Up to the eyeballs

DOUG  By Guest Blogger Doug Rowat
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Personal debt must certainly be the most popular topic of online financial-advice articles.

Googling ‘financial planning’ will produce about as many articles related to debt management as Googling ‘reality TV’ will list members of the Kardashian family.

In other words, personal debt is an overexposed topic in the financial-advice universe.

So overexposed, in fact, that I bet you can already predict the images that accompany these articles: perfect lighting, laptops displaying pie charts, calculators, cups of coffee, maybe suited-up advisors helpfully pointing at something? If only personal debt problems were actually so neat and tidy.

And God as my witness, I wrote the above before my first ‘financial planning’ Google search produced this pic (admittedly, no calculator):

Financial planning articles can be as clichéd as the pics that go with them

Source: Google Images

Unfortunately, we’re also too familiar with the hackneyed debt advice that’s offered by these write-ups: pay off your most expensive debt first, consolidate debt, create a household budget, spend less than you earn, and so on.

However, I want to present the subject of debt in a different way, not by providing another self-evident step-by-step guide to managing it—do your own Google searches for that—but rather by highlighting a few behavioural and attitudinal changes that we can make to better understand and deal with it:

  • View debt objectively through the lens of both the lender and the borrower. For example, one unfair perspective is that lenders are ruthless. Another equally inaccurate viewpoint is that borrowers are deadbeats and should be forced to pay debt at any cost. Naturally, there need to be consequences for failing to pay debt, but be cautious before deciding how severe those consequences should be. If a lender is ALWAYS assured of getting paid back regardless of what it may cost the borrower, then not only will many borrowers be ruined, but the lender, freed of consequences, will become more reckless with their lending. This is how debt crises are born. Similarly, if there are few consequences to the borrower for defaulting on a loan then credit would cease to flow due to an overabundance of caution from lenders. Unsympathetic representations of bankers and lenders are always popular (I’m an English major, so Ebenezer Scrooge and Shylock immediately come to mind). Similarly, depicting borrowers as lazy freeloaders is equally popular, especially today given the amount of CERB money floating around. But in our Covid-19 world, a greater awareness of both the lender’s and borrower’s perspectives is critical to finding a middle ground regarding debt repayment. Consider, for example, which side you favour at the moment between renters and landlords (not dissimilar to a lender-borrower relationship). Is forcing rent payments reasonable? Is a further ban on evictions reasonable?
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  • Be brutally transparent about the cost of your debt. I’m not speaking here of the costs related to more obvious debt burdens—we all know credit cards, for example, have painfully high interest rates. I’m speaking instead of the more subtle ways that we casually ignore debt expense. For example, it’s enjoyable to focus on the appreciation of a house or condo, but few diminish this enjoyable experience by considering the long-term mortgage costs (not to mention the myriad of other costs associated with real estate ownership). A homeowner might, for example, ponder how nice it is that their house has appreciated from $750,000 to, say, $1.25 million over 10 years. What’s far less common is for the same homeowner to subtract the interest. For the record, a 4% interest rate on a $600,000 mortgage over 10 years would’ve shaved this $500,000 ‘profit’ by about $206,000. So, avoid self-delusion: always be forthright regarding the full cost of your debt.
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  • Similar to the point above, strive for self-awareness. It does little good for a financial-advice column, for example, to make the obvious recommendation that an individual pay down their expensive credit card debt first, if that individual hasn’t first personally addressed why it is that they’ve allowed their credit card debt to get so high to begin with. Dealing with debt problems should always start with a consideration of one’s character flaws. Many people suffer from present bias, for example. Present bias occurs when an individual places more value on something they want now versus what it might cost them down the road. Present-biased individuals tend to be impatient and, in a more practical sense, usually make expensive purchases in between pay periods rather than waiting for pay day itself. They also struggle with time-consistent behaviour. You can test such tendencies in simple ways. For example, would you prefer $1,000 now or $1,005 in a week? An impatient person might take the $1,000 now even though the annualized rate of return for waiting a week is actually exceptional. You can also reveal problems with time consistency by reframing the question: would you prefer $1,000 in 52 weeks or $1,005 in 53 weeks. A time-consistent individual would take the same dollar amount in both scenarios. A differing answer to each scenario is actually illogical. Having awareness of one’s illogical or impulsive behaviours is THE critical first step in addressing debt problems. Stanford University researcher Theresa Kuchler highlights as much:

We found that [credit card] users who exhibited a stronger present bias reduced their debt less than users with a less strong bias. Moreover, users who appeared to be aware of their own behaviour managed to stick with their original [debt reduction] plans much better than those who appeared to repeatedly tell themselves they would save more for debt paydown in the future.

So, when considering debt: 1) be open minded to the perspectives of both lenders and borrowers—this helps control resentment and bias towards either side; 2) always make it habit to factor in the cost of your debt—this immediately brings awareness to how debt corrodes wealth accumulation and 3) before following simplistic advice (pay off your credit card debt first, etc.) gain the self-awareness to recognize how your own bad behaviour is contributing to your debt problem—and this, actually, is probably the best first step to solving any problem.

Once you’ve done all of the above, then—and only then—can you start searching for debt-management articles featuring pictures like the one above.

The more laptops, pie charts and cups of coffee the better.

________________________________________________________

Finally, I can’t tell you exactly how long the current US recession will last, and it’s certainly discouraging that the country’s still well entrenched in a Covid-19 second wave with the cold winter months still to come. However, keep perspective. Equity markets have strong momentum, government and central bank stimulus is almost certain to continue and the prospect of an approved vaccine always lies on the horizon. And history has clearly shown that recessions are brief and economic expansions long. It seems impossible to believe some days, but the current recession will end and the economic expansion that comes after, will in all likelihood, last far, far longer:

Length of US economic expansions and recessions

Source: JP Morgan Asset Management. (*data does not include current 2020 recession)
Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

 

93 comments ↓

#1 Scott Richardson on 10.17.20 at 11:21 am

I thought low interest rates were supposed to stimulate the economy. When fools rush in. You all destroyed your futures because you participated in the fake money game.

#2 TurnerNation on 10.17.20 at 11:34 am

How long will this be lasting – the economic and social and cultural destruction?
Best info I recently read is September 2021.
In March this year I read ‘news’ (aka predictive programming) of “No more night clubs until late 2021”.
Gee how’d they ascertain that back then…
Fool me once..
For years those whacky conspiracy theorists told us about some shadowy agenda long planned for the world. Named “21” for year 2021. Haha what did they know.

#3 Irish Stew on 10.17.20 at 11:51 am

Well noted on interest costs incurred ignored when reviewing appreciation of housing.

Thank you for the article.

#4 IHCTD9 on 10.17.20 at 11:52 am

Excellent blog Mr. T, but Canucks by and large aren’t listening.

I’m good and ready for the economic expansion phase to begin!

#5 CJohnC on 10.17.20 at 11:54 am

If a lender is ALWAYS assured of getting paid back regardless of what it may cost the borrower, then not only will many borrowers be ruined, but the lender, freed of consequences, will become more reckless with their lending.
Present bias occurs when an individual places more value on something they want now versus what it might cost them down the road. Present-biased individuals tend to be impatient and, in a more practical sense, usually make expensive purchases in between pay periods rather than waiting for pay day itself.

