Why do Americans pretend they're not broke when most Americans are in debt?
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I borrow $1000, assuring you I can pay you back because I have $5000 worth of stock.
A few years later, I borrow $5000, assuring you I can pay you back because I have $10000 worth of stock (it’s not more stock, it’s just worth more now). I use that $5000 to pay off the $1000 debt plus interest, and then have some left over.
Few years later, I borrow $10000, assuring you I can pay you back because I have $50,000 worth of stock. I use that $10000 to pay off the $5000 debt plus interest and then have some leftover.
Repeat as necessary. The bank does eventually get their money (when you die or are for some reason forced to sell, paying off the debt with cash rather than promises). To the bank this is an investment. To you, it’s a way to get cash without having to actually sell your stocks, avoiding taxes, and letting your value continue to skyrocket.
Okay. Thanks. That makes sense.
I guess the cycle continues if you will the stock to your children. So it could be decades until anyone pays taxes.
And if the stock tanks, then I guess you declare bankruptcy.
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In debt doesn’t mean broke. People with a mortgage that they are easily paying off have debt. Millionaires and billionaires have millions and billions in debt. Debt itself isn’t bad. Debt can be good.
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Can you provide an example? I'm not sure I get how that works out in their favor. In my view, paying debt with more debt is a terrible mistake and will get you in financial trouble. But I get that they have far more assets than I do. I just don't quite see where it doesn't go wrong.
Do they not have to pay the principle?
wrote last edited by [email protected]Other reply was good.
To answer your question, you can borrow against equity tied up in assets without down payment. For example, if you have a house you can borrow against the value less any mortgage up to some percent of the total value. In my situation i can borrow up to 60% of the value of a house.
Down payments are for purchasing assets where the purchased asset will act as collateral. The idea is that the bank walks away with something if you immediately fail to pay on debts.
Stocks can act as equity assets in a similar way as the house. Equity loans generally have relatively low interest.
As a side note, this is all bullshit, interest is evil, and the system should be burnt to the ground and billionaires rotisseried over the coals for dinner.
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who's pretending they aren't broke?
wrote last edited by [email protected]Many US-americans.
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I don't know anyone pretending they aren't broke in America...I know a lot of good people struggling paycheck to paycheck and that's it. I love how Lemmy has become this echo chamber of hate for Americans when y'all are just as fucked in Europe and other countries too with so many similar or different issues. Imagine a little compassion for all people rather than assuming "America bad because America". Just so incredibly sad and stupid to see how dumb so many people are.. that kind of thought process is exactly the same type of people that vote for trump that have this same attitude about "insert race or country here". Y'all need a reality check, yesterday...
wrote last edited by [email protected]when y’all are just as fucked in Europe
I'm sorry, is this some joke I'm too publicly health insured and 6 weeks of paid holidays by law and so on to understand?
Perhaps you can explain it to me while my children aren't being shot at.
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In debt doesn’t mean broke. People with a mortgage that they are easily paying off have debt. Millionaires and billionaires have millions and billions in debt. Debt itself isn’t bad. Debt can be good.
The average American is living paycheck to paycheck with bad, high interest debt and killer monthly minimums. Many people roll their underwater car loan into a new underwater car loan. The housing market is taking a turn.
People are mostly broke.
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The average American is living paycheck to paycheck with bad, high interest debt and killer monthly minimums. Many people roll their underwater car loan into a new underwater car loan. The housing market is taking a turn.
People are mostly broke.
wrote last edited by [email protected]The point is that being in debt isn’t the same as being broke and living paycheque to paycheque. Rich people have more debt than broke people because banks etc are far more willing to give rich people debt since they can actually pay it back.
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It’s part of our culture. It dates back to when America was new. Plantation owners wanted to pretend we had a rich and powerful economy and history and culture. They made everything pristine and gaudy and exp wove looking but there was no substance. Look at the architectural decisions made in plantation houses and how the elements are still used in homes today.
We pretend we are better than we really are.
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In debt doesn’t mean broke. People with a mortgage that they are easily paying off have debt. Millionaires and billionaires have millions and billions in debt. Debt itself isn’t bad. Debt can be good.
Just a small correction there: debt can never be good.
But debt can be necessary, but that is only because some financial institutions have made it so, because many of them make their money from peoples debt.
