Is our debt what we want to leave to our children as their i

You seem to be missing the point. The fact that gain might require the acceptance of necessary evil does not mean that it alone isn’t evil. The total is acceptable because the good outweighs the evil. But the evil portion is still the evil portion. One would have been better off if the evil was not there and yet the good still was. And in this example, “debt” versus gain, is the “evil”.

Let me put it another way, to more directly address what seems to be the claim of this thread: inherited debt is not prima facie evidence of a wrong to subsequent generations. In many cases the best way to generate value is to take on debt, so the existence of debt can also be evidence of value creation. Indeed, the absence of debt will often be a sign of bad management and under-performance.

The suggestion in this thread is that e.g. the existence of the national debt is evidence that one generation is leaving less to subsequent generations than it might have. But that ignores the fact that debt is generated in exchange for something else, and that something else will often be worth more and generate more value than the debt generates in liabilities.

It all depends upon the goal or purpose. If your purpose is to enslave the entire populations, especially the upcoming youth, then certainly, debt is a wonderful, “god-given” blessing to enrichment and glory.

He is talking about usury and its enslaving residue. Usury is teasing with the notion of personal temporary progress while, with the unseen hand, robbing the future of any hope. It is largely the foundation of modern day Judaism and the old Christian “Devil” - teasing nations into eventual poverty, enslavement, and destitution.

If you owe 200k on a 1mil house mortgage then you don’t own the house, the bank does.

James, caricature is a weak form of argument, and even if it succeeds rhetorically, it does not help to discover truth.

That depends on the state, but even where the bank is held to own it, they can only force a sale for market price and have to give you what’s left over after they take what they’re owed. In any jurisdiction, you’re $800k in the black.

Not nearly as much as the fear of accepting the truth.

Each generation has a choice:

  1. They can avoid passing debt on to the next generation, but that will mean having less cash to invest.
  2. They can pass debt to the next generation, and invest the cash.

If the interest on the debt is less than the expected return on the investment, choosing option 1 will mean choosing to give the next generation less. True?

I understand what you are saying.

It does not apply to the hardship we are passing up to our children.

The house with a mortgage you are giving your children has so much damage that needs repair that they will have the debt you give them plus they will have to get another mortgage for the repairs to bring it to a livable or marketable condition. That places the house out of the market and they will have just a debt without a house when they sell it.

Regards
DL

They have control of the sale, but if they sell it, you get 800k and they get 200k, so it can be said that the bank only owns 1/5 while the other party owns 4/5. Right?

Regards
DL

Oops. I said the same basic thing above before seeing your reply.

Great minds etc.

Regards
DL

James S Saint

We usually disagree but I think you see what I meant here with Carleas.

Regards
DL

This makes no sense at all but I will see how you respond to what I gave you above.

Regards
DL

I don’t mean to say that it’s not possible to rack up debt with nothing to show for it, but rather that debt itself is not evidence that that’s what’s happened, and it’s not the debt that makes those cases bad.

If I have $100k, and someone offers to sell me magic beans for $100k, it doesn’t matter whether I buy those beans outright or whether I take out a $100k loan to buy those beans: buying the beans is a stupid use of $100k.

The US national debt has been generated for a lot reasons, some better than others. But if we wanted the government to do everything it does without generating debt, that would mean much higher taxes, which would reduce output. On the other hand, we can point to programs that should be cut, but the argument for cutting them isn’t that we shouldn’t be borrowing to pay for them, it’s that we shouldn’t be paying for them at all, they’re magic beans and they’re a foolish use of money, borrowed or otherwise.

But there are other things the government spends money on that are good investments, and a good investment is worth borrowing for if we can borrow cheaply (which we can). What’s the ROI on infrastructure, a legal system, a powerful military, government-funded research, etc? For many of those things, return is positive, so we should borrow when it costs us less than that expected ROI.

Carleas

The bottom line.