********
Sounds like T2 and the BOC.

#6 Andrewski on 10.17.20 at 12:01 pm

Excellent points Doug. No sense in someone complaining that their knees, hips, etc hurt while they’ve gotten obese and they’re now waiting for surgery to make them better. Just don’t get fat! Stay out of debt and a person won’t need financial surgery to make them better. For too many, it’s rinse & repeat.

#7 Doug t on 10.17.20 at 12:03 pm

We shall see – I believe the cycle of modern capitalism is ending to be replaced with something far more nefarious- with all of the unbelievable events taking place around the world today how can the world possibly allow a return to the model of “the rich get richer and the poor get poorer” model

#8 Oakville Rocks! on 10.17.20 at 12:21 pm

Interesting perspective as always.

Thanks for the good read, Doug.

#9 Gino on 10.17.20 at 12:26 pm

One thing to note is the severity of recessions. For example your chart shows expansions are longer than recessions which is good. BUT – recessions are deeper in a shorter time frame. Meanwhile the latest 126 month expansion is the slowest in history. Just showing the timeline is irrelevant when you don’t show how much damage a recession does even in a short period it can take away multiple expansions in one swoop.

#10 IHCTD9 on 10.17.20 at 12:28 pm

Make that Mr. R! (Finger memory gets the best of me)

#11 crowdedelevatorfartz on 10.17.20 at 12:29 pm

An interesting summation of debt and debt avoidance.

The amount of people I know that see debt as no big deal are always in debt. Its a way of life. Paying off a debt merely means they can aquire more debt.

Wants vs Needs I suppose

#12 TurnerNation on 10.17.20 at 12:39 pm

Ustabe’s post.

Making more sense now. In WW2 the men from First World countries, of child rearing age were wiped out.
In this WW3 wombs of the First world are the target. Which is why every “top doctor” on the telescreens is female.
Marketing.
Done deal. So many on social media brand themselves as Dog Mom or Fur Baby Mom. The trend is your friend right?

By the way Air Canada’s CEO is quitting next year. Does he know what’s coming. That global control over our feeding, breeding and always, movements/travel.
You must now follow Sept 11th protocols and CV protocols at the airport. That hidden unseen ememy waiting to get ya! Works every time and they know it.
————–
#22 Ustabe on 10.16.20 at 4:01 pm
@Turner Nation.

You are, so far, missing one major component.

M Mouth, do not touch.
E Eyes, do not touch
N Nose, do not touch.

However

W Wash your hands.
O Obey social distance.
M Mask up.
E Exercise.
N No crowding.

Hope this stunning revelation will add clarity to your findings

#13 FreeBird on 10.17.20 at 12:47 pm

Excellent post. Creative math (by omission) when selling a house happens a lot and costs like interest, upgrades etc are left out from net profit. It’s funny. Control your money or it will control you.

If credit card ads were honest (short):

https://youtu.be/v6zgmhsCLnc

#14 Grunt on 10.17.20 at 12:55 pm

And God as my witness… Gone with the Wind.

Doug have you been groveling down on your knees pulling carrots out of fields?

#15 Verbal Kint on 10.17.20 at 1:08 pm

“For example, would you prefer $1,000 now or $1,005 in a week? An impatient person might take the $1,000 now even though the annualized rate of return for waiting a week is actually exceptional.”

There’s an old bit of folk wisdom that says “A bird in the hand is worth far more than 1.005 in the bush.”

These thought experiments are cute, in an idealized world where the prospective creditor is money good and never changes its terms, and the prospective debtor has a free schedule, an ironclad income source with which to secure the loan, and no other debt due between now and next week.

In the real world where borrowing takes place at these rates, things are much more fluid and probabilistic. There’s some great books about this social stratum.

I hope this isn’t too technical or factual to pass Garth’s chicken quarantine…

#16 Interest on 10.17.20 at 1:25 pm

Thanks for the Blog Garth
and thanks for the post Doug

Lets take your house example
…..would’ve shaved this $500,000 ‘profit’ by about $206,000.

But you forgot to add they would have saved $1,000 a month in Rent or $60,000

And then we could argue all the home owners expenses like property taxes and so forth.

I understand and appreciate your thoughts with a simple example, people always forget the cost of interest. but there are so many factors to consider.

More importantly people forget the golden magic of compound interest rates.

Garth has repeated so many times I see him banging his head against the wall why pay off your mortgage at these rates its a gift.

And I would like to say thank you Garth I have been banging my head for years with people who say I am wrong, here’s a quick “simple” personal example.

Five years ago
I could have sold all my investments and reduced my mortgage to $175,000

Going forward five years, my Investments have doubled and my mortgage is lower.

Now I can now pay off my mortgage and still have $50,000 remaining in investments.

Mortgage Interest costs are about $500 per month or $30,000

And for the record I earned an average of 12% a year since I started and my wife and I have $300,000 in TFSA.

Thank you for reading

#17 Broader mind on 10.17.20 at 1:26 pm

Now use 1.75% in your real estate debt calculation. Problem of inflating housing gasbag becomes very obvious. Central banks can’t repair the monster they created.

#18 belly rubs on 10.17.20 at 1:35 pm

Years ago I gave both my kids a little black ledger book. They were 12 and 9 years old. I instructed them to keep track of the money they received on one page and the money they spent on the next page. Their income included birthday money, cash for chores, allowance, etc. Their expenses included bank savings, toys, treats, even loans to friends. The oldest lost motivation quickly and lost his book. The youngest made his reporting a habit, filled the book, and eventually started another.

Years later, the oldest is broke. The youngest is loaded. Part of staying out of debt is maintaining that clear picture of financial “reality”. Evaluate debt honestly and track progress daily. The process can be fun and offers immediate gratification. Bit by bit.

#19 Vanreal on 10.17.20 at 1:55 pm

I think you missed the difference between good debt and bad debt. Good debt makes you money while bad debt costs you money. Buying a house even with a mortgage will make you money over the long term. Particularly with this level of interest rate. Borrowing to invest is another example.

#20 Flemington Park Millionaire on 10.17.20 at 2:12 pm

Awesome article Doug .Cheers !

#21 Dolce Vita on 10.17.20 at 2:14 pm

Thanks for the hopeful message disguised in that very useful chart of yours.

When, oh when? at worst

15 months

or June 2021 (from April this year, inclusive).

Hopefully COVID gets the message and the bug, bugs out.

Now wouldn’t that be great. Earlier, even better.

#22 Broader mind on 10.17.20 at 2:20 pm

If a government applied the same leverage and rates to equities that are available to homes you would see 200X values and never ending appreciation as we see in housing. Remove taxation from equities like housing and see 400X.

#23 Repurchase Disagreement on 10.17.20 at 2:26 pm

Always thought it was interesting how gullible Canadians have been with the trope “Renting is just throwing your money away”, when actually it’s just a legitimate expense, like food costs. In reality it’s interest that is truly throwing away money as it is both a reduction of any capital appreciation, but a lost opportunity cost.

Sadly, Canadians also have adopted the absolutely unscientific belief that any cost (whether it be a tax, or an indirect cost driven by regulation or lost competive advantage) can actually regulate the temperature of the atmosphere. Fool me once, fool me twice!

