…. gets sued for the $10 million….you walk….that is the #1 reason to lease……
they would rather go after the leasing company…like ford credit….it has the $10 million….you sure don’t……you just declare bankruptcy….if you have any assets….all gone….
these migrants don’t care…no insurance and they have nothing…..sue them for what?….lol
you’re still liable as the operator of the vehicle.
there is no personal indemnification simply because you leased the vehicle, at least here in the USA.
a long time ago Honda quit leasing in New York….because of this issue….too many 5 million dollar payouts….the current situation…I don’t know…
they would rather go after the leasing company…like ford credit….it has the $10 million….
sure they might try and sue you too…why not?….but where the real money is…… suing the owner of the vehicle and their insurance company…the lessor….
it is not the lessee’s vehicle or insurance….
Sure… maybe you get a traffic fine, suspension or points for crashing……that is a separate issue from insurance….
Leasing is a better write off then buying and depreciating…especially when considering the huge liability from owning….as in accidents and when the warranty expires…
Buying these new cars is a no go….full stop….they are far too complicated, unreliable, electronic filled/controlled crap, can’t be repaired, probably dangerous, a total nightmare
A new Toyota might be the best gamble…as in avoiding repairs…but even those are far too complicated now….getting unreliable….
Just recently…JD Powers?….said the Porsche Cayman and Boxster were the most reliable new cars right now…but they are expensive and maybe not practical…..
“Some new cars like Toyotas (and probably others) will last for 200,000, 300,000 miles”
I kind of doubt it….all the electronic crap will never last that long…maybe it will last 100,000 miles…to when the warranty is void….lol….it is all disposable crap now….
Another problem with these new cars…it could spend months sitting in the dealership parking lot because they don’t know how to fix it….you think you will get a courtesy car?…lol…. you better own multiple cars…..
might as well own multiple old cheap cars that are unreliable….the same difference….
Leases have other benefits….when the depreciation is huge…the buyout is $15,000 but the residual value is only $5000…at lease end…. it is the owner’s problem…the lessor ….you just walk away…..they take the real $10,000 loss not you….
when the depreciation is huge…probably all crappy new cars…that rat you out….
It’s the same for housing and education. Easy money creates more demand. Frugal savers can’t compete against those willing to sign money into existence.
Channeling Dave Ramsey –there’s no such thing as good debt.
The poor people mentality has overtaken the middle class. Don’t ask “how much is it?” Instead ask “how much a month is it?”
Again, from Ramsey, “So if you’re the average car buyer, you’ll spend the next five and a half years paying more than $49,000 for a car that’ll probably be worth about $16,000 when it’s paid off (if you’re lucky). Does that sound like a good deal to you?”
(https://www.ramseysolutions.com/retirement/turn-your-car-payment-into-million-dollar-retirement)
I agree with Ramsey, Mike –
I understand that debt can be used to make money; but that is for people comfortable with risk – who have confidence in their ability to juggle debt-income and keep the income ahead of the debt. Most people I suspect are better off living within (ideally, below) their means. And if most did, I believe we’d all be better off.
Debt is one of the key drivers of societal ruin.
More advice from my Father. “if you live below your means, you always have money. If you live above them, you never do.”
That’s usually how everything that’s financed works. A real estate agent won’t even talk to you until they find out how much you can borrow. Car salespeople “run the numbers” to see what your monthly payment will be, not the loan rate.
Everyone assumes they’re always going to have the same life they have today. Same job, same boring paycheck, same life. And for the most part that’s true. Until your employer announces layoffs, or supply chains are disrupted, or your wife announces she’s a lesbian, or the tornado wipes out your neighborhood.
Same as it ever was, same as it ever was
(And the days go by)
Time isn’t holding up, time isn’t after us
(And the days go by)
Same as it ever was, same as it ever was
(once in a lifetime…)
and then the twister comes…
Here comes the twister
https://youtu.be/5IsSpAOD6K8?si=F2vu4n3qNzsr82HG
Car salespeople ….what is a comfortable monthly payment?…..how much down payment?….do you have a trade in?…is it paid for?….
Then you can figure out which car to push them into…..
Sage advice from my late Father: “Don’t spend money you don’t have on things you don’t NEED.
I took out loans on a new truck twice. I needed them to make a living. Kept them until long after they were paid for, and they were junk.
The Supreme Court, in an unusual Sunday update to its schedule, said an opinion will be posted online today, at 10 a.m. Swamp time. It didn’t identify the case.
But on Feb 8 the ‘justices’ heard arguments on Trump’s appeal of a ruling in Colorado striking him from the ballot. Colorado and Maine (another state that struck Trump from the ballot) hold their GOP primaries on Tuesday March 5.
I am 90% sure, based on skepticism expressed during the Feb 8 oral arguments, that the Court will tell Colorado and Maine to piss off. My attorney brother thinks the decision will be 8-1, with Sotomayor [a dim-witted DEI appointee] the only partisan dissenter.
Any other result would tear away the veil and reveal managed democracy as a cynical sham. Which is probably is anyway, mind you.
‘It only means you’re paying longer – to own a depreciating appliance.’ — eric
Buying a depreciating appliance on credit makes sense only if it provides an essential benefit, such as transport to a job that produces income. Mere transport from point A to point B can be accomplished with a used vehicle in the $5,000 to $10,000 range, purchased with cash.
Whereas buying a new vehicle for $40,000 or $60,000 is an indulgence, a luxury. Some can afford it. Many can’t, but think they can. During the covid stimmies, a young couple I knew — who had a bad habit of repeatedly trashing vehicles — bought a new Jeep, on the theory that at least the warranty would take care of repairs. By now, I expect their Jeep is trashed too.
Bear in mind that before the tax reform of 1986, interest on personal loans was deductible. This reduced the effective after-tax interest rate. Now, with no tax shelter, paying the full interest rate on a 5-7 year auto loan is an insidious debt hamster wheel that most victims will never get off.
First the college loan scammers get to them, then the scheming car salesman in his loud sport jacket. Such a deal, such a deal! It’s a jungle out there, with many parasitic creatures lurking in the weeds.
Indeed, Jim!
I believe that paying cash for the vehicle you can afford always makes more sense than taking on debt to finance that which is (by definition) beyond your means.
Glad you were able to get on site, by the way. We have gremlins today! (It’s being worked on.)
I started to get worried the website was being attacked. My OCD doesn’t handle change well and a visit to ericpetersautos every morning is part of my routine.
Glad you’re back.
Same, Mike!
And – thanks!