Credit trap

[edward777]

http://www.youtube.com/watch?feature...v=vR2c_K8rbqQ#!

We really need a new Teddy Roosevelt to go after the banking system but that is highly doubtful until the system finally reaches its critical point.

Spencer W. Kimball was absolutely correct when he urged members to do their best to avoid credit.

[Moliere]

http://www.youtube.com/watch?feature...v=vR2c_K8rbqQ#!

We really need a new Teddy Roosevelt to go after the banking system but that is highly doubtful until the system finally reaches its critical point.

Spencer W. Kimball was absolutely correct when he urged members to do their best to avoid credit.

I havne't watched it yet, but I think it's safe to say that the continued expansion of the US economy over the past couple decades is due in large part to the easy access to credit, which is simply the spending of ones future income. Now that we've spent our future incomes I wonder what else we can spend to keep it going. Maybe our kids future incomes.....oh wait

[RobinFinderson]

I havne't watched it yet, but I think it's safe to say that the continued expansion of the US economy over the past couple decades is due in large part to the easy access to credit, which is simply the spending of ones future income. Now that we've spent our future incomes I wonder what else we can spend to keep it going. Maybe our kids future incomes.....oh wait

I agree. This is, to a large extent, why I think it hardly matters who is the next president. Consumer credit has been maxed out, and stupid people won't keep spending stupid money on stupid things until they can qualify for some more credit.

That said, it is a good time to have a good credit rating. In the long haul, I don't think we can grow our way out of this indebtedness, but I do think that we can inflate our way out of it, and that may prove to be the most reasonable response. That means that people with good credit can buy large now, put it on a 30-year-fixed, and when the (inevitable?) inflation race is triggered, you basically end up with an extremely good bargain on real estate.

[byu71]

That means that people with good credit can buy large now, put it on a 30-year-fixed, and when the (inevitable?) inflation race is triggered, you basically end up with an extremely good bargain on real estate.

I am not convinced Real Estate will be a great place to have money invested when inflation goes hyper. You might want to look at the '79-'82 period to see how Real Estate faired during hyper inflation and extremely high interest rates.

[Indy Coug]

I am not convinced Real Estate will be a great place to have money invested when inflation goes hyper. You might want to look at the '79-'82 period to see how Real Estate faired during hyper inflation and extremely high interest rates.

Yep, the dominoes are being lined up.

[RobinFinderson]

I am not convinced Real Estate will be a great place to have money invested when inflation goes hyper. You might want to look at the '79-'82 period to see how Real Estate faired during hyper inflation and extremely high interest rates.

I'm not talking about buying a lot of RE as a spec investment. I'm pointing out that hyper-inflation is great for people with debt. If you have good credit and a good job, it is a good time to upgrade the house, or to buy real estate that has real personal value. Stick with a 30-year fixed. I would expect interest rates to skyrocket in response to the uncertainty of looming hyper-inflation.

[byu71]

I'm not talking about buying a lot of RE as a spec investment. I'm pointing out that hyper-inflation is great for people with debt. If you have good credit and a good job, it is a good time to upgrade the house, or to buy real estate that has real personal value. Stick with a 30-year fixed. I would expect interest rates to skyrocket in response to the uncertainty of looming hyper-inflation.

I will agree at some point in the future "fixed interest rate debt" obtained now will look pretty good. Unless of course you squander or make lousy investments with the money you borrowed.

[Moliere]

I agree. This is, to a large extent, why I think it hardly matters who is the next president. Consumer credit has been maxed out, and stupid people won't keep spending stupid money on stupid things until they can qualify for some more credit.

First it was credit cards. Then borrowing against house principal. Next is probably going to be borrowing against 401(k) accounts, which is already being done but probably will to a greater extent as soon as they liberalize those rules. What else can we borrow against?

[byu71]

First it was credit cards. Then borrowing against house principal. Next is probably going to be borrowing against 401(k) accounts, which is already being done but probably will to a greater extent as soon as they liberalize those rules. What else can we borrow against?

It is my understanding that if you borrow against a 401K, it is done at a variable rate. If there is one thing you absolutely don't want to do if you think hyper inflation is coming, that would be borrowing money on a variable rate.

[Moliere]

It is my understanding that if you borrow against a 401K, it is done at a variable rate. If there is one thing you absolutely don't want to do if you think hyper inflation is coming, that would be borrowing money on a variable rate.

Do you think the people that max out their credit cards and the equity in their house care what the interest rate will be in 3 years? They just want spending money to buy the new iPad or to take a cruise.

[byu71]

Do you think the people that max out their credit cards and the equity in their house care what the interest rate will be in 3 years? They just want spending money to buy the new iPad or to take a cruise.

No I don't. I especially sure as hell don't want to distribute the wealth to them because they have made such stupid decisions and some guy who has saved all his life and gone without luxuries is asked to cover them. Cover them by having his taxes go up and their's go down.

[Sullyute]

It is my understanding that if you borrow against a 401K, it is done at a variable rate. If there is one thing you absolutely don't want to do if you think hyper inflation is coming, that would be borrowing money on a variable rate.

The rate is set by the plan administrator. I have only seen a fixed rate, never a viarble rate. Either way the interest charged goes back into your account so you are actually paying yourself an interst rate. The bad thing is that you are double taxed on the interest.

[byu71]

The rate is set by the plan administrator. I have only seen a fixed rate, never a viarble rate. Either way the interest charged goes back into your account so you are actually paying yourself an interst rate. The bad thing is that you are double taxed on the interest.

One learns something everyday. You are right, at least with our plan. I will plead ignorance because I nor any of my clients to my knowledge have taken out one of these loans.

I was told the loan is fixed for 12 to 60 months. May be just me, but doesn't seem like a smart idea unless there is a serious need.

[Indy Coug]

One learns something everyday. You are right, at least with our plan. I will plead ignorance because I nor any of my clients to my knowledge have taken out one of these loans.

I was told the loan is fixed for 12 to 60 months. May be just me, but doesn't seem like a smart idea unless there is a serious need.

There are definitely risks, but the upside is access to cash at low rates you wouldn't likely be able to get through a bank or credit card.

[Moliere]

There are definitely risks, but the upside is access to cash at low rates you wouldn't likely be able to get through a bank or credit card.

Correct me if I'm wrong, but don't you also lose an equity increase during that time? Doesn't the plan essentially sell your investment position to pay you the cash, so while you are paying yourself interest you lose out on equity gains?

Of course, this would have been brilliant to do in early 2008, but if you are trying to time the market with your retirement savings by taking out a loan then you are probably better off sticking it in a money market or working for a hedge fund.