#24 UmiouiuS on 10.17.20 at 2:33 pm

#18 belly rubs on 10.17.20 at 1:35 pm
“Years later, the oldest is broke. The youngest is loaded. Part of staying out of debt is maintaining that clear picture of financial “reality”. Evaluate debt honestly and track progress daily. The process can be fun and offers immediate gratification. Bit by bit.”
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Bravo. That is a terrific story ..!!
It simply amazes my mind that so many folks don’t think to “track” their revenues & their expenses. Makes a world of difference to how you spend and save.

We tracked manually for years, but when we bought our 1st PC in 1997, a free ‘Money 98’ CD came with, that we still employ to this day, .. everyday.
Am so nervous every time we change computers, that it will load and still work, .. but so far, so good.
Microsoft ended support of their Money series in 2009, but subsequent outcries resulted in their release of a final ‘Sunset’ Edition’, still freely available via this link:

https://www.microsoft.com/enca/download/details.aspx?id=20738

#25 Doug Rowat on 10.17.20 at 2:35 pm

#9 Gino on 10.17.20 at 12:26 pm

One thing to note is the severity of recessions. For example your chart shows expansions are longer than recessions which is good. BUT – recessions are deeper in a shorter time frame….. Just showing the timeline is irrelevant when you don’t show how much damage a recession does even in a short period it can take away multiple expansions in one swoop.

Recessions aren’t always “deeper” and rarely do they wipe out “multiple expansions in one swoop”. Some recessions are very mild.

My only point was to show the average length of both, so, in that respect, relevant.

–Doug

#26 Doug Rowat on 10.17.20 at 2:51 pm

#16 Interest on 10.17.20 at 1:25 pm

Thanks for the Blog Garth
and thanks for the post Doug

Lets take your house example
…..would’ve shaved this $500,000 ‘profit’ by about $206,000.

But you forgot to add they would have saved $1,000 a month in Rent or $60,000….

Cute that you think this was a rent-versus-own blog post. I’m saying force yourself to factor in the cost of debt, which many don’t. It’s fine if you still ultimately decide that your house is a good investment.

–Doug

#27 will on 10.17.20 at 2:53 pm

excellent post Doug.

#28 crowdedelevatorfartz on 10.17.20 at 3:04 pm

Hmmm
Things are “heating up” in the Nova Scotia lobster protests.

https://www.thechronicleherald.ca/news/local/man-in-hospital-after-overnight-fire-destroys-middle-west-pubnico-lobster-pound-510450/

The Federal Fisheries Minister waffles……

The aboriginal Fishermen start fishing several weeks before the non aboriginal fishing season opens…..

Politicians wring their hands over the political incorrectness of it all…….

Everyone demands “Somebody better DO something!”

This isnt over by a long shot

#29 Doug Rowat on 10.17.20 at 3:10 pm

#15 Verbal Kint on 10.17.20 at 1:08 pm

“For example, would you prefer $1,000 now or $1,005 in a week? An impatient person might take the $1,000 now even though the annualized rate of return for waiting a week is actually exceptional.”

There’s an old bit of folk wisdom that says “A bird in the hand is worth far more than 1.005 in the bush.”

These thought experiments are cute, in an idealized world where the prospective creditor is money good and never changes its terms, and the prospective debtor has a free schedule, an ironclad income source with which to secure the loan, and no other debt due between now and next week.

I bet you take all the piss out of a kid’s knock-knock joke.

Yes, time is risk, so there’s not necessarily a right or wrong answer to the lesser or greater dollar amount. However, the main point is that the dollar amount should remain the SAME for both questions.

–Doug

#30 SoggyShorts on 10.17.20 at 3:15 pm

#7 Doug t on 10.17.20 at 12:03 pm
We shall see – I believe the cycle of modern capitalism is ending to be replaced with something far more nefarious- with all of the unbelievable events taking place around the world today how can the world possibly allow a return to the model of “the rich get richer and the poor get poorer” model

******************************
Since wealth = influence&power, how can it not?

A small, token change? Sure, but unless there’s a huge run on torches and pitchforks I don’t see massive systemic change on the horizon.

#31 Ponzius Pilatus on 10.17.20 at 3:37 pm

#18 belly rubs on 10.17.20 at 1:35 pm
Years ago I gave both my kids a little black ledger book. They were 12 and 9 years old. I instructed them to keep track of the money they received on one page and the money they spent on the next page. Their income included birthday money, cash for chores, allowance, etc. Their expenses included bank savings, toys, treats, even loans to friends. The oldest lost motivation quickly and lost his book. The youngest made his reporting a habit, filled the book, and eventually started another.

Years later, the oldest is broke. The youngest is loaded. Part of staying out of debt is maintaining that clear picture of financial “reality”. Evaluate debt honestly and track progress daily. The process can be fun and offers immediate gratification. Bit by bit.
———–
The same story plays out in most families.
Too early to judge which kid gonna come out ahead in the long run.
I speak from experience.

#32 Ponzius Pilatus on 10.17.20 at 3:46 pm

No doubt we have learned from the past.
Recessions are shorter and less severe and expansions are longer.
The question however is: who is/was the main beneficiary?
I for one, don’t feel much richer than I was about 20 years ago.

#33 NSNG on 10.17.20 at 3:48 pm

Much debt is not tax-deductible so you are paying it with after-tax dollars (like credit card debt). That means your ROI on the debt is often a better and safer return than investing. For every dollar you pay off, you are saving 5%, 10%, and sometimes more in interest expense with those after-tax dollars.

It’s very difficult to get those types of returns in the market.

Another thing to think about is that the price of debt is baked into the price of everything since it is very difficult to buy a home, open a business, get a car or even get a school loan these days without going cap-in-hand to the local shark, I mean, the banker.

Since the price of debt is baked into everything, then all wages are paid with a bonus debt premium as well. People have and need to pay off the debt so they need to be paid more. Thus, if you are debt-free, you are receiving a wage that has a debt premium built in. That is bonus earnings for you.

#34 Bill on 10.17.20 at 3:54 pm

I’ve run millions through my cards and never paid a dime in int. The CC companies hate people like us. The call us “dead beats”. There was a 20/20 show years ago on investigating these companies and no CEO would go on record for anything. The spread in int rates on card vs the centrals is mind boggling. Burn your cards and get an overdraft or pay them off every month. If you cant it just mean you cant afford what you are buying..
CC Comps. = Scam…

#35 Flop... on 10.17.20 at 4:01 pm

Hey WULLY, did you see who made it to the Australian football grand final?

Your beloved Geelong Cats.

That’s bad news for this canine blog.

The Dogs got knocked out, so it is Tigers versus Cats.

Big cat, little cat…

M46BC

——————

P.S. Ponzi still doing research to answer your question as to why I like visiting The United States.

Could take a few decades.

What you see on t.v versus actual experiences.

Big country, little communities…

M46BC

——————–

P.p.s

Bought some Australian oranges today.

I’ve always had good luck with them.

Crowdie said they’re crap.

Thems fighting words.

If nothing else they will test my tooth filling.

We’ll see.

88 cents a pound versus 1.49 a pound.

Big orange, little orange…

M46BC

#36 Barb on 10.17.20 at 4:08 pm

The crap that people spend money on…once, twice, three times a week, so…

Starbucks is planning on selling beer and wine. Apparently it’s getting difficult to sell sober people a $12 cup of coffee.

