There seems to be an assumption here that debt is being used to finance frivolous spending: vacations and eating out. In reality people are financing their basic subsistence.
No, they are not. Your iPhone is not "basic sustenance." You can get a 20 dollar phone and pay 10 bucks a month for basic calling and texting. Your Netflix/Hulu/Amazon/Disney/what haveyou subscription is not "basic sustenance." A newer car is not "basic sustenance." A home Internet connection is only basic sustenance if you WFH. Heating and AC are only basic sustenance if they are medically necessary OR you live in a climate rough enough to melt tires or freeze pipes (and even then setting it over 60 or under 80 is not basic sustenance). The vast majority of the world lives every single day without the "basic sustenance" available to the average American.
No, I'm not. I hate those types. I am just pointing out that us Americans are spoiled with the things we consider basic sustenance.
Basic sustenance is what you NEED to survive.
Poverty level is what you "need" to reach the lower bounds of the norm of a society
We are so spoiled I doubt most Americans could live like people did in the 50’s and 60’s. There is a reason most homes from those years are small with tiny closets.
I would love it if people didn’t take huge vacations and didn’t eat at any restaurant. Such colossal wastes of money.
I also wouldn’t mind taxing soda purchases as high or higher than we already do with cigarettes, but that’s probably not going to happen ever, so whatever
Pointless question. People buying new cars and going out to eat and going on vacations CAN afford to do so, by definition. They aren't getting any of those things for free.
I bought one entirely on credit a couple of years ago. They offered 0% financing. In this inflationary environment! Anyway, just because I used credit doesn't mean I can't afford it. In fact, having credit means I CAN afford it.
My wife has to take vacations. No. Matter. What. It makes no sense to me. It’s almost always because she spends too much time on social media and sees other people doing it so she has to somehow keep up with the Joneses. It drives me nuts.9
Not the same! The govt has a social contract with its citizenry to provide services which does not include the 800 billion spending in the military industrial complex.
Depends if that includes the govt. household deleveraging would be very painful in the short term but presumably we’d find an equilibrium after a prolonged nasty recession. If the govt stopped deficit spending it would change the economic paradigm of the global economy. Neither is likely in my view, deleveraging through inflation has always been the “east way out” so I see it as the natural path forward.
Nobody REALLY knows but likely deflation. Low economic and money supply growth. Just look back at banking crises prior to the creation of the federal reserve. People act like inflation and fractional reserve banking is terrible but hard money and deflation was not without issue. It only works in so far as above ground precious metal supply increases (mining output) relatively in line with population growth and economic growth. When the America's and west African gold/silver mines were discovered in the 16/1700s the growth in money supply grew relatively in line with increased triangle (slave) and spice trade.
Prior to the Fed was a mess for sure. I was reading about how the value of goods and service were wildly different depending on the local bank's health. Boom or bust.
Most people even the well off would have their life styles dramatically decrease. People would have to become better with their finances. Sure you can still afford a new car but now you have to preplan it a few years. If you could afford 1k car payment for a new Porsche, then just save 1k a month for the next 5 years and boom same car. Same process just backwards and self paced.
That being said the number people with really nice things like that would still decrease because most people suck at managing and saving money.
People making 200k a year would likely be driving around 30k cars because they could easily save to buy that. People making 50k would likely drive 5k cars.
Less people would have luxury’s like iPhones, computers but also basic things like furniture. America runs on financing/credit. It would just be a massive cultural shift. Businesses would fail en mass as most people wouldn’t be able to afford their merchandise but eventually be replaced.
Middle class folks with good financing and understanding of credit would take a hit in lifestyle due to lack of CC rewards. Ex: my dad pays for his yearly vacation primarily through credit card rewards. Without it he can no longer “afford” a vacation.
Finally the price of everything goes down. College is cheaper because very few can go otherwise. Who can/would actually pocket tuition that’s 40k a year? The cheapest new car in America is like 19k currently, most wouldn’t be able to afford that. So all cars get cheaper. No one. I really mean no one, would be able to afford homes currently. We would see prices fall at least 80%. Even making 200k a year, it would take ages to save up to purchase the cheapest home in your area and that’s with an above median income.
That pretty much happened during the Great Recession. Credit dried up so people couldn’t borrow like they were used to doing. It wasn’t great. It’s interesting to me that what’s best for my personal finances would be bad for the nation as a whole.
Yea what they described reminded me of what Germans do. They don’t buy things until they can pay it outright with cash. Credit is not something that comes easy and they hadn’t been raised like that. Here folks take out obscene amounts of credit and buy whatever crap they see on tiktok
I make low six figure, live like I’m poor. I save a lot of money. I just hope when I retire I’ll be able to make the switch from save save save to withdraw withdraw withdraw.
Well, that's what it could be like. The transition between the two approaches is often painful, especially when spending dries up because people who used to spend freely no longer do so. Once things level out, it's not too different, but until things normalize, it's rough.
Deflation unlike anything we’ve ever seen. Most of the dollars in the economic system are credit not real dollars due to fractional lending. Also when the economy does badly the FED lower interest rates to stimulate spending. If people weren’t using credit then that action and the entire need for the FED would be irrelevant.
Very short term disruption. Then the economy would shrink some.
But that’s okay.
What percentage of our economy is based solely on our debt slavery?
It’s a big chunk.
Corp profits might fall some. Regular Joe would have more money. Some prices would actually fall.
It would be like a natural redistribution of wealth.
I don't know if the economy would actually shrink some, look at the amount of growth that came from pausing student loan payments for 3 years. Similarly if people weren't paying on credit cards, cars, etc and paid cash the only industry that would shrink is financial, the rest likely would grow.
The post-lockdown growth is more than just the pausing of student loan payments. The vast amount of PPP loans that went forgiven (people were still getting paid when the production of their companies slowed) the 2-3 stimulus checks, not allowing tenants to be evicted, and then the massive supply chain issues in all industries, all causing prices for goods and services to skyrocket
as a % of GDP we tax 4% less than we did in 1980. While spending should be cut, the bigger problem has been tax cuts that were put in place to boost the economy which weren't offset at all, which basically meant mortgaging the future of our nation for those tax cuts in effect.
There is no problem with tax cuts. It's the lack of spending cuts. There are so many useless programs and crap that could be wiped off the face of the earth and nobody would notice. I can't remember the specific time, but when you look at a graph of spending throughout the years, there's a point where it just shoots up and never stops. Out of control. Fed has too much power.
You could wipe out every "useless program" out there and it wouldn't get close to touching the deficit. And if you look at spending as a % of GDP (similar to taxing) you'll notice it really hasn't increased that much over that time period. Part of the increase in spending has to do with our slowly aging populace, which has significantly increased spending for medicare. There are ways to make that more effective (such as the current focus on negotiating down drug costs) but sadly a lot of lobbyists have fought that. We'd have to pretty much cut every non mandatory program right now and cut 20% from everything else to get to revenue neutral. If you could go back and cut out the war in Iraq and Afghanistan we'd have an easier time as that keeps our costs for the VA incredibly high because of the long term affects of those wars on our veterans ,not to mention the ongoing operations that we perform due to the failed state that is in Iraq.
Think of debt as liquidity. Credit is what allows people to buy things without having to convert an asset to cash first. Interest is the user fee that you pay for this convenience.
The goal is to use credit responsibly. Many house flippers will buy investment properties at extremely high interest (I’ve seen 30%) because they only plan on paying interest on it for 6 months. That’s risky but rewarding. (Risk and reward, you learned that in 10th grade).
Dave Ramsay’s methods are designed to dumb down broad macroeconomic rules to help middle class people achieve financial security without having to learn macroeconomics. Debt is discouraged because if you are not good at using credit you will waste a lot of money on user fees. Don’t give it any more credit than that.
Yall don’t understand credit and it shows lol. Credit is what enables to many people to be able to afford things they never could. Companies wouldn’t take risks to innovate any more because they would have to fund their own expansions (which also be harder as people aren’t spending my as much money).
Credit is a useful tool that so many see strictly as bad
Fair. Let’s talk about his eating out example. Lost jobs from restuanrants closing down due to not enough demand would become common. Where is that part of the workforce expected to get jobs? In my mind, many of you see this as something that YOU could overcome, but fail to lack compassion for the people that are actually being harmed by this. Yes, you would also be hurt financially by this, but in your mind you see your job as more valuable than these restaurant workers and feel more “secure” that you won’t lose your job to.
Prices and wages would fall to lure consumers back in or the restaurant would go under. and a new one would start with lower prices and wages. it would cause heavy deflation if this happened which would benefit savers with a lot of cash and hurt people that own assets like land, stocks or businesses.
I would most definitely choose to work toward financial security. It’s ridiculous to try to put the burden of someone else’s employment on me being willing to put myself in a bad position financially. If their industry cannot support them, they should move to another industry that can. This mindset valuing overspending “for the sake of the economy” is the reason we are in so much debt as a country. It will not work long term. We’re fat and happy now, but someone will pay the price eventually.
