RM: * So if I have 100 dollars debt… I pay 13.4 dollars at the end of the year as interest ?*
No no no, sorry if I wasn’t clear about that. It’s not the interest rate that currently stands at 13.4% (that would be much higher than what we’ve got now), it’s the percentage of after-tax income that the average American needs to keep servicing their household debt.
I’m not talking about taking out loans to buy fancy cars and other worthless crap. I am talking about homes which are assets that appreciate in value. People who maintain high levels of debt in the form of car loans or credit cards are basically shiting money away.
I say, let’s make do with what we’re good at. Weed. And you thought Canada was good at it? Please! Legalize it! All kidding aside, if we were to come to the point depression like economics, weed could save us. 
Apparently, it’s saved me. :rolleyes:
There’s no guarantee that homes will appreciate in value. Especially not if you’re envisionning a depression.
Yeah, a great deal of net worth is in homes that are (to my mind) overvalued as all hell at this point.
For whatever my opinion is worth I see such things as the strength of the dollar, consumer debt, and the trade deficit all as things currently out of balance. There’s a natural level for the dollar based on our economics and spending habits and it’s currently being distorted by purchasers of T-Bills for their own purposes.
But that natural level has a means of exerting itself more and more over time until things finally come to a head. And that’s when you see strong transition led by market factors.
Me? I sold my over-priced house this year, moved to a different job in a much cheaper area to live (mortgage from $2200 to $550 per month) and retired most of my debt (just one car note left and no credit card debt).
Just in case.
Just in case anyone’s missed it, a few interesting developments this past week:
1 - Russia announced it will cut the amount of dollars and increase the amount of euros in its reserves.
2 - A Chinese professor on their monetary policy advisory committee was quoted as claiming that China had cut its Treasury holdings, a report later denied. In this same story, an Indonesian official said they might start cutting their dollar reserves if it continues to decline.
3 - Meantime, if you run a comparison chart of the 10 year bond yield against the USD/EUR exchange rate, you see what might be the start of a pattern of higher yields as the dollar falls, which would indicate that someone is, at the very least, no longer supporting the dollar: 10 year vs EUR exchange rate comparison chart. Notice here that right around the beginning of November there’s a sharp rise in the yield, and the dollar doesn’t respond at all. Not a good sign.
Couple of good articles from PIMCO, the largest bond trading firm in the US, that I got pointed to. First one makes the same point about Treasuries towards the end, and the second one does a great job of explaining the link between currencies and interest rates.
Can’t happen soon enough :D.
As a renter in the Bay Area I want to see a major economic collapse ( the dot.com crash just wasn’t good enough - it only really slashed prices on those garish McMansions that are still well out of reach ). My pretty stable government job should survive and I can then take advantage of the mass misfortune of others.
I kid of course. But only just barely ;).
Yeah, it’s one of those mixed blessings. For those of us positioned properly it’s a direct path to wealth and glory.
But it comes on the backs of the dispossessed.
No, but unlike a car, a house does retain value. It can be rented or sold. And depressions don’t last forever.
I don’t really have a problem with that.
You think so, huh? How stable will your job be if the government can’t afford to pay you?
I don’t know about the U.S., but IMHO the U.K. property market is clearly coming off the boil. Among other indicators, Countrywide Plc, which runs the biggest British chain of real-estate agencies and gets most of its profit from commissions on house sales, recently issued its third profit warning since August.
Very interesting, and equally worrisome. One thing that’s kept the U.S.’ interest payments from totally exploding at various times, is that our government has the unique advantage of getting to borrow from others in its own currency. If the dollar ceases to be the world’s reserve currency, that will likely end. And the consequences of that would be that if continued fiscal irresponsibility continues to cause the dollar to sink, our interest payments would skyrocket, and eat up a much bigger portion of the Federal budget than they do now. It could be one hell of a pinch when the baby boomers start retiring in a few years.
Another unique advantage our government has, and one that also probably will end if the dollar loses reserve-currency status, is the ability to pay in its own currency for oil, a commodity the country must have for society to function and cannot supply entirely from its own reserves. For Dopers who may not be familiar with the global energy markets, oil is bought and sold in dollars everywhere in the world, putting the U.S. in the happy situation of being able to pay for an essential commodity with a currency that it can create at will.
My understanding is that the oil market functions in dollars because Saudi Arabia historically has insisted on it as a favor to the U.S. But OPEC no longer dominates the industry to the extent it did 30 years ago, and as the date on this item shows, Russian President Vladimir Putin, whose country IIRC is the biggest non-OPEC oil producer, has been making cryptic remarks about pricing oil in euros for some time. Clearly (to me) it would be problematic for the U.S. if one or more oil producers were to start taking payment in a form other than dollars, but equally clearly (to me) the producers’ incentive to do so only increases as the currency continues to drop.
As I said, I was kidding. In point of fact my job most likely would survive most major ( not catastrophic ) economic crises, due to a combination of seniority and the fact that I work for an essential service provider. But the ripple-effect from such a crisis would almost certainly be negative for me, as it would be for most.
It’s just that housing prices are so insane out here, one sometimes half-hopes for some miraculous downturn that would somehow leave one and one’s friends unscathed, yet still pop the housing bubble out here in a big way. Unrealistic, sure, but still…
So, a few issues to expand here:
How will the decline in the dollar effect US retailers? I’d think that the ones that rely on low prices through overseas goods, like Wal-Mart for example, would feel the pinch first. I know they missed their November projections significantly. Anyone have any further data?
How long would it take US manufacturers to reorganize and exploit the cheaper dollar and begin ramping up US production?
1 Well oil prices will be the first thing to go up… afterwards retailers will have to mark up prices…
2 From my experience in Brazil… it took around a year for businessmen to start really taking advantage of the last devaluation of our currency. A lot depends on higher interest rates too…
The US being a big consumer and not exporter… it isn’t the most efficient manufacturer in some areas though… so it might just give an extended life to some inefficient industries. Other areas in which the US was never competitive might become so… but is it in the long term a risk worth taking ? If the dollar rebounds they shut down.
By servicing you mean just paying the interest rate ? Or re-paying part of the debt/mortgage as well ?
So the average american goes by with only 86.6% of his income... not a disaster in order not to pay rent. Rent can eat up a lot of income.
For curiosities sake… How much is the interest rate for a small businessman then ? For a credit card debtor ? (approximately)
Although don’t believe the point made about how it “meekly agreed to accept unions in China”; unions in China are far weaker than here, frequently work with management (not against) and rarely fight for workers’ rights. See here for more info.