#37 SoggyShorts on 10.17.20 at 4:25 pm

#34 Bill on 10.17.20 at 3:54 pm
I’ve run millions through my cards and never paid a dime in int. The CC companies hate people like us. The call us “dead beats”.
***********************
Silly post.
If by “millions” you mean at least $2,000,000, then that works out to $30,000-$60,000 in fees that the vedors where you shopped at had to pay to the CC company.
I wish my company had more “deadbeat” customers like you.
/eyeroll

#38 crowdedelevatorfartz on 10.17.20 at 4:52 pm

@#35 Flop
“Bought some Australian oranges today.
I’ve always had good luck with them.
Crowdie said they’re crap.
Thems fighting words.”

++++
You’ll have to stand in line Floppie.
The next batch of oranges I bought were from Souff Effrika.
$6 for 8 oranges , two were mushy within a day …

Souff Effrikaans oranges are also Krep.

#39 millennial 1%er on 10.17.20 at 4:59 pm

Imagine paying interest on a credit card.

– sent from my iPad (purchased by a credit card)

#40 jal on 10.17.20 at 5:01 pm

“… lender is ALWAYS assured of getting paid back”
I want to invest in the BIGGEST lenders because
1. they always get paid back with interest
2. they are too big to fail
3. they know how to make the gov. bail them out.

#41 TurnerNation on 10.17.20 at 5:09 pm

Here it comes. Japan’s post office company is rolling out self driving mail delivery robots into 2021, to
“minimize human contact”. There it is. The real reason for the CV hysteria.
Minimizing human contact means replacement by robot.
Next industrial revolution anyone?

I don’t know anything about medical stuff.
As to ending capitalism and shutting down small business and reprogramming humans especially children into the New System? 1000% planned.

#42 UmiouiuS on 10.17.20 at 5:10 pm

Sorry Doug ..!!

Re my above post #24. The link provided fails.

However, I believe this one WILL work:

USMoneyDlxSunset.exe

#43 Brian Ripley on 10.17.20 at 5:24 pm

2 chart updates with Sept data
TSX indexes:
http://www.chpc.biz/tsx-indexes.html

Bitcoin and Gold vs Real Estate
http://www.chpc.biz/bitcoin-gold–re.html

Expansion and Recession is different for different groups. As noted here before, the bottom 40% of Canadian Households have less than $50,000 of net worth:
http://www.chpc.biz/history-readings/household-net-worth

In the 2007 report from the St. Louis Fed “Economic Effects of the 1918 Influenza Pandemic – Implications for a Modern-day Pandemic” the following is a quote from the introduction:
https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf

“Researchers at the U.S. Centers for Disease Control and Prevention calculate that deaths in the United States could reach 207,000 (it’s 219,000 at Oct 17, 2020) and the initial cost to the economy could approach $166 billion, or roughly 1.5 percent of the GDP. Longrun costs are expected to be much greater. The U.S. Department of Health and Human Services paints a more dire picture—up to 1.9 million dead in the United States and initial economic costs near $200 billion.”

That was projected in 2007.

Now in Sept the OECD projecion is:
http://www.oecd.org/economic-outlook/

“Global outlook less pessimistic, but risks and uncertainty remain high
After collapsing in the first half of the year, economic output recovered swiftly following the easing of measures to contain the COVID-19 pandemic and the initial re-opening of businesses. Policymakers reacted rapidly and massively to buffer the initial blow to incomes and jobs. But the pace of recovery has lost momentum over the summer. Restoring confidence will be crucial to how successfully economies can recover, and for this we need to learn to safely live with the virus.”

From the Oxford University Global Change Data Lab reports in their Sept report:
https://ourworldindata.org/covid-health-economy

“Clearly, many factors have affected the COVID-19 death rate and the shock to the economy beyond the policy decisions made by each government about how to control the spread of the virus. And the full impacts of the pandemic are yet to be seen. But among countries with available GDP data, we do not see any evidence of a trade-off between protecting people’s health and protecting the economy. Rather the relationship we see between the health and economic impacts of the pandemic goes in the opposite direction. As well as saving lives, countries controlling the outbreak effectively may have adopted the best economic strategy too.”

We used to think mask wearing Asians were being over-cautious:

“”One of the most important biological properties that dictates whether a pathogen can be eradicated is that it must only infect humans. SARS-CoV-2, the virus that causes COVID-19, can also infect animals; therefore, eradication of the pathogen will not be possible.” Source: Jessica Atwell, PhD, is an assistant scientist in the Department of International Health of the Johns Hopkins Bloomberg School of Public Health. https://www.globalhealthnow.org/2020-02/coronavirus-expert-reality-check

Mask wearing and social distancing will be part of the new normal in 2021. That’s my projection.

#44 Lambchop on 10.17.20 at 5:41 pm

#38 crowdedelevatorfartz on 10.17.20 at 4:52 pm
@#35 Flop
“Bought some Australian oranges today.
I’ve always had good luck with them.
Crowdie said they’re crap.
Thems fighting words.”

++++
You’ll have to stand in line Floppie.
The next batch of oranges I bought were from Souff Effrika.
$6 for 8 oranges , two were mushy within a day …

Souff Effrikaans oranges are also Krep.

_____________

Best oranges I have yet found are BlueJays from Johnston Farms, San Joaquin valley, California. The big ones, not the little navels. Only available here (BC) in winter months. Worth looking for.

#45 Special Kay on 10.17.20 at 6:26 pm

“Many people suffer from present bias, for example. ”

Thanks for clarifying. I thought present bias was referring to those people who always bought presents for themselves to fill voids in their own lives or make them feel better (at least temporarily), or presents for others in a veiled attempt to win favor or friendship. Usually the person buying the presents is not in a financial position to do so without taking on some form of debt … and the presents are of little or no true value.

#46 JacqueShellacque on 10.17.20 at 6:28 pm

Great topic, Doug. Covering over personal, business, and societal issues with borrowed money may be the single most consequential problem in our society today. Without massive growth, debt today means reduced consumption tomorrow, with absolute certainty. I’m talking at all levels: personal, corporate, government. That means today’s vacation or company expansion or government-funded health care if paid for with borrowed money will mean less of those things in the future. And there are no good ways out. Ultimately I think the least damaging one is to let debtors partly to mostly off the hook (yes, I know that will be unpopular, I’m big on personal responsibility and have no debt myself). My reasoning is this: a more abstract way to look at debt would be as an agreement on future value. For example, a person would borrow 30K to buy a car if they believe the value of what that car will provide them for at least the term of the loan is worth that much as a minimum. Imagine a hypothetical, extreme example where something happened to render cars worthless, say apocalyptic gas prices increases that meant it would cost 1K just to fill the tank, beyond almost everyone’s reach. There is thus a discrepancy between what’s owed and what it’ll be worth, that for practical purposes I believe could not be borne solely by the debtor. Accounting for the inflation that’s almost certainly coming, I see a similarity here. It would be a grave mistake to moralize (as satisfying as that might be) when the consequences of being saddled with debt that can’t be paid back would be so grave to the economy and society: reduced consumption and all its impacts, and worst of all the temptation to print money to make it all go away that would take out the economy too.

#47 cuke and tomato picker on 10.17.20 at 6:53 pm

I have had a credit card for 46 years and never paid any interest. We have three children who are excellent handlers of their money. We have a grandson who is now 13. When he was just learning to talk we needed a glue stick do do crafts so we went to Shoppers Drug Mart to get one as my wife picked one off the shelf he said “IS IT ON SALE?”

