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Do we have too much debt?

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James Klymus

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As we're all well aware, we're in a strange time right now. Most people are "locked up" in their houses, a lot find them selves out of work, and even out of their businesses.

I'm not ignoring the fact that we're in trying times, But do we really have to also be in economically difficult times too?

Most people will be, because of one simple fact. They are over leveraged (Have too much debt).

I was watching this video from Economics Explained this morning, and it got me thinking:
View: https://www.youtube.com/watch?v=jQ_Z-wZK5ps


All the hype and hyperbole aside, I wanted to think this through a bit.

If you've read any of MJ's books, you already know that consumer debt, and getting what you want NOW and on buying it on credit, warrants future production. It's a promise to the creditor that you will keep producing enough value in the marketplace to pay them back on time AND in full, PLUS a convenience fee (25% interest).

And this works fine in good times, like the past decade. You have a job, a business, and you are successfully producing value for others, and you receive your value vouchers. But if you're like the majority of americans (I hope you aren't), You spend all of your value vouchers on stuff each month. Some of it is necessary stuff, like food, water, shelter, clothing and insurance.

But some of it is spent on unnecessary stuff, like the latest BMW, a 6 bedroom house in a hot suburb, the latest fashion, and bottles at the club. And most of that is bought with credit.

When you pay $500 for bottle service at the club with your Amex, you in that moment, are making a drunken promise to Amex that you will pay that $500 plus interest at some point in the future. In other words, you are promising $500 of future production, which if you're an hourly/salaried employee means you promise them a chunk of your time and LIFE.

But nobody thinks about it like that. In the rush of the moment, when you're buying the big TV and swiping your best buy card, or in the finance office about to spend $50,000 that you dont have (at 10% interest for 84 monthly payments!). You aren't thinking about the fact you're promising some people in an ivory tower in New York (who doesn't give a shit about you what so ever), a portion of your LIFE.

So what happens in uncertain times like this? When all of the sudden your job closes down until who knows when. And your income evaporates. And you have no savings.

After all, you promised Amex, visa, and chase bank portions of your future production (time). All of the sudden your employer cant pay you. So you can't pay your landlord/mortgage. Your landlord bought the apartment you live in on credit, so now he can't pay the bank he owes money to.

If you would have stored some of the excess value you produced (put money in savings), you wouldn't be in a situation where you couldn't pay your financial obligations.
You could weather the storm. Instead you decided to spend every penny (and more) while times were good.

Most people have less than $1,000 in their savings account, and 32% of the 5,000 people surveyed have $0 in savings!

As it's been said many many times by investors who worship the "all mighty" buffet, "Only when the tide goes out do you discover who's been swimming naked" - Warren Buffet

And that's the situation you see lots of people in right now. We've been in a prosperous decade. People had money coming in, the economy was flowing, and some would say we were making similar mistakes to those that led up to the great recession.

Now many have been blindsided by the current situation we're facing. 2 weeks ago it was business as usual. Now people are barely allowed to leave their houses.

As fastlaners, I think many of us understand the importance of saving money and not taking on much (any) consumer debt. I think we understand that storms always come, and economies cycle. But do you think as a whole we are over leveraged?
 

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Bobby_italy

Contributor
Jan 19, 2016
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As we're all well aware, we're in a strange time right now. Most people are "locked up" in their houses, a lot find them selves out of work, and even out of their businesses.

I'm not ignoring the fact that we're in trying times, But do we really have to also be in economically difficult times too?

Most people will be, because of one simple fact. They are over leveraged (Have too much debt).

I was watching this video from Economics Explained this morning, and it got me thinking:
View: https://www.youtube.com/watch?v=jQ_Z-wZK5ps


All the hype and hyperbole aside, I wanted to think this through a bit.

If you've read any of MJ's books, you already know that consumer debt, and getting what you want NOW and on buying it on credit, warrants future production. It's a promise to the creditor that you will keep producing enough value in the marketplace to pay them back on time AND in full, PLUS a convenience fee (25% interest).

