Spoken like someone who has only operated in the recent bull market.
Using a mortgage to buy a reasonable house that you can afford is a good idea.
Using leverage to buy as much real estate and/or stocks as you can get away with is a terrible idea with some significant downside risk. Leveraged stock purchases are notorious for working great until the market turns and blows up your account. Even leveraged funds have significant slippage that isn’t obvious to the casual investor who thinks they’re just going to get a clean 2X return.
One of my most poignant memories from the 2008 crash was watching a few people I knew go from feeling like they were financial geniuses to bankrupt and struggling. The common theme among all of them was that they were leveraged to the hilt in real estate. They thought it was easy money when it felt like the market could only go up. Then it stopped going up and we all know what happened next.
People buying homes in places that have only gone up in the last 40 years need to consider that that might keep going up for another decade, or they might be cresting the hill before correcting.
Homes going up is not the problem though. Yes, they've been going up for longer than 40 years, but back in the 1950's their growth was basically tracking inflation and wage growth, or even going down in value since they were seen an any other depreciable asset, just a place to live in till you die.
It's in the last 40 years that housing massively outgrown wages, as it became a speculatory investment vehicle instead of just being a place to live, plus the introduction of NIMBYISM regulations to restrict supply, and that's where the issue is.
make money by doing stuff rather than having stuff, the latter of which is the epitome of economic rents.
It takes roughly a career to amass enough assets to retire on and that's with a slightly reduced standard of living in retirement.
Unless you want to assume population growth forever (seems unwise IMO) you need one average career to generate enough surplus to pay for an average retirement. So far, buying assets (usually a mix of real estate and fractional ownership of financial instruments that are ultimately backed by companies and governments) is the most efficient way we know to accomplish this goal.
note the phrase "asset income being periphery", which implies an optimum. the ability to own one appreciating asset is great. owning two is probably ok in most cases. 90 is highly unlikely to provide a net social good.
To answer you first question/comment (because you are not as original as you think you are): That is why robust electorate, transparent public governance, and durable anti-corruption institutions are so important.
That is the point.
> And there's always intermediaries. And they always take a cut.
Should they not be compensated for their productive work?
> Maybe it's you that's not that original.
That is the point.
Edit: sorry that was a bit snarky. The point is that there are other ways to ensure people have a reasonable lifestyle once their 'working days' are over. Those schemes are probably best to be tied in some way to contributions, but they certainly don't need to be simply a savings plan, they can be a means to provide social support for those that cannot contribute to the same degree as others.
again, that’s a logical leap that i was careful not to make. small-time investing can have positive externalities on an economic system; industrial, mechanized investing, not so much. if we didn’t try to turn everything related to money into a get-rich-quick gambling scheme instead of the (imperfect) accounting mechanism it was originated to be, we’d be much better off, pensions and 401(k)’s included.
Humanity as a whole? I don't think anyone has advocated that here, just a certain segment of the population in their later years. As for any living creature, I didn't spend any time doing anything productive over the weekend, and I think it was a good thing. In fact, I've been doing that every weekend for a long time, and I plan to keep doing it!
Doing enough work to survive is a fundamental part of life. Technology and society function to either make that work easier or lower the amount of work that needs to be done. Take either of those away and you're going to be spending much less weekends doing "nothing productive".
meta point is that this is why nuanced conversations on the (texted based) internet are a waste of time. You and the person you're quoting are not really talking about the same thing. In a conversation you would go back and forth and figure that out; on the internet that's not required.
The reason I responded to the parent comment was that it seemed to me like they were misinterpreting the person they were responding to; the original comment that started this thread was that people who only have wage-based income instead of asset-based income would not be able to effectively retire and would have to work for their entire life. The response to this was to argue that if people didn't work, then humanity wouldn't progress. I don't see why "humanity needs productivity to progress" implies "every human needs to be productive for every moment of their entire life", which is why I responded with both a direct answer (i.e. arguing that people should be able to retire is not arguing that people shouldn't be productive _ever_ in their life) and a tongue-in-cheek response (nobody actually is productive every single moment in their life).
And Elinor Ostrom won the Nobel in economics for her work describing the mechanisms used by real-world communities to effectively self-manage Commons: https://www.onthecommons.org/magazine/elinor-ostroms-8-princ...
offhand, i can't think of a practical and contemporary example of this though.
