In a post yesterday, I mentioned about the interest on 50,000 dollars in a savings account was attracting a measly $250 interest. Pretty much, everything is geared towards spending, not saving now - but what this effectively translates into with the culture we have is, saddling ourselves with even more debt.
When interest rates a low, people can borrow more money for things like a house or, use their credit card without too much guilt - the problem is that interest rates are going to affect the debt over time, so the longer the loan is going to be for, the greater the chance that not only that rates will increase (they are at their lowest point now), but all kinds of other things can happen in the meantime. For example, buying a dream home with the maximum loan might seem like a good deal at these rates, but for the next 25 years?
I would suspect that a lot of people are taking advantage of the loans and even perhaps (like me) collaring their interest (I have a 10 year collar - 9.25 left) in an attempt to mitigate the risk. but, a house loan is generally a very long term deal, so one has to think about the entire length of the loan and whether it is serviceable under various conditions - like unemployment.
This is a chart of the interest rates in Australia for the last 30 years.
While not yet a teen, I remember that slope at the start and how my parents had to take out a second mortgage on the house in order to survive. Paying around 18% interest on a house loan is crazy. But, this is the last 30 years, which is about how long a house loan is these days. So, interest rates are zero-ish - what are the chances that they will go significantly down, or significantly up from here? And as said, in the next 30 years, what "unforeseen circumstance might you face?
When my parents had a house, jobs were plentiful and they were the kinds of things that could still be held for a lifetime. Those days are largely gone and with automation and AI on the rise, jobs are going to become more scarce. Yet, we do not look that far into the future for ourselves, we are the kinds of people who use the credit card this month thinking that we can pay it off next, even though there will be nothing extra coming - just the same old paycheck that left us short this month. A bite at time, we eat our way into debt.
And then, disaster strikes, we lose our job, our partner gets ill, the car breaks down or ... *there is always something that arrives to take another nibble on the debt biscuit and we start to fall behind, further and further.
The thing is, that banks can afford to give away money now, as they predict that they will still be here in a few decades time, doing what they have always done. One of the first moves the banks made was offer to reduce the financial burden on us all by offering that we only pay the interest, not the principle. this way, we had a little extra to buy pandemic toilet paper, and that will just get tacked onto the length of our loan - making a 30 year loan, a 31 year loan - or longer as the case may be.
What this effectively does is gets the banks the money they would have got anyway (the interest) and extend the loan into what they will probably rightly assume is going to be a higher interest rate later. Why have people pay off their houses when interest rates are low, when they can be paid off when they are high and the bank makes more money? These are debts and "mortgage" literally means engaged until death. Banks don't mind waiting, they will get their money regardless.
On a tangent, this is something that a lot of people don't seem to recognize when it comes to corporations - is that while individuals will face various forms of inheritance tax, corporations are entities will pretty much all the same rights as a human, but will never die, meaning they will never have to pass anything down, never have to bequeath - never have to distribute their held wealth. When they do collapse, they are assimilated by another corporation.
So, the problem is that consumer spending is up, but what people are spending their money on isn't going to generate them value over likely, any period of time, as it depreciates in value - things like cars and TVs, clothes and of course, all the various on-demand services that don't depreciate, they are valueless once consumed. While this makes an irrelevant statistic like GDP look good for a time, eventually the chickens come home to roost and the money dries up - but the debt remains. What then?
Saddled with debt, diminished job opportunity and reduced ability for governments to act as they no longer have access to as much tax revenue as companies (who do not need as many employees) increase their valuable holdings and do their banking elsewhere, there are going to be a huge amount of people who just can't make ends meet and it seems, the only trick up the sleeve of governments to handle this is, to print more money to make people feel rich again. Inflation of this kind is a problem.
I have no control over what people spend their money on or what governments do, but I consider holding cash to be increasingly risky, especially considering there can be things like "bail-ins" where bank accounts are emptied to pay debt will start. I just got a comment saying how in their country, the banks now have capped how much people are allowed to take out of their bank each week - I take this as a good sign not to have money in the bank, but it doesn't mean it has to be spent frivolously. I think that anyone who is considering that the collapse is coming, should consider stacking something other than fiat. '
To finish with - based on the article of mine I linked on entry, there was a comment saying that with some diligence, a person could earn more than that 250 dollars on LEO, a month instead of a year - starting from zero. Yep, it would take some work to get consistency, but it is possible.
But, with a little buy-in...
50K dollars in a bank to get 250 dollars in interest earnings is ridiculous. My Hive account is worth about 20K and with the 150K I am curating with, I collect about 1200 HIVE tokens, which is about 140 dollars worth a month. With 50K, it would be about 350 dollars a month worth (at these prices) - or the same 50K that some people seem to think is better in their bank, is earning 4200 dollars a year on Hive - at these prices. This is 16x more than the interest rate offered by their savings account.
Now, this is riskier of course, but to get the same 250 (things remaining equal for a year), they would need about 22,000 HIVE staked and voting, which is about 2500 dollars. So, for 5% of their current 50K savings, they can collect the same interest earning that the other 95% will attract. Though, I am hoping that a year down the track from here, we won't be "all things remaining equal" and instead be, this shit is going insane!
The world economy is changing, as is the world of personal finance. For the first time in forever, we have access to financial vehicles that used to be restricted to the wealthy only and new vehicles that didn't exist a decade ago. With the technology we carry in in our pockets, we are able to connect, earn and transact globally without having to go through a middleman financial institution gateway. Thirty years ago, this would have seemed impossible, but the real question is going to be;
What will happen in the next thirty years?
I have a house loan. I am in debt.
I am also in crypto.
Taraz
[ Gen1: Hive ]