So they spread the myth that debt is good, despite the fact that the world would be a far better place without debt.
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when y’all are just as fucked in Europe
I'm sorry, is this some joke I'm too publicly health insured and 6 weeks of paid holidays by law and so on to understand?
Perhaps you can explain it to me while my children aren't being shot at.
Are you pretending that no one is broke in countries that have mandatory paid leave and “free” public health systems? As someone who lives in one of those countries myself I can, with 100% certainty, say you’re incredibly wrong.
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It's debt regardless of whether or not one pays interest. Debt isn't linked to interest. Just means that you have an obligation to pay money to someone.
EDIT: Though in fairness, if one never actually uses a credit card at all, then one never takes out debt, so I suppose it's probably better to say "if one has a credit card that one uses".
EDIT2: Though all this is not to diminish your point that not carrying credit card debt from month to month is generally a pretty good rule to live by.
wrote last edited by [email protected]Here in Australia if you have a credit card with an outstanding balance of $0 with a maximum limit of $10k, that actually acts as $10k of debt when you go to take out any loans etc.
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Just a small correction there: debt can never be good.
But debt can be necessary, but that is only because some financial institutions have made it so, because many of them make their money from peoples debt.
So they spread the myth that debt is good, despite the fact that the world would be a far better place without debt.
No, debt can be good. If you’re making more money from an asset than the interest on the loan used to buy that asset, it’s good debt.
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No, debt can be good. If you’re making more money from an asset than the interest on the loan used to buy that asset, it’s good debt.
Good for who?
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The average American is living paycheck to paycheck with bad, high interest debt and killer monthly minimums. Many people roll their underwater car loan into a new underwater car loan. The housing market is taking a turn.
People are mostly broke.
Based on statistical average, or based on your imagination?
I get that we say this culturally, and it's common. But it's not that simple.
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I shop with credit cards that give me 2-5% back on purchases. I pay off my balance every month and have never paid one penny in interest or penalties in over a decade. My credit cards therefore pay ~$1,500/year tax free.
I don't really have anything to add as this is pretty much all spot on to how the wealthy live, but on this one I'd like to point out that you're not actually making money - you're just taking back part of the money that you already paid. That money isn't paid by the credit card companies, they'd never be dumb enough to leave money on the table like that. They pay it through increased transaction fees for the businesses, who eat the extra cost through higher prices. There are states that do something similar with their recycling programs. They give you 5 cents per bottle you recycle at the center, but you paid a 5 cent bottle deposit when you bought them at the store. You're not making any money, or even making back some of what you paid the store. You're just getting your deposit back.
Maybe you somehow reduce your taxes by cycling that money through a cash back program? I'm not well versed on finances, so I won't even try to theorize on that, but it certainly isn't free money or something.
Yes, the credit card spending is technically a rebate, hence why it is tax free. However, I am going to purchase an identical basket of goods and services whether or not I use credit, so it is functionally identical.
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Good for who?
For the person holding the debt.
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Larry Ellison likes controlling Oracle and being a billionaire. Rather than selling stock of Oracle to fund his lifestyle, he instead borrows against the value of the stock. As Oracle appreciated, he got to keep the gains he doesn't trigger capital gains taxes.
I never really understood this. He still has to pay the loan, and he isn’t doing that with his symbolic $1/year salary. What part am I missing?
As I understand it, one way is to just borrow again against similar stock. He borrows against stock bundle A for a while, and when that loan comes due, repays with a fresh loan against stock bundle B. A and B can be the same amount of stock, but as long as the line goes up, the loan against B more than repays the loan against stock A.
There's intricacies and details in the process, but that's how I understand the basic process goes.
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Who's pretending?
We're all broke. Unless you're a boomer trying to sell a $0.50 house you bought in the 50s you paid for on a gas station cashier salary. They're ok for the moment. But even a lot of them are going broke now too. Highest demographic of newly homeless last I heard.
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Good for who?
Rich people always say never to use your own money to start a business.
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This post did not contain any content.wrote last edited by [email protected]
The US is big on wealth inequality, like most third-world countries. Yeah, lots of people are broke, but lots of people are also making 200k/year. Overall we're definitely struggling, but that doesn't mean everyone is struggling.
Lemmy also leans both older and into the tech demographic, which tend to be higher paid.
