Topic: When debt is an asset - page 2. (Read 553 times)

Although I generally agree with what you say, be very careful with what I have put in bold. House prices do not always go up. Precisely for thinking that, many people got into trouble in the 2008 crisis. In the short term house prices can go down, and if you are over-indebted you may have a problem.

Moreover, in general they are a good hedge against inflation but we must think about how much is due to the real increase in value and how much is due to the devaluation of the fiat currency that you use to buy houses.

It might seem ridiculous for some people regarding debts, since the inflation rate and the interest don't make sense for some people. However, it's the only choice for someone else when they don't have enough money to afford something, and never will. Should they save up for 25 years before they could afford a house? no right. I guess it's good enough for him to mortgage a house, although the debt is difficult, but yeah that debt can be asset. He has house now, he can use it anytime for asset. The certificate for the house can be used as guarantee too if you need money, it's asset. If the price went up, since property always go up, it's such a great asset and you can gain profit from it.

Not a crazy thought when it has already happened with short term interest rates.

Negative interest rates are only novel when it comes to retail interest rates. When it comes to central bank policy rates, many countries, including the EU and Japan, have already seen it happen in the past (or even present).

Especially with COVID, a lot of countries are feeling the need to stimulate the economy with ever lower interest rates. This system is NOT sustainable.

I am this kind of person too.

Renting or loaning are the only options someone has if they want a comfortable place to live in. Both have their pros and cons.

In renting, you have no tax obligations because you are just renting, obviously. The landlord is the one responsible for the tax because it is his property. You can freely jump from one place to another because you are just a tenant, meaning you can move any time depending on your signed contract with the landlord. This is nice for those people who have to move from one place to another for various reasons such as work. They won't worry too much about a property they would leave behind because they don't owe one in the first place. However, this is costly IMO. Renting can take up a lot from your budget and when you calculate it, you could buy or build a house with that (if you want to).

Meanwhile, in owning a house by loaning, you will have a property that you can call your own after years of paying diligently. You will just have a hard time at first by paying monthly or yearly. It's like you are renting, but you're going to have it soon after. Although if you will compare the cost, paying monthly loans for a house is way more expensive than renting so you gotta have a budget for it to avoid penalties and additional interest rates. Owning a house via loaning is a good choice for those people who have planned to be settled in one place. It would also be a good decision for those people who want to have a family of their own. The cons of loaning a house are that it is costly and you are the one responsible for everything in it such as repair and maintenance. Other than that, i think it is a great form of asset because its value increases over time.

Just make sure that you didn't exceed on your profits so that your debt will not be a burden to you, If you manage well on your debt for sure those will became positive to us. But aside from this maybe we should check on where we spend our borrowed money since if we just take a loan then use it on crypto then maybe we can say that you are in bad place since we know crypto is kinda not good option if we talk about taking loan and use it on this area.

The most people prefer to acquire assests by taking debts these days and prefer to pay them over a certain period of time.It may have positive as well as negative factors like you get extra burden on yourself with embracing interest rate over the debt amount for certain period of time along with principal amount.But you can easily have what seems not under your budget in short span of time so you can say you have assests that you can't have and own easily with your income.But in the long run prefer those things that don't put certain burden on you and trap you into vicious circle of debt trap.

When you take a long-term loan, the debt will eventually fall on yourself, and the higher the house price, the heavier the final debt. The annual price increase of the house exceeds the inflation rate, resulting in the value of your original mortgage being much lower than the value of your house in the future. This ongoing pandemic may make the borrower unable to pay the interest.

The fact that negative interest rates are a norm in the US/EU doesn't mean that the banks are throwing money at the people for free.The are application fees and down payments.It's not that easy to get accepted for a loan.
Anyway,I get your point.In a financial world dominated by negative interest rates,saving money is not worth it and debt becomes really desirable.Thank God we have Bitcoin,so we don't have to bother about where to save and invest our money.

15 years ago (more or less) Minister of Finance, and all other relevant institutions, advised people to take a loan in Swiss Franc, with a very low (the lowest ever) interest rate, a lot lower than if you take a loan in my country currency or in Euros! Swiss Franc was under $0.5, now it's almost $1.1! One client took a $50k loan in Swiss Francs, after 8 years of paying the loan he owes +$20k more!
So I am not buying that negative interest rate, there's just something you don't see, and that something will show up sooner or later, and it will fuck you up!

Debt is an asset! It's a powerful secret weapon! Without debt, modern slavery wouldn't exist!