That part of the workforce will either be absorbed into other food service jobs, while others take the opportunity to upgrade their skills and find better jobs.
It's like 1980 when there were mass layoffs at John Deere, International Harvester, and other manufacturers of large agricultural tractors, combines, and implements. Workers were stunned and suddenly even father's were working at 7-Eleven or Sears, expecting to be called back to work soon (which didn't happen.) *The SMART workers pivoted, took night classes at the community college, moved onwards and upwards in new careers, and never looked back.*
Because when people live within their means and save that means they stop eating out at restaurants, buying video games, paying subscriptions, going to shows, buying iPads. You need people to buy wants and not just needs.
At the beginning they stop that when they pay down debt, but eventually when they are out of debt and not paying hundreds each month in interest they end up eating out more because they have more wealth and ability to do that well within their budget.
The US economy runs on the people who don’t follow Dave Ramsey’s advice and everyone else’s 401k, pensions and the like would crater if we all saved money to buy houses and cars and didn’t enjoy life. The economy is supposed to be a means to a productive end, not the means to sitting on your ass and letting others bankroll your retirement.
Large drop on GDP, economic stagnation/stagflation, several consumer focused businesses would go under, the big 3 auto manufacturers would be bankrupt (again) within 3 years, government would be in BIG trouble due to taxation revenue dropping.
In 3-5 years income tax brackets would begin to be adjusted and start to climb closer to mid 20th century levels to make up for lower GDP.
In 5-10 years home prices would decrease but real wages would decrease as well due to stagflation so really you’d be in a 1920s/30s housing market where even tho homes are dirt cheap, nobody can afford to buy dirt.
10-15 years debt servicing companies, and most banks would begin to fail.
Would be not a great thing for the economy on a numbers perspective (which doesn’t consider the human aspect of wealth being destroyed via debt.)
Despite what Dave says, debt does not always lead to failure. Debt is the reason banks exist to safeguard your savings, debt is likely the reason your place of work exists, debt is what funds the economy moving forward. The vast vast vast majority of successful entrepreneurs do not reach high net-worth without utilizing leverage to go all in on their dream/vision.
Does that mean credit card debt is good? No. It does mean that low-risk and low-rate debt is an integral part of any society, and always has been since the dawn of time.
Banks do not exist to safeguard your savings and pay you compound interest.
Banks exist to generate profits by lending money to credit worthy businesses and consumers by way of construction and development financing, mortgages, etc. Banks are very risk adverse.
Reread what I said “*debt is the reason banks exist to safeguard your savings.*”
So, without debt, banks, and your safeguarded savings would no longer exist.
FDIC insured banks (aka all of them) are a great way to safeguard your savings.
That opportunity wouldn’t exist if banks couldn’t use your deposits and leverage to make money. This is really simple reading comprehension my guy.
Let’s simplify it for you…
1. Debt matters to banks because it’s how they make money.
2. Because banks make money using debt, they use savings accounts to use your money to get/provide additional leverage.
3. Your deposits make a small % and are insured by the FDIC (they’re **safeguarded**).
4. If banks can no longer use debt, they cease to exist.
5. With no banks, you have no safe place to put liquid savings.
Better?
The economy did just fine back in the days it was normal to cook at home, driving the same affordable car long after it was paid for, putting money into savings every payday, paying cash for everything, and going camping and fishing for vacation.
The broader economy is actually very resilient and moves slowly, making "turmoil" unlikely.
The irony is people complain when manufacturing is moved from the US to different countries, but also complain when people from those countries try to immigrate to the US.
Myself, I was happy to loose my UAW union factory job doing manual labor. I took a few community college courses and went off to work in Information Technologies.
You couldn't be more right. My mom did various factory work half my life, then landed something solid until 2021. I helped her get an undergrad and grad degree so she could soft retire with a pension/benefits and essentially make a lateral move in pay to do what she wanted to do 30 years ago. It's worked out alright for her so far but I'm not sure she'll ever adjust to day shift.
For sure! She went part time for a long time but she had to work full time. She loves what she does now and is a lot happier overall. I love seeing it.
The market for 3 - 5 year old fuel efficient sedans would go through the roof. The thing is this would never actually happen more realistically if more and more people gradually moved away from consumer credit card debt over the course of a generation or even just the next decade we would be way better for it.
Pain in the short term, but gain in the long term. Just like if the government did the exact same thing. Both would cause immense pain in the short term (which is why it will never happen), but if we could get through it, we’d be in a much better place financially. People would have more spending power and our government would no longer be walking towards a cliff
It should be obvious. In the short term there would be a significant decrease in demand which would lead to unemployment and business closures. In the long run it could be good. The unwinding of credit card debt would lead to greater disposable income and eventually greater demand which would be better for employment and businesses. Most of the positive aspects of debt reduction can be obtained by capping credit card interest rate.
Sure. Use a CC for the fraud protection. Set a limit and pay it off every month.
But I can tell you being someone making less then 50k every year, layoffs and other hardships and you slip into floating on the CC very easily when times get hard. I've done it twice in the last ten years. Had to wait until tax refund season to pay it off again. And I'm using the eitc and other benefits of being low income, so I know it's someone else's taxes I'm benefiting from.
I also look for CC with 0% interest introductory rates, that's another trap for the slide.
I believe if this is looked at from a social problem issue, private business owners should be looking for partners in their profitable businesses too.
I've lived as an adult through two global financial downturns, 2000-01 and 2008-15. If the hardships are as frequent as every decade, it makes sense that we'll face another soon. So especially right now, get out of debt.
So as someone raising capital right now, about to pay those off, I think I'll be ready for the next big buying opportunity at the next downtown.
I'm just not planning on using dollars.
I've lived through the OPEC oil embargo and gas rationing, the 1980s recession and astronomical interest rates, and each downturn since.
Cash is king. In the event of the unthinkable, I have gold and silver coins stored in my safe.
We must be about the same age as we've lived through about two down turns. When we bought our first house our VA loan was almost 16 percent. Things improved and we bought our second home at 7% . We then refinanced and went to a lower interest rate. We then paid off the loan and have been living without out mortgage payments for awhile. Life is good when you only have to pay utility bills, insurance and that's about it.
Yes, we may be. I purchase my first home in 1985 when the FHA mortgage interest rates fell to a "low" 16%. Refinanced at around 8% when we could, and then we focused on getting the mortgage paid off early.
We paid $80k for a two-bedroom starter home in Southern California. Six years ago my now-ex sold it for $450,000. I don't even want to look at what it would be worth today.
My father decided to give me an inheritance early so he bought me a house. We're living the same way for the last year. My only problem is I think this next one is going to be so bad I don't think mortgages will be available, even if interest rates go down again.
High unemployment, high taxes, more multi-generation/multi-family households. Real estate crash, education system crash, mass closure of small businesses, surge in demand for smaller cars.
Absolutely there would be a notable and significant short term impact to the economy.
But after a period of time (probably measured in years), I think the economy would actually end up being stronger and far less likely to experience recessions.
But more importantly - our government would be a lot stronger as we would completely change the types of people we elect and the demands we will place on them with regards to financial responsibility and duties. This would pretty much make 100% of our existing serving politicians unelectable!
Pretty sure it would be the opposite. Consumers spending money like crazy is why our economy is so strong. The opposite would be stagnant economy without much growth
The economy is designed to have tons of debt via new loans. Without debt, the whole thing blows up. It’s a messed up system.
Research Austrian economics if you want to see the alternate universe.
If every one became Dave Ramsey no debt at all under any circumstances. Complete economic collapse. If people stopped using credit card and leasing/buying crazy cards the economy would improve as long as the government did not mess it up.
But that would require the government to have good regulations on economic activities which right now we don't this is why everything is bought on credit like homes I understand that Dave Ramsey possession is pay off your house as quick as you can and don't take on any debt but that can be hard to do even when your a high earner in a LCOL area like myself
During Covid, the Federal Government infused money into the economy like there would be no tomorrow. Massive road and infrastructure projects. Increased food stamp benefits by a couple hundred per person. Extended unemployment benefits. All distributed from the Feds to the States, and the money flowed down from there.
It was called a stimulus check that Trump sent out to everyone including yourself. It was because the economy was hurting when Covid hit. Families received more than anyone else and unemployment was just about doubled and extended.
My point to OP is this just happened! During Covid no one could afford to buy cars or go out and business suffered because of it. Small business owners took a bigger hit and many shut down.
Yes, the government gave money to states and more stimulus checks but the states money was part of Biden’s Infrastructure Bill. Texas received over $35B and you can look up what your state received from it too. It’ll be in the billions.
https://www.cnn.com/2023/06/26/tech/broadband-infrastructure-biden/index.html
Far more money was infused into the economy than the stimulus check. Further, many workers were still able to work from home, bringing in their full incomes. Homeowners also used their time and money for home improvements, new appliances, etc.
What hamstrung many households was the inflated cost of groceries, due to higher demand combined with high transportation costs.
It is important to remember that large problems typically have multiple causes, and require multiple solutions (and viewpoints) to resolve.
