Useless Wrote:

Mattacobra:

First, let me point out a couple of things here:

1.) The quote that you replied to were the observations of Dr. Allen Greenspan, not my thoughts.

2.) Philosophically, I am in complete agreement with you, as Dave Ramsey would be as well.

The problem here, (and it is a very serious problem!!) is that our economy is not being driven by people saving and investing; it is being driven and sustained by foriegn investment, consumer debt, and by the debts of governments at all levels.

In my previous post, I mentioned that in Real Estate, I do quite a bit of owner financing, and that I have done a considerable degree of subprime lending in the housing market, for those clients who are willing to accept my demands for maintaining a certain financial profile.

I stand to make FAR MORE money by financing the sale of a home than I can possibly make by simply selling the property for it's appreciated value.

When people buy cars, boats, or appliances, the retailer usually makes only a very small profit from selling the product; the real profit comes in selling extended warranties, and with certain financial relationships with lenders who provide in-house financing. That's why when people walk into a car dealership to buy a car, the dealership tries sso haed to convert the customer from financing through their bank or credit union, and to the dealership's in-house financing.

See, the real money is not made selling the product, but rather by selling the credit.

Since the mid 1980's, Americans, on the average, have saved less than 1&1/2 percent of their gross incomes. since the mid 1990's, about 1%. Since 2000, that rate has been more in the range of 1/2 of 1 percent. In 2006, That savings rate actually registered in the negative ranges. As a society, we actually spent more than we saved.

Now, I will be the first to point out that these numbers are slightly skewed; if they were not, our economy would be in absolute shambles.

What IS skewing those numbers is the fact that the percentages that I quoted do not take into account monies that are being invested in 401K plans, and other retirement investment vehichles. Of course, those funds are not immediately accessible for consumer spending, either. These numbers also do not reflect money people spent by paying off debt, such as early retirement of debt, which, in truth, IS a part of sound financial planning.

Now, without question or doubt, we would all be far better in the long term if we liquidated our debts, sold off unneccessary "things", and committed to building structures of financial strength.

In the short term, our economy would be very negatively impacted, and we are already seeing the beginnings of that take place as housing forclosures rise, and as people find themselves locked out of the credit markets due to delinquencies, or price declines in the housing markets that adversly effect loan to value ratios, thus further hindering their capacity and ability to borrow money.

So, while I do most certainally agree with your philosophy on this matter, the fact remains that Dr. Greenspan was absolutely correct in his observations.

 

The problem with an economy which is built on credit is that if one segment gets into trouble, then entire house of cards can come down on our heads. Those who are benefiting the most from this useless buying on credit are the banks. They are pushing hard for us to get rid of our cash and use a debit card. They receive a fee every time you swipe that card. All they do is electronically move the money from your account to the merchant, less a fee for them. I think our economy was really stronger when we used less credit. We bought what we needed and could afford. Today, we buy just because we can. Back then, we repaired something if it broke. Today, we throw it away and buy something new to replace it. When you have a high level of debt, you work to service the debt. Think about that for a minute. You work to service the debt. Instead of working and saving money to make purchases, you pull out a piece of plastic and buy it now. You pay a fee, whether hidden in the price or not, for the privilege of swiping that card. At this point, you pay about 2-4% for using the card. Most people don't pay their credit cards off each month. So that product you purchased will now cost you about 1-2 1/2% per month more because you don't pay the bill off each month. If you only make the minimum payment you could pay for this item for years. It will be worn out or obsolete before you make the last payment. We pay a high price for using credit. For instance, if you buy a car for $10,000 and finance it for 60 months, you could almost pay double, depending on the interest rate, for that car than if you paid cash. If you had saved your money and paid cash, you would have several thousand dollars in the bank and a car that is paid off, rather than giving all that interest to the bank. It is often easy to convince ourselves that we "need" something, when in reality what we meant was that we "want" something. 8)

 

But you'd never get to work.

 

USELESS:

Now, hold on a second there, G-Man!!

I'M NOT THE ONE PUSHING PEOPLE TO USE THEIR CREDIT CARDS!! :shock:

Don't blame me!!
USELESS!!

 

I have no money so I don't buy anything.

 

Yep, it is all your fault, useless. You are forcing people to use their credit cards and buy all of these things they don't need. :wink:

 

Up to a point you are correct. The country would be in better shape economically if we were wiser in our use of credit. However, the transition period from a credit based society to a cash based one would be pretty rough on all of us.

 

It might be ruff but it would be better in the long run.

 

Agreed. But it might end up being so rough that we don't survive.

 

This country survived for several hundred years without the wide and often careless use of credit. We nearly always had access to some credit, but not to the extent we do today. Unless we get a handle on how we use credit, I am not sure we will survive. You cannot live on credit forever. A time comes when we must pay the piper.