#48 Stoph on 10.17.20 at 7:02 pm

Thanks for the post Doug. Reminds me of the saying of being penny wise but pound foolish. Irrational tendencies are easier seen in other people than yourself, I have to think of my wife being frugal how she spends money (good thing) but had no qualms taking an extended maternity leave (which I’m okay with) though it’ll cost 10’s of thousands of dollars.

#49 Why have good credit on 10.17.20 at 7:14 pm

Just a quick note……
Getting a first home is unattainable for most if not all and in my opinion the only reason to have good credit. So here are a few helpful notes:

1.Credit cards are unsecured, hence the high interest rate. So if you can’t pay that’s the risk they take. Even if you have a home they can’t do anything.
Unsecure is unsecure.

2. Don’t ever go bankrupt or do proposals, they are with you forever. If you can’t work out a deal yourself don’t pay …. Not one red cent, if you wait 7 years it all goes away. If you pay anything over those 7 years the clock starts again.

3. If you are going down, go down big, the punishment is the same for $10 as it is for $100,000

4. Make sure to purchase a nice sensible car on a 7 year finance, before you start

Lots of people will not like this post , but it is a cruel world I mean you cant safely mortgage a small home to raise a family.

Remember CMHC will hunt you down until you die if you can’t pay you mortgage and lose your home. Remember this before you jump into the house game.

#50 Pete from St. Cesaire on 10.17.20 at 7:36 pm

My grandmother used to have a saying “you look after the pennies and the dollars will look after themselves”. Well, that might have applied in the olden days but I’ve always warned people that to “spend too much time looking after the pennies will cause the dollars to die of neglect”. I’ve seen many people who spent their life being frugal end up getting wiped out financially due to having spent all of their time and effort looking after the pennies and ignoring the big picture. They get over-confident and believe that their fixation on frugality shields them from all financial dangers.

#51 Stone on 10.17.20 at 7:51 pm

What is this strange thing called debt? I’m really confused. Have I been missing out? I’m feeling angst and FOMO!

Sorry, I can’t relate. I only have a balanced and diversified portfolio that keeps feeding me dividends and interest payments.

As for credit cards, I use mine so that I get cashback. I was told to pay off the balance each month on pain of death and…death…if I didn’t. Never knew you could pay your credit card issuer interest. Sounds super dumb. Like tik tok dumb.

#52 Nonplused on 10.17.20 at 7:51 pm

The main problem with today’s topic is that I doubt Great Fool readers and debt counselling clients overlap very much. This is great advice but other than MilleniumRealist I’m not sure how many readers still need it. Do any of your clients still need it? I mean I did once, and had to learn the hard way, but that was before the internets.

The conversation about present bias is interesting, but couldn’t we just use the word “impulsive”?

The most important part of any household budget is to spend less than you earn. But so many people leave the nest they grew up in with substantial student loans (although nothing like Americans do) that it is often really difficult to do, especially as they enter the workforce at the bottom of the pay scale, lacking experience. And then there is the whole psychological problem of relativity. It is really hard to resist going out for beers with your friends if they are all going. And if they can afford it, how come you can’t? This is also how I came to realize you should never live in a neighborhood where everyone drives an Audi. Your wife won’t be happy with the Corolla for very long. Envy may be one of the seven deadly sins but it is human nature. And “Thou shalt not covet” made the top 10 commandments. It’s for your own good really.

#53 Nonplused on 10.17.20 at 8:29 pm

#7 Doug t on 10.17.20 at 12:03 pm
We shall see – I believe the cycle of modern capitalism is ending to be replaced with something far more nefarious- with all of the unbelievable events taking place around the world today how can the world possibly allow a return to the model of “the rich get richer and the poor get poorer” model

—————————-

Which “poor” are getting “poorer”? The poor in Canada organize their protests on their smartphones and drive to them in their cars. Worldwide extreme poverty has been falling for 20 years until covid.

https://www.worldbank.org/en/topic/poverty/overview#:~:text=The%20global%20extreme%20poverty%20rate,%245.50%20a%20day%20in%202017.

Yes, the rich are getting richer at an astounding rate. But as the one Fed board member argued (can’t remember her name) she wasn’t willing to stop it if the cost was also penalizing all those at the bottom with higher interest rates and a slowing economy.

I think her reasoning is sound. So what if Amazon goes up by $100 and that adds billions to Bezos “net worth”? He can’t spend it, it is just a notional number. Some kid on Robinhood used his CERB money to over-pay for a few of the stocks and then some dolt multiplies Bezos’ total holdings by that last transaction price. It isn’t real, it is notional. It isn’t money until he sells. And then the question is “where does he find a buyer?”

Remember, “mark to market” is set at the margin. It is only when you really have to get out of a large position that you find out what the true value is.

I’m not “rich” by today’s standards. No billions in gold buried in my garden. But compared to how people lived over the last 200,000 years, I’m doing much better than ok. And so are you. In fact I don’t think I could survive going back even to the 1800’s.

Folks, the “wealth gap” is truly astounding, but those are just phoney-baloney numbers. But look at everything we all take for granted now that a king in the 1500’s could not even imagine. Look at your physical reality not the made up math numbers.

To run on and on as I so often do, there is another side to the coin on this “wealth” thing. Look at your TV (or more appropriately “TV’s” as you probably have more than one). How much would a 52″ flat screen HD TV with 150 channels and an HDMI input for your xBox cost in 1970? I’m going to estimate that a rich person in 1970 could have simulated the experience for about $40,000 with a projector. Now, you can get everything you need for $1000 at Costco. You got richer, a lot richer, when you look at the physical world and stop obsessing about phoney-baloney math and numbers made up by Robinhood traders. Some kid in a basement is the root cause of much of the “wealth gap”. If Bezos is forced to sell so he can pay a “wealth tax”, the kid isn’t going to be able to absorb that kind of volume and the price will crash.

#54 KLNR on 10.17.20 at 8:33 pm

@#50 Pete from St. Cesaire on 10.17.20 at 7:36 pm
My grandmother used to have a saying “you look after the pennies and the dollars will look after themselves”. Well, that might have applied in the olden days but I’ve always warned people that to “spend too much time looking after the pennies will cause the dollars to die of neglect”. I’ve seen many people who spent their life being frugal end up getting wiped out financially due to having spent all of their time and effort looking after the pennies and ignoring the big picture.

penny wise, pound foolish as they say.

#55 Nonplused on 10.17.20 at 8:48 pm

#43 Brian Ripley on 10.17.20 at 5:24 pm

Expansion and Recession is different for different groups. As noted here before, the bottom 40% of Canadian Households have less than $50,000 of net worth:
http://www.chpc.biz/history-readings/household-net-worth

—————————–

Brian, love your charts, keep up the good work.

My question is, adjusted for inflation, how much net worth did the bottom 40% have in I don’t know, any year, say 1940? 1850? Numbers probably aren’t available but I bet they didn’t have smartphones.

#56 O caNnABis! on 10.17.20 at 8:55 pm

HAppy aNNiverSARY eVERBUddy!

2 yEARS oF legaL MJ!