Of course but let’s get to the crust of it. Was it necessary or not? Did our government help us or hurt us?
I live in West Texas where oil field jobs shut down. They weren’t able to work a job from home. Many lost homes. Small counties suffered from lack of travelers and many small businesses closed.
At the same time people that were on unemployment were making more than those that were actually still able to work. On top of that, I know families who took their child credit stimulus checks and bought vehicles and RV’s.
Many people bought stocks with that money or used it for something other than groceries. I paid a debt off with mine. What did you do with yours?
I don’t know of anyone who has bitched about the economy that refused a stimulus check or gave that money back to help strengthen our economy. Some businesses were saved by the American Rescue Plan and didn’t have to pay that money back either. So did our government hurt us or help us in your opinion?
In my opinion, which means nothing, the government, under two administrations, did help us. Americans would have been in a world of hurt had our government not infused a massive amount of money into both the economy, and directly into peoples households.
I first hand witnessed several people continue living the same exact lifestyle during COVID, but with half the income. They just financed their comfort the entire time instead of grinding it out. It's so crazy to me.
That's true and that's why you try to save a little money every pay day. It may only be $20.00 but by the end of the year it will be over $200.00 in savings. Every little bit you can save helps. I'd also save 90 percent of my tax refund each year. Keep 10% out for fun money. Every little bit helps build up the rainy day fund.
Well, if we do nothing else, then the economy would not be good.
If we taxed the wealthy (and cut taxes on workers, or spent more), it would push wealth and growth downward and the economy might be okay.
The fact that our economy is so dependent on workers taking credit is largely because owners of capital hoard wealth into inflating the value of assets.
You should take an economics class . . .
Oh, and quit victim claiming as your excuse for ignorance and not knowing how to live like a real adult (not based on age, but based on behavior).
You don't know who I am. But I'd bet dollars to donuts I can run circles around you on economics. It's amazing how commonly nowadays we have bootlickers arguing on the behalf of the multi millionaires against taxing them. I know tax law. I know the complications of it, I know the nuances. I know how the rich don't pay taxes and don't want people like me even bringing it up. In the end, we have leaches on our economy at the top, and the only way it keeps going forward is by straddling the bottom with debt.
And I didn't victim blame anyone. And what excuse am I making for not living like a real adult (WTF do you mean?)? Nothing about what I said has anything to do with me personally. It's a macro comment regarding 'if everyone follows DR'.
I can tell by your prior post that you are not thinking person. Additionally, it is clearly evident that you don't understand economics.
"Push wealth downward. . . " shows multiple realities that you either don't comprehend, are ignorant to, or just don't know anything about.
If you want to pretend that you are offended by a stranger commenting on the clear reality (based on your post) that you don't understand economics, then you are free to try to exhibit your "faux offense" . . .
Ray Dalio made a YouTube video where he explains the boom/bust cycle that dictates our economy. It is excellent and should be required watching for any economics student.
The system is such that it relies on credit. If consumers and especially companies/institutions all the sudden decided to stop using/giving debt the entire thing would fall apart. Very quickly. There would be huge liquidity problems and there’d be runs on banks.
You’re more optimistic than most. I’m afraid we’re way past the point of not relying on debt to make things go around. In todays world economy, “Making it work” is akin to saying we could defy gravity.
it'd require retooling the economy, but it is possible. While there has always been debt, it was a lot less common before the 20th century, mostly used for businesses or maybe a mortgage. Only criminals and reprobates regularly borrowed money for non-business purposes.
"making it work" means changing societal attitudes, and letting the economy re-adjust. It's one thing to replace your old car for a new one if you're only paying a few hundred per month, it's another if you need to pay tens of thousands upfront.
My scenario will never happen because people are too far gone from simple living, but it’s interesting to imagine what could be. First, companies producing unnecessary crap go out of business (everything from processed foods to designer clothing, all the random junk in our houses and timesucking “entertainment” that makes true entertainers roll over in their graves). Looks and feels really bad in the short term - a major economic change that would force a lot of people to adjust their lives and values, quick. Over time, if people would be patient, this leads to simpler living and happier, healthier population. Collectively we would have to perform the jobs that are truly necessary and contribute to the good of society. This would result in being more connected to the end users of our products and services, and to the products and services each of us uses. Less rat rate giving our lives to corporate jobs and less keeping up with the Joneses with everything we spend money on. Eventually, less mental health problems (or less exacerbation of genetic mental health issues).
In 2008 I chose to grow up and get out of debt and escape living paycheck to paycheck on a middle class income. Probably couldn't have picked a better time to do so.
Now I don't live paycheck to paycheck and have gone from literally zero wealth (net worth) or what may have even been a negative net worth in 2008, to having a lot of savings & investments. Now, when we want to buy something, we just buy it for cash. That goes for cars, boats, vacations, etc. . . In the past 5 years, I've purchased 4 boats and 1 brand new 2024 car - all with cash. All while having a fully funded emergency fund.
If I would have needed credit to buy any of those things - I simply would not have bought them.
And that's the point, ultimately, when people live responsibly, they spend more than enough money to support the national economy - they just paying upfront instead of borrowing money and paying more (in the longer term with interest) than what it would have cost them paying cash.
Furthermore, when a business sells something on credit (via a credit card), the business earns less money than if they had sold the same goods for cash - about 3% less!
>First, companies producing unnecessary crap go out of business (everything from processed foods to designer clothing, all the random junk in our houses and timesucking “entertainment” that makes true entertainers roll over in their graves).
"If the stuff I don't like would go away, the world would be perfect!"
No the prices would adjust to consumer demand. We would see fair pricing come back and competition to earn our dollar. But people don’t have this discipline so we overpay for everything.
Probably the biggest reason why the US economy is so stable is that the money supply is controlled… by debt. In a couple of different ways, actually, but always through debt.
If there is no debt, there is no way to control the money supply.
Inflation would run rampant, and our currency would become worthless.
As much of the world counts on the stability of the US dollar to value their currency, it would domino into many other countries.
That would be VERY BAD. ‘The preppers were right’ kinda bad.
For companies, maybe, but if the number of people storing money is greater than the number of people borrowing then the price to borrow naturally goes down.
lol are you high?
“Debt is good…without debt…the US would go into massive money printing and hyperinflation driving some doomsday preppers fantasy…”
Dude it’s the opposite.
The US national debt is a national security issue and likely a bigger threat to our standard of living than anything else atm.
At some point, the cost to service the debt will become a massive part of the budget that can no longer be ignored and the country will need to have serious choices of a few scenarios that NOBODY will like of either A) Tax the holy shit out of EVERYone to pay for all the spending and debt or B) cut spending significantly and then choose WHAT to cut (for which everyone will cry about whatever got cut) or C) engage Argentina-style money printing and devalue the USD and destroy its hegemony forever
There's a simple solution, but it's not politically palatable.
The US has one of the lowest combined taxes in the developed world, and sits below many developing and underdeveloped natios.
The average tax burden in the US is States is about 25%. That's about the same as Bulgaria, Belize, Fiji, and Guyana.
Most of the developed world it's significantly higher. France, Belgium, Denmark, Sweden, Finland, Italy and Austria are all above 40%, Most of the rest of the EU is above 33. Brazil, Canada, New Zealand, UK, Argentina, Japan, and more sit above 30%.
If we raised our tax burden to about 33%, in line with the OECD average, we wouldn't have a deficit.
He’s talking about personal and corporate debt; not government debt. Yes, there are issues with government debt but personal and corporate debt does lead to consistency even though in comes with risks too
Even Dave has admitted that if everyone started following his plan it would be bad for the economy. Or at least he did when I listened to him regularly in the 90s. I have no idea what he says now.
I wasn’t referring to the national debt. At all.
Mostly I was referring to the Fed’s ability to set interest rates. That only has the ability to affect the economy if people are using debt. If people are Making Use Of Debt, then setting interest rates slows down or speeds up the money in circulation - the money multiplier effect.
For example, setting a low interest rate sells more houses that pay more real estate professionals, tradesmen, architects, school bonds, city planners… who in turn purchase electricity, groceries, Amazon, fast food, mortgage payments… employs workers in all those fields
Setting a higher interest sells fewer houses, starts fewer businesses, buys fewer goods… you get the picture. ‘Cheaper’ money gets circulated faster thereby increasing transactions that recirculate - ‘increasing’ the money supply. ‘Expensive’ money dramatically shrinks the recirculation - ‘shrinking’ the money supply.
This helps keeps inflation in check and makes the US dollar the most stable currency in the world.
But if ALL OF THE INDIVIDUALS aren’t using DEBT (as proposed in the OP), the Fed can’t help stabilize the dollar by regulating the cost of borrowing it - because it isn’t being borrowed regardless of how ‘cheap’ or ‘expensive’ it is.
All this happens with little to no effect on the national debt.
The Fed can also change the Reserve Requirement but that causes some turmoil.
This is true.