And this works fine in good times, like the past decade. You have a job, a business, and you are successfully producing value for others, and you receive your value vouchers. But if you're like the majority of americans (I hope you aren't), You spend all of your value vouchers on stuff each month. Some of it is necessary stuff, like food, water, shelter, clothing and insurance.

But some of it is spent on unnecessary stuff, like the latest BMW, a 6 bedroom house in a hot suburb, the latest fashion, and bottles at the club. And most of that is bought with credit.

When you pay $500 for bottle service at the club with your Amex, you in that moment, are making a drunken promise to Amex that you will pay that $500 plus interest at some point in the future. In other words, you are promising $500 of future production, which if you're an hourly/salaried employee means you promise them a chunk of your time and LIFE.

But nobody thinks about it like that. In the rush of the moment, when you're buying the big TV and swiping your best buy card, or in the finance office about to spend $50,000 that you dont have (at 10% interest for 84 monthly payments!). You aren't thinking about the fact you're promising some people in an ivory tower in New York (who doesn't give a shit about you what so ever), a portion of your LIFE.

So what happens in uncertain times like this? When all of the sudden your job closes down until who knows when. And your income evaporates. And you have no savings.

After all, you promised Amex, visa, and chase bank portions of your future production (time). All of the sudden your employer cant pay you. So you can't pay your landlord/mortgage. Your landlord bought the apartment you live in on credit, so now he can't pay the bank he owes money to.

If you would have stored some of the excess value you produced (put money in savings), you wouldn't be in a situation where you couldn't pay your financial obligations.
You could weather the storm. Instead you decided to spend every penny (and more) while times were good.

Most people have less than $1,000 in their savings account, and 32% of the 5,000 people surveyed have $0 in savings!

As it's been said many many times by investors who worship the "all mighty" buffet, "Only when the tide goes out do you discover who's been swimming naked" - Warren Buffet

And that's the situation you see lots of people in right now. We've been in a prosperous decade. People had money coming in, the economy was flowing, and some would say we were making similar mistakes to those that led up to the great recession.

Now many have been blindsided by the current situation we're facing. 2 weeks ago it was business as usual. Now people are barely allowed to leave their houses.

As fastlaners, I think many of us understand the importance of saving money and not taking on much (any) consumer debt. I think we understand that storms always come, and economies cycle. But do you think as a whole we are over leveraged?
Everything you said is pretty obvious I don’t see how anyone can disagree.
 

minivanman

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Mar 16, 2017
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Even when people do not agree with me, I always stick to my guns..... no debt, ever, at any time, for anything, business or personal.

Right now we do not have a worry in the world, especially as far as money goes. The lil woman told me last month she would like a 1 month vacation so.... she got it! So we are hanging out and having a great time. I feel sorry for the people that are not in our position but I do not feel sorry for anyone in debt. Debt is a risk, I do not take risks like that.
 

valuecreator

Bronze Contributor
Apr 16, 2015
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Australia
I would say, Hell Yeah! Many people are up to their eyeballs in debt.

And most of the time, its the bad kind...
 
Last edited:

minivanman

Platinum Contributor
Speedway Pass
Mar 16, 2017
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Even the big boys are finding out..... there is no good kind. Well, I guess there could be good debt. Good debt is debt that someone else has and you have no part of :rofl:

I'll tell a short story about how I first started feeling that debt was a bad thing. In the 1st grade (through 3rd grade) we got to go to 'MILK' at 9:30am. Milk was .07c and I always chose chocolate. Then came lunch and I always took my lunch but would get 2 chocolate milks = .14c. On days when I would forget to bring money, I would have to charge it. And then, being 7-9 years old, I would forget the money often and the lunch ladies would be on my @ss every day until I paid them. I think that is when I decided I didn't want any debt. I learned young that I hated for people to be on my @ss, and to avoid it, don't put yourself in that position to begin with.
 

rpeck90

Silver Contributor
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Nov 26, 2016
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The problem isn't debt, but the system under which it's created.