ThE besT parT of Our ECONomic growTH noW – up 74%!

https://globalnews.ca/news/7402001/canada-cannabis-industry-turns-two/

#57 Kurt on 10.17.20 at 9:01 pm

“So, when considering debt: 1) be open minded to the perspectives of both lenders and borrowers—this helps control resentment and bias towards either side; 2) always make it habit to factor in the cost of your debt—this immediately brings awareness to how debt corrodes wealth accumulation and 3) before following simplistic advice (pay off your credit card debt first, etc.) gain the self-awareness to recognize how your own bad behaviour is contributing to your debt problem—and this, actually, is probably the best first step to solving any problem.”

F’n A, Doug. This is the heart of debt management.

#58 Ustabe on 10.17.20 at 10:03 pm

The most important part of any household budget is to spend less than you earn.

Nah, that is backwards plus condescending if you are saying it to someone who has asked for advice.

The correct way of putting it is “earn more than you spend.”

Doesn’t matter if that means a paper route after work, delivering pizzas on the weekend, working as a bar porter part time or simply figuring out what it takes to get a raise.

Obviously very few can spend less than they earn in today’s climate but anyone can grab that entry level part time job. And earn a bit more.

#59 crowdedelevatorfartz on 10.17.20 at 10:07 pm

@#50 Pete from St Cesaire
” I’ve seen many people who spent their life being frugal end up getting wiped out financially due to having spent all of their time and effort looking after the pennies and ignoring the big picture.”
++++
Respectfully.
I would say that the VAST majority of people who “watch their pennies” are in far far better financial shape than people who dont…..

#60 Faron on 10.17.20 at 10:13 pm

#38 crowdedelevatorfartz on 10.17.20 at 4:52 pm

@#35 Flop

two were mushy within a day …

Souff Effrikaans oranges are also Krep

Why are you eating oranges in October when to-die-for Okanagan apples are cheaper n dirt? Ya gots scurvy or something?

#61 Donley on 10.17.20 at 10:44 pm

Have you heard of fiat money??? Banks loans are created from nothing. They have NO exposure to bad loans because they created the money from thin air in the first place. Absolute ZERO understanding of our monetary system.

#62 Chester on 10.17.20 at 10:45 pm

#49 Why have good credit

1.Credit cards are unsecured, hence the high interest rate. So if you can’t pay that’s the risk they take. Even if you have a home they can’t do anything.
Unsecure is unsecure.

————————–

Not that I disagree about good credit being fairly useless for many people, your point above is not correct. Banks can and will sue people who default on unsecured credit, if they see they have substantial assets (like a house). It happens fairly often. People with little to no assets on the other hand are considered “judgement proof”.

The reason I know this is I was on the verge of having to default on a lot of unsecured credit in early 2017 (around 25k) and had to figure out what my options were.

In my case, I had zero assets and would have been considered “judgement proof”. However, I ended up having two decent years financially right after that and paid off all the debt just before the fall of 2019.

If not for Covid, my situation would be getting much better, but unfortunately, I only managed to put away around 10k or so before some of my income streams disappeared early in 2020.

Having said that, I’m now debt free for the first time in around 20 years and have a great credit rating, which as you mentioned is fairly useless (to me at least) because I never plan to borrow money again (I’m 55).

Needless to say, I’m totally screwed as far as retirement goes with the tiny amount of money I have, but I feel much better knowing I never had to default on money I borrowed in the past, even though much of it was because of bad luck with life/finances. That’s not anyone else’s problem though. I take responsibility for the choices I made. I know a few people who have defaulted on cc debt, and they got credit again. I just didn’t see myself becoming one of those people.

#63 Kato on 10.17.20 at 10:49 pm

#58 Ustabe on 10.17.20 at 10:03 pm
The most important part of any household budget is to spend less than you earn.

Nah, that is backwards plus condescending if you are saying it to someone who has asked for advice.

The correct way of putting it is “earn more than you spend.”

Doesn’t matter if that means a paper route after work, delivering pizzas on the weekend, working as a bar porter part time or simply figuring out what it takes to get a raise.

Obviously very few can spend less than they earn in today’s climate but anyone can grab that entry level part time job. And earn a bit more.
_______________________________

I don’t know about that. Cancelling Netflix/Cable TV/pricey wireless packages are things I can do immediately, no resumes needed.

Reducing restaurant consumption is going to have better returns than beating up your car slinging pizzas (I’ve tried both). Reducing after-tax spending has a bigger impact than increasing before-tax earning, pound for pound.

Also, right now it might be easier to manage your consumption than grab an entry level job, depending on your location and state of lockdown.

It’s also not either/or. I work two jobs even though my main job pays enough to cover the bills. And I still cancel services I don’t use, or don’t use enough.

I could be wrong, but a lot of people who say they can’t spend less than they earn do it with a Starbucks cup in their hand, speaking into an iPhone.

#64 Paul on 10.17.20 at 11:10 pm

“Look after the nickels and dimes and the dollars will look after themselves.” Eddie Shack, RIP.

#65 Gravy Train on 10.17.20 at 11:12 pm

#52 Nonplused on 10.17.20 at 7:51 pm
“[…] The conversation about present bias is interesting, but couldn’t we just use the word “impulsive”?[…]” Or we could use the word ‘dis-saver’. The life-cycle hypothesis of consumption still holds up.
https://www.investopedia.com/terms/l/life-cycle-hypothesis.asp
https://en.m.wikipedia.org/wiki/Life-cycle_hypothesis

#66 Flop... on 10.17.20 at 11:21 pm

#60 Faron on 10.17.20 at 10:13 pm
#38 crowdedelevatorfartz on 10.17.20 at 4:52 pm

@#35 Flop

two were mushy within a day …

Souff Effrikaans oranges are also Krep

Why are you eating oranges in October when to-die-for Okanagan apples are cheaper n dirt? Ya gots scurvy or something?

//////////////////

The world today.

Has this blog taught you nothing?

I take a banana, apple and orange to work each day for lunch.

Balance and diversification.

You don’t put all of one fruit in your basket…

M46BC

#67 Bosa girl on 10.17.20 at 11:23 pm

Quarantine is when you restrict the movement of sick people.
Tyranny is when you restrict the movement of healthy people.
Stupidity is when you can’t tell the difference.

#68 Nonplused on 10.17.20 at 11:33 pm

#58 Ustabe on 10.17.20 at 10:03 pm
The most important part of any household budget is to spend less than you earn.

Nah, that is backwards plus condescending if you are saying it to someone who has asked for advice.

The correct way of putting it is “earn more than you spend.”

—————————-

I don’t think there is a lot of wisdom in that as they are both the same formula. SpendSpend.

Most people do not have direct control over their earnings, or we would all be millionaires. They do have control over their spending though, to some extent. And we all hope tomorrow will be a better day. A mechanic who makes $30 an hour may hope that one day he will own his own shop like his boss does, but borrowing against that hope is not wise unless it is to buy the shop. Then if it works the money will roll in. But if he has already borrow to “dream to the max” on RV’s and cars, there won’t be anything there to buy a shop. Debt, for most people, is the chain that prevents any possibility of higher earnings. You can’t even buy a lawn tractor and go into the landscaping business if your credit is maxed out.

#69 Nonplused on 10.17.20 at 11:36 pm

Hmm Garth’s thingy misinterpreted my formula. Try it again.

Spend less than you earn is the same as Earn more than you spend.

That should go through without being interpreted as special symbols.