I'm not disagreeing with you re. what I'd rather see us move towards, but there's a whole lot of existing money and power entrenched in the idea that having money is a great way to continue having money.
Saving money is a smart idea unless you live in a communist state or a dictatorship, then your best bet is to spend as fast as you can or secure assets resistant to confiscation.
Maintaining liquidity is a smart idea unless you live in a world where the government decrees asset prices can never fall. In which case throwing everything you have into leverage is the best bet.
It's not an irrational bet that the Fed's hands will be permanently tied to a low interest rate environment. The more people who make that bet the more true it will be.
How is it plausible? I would say given the historical data, it is extremely unlikely. Not impossible, but near negligible probability.
People saying, “it’s different this time,” right before a economic crash is a cliche for a reason. I suspect that you could use the frequency of utterances to predict impending recessions / asset class corrections with extremely high accuracy.
Housing can return 20% per year until the end of time if the Fed wishes it to.
Will they this time? Who knows, but it generally pays to hedge a bit.
All the money "made" from crypto was at the expense of other players(I refuse to call them "investors") who were left holding the bags, or at the expense of the environment (most of the large scale mining operations was done in areas of the world with cheap and dirty energy like China, Russia, Iran, etc.)
For example, some tech and semiconductor companies, because the whole world benefits from better compute (research for vaccines can be done faster; imaging for medical equipment results in better diagnostics; cars, engines and batteries can be simulated better and made safer and more efficient etc.) The whole world benefits.
"Investing" in crypto on the other hand, added zero value to society, or actually added negative value through the environmental damage being done.
That's not really what is at question here though. It's the concept of a pyramid scheme. The reason the stock market over long periods of time generally trends upwards is because new money keeps being added to it. It's as much of a pyramid as crypto is. That's just how the whole economy is though. Every generation so far has had more people than the last. It will be rather devastating to the stock market and economy whenever that stops being true.
Iron Law: During recessions capital always takes care of it's own and foists the losses onto the working class.
How does one leverage to buy more real estate? Refinance one house to pay down the next one? I just went through a home loan process and this would never work because they look at total LTV and credit reports...
GSEs (Fannie, Freddie) let you lever up with a lot of real estate borrowing (~10 mortgages per person, with some wiggle room with creativity) before you have to go to a commercial bank to wrap the portfolio with a commercial loan or similar product.
No. The monetary system works by encouraging capital to be invested in productive uses by debasing it yearly through inflation. If inflation was 0% or negative, the incentive to risk capital is much much lower.
The political system of Western countries favouring asset owners is separate.
Monetary stability makes many forms of investment less risky! Low real interest rates (which often co-occur with inflationary episodes) discourage many forms of savings (which banks could use to invest.) The link between inflation and overall amounts of investment is not abundantly clear in the general case and it is an open problem that remains under study.
EDIT FOR TYPO
How long will this continue though? This can't be sustainable forever.
At one point, you won't have any money to buy any assets if your wages are barely covering your food and shelter, and so we'll go back to feudalism where only those few with inherited wealth owned assets and everyone else was a slave for life.
The behavior when it doesn't break is actually more informative, though. At first, all aspects of the music experience exponential growth. Once clipping sets in, the growth of the loudest / highest gain frequencies continues, but now at the expense of every other frequency. Eventually one frequency wins and the system devolves into the distorted shriek of a single fundamental frequency and its harmonics.
The idea here is that we can tell where we are between "free growth" vs "starting to clip" by looking to see how well the rising tide is fulfilling its promise of floating all boats.
I doubt it.
1) That's why the west are pushing for forms of government surveillance disguised as Covid tracking, or anti-terrorist surveillance, or anti-child-porn surveillance, or whatever flavor of the month the current "enemy" happens to be, to make sure they can see it coming and stamp out any potential public dissidence before it hits the elites.
2) Unlike the French or Soviet revolutions from a couple of hundred years ago, which saw the deaths of the elites, the elites of today can travel to remote places using planes to distance themselves from the angry mobs, and rule their empires remotely using the internet. Huge game changers compared to the past.
In the French revolution, which took place in Paris, the elites all lived outside the city. The royal family lived in Versailles. No one went into the city for any day to day business. When the revolution happened, the nobility fled, and they directed their armies to seize and starve the city. They were using all their wealth and power to quell and flee. Much good that did them.