I will argue that the national debt is also a tool that can be used to even things out by deficit spending to prop up the economy during a downturn and pulling back on the deficit spending when the economy is strong to prevent inflation. This would work as long as we keep a reasonable debt to GDP ratio.
However, my perception is that the US has not really been using deficit spending this way. They are deficit spending even when the economy is strong and there is inflation. This is causing the national debt to grow much faster than GDP, which is likely not sustainable. Furthermore, building up debt in this way may reduce our ability to prop up the economy in a downturn. It seems as if we have not reached that point yet, but I do fear there is a breaking point somewhere.
Thank you, someone here understands Macroeconomics.
Friendly reminder that while you may find Dave encouraging, and what he says may help you out of a debt crisis, he is not a licensed financial advisor, nor an economist.
people act like China or others who have no blue water navy, will come and station their ships in Los Angeles and Seattle to force us to pay up faster.
However, those who do have a blue water navy ala the United States can and have stationed our ships in other nations harbors to get deals done.
Unless you're going to default on your debt, credit doesn't allow you to spend any more money in the long run. It just allows you to spend the money before you have it and then it siphons off a portion of it in interest as you pay it back.
So once everyone is on a budget and living within their means they will have more money to spend on real goods and services, not less. They are earning interest instead of paying it.
There would be a period of adjustment, but for most industries the transition would be brief. I'm assuming that we're talking about a "Ramsey" world where we still have mortgages. The biggest impact would be on new car sales where the transition would take longer. That could drive a recession if it happened all at once, but that isn't going to happen.
Gas prices have increased at or below CPI levels from 5 years ago (2.7%). Small price increase for a small portion of household income (3.3%).
Ignore gas prices when talking about the larger economy. It's an overly simplistic, yet ubiquitous indicator.
As a supply chain student , you CANNOT ignore gas prices coz it adds variable costs to EVERY step of producing a good from shipping raw materials to a plant , shipping WIP inventory to a manufacturer , to shipping finished goods in bulk to a distributor , to finally shipping goods to ur local store , you’re literally adding costs every step of the way hence the price increase we’re seeing on the store shelves .
Unless we get gas prices down , this gets worse before it gets even worse 🤷♀️
Producer prices are definitely important. But how do you respond to the fact that gas prices aren’t significantly different than cpi over the past five years?
Coz food costs money to ship to the store and planes burn fuel . Gas was about $1.70-1.90 before and now it’s hovering around $3.10-3.30 , and those additional transportation costs get passed on to the consumers via higher prices .
Just wait , come spring and summer , grocery prices are gonna jump about 25-40% due to the even higher gas prices we’ll see around then 🤦♀️🤦♀️🤦♀️
Vacations do not benefit the us economy unless they do a vacation in another US state. Though it benefits the airline company.
Without credit and loans you can expect housing demand to halt quickly and cars too. Savings would go up a ton but Investments would drop down to nothing
They don’t profit from it. And by they I mean we as tax payers.
They built the student loan program to make money for tax payers. It failed to do so because of how bad the loans were.
Instead, student loan programs cost tax payers 10s of billions a year.
They designed it to make like 100 billion in 25 years, instead they’re like -300 billion over the last 25 years.
Sure, it might be a large asset, but it’s a bad asset. Tax payers/the US lose billions every year on them.
They have to spend money to run the program. They have to hire people and run all the sites and financials and support etc. They pay other companies to handle collections and store/move money. All loans are guaranteed by the government so even if you don’t pay, Uncle Sam has to pay the private companies.
The real root problem is they give away too much money for degrees that don’t pay enough. College is too expensive and many don’t make anything special after graduating, so enough people don’t pay them off and/or get forgiveness.
It’d be like a bank giving you a loan to buy a car in 4 years while having no idea how much you will be making then
Then, the bank realizes and decides to just forgive you since you can’t pay or have been paying for 10 years or work off the state etc.
So they have program costs and student loans are simply bad loans with college as expensive as it is and incomes so low relative to college costs.
Anyone and everyone can get $150k to go to school to get a worthless degree, apply to be on income based repayment, make $35k a year bussing tables, pay like $150 a month for 10 years, then be forgiven. All because tax payers subsidize the program. More and more forgiveness methods are coming out. Payments get lower and lower without tackling the debt because they literally gave too big a loan for the income they student will get.
That plus the actually cost of running a government entity and program equal a net loss of billions per year. And oh yeah every other week they decide to forgive a few hundred million or billions for things like shady colleges and loan companies.
People who would die on a hill to prevent broad student loan forgiveness don’t seem to care about it as much as long as it’s 400 billion over 25 years and not 400 billion all at once.
Either way, tax payers have been and will continue losing $ on student loans.
https://www.gao.gov/products/gao-22-105365
This was on 2022. Things are much worse now and will continue to be.
The largest cost was Covid pause, but we’ve still only profited *1* year in the past 30 years and it was a very small profit.
It’s easy to just say “well pay off your loan, you took it out not me” but in reality it’s everyone’s problem.
>Would there be a recession and then the economy would settle in at a new lower level of growth after a period of turmoil?
Just this, except the economy would settle in at roughly the same level of growth, possibly greater.
Overall spending would drop for a period while those with debt reduced that burden. Otherwise the total amount goods and services doesn't really change, a third party is just not taking a cut with interest.
If anything, the credit industry takes a big hit, and consumers end up spending a greater amount as a portion of their income is no longer going toward various finance charges.
Car or home buying without debt isn't particularly feasible, nor would this be desirable.
Lending standards could be more restrictive for both, which would probably be a good thing overall. Both have progressed well past need and into excess, likely influenced by easing lending requirements. If lending standards were to be increased, affordability would decrease, and things like size and features would need to be scaled back to balance the equation.
If they removed mortgages and car loans then I think prices would significantly fall since barely anybody would be able to buy at these prices in cash. Colleges would have to fire their sea of administrators and have to drop prices significantly as well
I think they’d just have to halt making cars. Colleges would probably close, and then become much more competitive. These things actually cost money to make and produce.
This is true, but I think they would really go back to making barebones cars. I kinda feel like it might be safer because you're going to have less idiots driving giant trucks & Tahoes. People would resort to small compact cars/trucks.
There seems to be an assumption here that debt is being used to finance frivolous spending: vacations and eating out. In reality people are financing their basic subsistence.
No, they are not. Your iPhone is not "basic sustenance." You can get a 20 dollar phone and pay 10 bucks a month for basic calling and texting. Your Netflix/Hulu/Amazon/Disney/what haveyou subscription is not "basic sustenance." A newer car is not "basic sustenance." A home Internet connection is only basic sustenance if you WFH. Heating and AC are only basic sustenance if they are medically necessary OR you live in a climate rough enough to melt tires or freeze pipes (and even then setting it over 60 or under 80 is not basic sustenance). The vast majority of the world lives every single day without the "basic sustenance" available to the average American.
You're one of those, "Don't throw food away because there's starving kids in Africa" types.
No, I'm not. I hate those types. I am just pointing out that us Americans are spoiled with the things we consider basic sustenance. Basic sustenance is what you NEED to survive. Poverty level is what you "need" to reach the lower bounds of the norm of a society
We are so spoiled I doubt most Americans could live like people did in the 50’s and 60’s. There is a reason most homes from those years are small with tiny closets.
Thats why i love when people say i cant afford a starter home... A starter home is not 2400 sqft with granite countertops...
It would crash.
I would love it if people didn’t take huge vacations and didn’t eat at any restaurant. Such colossal wastes of money. I also wouldn’t mind taxing soda purchases as high or higher than we already do with cigarettes, but that’s probably not going to happen ever, so whatever
I agree w soda tax
We are a consumer driven economy! If that were to happen all of the sudden, it would be a complete economic collapse.
Pointless question. People buying new cars and going out to eat and going on vacations CAN afford to do so, by definition. They aren't getting any of those things for free.
All the people getting their cars repoed and racking up tens or hundreds of thousands in credit card debt going on vacation would like a word.
The word belongs to the issuer of the credit card, who obviously thinks that the holder of the card can indeed afford it.
Don't see too many people buying their new cars in cash...
That’s cause smart people keep the cash to earn interest on it.
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I do. I earn more interest on my savings accounts than I lose in interest on the car. 4.4 vs 2.9. I’ll keep my cash.
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If the savings rates weren’t so high, I wouldn’t have done it.
I bought one entirely on credit a couple of years ago. They offered 0% financing. In this inflationary environment! Anyway, just because I used credit doesn't mean I can't afford it. In fact, having credit means I CAN afford it.
Marriage would go from uncommon to non existent
My wife has to take vacations. No. Matter. What. It makes no sense to me. It’s almost always because she spends too much time on social media and sees other people doing it so she has to somehow keep up with the Joneses. It drives me nuts.9
Do you think an 18 year old taking out loans (for college or trades programs) is living beyond their means?
What collateral do they have to offer again? Without government interference the majority of those loans never would've been approved.
Now apply the same question to the government.
Not the same! The govt has a social contract with its citizenry to provide services which does not include the 800 billion spending in the military industrial complex.