#70 TurnerNation on 10.18.20 at 1:38 am

Slow day replying to my own post:

#2 TurnerNation on 10.17.20 at 11:34 am
How long will this be lasting – the economic and social and cultural destruction?
Best info I recently read is September 2021.
In March this year I read ‘news’ (aka predictive programming) of “No more night clubs until late 2021”.
Gee how’d they ascertain that back then…
Fool me once..

…..,,,,,,,

This same script today. Insiders knew or what?

https://www.yahoo.com/entertainment/stevie-nicks-on-how-she-wrote-dreams-and-not-being-able-to-perform-210813844.html
Yahoo MusicOctober 17, 2020
Stevie Nicks: Well, first of all, last February I had a talk on the phone with my friend Harry Styles — I call him “H” — about when we could perform together again, because I had just sung with him at the Forum, and it was so much fun. And he said to me, in all of his 26-years-old-ness, “Stevie, I think it’s going to be a long time before we can walk onstage again. I don’t think that we will walk onstage again until the end of 2021, and maybe not until 2022.” And now I’m like, “Oh my God, this man is more psychic than I am!” Damn, if he wasn’t right.

#71 Harry Hill on 10.18.20 at 3:34 am

Personal finance advice- spot in. Reason for depression left unsaid. Let’s be clear. Trudeau is killing this country for reasons that do not originate in Canada. Trudeau wants to please every fart brain leftist in the world and he’s willing to sink Canada to do it. Is he bat shit wrong on running the economy into the ground for the benefit flaky pink haired dope smokers, yes he is. So, it doesn’t matter what you save or how. Trudeau is using globalism tactics to kill Canada and you are in his way. Get rid of Trudeau and restart this nations potential and streets will run with milk and honey. With Trudeau the streets are paved with political bullshit.

#72 Wait There on 10.18.20 at 9:17 am

So everybody is driving around in new automobiles. Young kids are driving around in luxury brands. Everybody wants granite countertops. Prices of homes are through the roof. The Bank of Canada is not worried. Inflation is in reality quite high if you have to pay real bills.

Yet we have EMERGENCY INTEREST RATES for over a decade.

When emergency rates were introduced, how many real JOBS did that generate? Or did it simply blow asset bubbles more and no real jobs? Who are we kidding. It simply is the latter, to make people “feel” wealthier because the reality is that the REAL quality of life is for the toilet bowl.
Smarter phones, faster computing and driving around in something that you never own does not really improve the QUALITY of life. Even the cardboard boxes STACKED next to each like LEGO blocks is no improvement to life in earlier times.

Somebody is fooling the masses and they are drinking the KoolAid.

#73 PetertheSeparatistfromCalgary on 10.18.20 at 9:30 am

An important thing to remember is the relationship between debt and credit rating. Having high debt may be manageable if creditors offer you low rates but mess up your credit score and that changes fast. The only credit available to you with a bad credit score will be at much higher interest. This will make what was a manageable interest expense too costly to afford. So use debt in moderation.

Car insurance is the same way if you have a few accidents. So use the gas pedal in moderation as well.

#74 Dharma Bum on 10.18.20 at 9:31 am

Credit is like drugs and alcohol.

In moderation and in the right hands, it has tremendous benefits.

For many people, though, it’s an addiction. It can ruin lives. It can tear families apart.

A lot of people do not know whether they are prone to addiction until it’s too late. Just like booze and drugs, credit starts out as a euphoric solution to a current problem – it’s all fun and games until someone loses an eye.

Credit requires discipline. Plain and simple. If you borrow money, you have to know that you can pay it back. You need a plan before you take on debt. That plan has to take into consideration worst case scenarios. What if job loss occurs? What if sickness occurs?

A self imposed stress test is necessary when assuming debt.

Do people do this? Of course not!

We live in a society that has been brainwashed into believing that we should be able to get everything we want, and have it now. Regardless of our financial situations. We DESERVE whatever the other guy can have. it’s only fair.

That’s why we are a nation of credit and debt addicted pigs, many of whom are deadbeats that have all the excuses in the world why it’s not their fault they can’t pay back what they owe.

Pity the fools.

Or not.

#75 crowdedelevatorfartz on 10.18.20 at 9:38 am

@#60 Faron Height 451

“Why are you eating oranges in October when to-die-for Okanagan apples are cheaper n dirt? Ya gots scurvy or something?”

??????????

As Sir Floppie so eloquently stated.
Oranges are but one of the healthy virus defeating fruits that I eat daily.
(Tomatoes being somewhere in the middle.)
Multiple fruits and veggies on a daily basis makes Fartzy…..well,….. I’m sure you can figure the rest out for yourself.

So, until global warming enables Orange and Lemon groves in the Okanagan……I guess I’ll just have to stick to Kiwi’s from Vancouver Island and Oranges from elsewhere on the planet.

#76 Dharma Bum on 10.18.20 at 9:51 am

For all you Shakespeare lovers out there:

“Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edges of husbandry.”

And for all you bible thumping religious freaks:

Ex. 22:25 “If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them.”

Deut. 23:19 “You shall not charge interest on loans to another Israelite, interest on money, interest on provisions, interest on anything that is lent.”

Luke 6:34 “If you lend to those from whom you hope to receive, what credit is that to you? Even sinners lend to sinners, to receive as much again.”

This credit and debt stuff is as old as the hills, yet suckers never learn.

#77 crowdedelevatorfartz on 10.18.20 at 9:57 am

And as the polls swing decidedly towards Biden …..

In America’s heartland the Covid 19 virus hammers Trumps base with rising infection rates and a dangerously overloaded healthcare system……

While in the cities where Biden polls best…advanced polls are hitting historic numbers…

Pollsters have tightened their predictive protocols.
Internet election spew is being deleted.

Fartzy’s totally objective, unbiased predictions….

Biden will crush the Orange Orangutan.

Champagne corks will pop in all the world’s Capital cities…….

#78 maxx on 10.18.20 at 10:07 am

…….”2) always make it habit to factor in the cost of your debt….”

Excellent post – relevant and insightful. Additional perspective on consumer debt, one of the world’s most regressive problems, is always in great need.

I use principle 2 to calculate what I actually save on everything I buy: Original retail price, minus what I actually paid; I then take that result and add the retail tax. I then gross that total savings up by my marginal tax rate. Voila! Best feeling imaginable in the big-picture savings scenario.

Absolutely obscene what you can keep for yourself and your skills only improve with time and practice.

#79 SOMETHINGS UP! on 10.18.20 at 10:39 am

UP the EYEballz….

and DOWN the DRAIN!!

#80 Damifino on 10.18.20 at 10:42 am

#74 Dharma Bum

Good analogy, but you should carry it further.

In cases of substance abuse there’s a supplier who remains unaccountable for the consequences.

Same with debt, except lenders usually expect some degree of sympathy for irresponsible lending.

#81 Follow the money on 10.18.20 at 11:26 am

61 Donley – the problem is that the money doesn’t end with the loan. It goes thru the system as a series of deposits and withdrawals. Once it is created, it affects
both sides of the ledger and when the bank cant honour a deposit because of an unworthy creditor is when the problems start.

#82 The fake Spiderman on 10.18.20 at 11:30 am

My Spidey sense is saying that the governments will be coming after those with money.