For people who would like to read the full article: https://www.cadtm.org/Debt-a-weapon-of-mass-destruction

It is not very clear what you are saying. Which country are you talking about? As far as I know, in countries where the interest rate is negative, it is negative only if you deposit your money, not if you take a loan. Therefore we cannot talk about free money. Free money would be if you were to ask for a personal loan and the interest rate was -2%, but what happens now, as far as I know, is that if you ask for a loan they charge you 4%, or 8% or whatever depending on your personal situation and if you leave your money on deposit is when they apply a negative interest rate.

just found out there is a negative interest rate, there is a plus plus in my country, you can clearly say that you are given free money,
I personally stay away from debt at this time and so on, because debt is only a shortcut to speed up wanting to own goods or anything, what's more, in my country the interest rate reaches 2% of the loan if the interest rate is late the daily rate runs

Around 10 years ago, former comptroller of the US government accountability office did a nationwide publicity tour. Where he tried to warn americans of the dangers posed by unfunded national debt reaching upwards of $400,000 per household. Of course, at the time he was completely ignored. No one took him seriously except for "conspiracy theorists".

https://www.youtube.com/watch?v=xjmCiDB_72g
Former U.S. Comptroller General David Walker on The Federal Fiscal Crisis

I don't support the idea of debt being an entirely evil thing. It can be useful and fair in buying a car, a house and things on credit.

The issue with debt is the lenders are usually much more educated, motivated and informed than the borrowing demographic. Over time the scale slowly dips in the favor of lenders. The trend accumulates into growing inequality and systemic unfairness. Until we reach a crisis point, where it is no longer sustainable.

Unfortunately it is not that simple in a society in which everything can be purchased on credit, I agree that credit can have its place but not in the way it is used by people, after all even if you ask for credit for things that seem to be worth it like a house, a business or a college degree as you say this does not mean that it is a good idea, if you ask for a credit to buy a house you could be buying at the top of the market and then lose your house when the prices of houses crash, like what happened during the 2008 crisis, not all college degree are created equal which is why there is a time bomb on the US with those loans and a business can fail before it even begins as it happened to a lot of people during this pandemic.

Actually, the setup is attractive to borrowers but not to lenders.

Anyway, inflation is a feature of the the fiat system which encourages borrowing especially long term. As years pass by, your regular amortization becomes less and less of a burden. If you take a 30-year housing loan, for example, by your 10th year of payment, or even earlier, your monthly amortization could be considered a small amount already since the value of fiat is depreciating over time. The constant devaluation of fiat makes your loan responsibilities lighter and easier to pay in the future. Not to mention that you'll have an increasing salary and the value of the property you bought with that loan is also increasing.

Now if you compare that with Bitcoin or a Bitcoin-denominated loan, for example; supposing you borrowed 1BTC just 5 years ago, would you be having a harder or an easier time paying it now?

To add to this, the lending of money is done at different levels. There is a banking lending, retail and business, based on a fiduciary model mostly, in which the banks lend a multiple of their deposits. There is state debt lending, referred usually as "interest rates" in general, which is the price the government pays for its debt. There is also an interbank rate for lending.

Usually, these are all linked together, negative yields for state debt may lower the rest to negative.


You seem to be clueless about how debt works. It is always compound, simple interest is not used on loans 99.9999% of the times.

I don't like debt and I  proud of myself that the level I have attained today, I owe nobody no shit, not financial or whatever because I fear, when I'm no more, it would become financial burden to my love ones, I always try to contented and never go beyond my limit to the extent of taking debt.
As long as the debt hasn't been settled, that asset belongs to whoever lend it to you, its better you pay it back as soon as possible then you claimed it later.
I can see some comments above me saying real estate and high cost of house in near future. You all forgot "what if analysis".

As far as I know, if people want to take out a debt with a maturity of 25 years so as not to burden the interest, the chosen interest is fixed interest and not compound interest because it will burden the person.  Even though the asset value will definitely increase, compound interest will still be a hassle.  Choosing compound interest is for savings, not for loans.  Like the concept of a home loan, there is still a choice of fixed or single interest and compound interest.

Oh sure you would like get that kind of money!

But I am not sure why the lender would give you money in the losses? Did not understand the concept you mentioned in the OP. I mean 1 buck less for 100, 10 for 1000 and million for 10th, dam, I think lender must need to think twice before going in the debt himself. 

Is there any concept that I am missing out from this lending technique? Or do we really have lenders who bear the losses for us. 

Depends on the housing prices, I mean if it's steady for about 25 years with the mortgage, there's a possibility that your friend taking the mortgage is a good thing since owning a property will only get expensive as real estate becomes more expensive. Also, it's not like the interest rate to be paid is going to be really big because I think that if they were to pay it consistently, they would have it much easier.

This is exactly the mentality that lead to the housing crisis in 2007-2008.  Everyone thought that real estate prices would go up forever, so no attention was paid to price.  People borrowed whatever they could to buy whatever they good.  The market was irrational, and eventually it crashed.  In reality, no asset is guaranteed to go up in value.  Not real estate, not bitcoin; nothing.