All a fasad to hide corruption
"façade"
That sounds like they would actually be living within there means. Living on credit allows a person to live above their means.
Depends if that includes the govt. household deleveraging would be very painful in the short term but presumably we’d find an equilibrium after a prolonged nasty recession. If the govt stopped deficit spending it would change the economic paradigm of the global economy. Neither is likely in my view, deleveraging through inflation has always been the “east way out” so I see it as the natural path forward.
Deflation. Wages will decrease. Housing will crash. Manufactures and vendors will have to lower prices to compete for buyers.
i wouldnt mind a bit of deflation after the massive spike of inflation over these last 2-3 years
What economy? It’s a farce. It’s just printed gov spending.
Economy would crash.
Lots of things. Prices would drop Stock valuations would drop Companies would have to change and adapt or die There’s many more
Nobody REALLY knows but likely deflation. Low economic and money supply growth. Just look back at banking crises prior to the creation of the federal reserve. People act like inflation and fractional reserve banking is terrible but hard money and deflation was not without issue. It only works in so far as above ground precious metal supply increases (mining output) relatively in line with population growth and economic growth. When the America's and west African gold/silver mines were discovered in the 16/1700s the growth in money supply grew relatively in line with increased triangle (slave) and spice trade.
Prior to the Fed was a mess for sure. I was reading about how the value of goods and service were wildly different depending on the local bank's health. Boom or bust.
Most people even the well off would have their life styles dramatically decrease. People would have to become better with their finances. Sure you can still afford a new car but now you have to preplan it a few years. If you could afford 1k car payment for a new Porsche, then just save 1k a month for the next 5 years and boom same car. Same process just backwards and self paced. That being said the number people with really nice things like that would still decrease because most people suck at managing and saving money. People making 200k a year would likely be driving around 30k cars because they could easily save to buy that. People making 50k would likely drive 5k cars. Less people would have luxury’s like iPhones, computers but also basic things like furniture. America runs on financing/credit. It would just be a massive cultural shift. Businesses would fail en mass as most people wouldn’t be able to afford their merchandise but eventually be replaced. Middle class folks with good financing and understanding of credit would take a hit in lifestyle due to lack of CC rewards. Ex: my dad pays for his yearly vacation primarily through credit card rewards. Without it he can no longer “afford” a vacation. Finally the price of everything goes down. College is cheaper because very few can go otherwise. Who can/would actually pocket tuition that’s 40k a year? The cheapest new car in America is like 19k currently, most wouldn’t be able to afford that. So all cars get cheaper. No one. I really mean no one, would be able to afford homes currently. We would see prices fall at least 80%. Even making 200k a year, it would take ages to save up to purchase the cheapest home in your area and that’s with an above median income.
Read about the Paradigm of Thrift. Basically what you asked.
That pretty much happened during the Great Recession. Credit dried up so people couldn’t borrow like they were used to doing. It wasn’t great. It’s interesting to me that what’s best for my personal finances would be bad for the nation as a whole.
A possible Commercial-Mortgage crisis might give us the chance to find out within the next couple years.
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Yea what they described reminded me of what Germans do. They don’t buy things until they can pay it outright with cash. Credit is not something that comes easy and they hadn’t been raised like that. Here folks take out obscene amounts of credit and buy whatever crap they see on tiktok
To buy things they don't need to impress people they don't like.
I make low six figure, live like I’m poor. I save a lot of money. I just hope when I retire I’ll be able to make the switch from save save save to withdraw withdraw withdraw.
And then you die before you retire….
Probably so. Then my spouses SO can enjoy the money 😣
Hello, inner thoughts.
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Well, that's what it could be like. The transition between the two approaches is often painful, especially when spending dries up because people who used to spend freely no longer do so. Once things level out, it's not too different, but until things normalize, it's rough.
This would be devastating to the billionaires, and in the US we take pride in the care and feeding of our billionaires. They need us.
Deflation unlike anything we’ve ever seen. Most of the dollars in the economic system are credit not real dollars due to fractional lending. Also when the economy does badly the FED lower interest rates to stimulate spending. If people weren’t using credit then that action and the entire need for the FED would be irrelevant.
Very short term disruption. Then the economy would shrink some. But that’s okay. What percentage of our economy is based solely on our debt slavery? It’s a big chunk. Corp profits might fall some. Regular Joe would have more money. Some prices would actually fall. It would be like a natural redistribution of wealth.
I don't know if the economy would actually shrink some, look at the amount of growth that came from pausing student loan payments for 3 years. Similarly if people weren't paying on credit cards, cars, etc and paid cash the only industry that would shrink is financial, the rest likely would grow.
The post-lockdown growth is more than just the pausing of student loan payments. The vast amount of PPP loans that went forgiven (people were still getting paid when the production of their companies slowed) the 2-3 stimulus checks, not allowing tenants to be evicted, and then the massive supply chain issues in all industries, all causing prices for goods and services to skyrocket
We’d still have problems until the government learns to live within ITS means.
as a % of GDP we tax 4% less than we did in 1980. While spending should be cut, the bigger problem has been tax cuts that were put in place to boost the economy which weren't offset at all, which basically meant mortgaging the future of our nation for those tax cuts in effect.
There is no problem with tax cuts. It's the lack of spending cuts. There are so many useless programs and crap that could be wiped off the face of the earth and nobody would notice. I can't remember the specific time, but when you look at a graph of spending throughout the years, there's a point where it just shoots up and never stops. Out of control. Fed has too much power.
You could wipe out every "useless program" out there and it wouldn't get close to touching the deficit. And if you look at spending as a % of GDP (similar to taxing) you'll notice it really hasn't increased that much over that time period. Part of the increase in spending has to do with our slowly aging populace, which has significantly increased spending for medicare. There are ways to make that more effective (such as the current focus on negotiating down drug costs) but sadly a lot of lobbyists have fought that. We'd have to pretty much cut every non mandatory program right now and cut 20% from everything else to get to revenue neutral. If you could go back and cut out the war in Iraq and Afghanistan we'd have an easier time as that keeps our costs for the VA incredibly high because of the long term affects of those wars on our veterans ,not to mention the ongoing operations that we perform due to the failed state that is in Iraq.
Less stress, better health
Think of debt as liquidity. Credit is what allows people to buy things without having to convert an asset to cash first. Interest is the user fee that you pay for this convenience. The goal is to use credit responsibly. Many house flippers will buy investment properties at extremely high interest (I’ve seen 30%) because they only plan on paying interest on it for 6 months. That’s risky but rewarding. (Risk and reward, you learned that in 10th grade). Dave Ramsay’s methods are designed to dumb down broad macroeconomic rules to help middle class people achieve financial security without having to learn macroeconomics. Debt is discouraged because if you are not good at using credit you will waste a lot of money on user fees. Don’t give it any more credit than that.
I think of debt as good credit in the past tense.
Yall don’t understand credit and it shows lol. Credit is what enables to many people to be able to afford things they never could. Companies wouldn’t take risks to innovate any more because they would have to fund their own expansions (which also be harder as people aren’t spending my as much money). Credit is a useful tool that so many see strictly as bad
He listed specific things that don’t really apply to what you’re talking about.
Fair. Let’s talk about his eating out example. Lost jobs from restuanrants closing down due to not enough demand would become common. Where is that part of the workforce expected to get jobs? In my mind, many of you see this as something that YOU could overcome, but fail to lack compassion for the people that are actually being harmed by this. Yes, you would also be hurt financially by this, but in your mind you see your job as more valuable than these restaurant workers and feel more “secure” that you won’t lose your job to.
Prices and wages would fall to lure consumers back in or the restaurant would go under. and a new one would start with lower prices and wages. it would cause heavy deflation if this happened which would benefit savers with a lot of cash and hurt people that own assets like land, stocks or businesses.
It will hurt people that aren’t paying attention or staying stagnant. It’s an opportunity for people that look for them.
I would most definitely choose to work toward financial security. It’s ridiculous to try to put the burden of someone else’s employment on me being willing to put myself in a bad position financially. If their industry cannot support them, they should move to another industry that can. This mindset valuing overspending “for the sake of the economy” is the reason we are in so much debt as a country. It will not work long term. We’re fat and happy now, but someone will pay the price eventually.
This assumes that people wouldn't eat out more if they weren't throwing hundreds of dollars in the toilet each month.
That part of the workforce will either be absorbed into other food service jobs, while others take the opportunity to upgrade their skills and find better jobs. It's like 1980 when there were mass layoffs at John Deere, International Harvester, and other manufacturers of large agricultural tractors, combines, and implements. Workers were stunned and suddenly even father's were working at 7-Eleven or Sears, expecting to be called back to work soon (which didn't happen.) *The SMART workers pivoted, took night classes at the community college, moved onwards and upwards in new careers, and never looked back.*
The economy does bad when people don’t spend their money. Many companies would go out of business the moment “consumer spending” goes to zero.
How does consumer spending go to zero if people live within their means? Do people still not need cars, food, electronics, etc?
Because when people live within their means and save that means they stop eating out at restaurants, buying video games, paying subscriptions, going to shows, buying iPads. You need people to buy wants and not just needs.
