[FoRK] Another take on deficits, employment, etc.

Stephen D. Williams sdw at lig.net
Sun Mar 21 14:20:20 PST 2004


Going into debt is justified any time the future value of money is less 
than the current value of money, and you have a reasonable assurance of 
continued income.
Additionally, it makes sense for long term assets which then become pay 
as you go. (Cars, houses, production.)

For instance, I have no problem going into debt while my children are at 
home since those are key years to mold, educate, videotape, photograph, 
and otherwise make use of somewhat expensive (at the time) resources. 
When they are grown, my budget changes so much that paying off debt 
isn't a big deal.

Likewise, investing in your own business persuits generally involves 
going into debt, either unsecured on your own or secured through 
VC/Angel arrangements.

Similarly, saving does not make sense for the young unless they are 
pretty sure that they'll always have menial jobs/income and have to make 
a very small marginal income percentage work out in retirement. Anyone 
who reasonably expects to grow their income should only save to the 
extent necessary to weather unexpected events so that they maintain 
servicable credit rating. The present value of money when you are making 
20K and have little left over is much worse than when you have two 
incomes that are multiples of that. In fact, it is likely that from a 
life experience and dollar valuation point of view, it makes sense for 
some people to go into debt as much as they can manage to prepare for 
their career and get certain experiences under their belt.

You could definitely argue that those in the US are more mature in this 
point of view than the bulk of Chinese and possibly Japanese, though 
their avoidance of this strategy may be more a matter of lack of 
opportunity.

I periodically pay off all my debt, which has always been minor prior to 
the .COM survival period, but I have a fairly clear formula for 
comparing saving vs. investing in business ideas, 
self-education/preparation/tools, and family. I've learned a lot of 
lessons, but putting my money in a mattress isn't one of them. Buying a 
lot of knowledge (books, etc.) and tools (computers, software, etc.), 
even when working for a company I don't own, has paid off enough to 
compensate for numerous dead-ends and other curiosities.

All I'm saying really is that complaining about lack of savings is a 
shallow statement without deep analysis of strategy, success, and 
benefits of alternative paths.

sdw

Russell Turpin wrote:

>> An old Japanese rerun
>> Alan Reynolds
>
>
> In my mind, there is no doubt that
> productivity is good. And I tend not
> to worry too much about the trade
> debt. However, I do worry about
> debts that this article does not
> much address, that combined are
> now at record levels relative to
> GDP: government, corporate, and
> personal. Those are especially
> worrisome given that the boomers
> are about to retire. Increasing
> productivity requires investment,
> and we may have traded much of
> our ability to invest down the road
> for the need to pay off debt.
>
> The local paper had three
> interesting real estate articles
> this week: (a) sellers of existing
> homes are having difficulty
> competing against the incentives
> being offered by builders of spec
> homes, (b) record numbers of
> mortgage holders are defaulting,
> and (c) larger numbers of new
> buyers are taking ARMs, even
> though interest rates are at
> record lows. In my view, a house
> is one of the few things that
> justifies an individual going into
> debt. But even here, these are
> worrisome trends.
>
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-- 
swilliams at hpti.com http://www.hpti.com  Personal: sdw at lig.net http://sdw.st
Stephen D. Williams 703-724-0118W 703-995-0407Fax 20147-4622 AIM: sdw

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