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Comment by mandelbrotwurst | Hacker News Reader

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mandelbrotwurst

Yes, that would be nice. What policy would you suggest to get there?

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State-enforced debt jubilees.

Does this not discourage lending? Who would issue a loan the year before a debt jubilee?

> Does this not discourage lending

Yes. The goal is to reduce debt.

Why? Buying a house or car through debt is not a bad way to match your payment stream to the usable lifetime of the asset.

Even if you can pay cash, unless you have a huge cushion this could make a lot of sense (taking your savings to 0 is worse than taking your savings to n months of cost of living, including the loan payments).

I am lucky enough to be a cash buyer but I can still see the logic of using debt in this way.

from an economic perspective, it doesn't make sense to buy a depreciating asset, like a car, with debt. a house, on the other hand, is generally considered a stable asset, so debt is appropriate there.

Sure it does, for the cash flow reason I mentioned. Consider the debt payments as an insurance premium against financial problems.

A municipality can take on debt for a capital expenditure on a bridge or something that might reasonably be dismantled or replaced around the time the bond is paid off, for the same reason.

I would not consider either case to be irresponsible or economically irrational in principle. Especially as humans have finite life spans.

sure, a bridge provides net economic benefit, so is not simply a depreciating asset. it's paying for broad benefits that accrue widely across society, rather than strictly to the government (externalized benefits). that doesn't happen with cars. in fact, cars produce large negative externalities. there's also fewer viable, affordable substitutes for bridges, whereas cars have multiple viable such alternatives, which makes debt often a bad choice for cars but not bridges.

but to the point of bonds, a lot of bond measures are not for net economic benefit, but rather political gain (school funding bonds, for example, tend to fail to improve educational outcomes despite the political rhetoric).

it can absolutely make sense to finance a depreciating asset.

example one: I have just been offered a good job that requires a car for commuting. I have no car and negligible other assets. it is rational to take out a loan for a reasonably priced car as long as I can comfortably make the payments on my new wages. if I later lose my job but am not upside-down on the loan, I am still better off than I started.

example two: I make $200k and have $500k in assets and I want to buy a $20k car. I could easily afford to buy the car outright by selling some assets, but then I would have to pay capital gains and forgo future appreciation. if the expected appreciation + capital gains tax on those assets is significantly higher than the loan interest over the full term, it is rational to finance the vehicle.

no, you're not considering opportunity costs or lower cost alternatives.

care to explain further, perhaps in regards to the two examples I gave? it seems to me that your original comment was not considering all the opportunity costs (in example 1, forgoing a higher income; in example 2, forgoing future appreciation and paying unnecessary tax).

Hoping you are being ironic here rather than moronic

This would have tons of negative consequences even if you believe that we'd be better off with debt and loans generally, e.g. essentially acting as a huge windfall (i.e. a free house) toward people who currently have mortgages while doing nothing for renters.

But, see, who holds the debt? It's not just evil people who deserve to lose their ill-gotten gains. It's things like pension funds, too. So a debt jubilee sounds great. A "lose your pension fund jubilee" sounds a lot less nice.

Stop encouraging a debt-based economy?

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