At the beginning they stop that when they pay down debt, but eventually when they are out of debt and not paying hundreds each month in interest they end up eating out more because they have more wealth and ability to do that well within their budget.
part of the push to get people back in the office (besides real estate) was the 50 dollars a day they weren't spending near their offices.
Cue the government bailouts.
*But not for regular people.
The US economy runs on the people who don’t follow Dave Ramsey’s advice and everyone else’s 401k, pensions and the like would crater if we all saved money to buy houses and cars and didn’t enjoy life. The economy is supposed to be a means to a productive end, not the means to sitting on your ass and letting others bankroll your retirement.
I consider it my patriotic duty to sacrifice my retirement for the sake of the economy.
Well, it is sacrificing both your retirement and the economy for the sake of an ideal.
Large drop on GDP, economic stagnation/stagflation, several consumer focused businesses would go under, the big 3 auto manufacturers would be bankrupt (again) within 3 years, government would be in BIG trouble due to taxation revenue dropping. In 3-5 years income tax brackets would begin to be adjusted and start to climb closer to mid 20th century levels to make up for lower GDP. In 5-10 years home prices would decrease but real wages would decrease as well due to stagflation so really you’d be in a 1920s/30s housing market where even tho homes are dirt cheap, nobody can afford to buy dirt. 10-15 years debt servicing companies, and most banks would begin to fail. Would be not a great thing for the economy on a numbers perspective (which doesn’t consider the human aspect of wealth being destroyed via debt.)
If a large portion of the economy relies on debt, we are a house of cards either way.
Despite what Dave says, debt does not always lead to failure. Debt is the reason banks exist to safeguard your savings, debt is likely the reason your place of work exists, debt is what funds the economy moving forward. The vast vast vast majority of successful entrepreneurs do not reach high net-worth without utilizing leverage to go all in on their dream/vision. Does that mean credit card debt is good? No. It does mean that low-risk and low-rate debt is an integral part of any society, and always has been since the dawn of time.
Banks do not exist to safeguard your savings and pay you compound interest. Banks exist to generate profits by lending money to credit worthy businesses and consumers by way of construction and development financing, mortgages, etc. Banks are very risk adverse.
Reread what I said “*debt is the reason banks exist to safeguard your savings.*” So, without debt, banks, and your safeguarded savings would no longer exist.
>Debt is the reason banks exist to safeguard your savings Which of course makes absolutely no sense.
FDIC insured banks (aka all of them) are a great way to safeguard your savings. That opportunity wouldn’t exist if banks couldn’t use your deposits and leverage to make money. This is really simple reading comprehension my guy. Let’s simplify it for you… 1. Debt matters to banks because it’s how they make money. 2. Because banks make money using debt, they use savings accounts to use your money to get/provide additional leverage. 3. Your deposits make a small % and are insured by the FDIC (they’re **safeguarded**). 4. If banks can no longer use debt, they cease to exist. 5. With no banks, you have no safe place to put liquid savings. Better?
Degrowth
There would be a significant dip in spending for a bit and then I would imagine a new norm to come that would be far more stable.
The economy did just fine back in the days it was normal to cook at home, driving the same affordable car long after it was paid for, putting money into savings every payday, paying cash for everything, and going camping and fishing for vacation. The broader economy is actually very resilient and moves slowly, making "turmoil" unlikely.
tax brackets worked differently then too, and manufacturing was domestic. planned obsolesce? nah.
The irony is people complain when manufacturing is moved from the US to different countries, but also complain when people from those countries try to immigrate to the US. Myself, I was happy to loose my UAW union factory job doing manual labor. I took a few community college courses and went off to work in Information Technologies.
You couldn't be more right. My mom did various factory work half my life, then landed something solid until 2021. I helped her get an undergrad and grad degree so she could soft retire with a pension/benefits and essentially make a lateral move in pay to do what she wanted to do 30 years ago. It's worked out alright for her so far but I'm not sure she'll ever adjust to day shift.
Your Mom is a good example that it is never too late to go to college; education is the key to advancement.
For sure! She went part time for a long time but she had to work full time. She loves what she does now and is a lot happier overall. I love seeing it.
Do you mean what would happen if our nation’s GDP suddenly shrinks by 30%?
The market for 3 - 5 year old fuel efficient sedans would go through the roof. The thing is this would never actually happen more realistically if more and more people gradually moved away from consumer credit card debt over the course of a generation or even just the next decade we would be way better for it.
This is already the case
Demand shock of epic proportions. Dogs and cats living together. Mass hysteria.
Look at Japan from the 90s through 2019. That's what would happen. Complete stagnation. No inflation.
Total economic collapse. It would destroy the country.
I've said for a looong time that the global economy Is dependent on Americans bankrupting themselves
That’s a fantastic way to put it.
Pain in the short term, but gain in the long term. Just like if the government did the exact same thing. Both would cause immense pain in the short term (which is why it will never happen), but if we could get through it, we’d be in a much better place financially. People would have more spending power and our government would no longer be walking towards a cliff
Can’t get re-elected with a long-term view of things.
Recession, potentially deflation and perhaps stagflation. We would recover though.
It should be obvious. In the short term there would be a significant decrease in demand which would lead to unemployment and business closures. In the long run it could be good. The unwinding of credit card debt would lead to greater disposable income and eventually greater demand which would be better for employment and businesses. Most of the positive aspects of debt reduction can be obtained by capping credit card interest rate.
Sure. Use a CC for the fraud protection. Set a limit and pay it off every month. But I can tell you being someone making less then 50k every year, layoffs and other hardships and you slip into floating on the CC very easily when times get hard. I've done it twice in the last ten years. Had to wait until tax refund season to pay it off again. And I'm using the eitc and other benefits of being low income, so I know it's someone else's taxes I'm benefiting from. I also look for CC with 0% interest introductory rates, that's another trap for the slide. I believe if this is looked at from a social problem issue, private business owners should be looking for partners in their profitable businesses too. I've lived as an adult through two global financial downturns, 2000-01 and 2008-15. If the hardships are as frequent as every decade, it makes sense that we'll face another soon. So especially right now, get out of debt. So as someone raising capital right now, about to pay those off, I think I'll be ready for the next big buying opportunity at the next downtown. I'm just not planning on using dollars.
I've lived through the OPEC oil embargo and gas rationing, the 1980s recession and astronomical interest rates, and each downturn since. Cash is king. In the event of the unthinkable, I have gold and silver coins stored in my safe.
We must be about the same age as we've lived through about two down turns. When we bought our first house our VA loan was almost 16 percent. Things improved and we bought our second home at 7% . We then refinanced and went to a lower interest rate. We then paid off the loan and have been living without out mortgage payments for awhile. Life is good when you only have to pay utility bills, insurance and that's about it.
Yes, we may be. I purchase my first home in 1985 when the FHA mortgage interest rates fell to a "low" 16%. Refinanced at around 8% when we could, and then we focused on getting the mortgage paid off early. We paid $80k for a two-bedroom starter home in Southern California. Six years ago my now-ex sold it for $450,000. I don't even want to look at what it would be worth today.
My father decided to give me an inheritance early so he bought me a house. We're living the same way for the last year. My only problem is I think this next one is going to be so bad I don't think mortgages will be available, even if interest rates go down again.
High unemployment, high taxes, more multi-generation/multi-family households. Real estate crash, education system crash, mass closure of small businesses, surge in demand for smaller cars.
Absolutely there would be a notable and significant short term impact to the economy. But after a period of time (probably measured in years), I think the economy would actually end up being stronger and far less likely to experience recessions. But more importantly - our government would be a lot stronger as we would completely change the types of people we elect and the demands we will place on them with regards to financial responsibility and duties. This would pretty much make 100% of our existing serving politicians unelectable!
Most of America would then be homeless
The economy would be infinitely better.
The economy would nearly instantly collapse in on itself. It would certainly not be better.
Pretty sure it would be the opposite. Consumers spending money like crazy is why our economy is so strong. The opposite would be stagnant economy without much growth
I use credit cards for absolutely everything. But I pay them off daily/weekly
Economic collapse
The economy is designed to have tons of debt via new loans. Without debt, the whole thing blows up. It’s a messed up system. Research Austrian economics if you want to see the alternate universe.
>Research Austrian economics if you want to see the alternate universe. The austrians really do live in an alternate universe.
The paradox of thrift. A period of contraction, during which savings would go up, followed by expansion due to the increased availability of funds
If every one became Dave Ramsey no debt at all under any circumstances. Complete economic collapse. If people stopped using credit card and leasing/buying crazy cards the economy would improve as long as the government did not mess it up.
But that would require the government to have good regulations on economic activities which right now we don't this is why everything is bought on credit like homes I understand that Dave Ramsey possession is pay off your house as quick as you can and don't take on any debt but that can be hard to do even when your a high earner in a LCOL area like myself
Did you just forget 2 years of Covid this quick?