Be it government, business or a household, to borrow when you do not have to is not the way to go even if borrowing is cheap.

In terms of the O.P., if I have a farm and will it to my child when only 1o% of the fields are workable, and it would bankrupt the child to bring the rest to usefulness or if he has to pay tax on the 90% that exceeds the return from the 10%, then I am leaving a debt that will negate any gain.

That is what we are doing to our ecology. Shame on us.

Regards
DL

But why? If I can borrow and pay interest at 2%, and I can invest the money and expect a return of 7%, then borrowing will produce a net return, and I should borrow just about as much as I can, until my credit runs out or the return on the marginal dollar falls.

All this shows is that it’s possible to come up with situations where bad investments and debt combine to produce a bad outcome. Again, I don’t deny that. But you seem to deny that debt and good investment will produce a good outcome.

Extending debt as a metaphor to the environment is not the clearest way to think about environmental degradation. Destruction of the environment is the depletion of a finite resource. It can’t be paid back, it regenerates slowly and if we “use” it at a rate faster than it can regenerate it will just collapse. That’s not how a loan works.

Moreover, since loans are actually useful and value-generating, comparing environmental degradation to debt tends to encourage reckless use: if it’s a loan, we can borrow now and pay it back when the loan comes due.

You show why you should not borrow in your own grammar. — “and expect a return of 7%,”

The investment you expect to pay off is an expectation/gamble, and not a certainty.

We expect that our children will be able to clean up the corrupted environment we are leaving them.

We are not certain how many will die needlessly before or even if they can clean it up.

We, as you suggest we should in y9our analogy, should not gamble away their lives.

Regards
DL

Right: we should expect borrowing to produce a better outcome than not borrowing. Given that we can’t know the future, we have to go on what we expect. And going on what we expect means borrowing.

Because when we don’t borrow, we are still taking a different set of risks. Suppose we don’t invest, and keep the money in cash, and the value of the dollar plummets. Or suppose we decide not to borrow to buy a house, and rental prices go way up. Or suppose our expected return would have been enough to pay for an unexpected surgery, and by not borrowing to invest we are left with too little and so we die.

Obviously, if everything goes wrong with a borrow-to-invest scheme, the downside can be significant. And there are plenty of bad and risky investments that it’s not wise to invest in (e.g. magic beans, or Enron). But there are ways to hedge and pick less risky bets. And if you’re borrowing at 2%, the odds of a break-even-or-better outcome on a reasonably safe investment are high (the government currently borrows at ~2% or less).

Borrowing to invest is gambling.

Concerning the u.s. debt, taking out loans at 5% interest to invest in a 7% return, still can lose billions of dollars. Because investments don’t guarantee returns. But credit is always guaranteed, with the exception of forgiveness.

How often do banks forgive loans? Usually death is required.

This too is a misleading metaphor. When you hear “gambling”, you think of casinos and craps and roulette. But in those games, expected returns are negative: over many iterations you should expect to lose money. They’re a bad bet.

Investing has a positive expected return. It’s “gambling” in the sense that the outcome in uncertain and there’s a chance you could lose money, but over many iterations you should expect to gain money. They’re a good bet.

Investing is gambling in the same sense that everything is gambling: anything you buy can be destroyed in a freak accident; any training you get could become obsolete or the market could become saturated or robots could become a viable replacement; any city that you move to could see a slump or a catastrophe; etc. Anything valuable you buy or build can change value. There’s risks in all choices, and you try to make choices with positive expected outcomes. Often, the most positive expected outcome involves investing, and often it involves borrowing to invest.

I agree with the math, but again, there are no guarantees that you will come out ahead and what you want to pass up to your children could be a lot less than what you planed for. Gamble with that all you like but do not gamble with the environment.

Your monetary plan is not really what I wish to discuss. I am here to complain about our self-centeredness and greed that is having us destroy where are children and grandchildren will try to live and breathe.

Regards
DL