You'll want to read up about the Bretton Woods agreement, and how exiting it has lead to the consumerist boom we are experiencing today.
 

alexkuzmov

Bronze Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Sep 20, 2019
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Bulgaria
As we're all well aware, we're in a strange time right now. Most people are "locked up" in their houses, a lot find them selves out of work, and even out of their businesses.

I'm not ignoring the fact that we're in trying times, But do we really have to also be in economically difficult times too?

Most people will be, because of one simple fact. They are over leveraged (Have too much debt).

I was watching this video from Economics Explained this morning, and it got me thinking:
View: https://www.youtube.com/watch?v=jQ_Z-wZK5ps


All the hype and hyperbole aside, I wanted to think this through a bit.

If you've read any of MJ's books, you already know that consumer debt, and getting what you want NOW and on buying it on credit, warrants future production. It's a promise to the creditor that you will keep producing enough value in the marketplace to pay them back on time AND in full, PLUS a convenience fee (25% interest).

And this works fine in good times, like the past decade. You have a job, a business, and you are successfully producing value for others, and you receive your value vouchers. But if you're like the majority of americans (I hope you aren't), You spend all of your value vouchers on stuff each month. Some of it is necessary stuff, like food, water, shelter, clothing and insurance.

But some of it is spent on unnecessary stuff, like the latest BMW, a 6 bedroom house in a hot suburb, the latest fashion, and bottles at the club. And most of that is bought with credit.

When you pay $500 for bottle service at the club with your Amex, you in that moment, are making a drunken promise to Amex that you will pay that $500 plus interest at some point in the future. In other words, you are promising $500 of future production, which if you're an hourly/salaried employee means you promise them a chunk of your time and LIFE.

But nobody thinks about it like that. In the rush of the moment, when you're buying the big TV and swiping your best buy card, or in the finance office about to spend $50,000 that you dont have (at 10% interest for 84 monthly payments!). You aren't thinking about the fact you're promising some people in an ivory tower in New York (who doesn't give a shit about you what so ever), a portion of your LIFE.

So what happens in uncertain times like this? When all of the sudden your job closes down until who knows when. And your income evaporates. And you have no savings.

After all, you promised Amex, visa, and chase bank portions of your future production (time). All of the sudden your employer cant pay you. So you can't pay your landlord/mortgage. Your landlord bought the apartment you live in on credit, so now he can't pay the bank he owes money to.

If you would have stored some of the excess value you produced (put money in savings), you wouldn't be in a situation where you couldn't pay your financial obligations.
You could weather the storm. Instead you decided to spend every penny (and more) while times were good.

Most people have less than $1,000 in their savings account, and 32% of the 5,000 people surveyed have $0 in savings!

As it's been said many many times by investors who worship the "all mighty" buffet, "Only when the tide goes out do you discover who's been swimming naked" - Warren Buffet

And that's the situation you see lots of people in right now. We've been in a prosperous decade. People had money coming in, the economy was flowing, and some would say we were making similar mistakes to those that led up to the great recession.

Now many have been blindsided by the current situation we're facing. 2 weeks ago it was business as usual. Now people are barely allowed to leave their houses.

As fastlaners, I think many of us understand the importance of saving money and not taking on much (any) consumer debt. I think we understand that storms always come, and economies cycle. But do you think as a whole we are over leveraged?
For sure we are over leveraged.
Even if you personally dont have debt, chances are your government or municipality is in debt and your future production is their collateral.
Real estate debt might be the only good debt.
Might, as in it depends very much on the conditions of the loan and your ability to pay it.
 

Devampre

Bronze Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Jan 6, 2016
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Consumer debt? I have none... But, many people I know have a fair amount of debt.

My local village? They may have some, but I wouldn't expect much as the village is kind of dead...

The nearby cities? They have significant debt, horrible planning, build stadiums they don't need, etc.

The country? More debt than they likely could pay off anytime in the near future without a miracle.

Debt itself is only tolerable if the risk is justified and the conditions are such that one could likely pay it off at a certain date. However, in life and markets, we simply can't predict what's just around the corner. So it is always technically a gamble due to the uncertainty of this reality.
 

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