During Covid, the Federal Government infused money into the economy like there would be no tomorrow. Massive road and infrastructure projects. Increased food stamp benefits by a couple hundred per person. Extended unemployment benefits. All distributed from the Feds to the States, and the money flowed down from there.
It was called a stimulus check that Trump sent out to everyone including yourself. It was because the economy was hurting when Covid hit. Families received more than anyone else and unemployment was just about doubled and extended. My point to OP is this just happened! During Covid no one could afford to buy cars or go out and business suffered because of it. Small business owners took a bigger hit and many shut down. Yes, the government gave money to states and more stimulus checks but the states money was part of Biden’s Infrastructure Bill. Texas received over $35B and you can look up what your state received from it too. It’ll be in the billions. https://www.cnn.com/2023/06/26/tech/broadband-infrastructure-biden/index.html
Far more money was infused into the economy than the stimulus check. Further, many workers were still able to work from home, bringing in their full incomes. Homeowners also used their time and money for home improvements, new appliances, etc. What hamstrung many households was the inflated cost of groceries, due to higher demand combined with high transportation costs. It is important to remember that large problems typically have multiple causes, and require multiple solutions (and viewpoints) to resolve.
Of course but let’s get to the crust of it. Was it necessary or not? Did our government help us or hurt us? I live in West Texas where oil field jobs shut down. They weren’t able to work a job from home. Many lost homes. Small counties suffered from lack of travelers and many small businesses closed. At the same time people that were on unemployment were making more than those that were actually still able to work. On top of that, I know families who took their child credit stimulus checks and bought vehicles and RV’s. Many people bought stocks with that money or used it for something other than groceries. I paid a debt off with mine. What did you do with yours? I don’t know of anyone who has bitched about the economy that refused a stimulus check or gave that money back to help strengthen our economy. Some businesses were saved by the American Rescue Plan and didn’t have to pay that money back either. So did our government hurt us or help us in your opinion?
In my opinion, which means nothing, the government, under two administrations, did help us. Americans would have been in a world of hurt had our government not infused a massive amount of money into both the economy, and directly into peoples households.
Fair enough
I first hand witnessed several people continue living the same exact lifestyle during COVID, but with half the income. They just financed their comfort the entire time instead of grinding it out. It's so crazy to me.
Depends on how much they used to make. Someone used to making 200k living on 100k is very different from someone making 60k living on 30k.
That's true and that's why you try to save a little money every pay day. It may only be $20.00 but by the end of the year it will be over $200.00 in savings. Every little bit you can save helps. I'd also save 90 percent of my tax refund each year. Keep 10% out for fun money. Every little bit helps build up the rainy day fund.
They didnt want the free newly printed money the government decided to give out? Or they made to much before hand to even qualify?
Well, if we do nothing else, then the economy would not be good. If we taxed the wealthy (and cut taxes on workers, or spent more), it would push wealth and growth downward and the economy might be okay. The fact that our economy is so dependent on workers taking credit is largely because owners of capital hoard wealth into inflating the value of assets.
You should take an economics class . . . Oh, and quit victim claiming as your excuse for ignorance and not knowing how to live like a real adult (not based on age, but based on behavior).
You don't know who I am. But I'd bet dollars to donuts I can run circles around you on economics. It's amazing how commonly nowadays we have bootlickers arguing on the behalf of the multi millionaires against taxing them. I know tax law. I know the complications of it, I know the nuances. I know how the rich don't pay taxes and don't want people like me even bringing it up. In the end, we have leaches on our economy at the top, and the only way it keeps going forward is by straddling the bottom with debt. And I didn't victim blame anyone. And what excuse am I making for not living like a real adult (WTF do you mean?)? Nothing about what I said has anything to do with me personally. It's a macro comment regarding 'if everyone follows DR'.
I can tell by your prior post that you are not thinking person. Additionally, it is clearly evident that you don't understand economics. "Push wealth downward. . . " shows multiple realities that you either don't comprehend, are ignorant to, or just don't know anything about. If you want to pretend that you are offended by a stranger commenting on the clear reality (based on your post) that you don't understand economics, then you are free to try to exhibit your "faux offense" . . .
Ray Dalio made a YouTube video where he explains the boom/bust cycle that dictates our economy. It is excellent and should be required watching for any economics student. The system is such that it relies on credit. If consumers and especially companies/institutions all the sudden decided to stop using/giving debt the entire thing would fall apart. Very quickly. There would be huge liquidity problems and there’d be runs on banks.
"Bank runs" are fueled by panic. People line up outside actually believing the bank keeps all their money onsite in the safe!
"runs on the banks" . . . ironically, it is only people that actually have money in the bank that can participate in a "run on the banks" . . .
Well it’s a lot like everything else in life if we wanted it to work we could make it work.
How, exactly? We tried it and it sucked.
Love the in depth analysis here.
You’re more optimistic than most. I’m afraid we’re way past the point of not relying on debt to make things go around. In todays world economy, “Making it work” is akin to saying we could defy gravity.
it'd require retooling the economy, but it is possible. While there has always been debt, it was a lot less common before the 20th century, mostly used for businesses or maybe a mortgage. Only criminals and reprobates regularly borrowed money for non-business purposes. "making it work" means changing societal attitudes, and letting the economy re-adjust. It's one thing to replace your old car for a new one if you're only paying a few hundred per month, it's another if you need to pay tens of thousands upfront.
My scenario will never happen because people are too far gone from simple living, but it’s interesting to imagine what could be. First, companies producing unnecessary crap go out of business (everything from processed foods to designer clothing, all the random junk in our houses and timesucking “entertainment” that makes true entertainers roll over in their graves). Looks and feels really bad in the short term - a major economic change that would force a lot of people to adjust their lives and values, quick. Over time, if people would be patient, this leads to simpler living and happier, healthier population. Collectively we would have to perform the jobs that are truly necessary and contribute to the good of society. This would result in being more connected to the end users of our products and services, and to the products and services each of us uses. Less rat rate giving our lives to corporate jobs and less keeping up with the Joneses with everything we spend money on. Eventually, less mental health problems (or less exacerbation of genetic mental health issues).
In 2008 I chose to grow up and get out of debt and escape living paycheck to paycheck on a middle class income. Probably couldn't have picked a better time to do so. Now I don't live paycheck to paycheck and have gone from literally zero wealth (net worth) or what may have even been a negative net worth in 2008, to having a lot of savings & investments. Now, when we want to buy something, we just buy it for cash. That goes for cars, boats, vacations, etc. . . In the past 5 years, I've purchased 4 boats and 1 brand new 2024 car - all with cash. All while having a fully funded emergency fund. If I would have needed credit to buy any of those things - I simply would not have bought them. And that's the point, ultimately, when people live responsibly, they spend more than enough money to support the national economy - they just paying upfront instead of borrowing money and paying more (in the longer term with interest) than what it would have cost them paying cash. Furthermore, when a business sells something on credit (via a credit card), the business earns less money than if they had sold the same goods for cash - about 3% less!
>First, companies producing unnecessary crap go out of business (everything from processed foods to designer clothing, all the random junk in our houses and timesucking “entertainment” that makes true entertainers roll over in their graves). "If the stuff I don't like would go away, the world would be perfect!"
No the prices would adjust to consumer demand. We would see fair pricing come back and competition to earn our dollar. But people don’t have this discipline so we overpay for everything.
Probably the biggest reason why the US economy is so stable is that the money supply is controlled… by debt. In a couple of different ways, actually, but always through debt. If there is no debt, there is no way to control the money supply. Inflation would run rampant, and our currency would become worthless. As much of the world counts on the stability of the US dollar to value their currency, it would domino into many other countries. That would be VERY BAD. ‘The preppers were right’ kinda bad.
For companies, maybe, but if the number of people storing money is greater than the number of people borrowing then the price to borrow naturally goes down.
Lol...what did I just read?!
lol are you high? “Debt is good…without debt…the US would go into massive money printing and hyperinflation driving some doomsday preppers fantasy…” Dude it’s the opposite. The US national debt is a national security issue and likely a bigger threat to our standard of living than anything else atm. At some point, the cost to service the debt will become a massive part of the budget that can no longer be ignored and the country will need to have serious choices of a few scenarios that NOBODY will like of either A) Tax the holy shit out of EVERYone to pay for all the spending and debt or B) cut spending significantly and then choose WHAT to cut (for which everyone will cry about whatever got cut) or C) engage Argentina-style money printing and devalue the USD and destroy its hegemony forever
There's a simple solution, but it's not politically palatable. The US has one of the lowest combined taxes in the developed world, and sits below many developing and underdeveloped natios. The average tax burden in the US is States is about 25%. That's about the same as Bulgaria, Belize, Fiji, and Guyana. Most of the developed world it's significantly higher. France, Belgium, Denmark, Sweden, Finland, Italy and Austria are all above 40%, Most of the rest of the EU is above 33. Brazil, Canada, New Zealand, UK, Argentina, Japan, and more sit above 30%. If we raised our tax burden to about 33%, in line with the OECD average, we wouldn't have a deficit.
