And if your parents don't have enough money you are what? Fucked?
The majority of people can't handle credit? Where do you come up with that? Certaintly a good percentage can't handle credit, but some percentage of the people in college go on to be alcoholics and the rest don't binge drink that way.
The real solution is to just make it harder for irresponsible people to get a loan. You should have to put 20% down on a house, not 0. You should have to prove income, you should have to have a good credit score. You shouldn't punish me by saying no loans just because my parents couldn't pay for college when today I have my loans paid off and I'm almost to a 20% down payment and I have no credit card debt anymore, but all of that debt enabled me to get where I am today.
Maybe you're missing the bigger picture: no one would have enough money at today's prices. College costs would have to come down because very few people can afford to pay for school. House prices would have to come down because no one could afford them.
In the 1940s people didn't take out home loans like they do today, and home prices were significantly lower. In 2000, people were paying 4 times the adjusted price of a home was according to census.gov (http://www.census.gov/hhes/www/housing/census/historic/value...).
> The majority of people can't handle credit.
I stand by that. The average debt of credit card holders is over $16,000 dollars (excluding mortgage) (http://www.creditcards.com/credit-card-news/credit-card-indu...). 55% of Americans with credit cards don't pay off their balance monthly. That's the majority of credit card holders who can't handle credit, and I doubt they have $16,000 around the pay off their balance. According to NYT (http://www.nytimes.com/interactive/2008/07/20/business/20deb...) the American's will save, on average, $392 this year. How are you supposed to repay $16,000 in debt when you can only save $392 per year? It would take 40 years assuming interest wasn't collected on the principal amount.
Your idea is horrifyingly out of touch with economic realities that it is laughable to say I'm out of touch with the big picture. I understand that people have credit card debt but to say no debt allowed in the country at all is just plain stupid.
You are basically arguing that massive across the board deflation of every good in the country and literaly putting every single person underwater on their mortgage is a GOOD thing. If house prices have to fall to the levels you want, everyone who owns a home now would lose so much money that the great depression would look like a cakewalk. Nearly every person with a mortgage would be bankrupt.
So this grand idea is to prevent a repeat of this temporary 50% reduction in our investments due to 5% of the people in the country defaulting on their mortgage? What?
Not to mention anyone that has a pile of cash today (i.e. those that are old enough to have paid off a mortgage and had the advantage of credit in their youth) would be able to outspend everyone else. So we would become a society where inheriting your parents wealth would out weight anything else you can do. Sounds very American.
I'm not quite so extreme as Hohle, but I'd really like to see some reduction in the use of consumer credit.
The way my econ classes normally explained credit went like this: You have a businessman or entrepreneur who spots an opportunity where, if he just had a little money now, he could make more money in the future. So he takes out a loan, makes the investment, reaps the profit, and then pays the interest on the loan (and the principal, eventually) out of those profits. It only makes economic sense to take out that loan if you can expect to make more in additional profits than the cost of capital.
Consumer credit throws a giant whoopee cushion into that system, because here people are taking out loans with no expectation of making a profit from them. They just see "free money!" and don't realize that they end up paying far more in the long run. The result is a sort of neo-feudalism, where the credit card companies "own" their customers because of their spendthrift ways, and then extract "rents" (interest) on the money owed them. The additional cash in the system drives up prices, even for people who don't max out their credit cards, and so they either suffer reduced living standards or have to take out debt of their own to compete.
And many consumers don't even intend to pay back the principal. They just keep maxing out their cards as long as the credit card companies will let them. The companies figure a certain portion of customers will default, and build that into the interest rate they charge. But that makes the system highly unstable, because if default rates edge up, they're not just out the interest, they're out the accumulated principal as well.
I think the debt-based economic system today is sick. It's basically a big Ponzi scheme, and it's bound to collapse eventually. I don't think credit itself is bad, but when people take out loans with no intention of paying back the principal, it's not credit anymore. It's just economic mayhem.
This is like my personal rule. I try to avoid credit and loan, unless 1) I really need it(emergency etc) 2) it makes me money(eg. a business opportunity 3) its saves me money(eg. house loan(which isn't always the case)).
But most people seem to take credit and loan just because they _want_ something, and just raise their standard of living on money they don't really have, and hurting their future wealth.
Your idea is horrifyingly out of touch with economic realities that it is laughable to say I'm out of touch with the big picture.
Usually it worries me when users say such harsh things to one another, but in this case krschultz is right. This whole thread is surreal. Economies need debt to function.
There are good arguments for strong property rights in Latin America for the primary purpose of allowing millions to leverage ownership with debt to finance new ventures.
http://bit.ly/DeSoto
The majority of people can't handle credit? Where do you come up with that? Certaintly a good percentage can't handle credit, but some percentage of the people in college go on to be alcoholics and the rest don't binge drink that way.
The real solution is to just make it harder for irresponsible people to get a loan. You should have to put 20% down on a house, not 0. You should have to prove income, you should have to have a good credit score. You shouldn't punish me by saying no loans just because my parents couldn't pay for college when today I have my loans paid off and I'm almost to a 20% down payment and I have no credit card debt anymore, but all of that debt enabled me to get where I am today.