#83 NSNG on 10.18.20 at 11:41 am

Ha! found this today looking up one of my favorite lines in Dickens:

Who Was Micawber and What is His Principle?

In the book David Copperfield, written in 1850 by Charles Dickens, the orphaned title character is sent to work in a factory in another town. Arrangements are made for young David to rent a room in the home of Wilkins Micawber. Mr. Micawber is fond of offering advice to David and not long after he moves in Mr. Micawber confidently states:

Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Although impressed with this sound financial advice it soon becomes obvious to David that Mr. Micawber is completely unable to follow it, as he faces one financial crisis after another. Mr. Micawber becomes a father figure to David (it is widely thought the character is based on Dickens’ own father, who also had severe financial troubles) and David is able to observe firsthand the negative consequences of living beyond your means. Mr. Micawber’s financial advice, in spite of his inability to live it, has resonated over the years and has come to be known as The Micawber Principle.

Found here (I don’t vouch for this site but it looks like it could be an interesting read):

http://micawberprinciple.com/the-micawber-principle-living-the-fundamental-law-of-personal-finance-45/

And a wise teacher once said to me (to paraphrase):

There is a reason why the banks own all the tallest towers downtown. It’s because they do more lending than borrowing

#84 Follow the money on 10.18.20 at 11:43 am

Sorry, I think that should be “unworthy debtor”

#85 NSNG on 10.18.20 at 11:52 am

That site is a bit sticky.

Here is a great post:

5 Inspiring Stories of People Who Value Integrity More Than Money

http://micawberprinciple.com/5-inspiring-stories-of-people-who-value-integrity-more-than-money-1794/

#86 Dave Simms on 10.18.20 at 12:08 pm

Follow the money, this is why the Bank of Canada and US Federal Reserve, Bank of England, ECB, Bank of Japan, Bank of Australia, other central banks worldwide, governments etc. are all debt junkies that loved the big push to first cut interest rates and then crash them more faster in recent years plus hundreds of trillions QE, money printing, adding digits in the money computer etc.

I don’t accept that they did not know this was a hazardous, destructive to our society and money. They planned it and did want the system to fail so they can do something else to replace it at all ours expense and they always stay on top. Come on, even a 5 year old can figure out borrowing too much no matter how low interest rates are 1%, 2%, 3% versus it being 6%, 7%, 8% just a decade or two ago would not destroy the economy, government, consumers, businesses finances etc. It was all planned decades ago.

Just like deficits will balance themselves, finances destroyer, Trudeau, Liberals stated, we will borrow the money trillions of dollars for Canadians. The problem is the government is all of Canadians and we are all still responsible for it, da.

#87 I’m NOT a Medical Professional on 10.18.20 at 1:59 pm

To Bossa Girl
« Stupidity is when you can’t tell the difference between sick and healthy people »

Please understand this: People infected with Covid can appear healthy note terms asymptomatic and pre-symptomatic, both can be super spreaders of high amount of viral content while not realizing they are dangerous to people around them.

Your parents may catch your virus even though you exhibit healthy, they being older may end up in hospital, or as long haulers.

Hence why we all wear masks, I’m protecting you from me…just in case.

Stay safe Bossa Girl, stay well and good health to you and other blog dogs.

#88 Old Ron on 10.18.20 at 2:14 pm

GT: while Residential RE has defied gravity during C-19, commercial RE is in ruins. That got me wondering about CMBS (commercial mortgage backed securities) an instrument popular with the fixed income institutional investor.

I was wondering how large that market is, and how significant the retail component is within it. Further how significant is the Derivative market which trades on the future value of the segment. (Full confession, I never understood the Derivative market)

I am not talking “The Big Short” here, because I am sure that the Residential MBS is a market many times larger than CMBS.

In normal times Commercial Real Estate is like an investment Fright Train. Slow, steady, predictable, but no one expected that we would have these extended market conditions, at least not in Peace time.

#89 dosouth on 10.18.20 at 2:35 pm

Debt awareness is passed on like learning to swim or drive. Making excuses after you have forgotten your lifejacket and are drowning after thinking you’d never fall overboard. Or driving without winter tires and finding yourself in the ditch on the way up to that ski hill where you have purchased 2k of ski equipment and no lessons.

Wow, like 4 analogies at once. bottom line is the horses are out of the barn and blaming everyone else but your own incompetence and ignorance is the way the world rolls now.

Heck Financial planners are a dime a dozen if you do that Google search but you still need the common sense to help choose which advisor is going to get you out of that mess you are in.

Did I mention common sense is not so common? The only people who are screwed are the ones who put themselves in that position. So guess you will have to wear your debt and learn from it…..or blame someone else and complain that the gov’t needs to bail you out. IMHO

#90 belly rubs on 10.18.20 at 3:29 pm

#31 Ponzius Pilatus on 10.17.20 at 3:37 pm

The same story plays out in most families.
Too early to judge which kid gonna come out ahead in the long run.
I speak from experience.

The youngest has more, has travelled more, and has more certificates, but the oldest has saved more lives and walks to a higher moral standard. I’ve thanked them both for just being themselves. Neither has any life altering debt or addictions…thankfully. Just very diverse means. If I was lost in the woods, I’d like to think both would be searching for me.

#24 UmiouiuS on 10.17.20 at 2:33 pm

Hey that accounting program rings a bell from eons ago. Just after the ol’ 286 with a 40mb drive we’d never fill in a lifetime. I transitioned to just using my credit card for points and their timely expense reports. Excess revenue goes on the pile, now calculated in months/years of future independent living.

#91 thesecondcomingofjohngalt on 10.18.20 at 8:49 pm

With all due respect, it took me a long time to understand the relationship between debt/money, unless I’m wrong my understanding is that if all the debts on the planet government, corporate, private , ect were forgiven at once, “money” as we know it would cease to exist, as all currency that exists comes into being by creating a debt, with an interest rate attached that exceeds the principle amount, however small/fractious the amount, therefore in theory it can never be extinguished, as it is mathematically impossible, if I’m wrong , please indulge me, great blog btw, read every day.

#92 The other Doug, in London on 10.19.20 at 10:59 am

I’m a late poster here as usual, but now it’s my turn. For the question of would I prefer $1,000 now or $1,005 in a week, I quickly figured that’s 0.5% more. That doesn’t sound like much, but multiply that by 52 weeks and you get 26% simple interest and even more by compound interest. Unless I desperately needed the money right now it would make more sense to wait a week.

I had a similar experience back in 1988. The company I worked for had a surplus in the pension fund and offered a refund of $110 in December or $120 in January. I figured that’s about 9% more in a month, which is 108% by simple interest! Wow, what a deal! And now for the punch line, by the rule of 72 that’s a doubling period of 8 months, so it’s far more than double your money in a year. Most of my coworkers took the $110 in December and seemed puzzled when I explained my reason for waiting a month. Even more odd, many were educated guys, engineers and technologists. As the saying goes, truth is stranger than fiction.

#93 crowdedelevatorfartz on 10.20.20 at 1:20 am

Hey Ponzie!
How about you fly into Hiong Kong and stand in the middle of any Hotel and repeat over and over

“Taiwan is its OWN country!” ( Which it is…)

And see how long it takes for you to get dragged away.

Some latest “wolf warrior” diplomacy for all you “Gai Jin” out there…..

https://www.taiwannews.com.tw/en/news/4033173

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