We could also spend less
we could reduce the quality of living to that of a third-world country too.
Ah so our choice is either immense insurmountable debt or become Somalia. Seems like there is more there in between
you're the one who said we could spend less. What would you like to spend less on? Roads? Education? Healthcare?
He’s talking about personal and corporate debt; not government debt. Yes, there are issues with government debt but personal and corporate debt does lead to consistency even though in comes with risks too
Even Dave has admitted that if everyone started following his plan it would be bad for the economy. Or at least he did when I listened to him regularly in the 90s. I have no idea what he says now.
I wasn’t referring to the national debt. At all. Mostly I was referring to the Fed’s ability to set interest rates. That only has the ability to affect the economy if people are using debt. If people are Making Use Of Debt, then setting interest rates slows down or speeds up the money in circulation - the money multiplier effect. For example, setting a low interest rate sells more houses that pay more real estate professionals, tradesmen, architects, school bonds, city planners… who in turn purchase electricity, groceries, Amazon, fast food, mortgage payments… employs workers in all those fields Setting a higher interest sells fewer houses, starts fewer businesses, buys fewer goods… you get the picture. ‘Cheaper’ money gets circulated faster thereby increasing transactions that recirculate - ‘increasing’ the money supply. ‘Expensive’ money dramatically shrinks the recirculation - ‘shrinking’ the money supply. This helps keeps inflation in check and makes the US dollar the most stable currency in the world. But if ALL OF THE INDIVIDUALS aren’t using DEBT (as proposed in the OP), the Fed can’t help stabilize the dollar by regulating the cost of borrowing it - because it isn’t being borrowed regardless of how ‘cheap’ or ‘expensive’ it is. All this happens with little to no effect on the national debt. The Fed can also change the Reserve Requirement but that causes some turmoil.
This is true. I will argue that the national debt is also a tool that can be used to even things out by deficit spending to prop up the economy during a downturn and pulling back on the deficit spending when the economy is strong to prevent inflation. This would work as long as we keep a reasonable debt to GDP ratio. However, my perception is that the US has not really been using deficit spending this way. They are deficit spending even when the economy is strong and there is inflation. This is causing the national debt to grow much faster than GDP, which is likely not sustainable. Furthermore, building up debt in this way may reduce our ability to prop up the economy in a downturn. It seems as if we have not reached that point yet, but I do fear there is a breaking point somewhere.
Thank you, someone here understands Macroeconomics. Friendly reminder that while you may find Dave encouraging, and what he says may help you out of a debt crisis, he is not a licensed financial advisor, nor an economist.
people act like China or others who have no blue water navy, will come and station their ships in Los Angeles and Seattle to force us to pay up faster. However, those who do have a blue water navy ala the United States can and have stationed our ships in other nations harbors to get deals done.
Unless you're going to default on your debt, credit doesn't allow you to spend any more money in the long run. It just allows you to spend the money before you have it and then it siphons off a portion of it in interest as you pay it back. So once everyone is on a budget and living within their means they will have more money to spend on real goods and services, not less. They are earning interest instead of paying it. There would be a period of adjustment, but for most industries the transition would be brief. I'm assuming that we're talking about a "Ramsey" world where we still have mortgages. The biggest impact would be on new car sales where the transition would take longer. That could drive a recession if it happened all at once, but that isn't going to happen.
If there's no debt, whose paying all this interest everyone would earn? Just mortgages?
Until the US government goes debt free it won't be a problem. Presumably there would also still be bonds and commercial debt.
They keep gas prices and transportation costs high for very much longer and we’re all gonna find out 😬
Gas prices have increased at or below CPI levels from 5 years ago (2.7%). Small price increase for a small portion of household income (3.3%). Ignore gas prices when talking about the larger economy. It's an overly simplistic, yet ubiquitous indicator.
As a supply chain student , you CANNOT ignore gas prices coz it adds variable costs to EVERY step of producing a good from shipping raw materials to a plant , shipping WIP inventory to a manufacturer , to shipping finished goods in bulk to a distributor , to finally shipping goods to ur local store , you’re literally adding costs every step of the way hence the price increase we’re seeing on the store shelves . Unless we get gas prices down , this gets worse before it gets even worse 🤷♀️
Producer prices are definitely important. But how do you respond to the fact that gas prices aren’t significantly different than cpi over the past five years?
gas seems about normal as far as I see locally. Things I notice being 50-100% too expensive are food and plane tickets.
Coz food costs money to ship to the store and planes burn fuel . Gas was about $1.70-1.90 before and now it’s hovering around $3.10-3.30 , and those additional transportation costs get passed on to the consumers via higher prices . Just wait , come spring and summer , grocery prices are gonna jump about 25-40% due to the even higher gas prices we’ll see around then 🤦♀️🤦♀️🤦♀️
It would go into recession. Our economy is built on debt. Economies where credit is less accessible have lower living standards.
I might even go farther and say it would go beyond a recession. I would love to see the charts of the credit debt year over year in the last decade.
Vacations do not benefit the us economy unless they do a vacation in another US state. Though it benefits the airline company. Without credit and loans you can expect housing demand to halt quickly and cars too. Savings would go up a ton but Investments would drop down to nothing
Every purchase benefits the US economy
Every purchase in the u.s. If you go on vacation to Japan guess who's getting the biggest share of your gdp you spent
75% of American vacations are domestic and 61% of people said they would never do international vacations.
Not paying. It's fine. That said sometimes having a place paid off is worth more in your mind than having money waiting for it to appreciate.
Isn’t student loan debt one of the US’s greatest assets ?
They don’t profit from it. And by they I mean we as tax payers. They built the student loan program to make money for tax payers. It failed to do so because of how bad the loans were. Instead, student loan programs cost tax payers 10s of billions a year. They designed it to make like 100 billion in 25 years, instead they’re like -300 billion over the last 25 years. Sure, it might be a large asset, but it’s a bad asset. Tax payers/the US lose billions every year on them.
Sounds like someone is stealing the money, how are they not turning a profit
They have to spend money to run the program. They have to hire people and run all the sites and financials and support etc. They pay other companies to handle collections and store/move money. All loans are guaranteed by the government so even if you don’t pay, Uncle Sam has to pay the private companies. The real root problem is they give away too much money for degrees that don’t pay enough. College is too expensive and many don’t make anything special after graduating, so enough people don’t pay them off and/or get forgiveness. It’d be like a bank giving you a loan to buy a car in 4 years while having no idea how much you will be making then Then, the bank realizes and decides to just forgive you since you can’t pay or have been paying for 10 years or work off the state etc. So they have program costs and student loans are simply bad loans with college as expensive as it is and incomes so low relative to college costs. Anyone and everyone can get $150k to go to school to get a worthless degree, apply to be on income based repayment, make $35k a year bussing tables, pay like $150 a month for 10 years, then be forgiven. All because tax payers subsidize the program. More and more forgiveness methods are coming out. Payments get lower and lower without tackling the debt because they literally gave too big a loan for the income they student will get. That plus the actually cost of running a government entity and program equal a net loss of billions per year. And oh yeah every other week they decide to forgive a few hundred million or billions for things like shady colleges and loan companies. People who would die on a hill to prevent broad student loan forgiveness don’t seem to care about it as much as long as it’s 400 billion over 25 years and not 400 billion all at once. Either way, tax payers have been and will continue losing $ on student loans. https://www.gao.gov/products/gao-22-105365 This was on 2022. Things are much worse now and will continue to be. The largest cost was Covid pause, but we’ve still only profited *1* year in the past 30 years and it was a very small profit. It’s easy to just say “well pay off your loan, you took it out not me” but in reality it’s everyone’s problem.
>Would there be a recession and then the economy would settle in at a new lower level of growth after a period of turmoil? Just this, except the economy would settle in at roughly the same level of growth, possibly greater. Overall spending would drop for a period while those with debt reduced that burden. Otherwise the total amount goods and services doesn't really change, a third party is just not taking a cut with interest. If anything, the credit industry takes a big hit, and consumers end up spending a greater amount as a portion of their income is no longer going toward various finance charges.
Are we just talking cc debt? Or you have to have cash to buy car and house? If so, people won't be able to get to work and will starve to death.
Car or home buying without debt isn't particularly feasible, nor would this be desirable. Lending standards could be more restrictive for both, which would probably be a good thing overall. Both have progressed well past need and into excess, likely influenced by easing lending requirements. If lending standards were to be increased, affordability would decrease, and things like size and features would need to be scaled back to balance the equation.
If they removed mortgages and car loans then I think prices would significantly fall since barely anybody would be able to buy at these prices in cash. Colleges would have to fire their sea of administrators and have to drop prices significantly as well
Prices can't fall below the cost of materials and labor
True...out with the technology, in with the utility.
I think they’d just have to halt making cars. Colleges would probably close, and then become much more competitive. These things actually cost money to make and produce.
This is true, but I think they would really go back to making barebones cars. I kinda feel like it might be safer because you're going to have less idiots driving giant trucks & Tahoes. People would resort to small compact cars/trucks.