Putting the present elite at an even stronger disadvantage, though, is that Western billionaires only have power because the people allow them to -- land, money, stocks, it's all owned on paper. If a revolution is successful, there is no reason a billionaire's wealth or power couldn't be wiped away at the swipe of a pen. Elon Musk does not have enough of a private army nor his wealth in gold to defend his claim to anything.
https://www.indiatimes.com/amp/technology/news/sergey-brin-s...
People like Musk are not the world's ruling elites though. He and other tech billionaires are the richest people who's wealth is in public companies, so that's why they get all the visibility and media attention, but they're not the richest people in absolute terms, nor are they ruling elites, quite far from them.
The ruling elites, the richest and most power people in the world, are the likes of the British monarchy, Vladimir Putin, Saudi family, and other such monarchs and dictators who basically own nearly entire countries in both land and valuable resources and also control militaries to defend their assets and their position. They never appear in Forbes riches people because, unlike tech billionaires, most of their wealth is highly secretive and well hidden from the rabble, and for good reason too.
Putin is estimated to be worth way more than Musk. And he also has an army at his disposal. Same with the Saudi family, they have an army and their wealth could probably make Musk look like he should be put on social security.
In principle you are right, they don't have armies per se. But don't let the "everyman" persona put on by Musk or even Buffett fool you.
Billionaires must have extensive (and probably armed) security operations protecting them and their families. It would be irrational for them not to have that. Agreed that they might not be able to prevent their factories or other industrial assets from being seized (Just ask the oligarchs who fell afoul of Putin and fled).
Revolution isn't just spontaneous popular protests leading to regime change. It can also be further slides authoritarianism.
Like the line from Titanic when the extravagantly wealthy Calvert is trying to buy himself onto a lifeboat – "Your money can't save you any more than it can save me."
The west is like this today (apart from the countries that built themselves up on colonial empires of theft) in part also to a lot of violent and sometimes deadly revolts against the ruling class.
US, UK, France, Italy, Germany, etc. all saw bloody strikes and protests, in order to get fair living conditions. Noting was ever given out of pure generosity, without a fight.
That's...barely a thing at all.
> US, UK, France, Italy, etc.
If those are your examples, you really don't need the “apart from...”
The wealth inequality was absolutely insane. It's not like thanks to colonialism, everyone living in the UK victorian era could afford to prop their feet up, live off free stuff taken from the colonies, and never have to work a day in their lives. Quite the contrary, they were working long hours living in poor conditions.
The working class only saw lifestyle improvements when they fought back for them.
During the industrial revolution life expectancy in UK was among the lowest in the world for the poorest industrial workers. Inequality was incredibly high.
Painting people in a country as being all benefiting (or being harmed) from an external factor is very misleading
There have been many periods of high inequality and stagnation in history broken up by war. Since war is not a preferable catalyst in this day and age, we have to opt for organized labor.
Excuse me, but where have you been in the past 3 months?
> Historically, that's when a revolution or regime-change happens. This is something the richest of the rich have either forgotten or mistakenly think they'll be insulated from.
Revolutions aren't always successful. If the rich control the state by corrupting democratic institutions and remove from the peasantry the tools to pursue "politics with other means," they might actually get away with a transition to something like feudalism.
When the government steals from your cash savings, you merely save somewhere else, but the purpose is the same.
Current rental rates (in my city) would require pushing tenants to untenable rates and even then you would only be covering principal payments and maybe property tax. Interest is out of pocket. So you tie up a heavy capital load for twenty years on the hopes of an escalating market. If you end up in a recession you end up holding an overly expensive property that you now have to pay for yourself.
I am not saying feel bad for the land lord - I am pointing out that that assets are very difficult given macro conditions to find that look attractive in the medium to long run at current valuations.
I dunno about you, but I'm pretty glad that congress doesn't vote on my wage.
This is the central theme of Piketty's "Capital" book, for anybody interested in exploring this further. This is also a good start: https://hbr.org/2014/04/pikettys-capital-in-a-lot-less-than-...
In the USA over the last 50 years that is true. But it isn't generally true.
Sure thing, NIKKEI & NASDAQ investors know this better than anybody else.
There is nothing new here. In boom years, they always do. In bust years, they come back down to earth.
> Either create your own assets (entrepreneurship), put all your money into leveraged! assets (stocks, housing), or prepare to live as a wage slave.
There is also not much new here either, sadly.
There was a brief time - pretty unique to the US - between WW2 and early 90s where things were different. This is pretty unique globally, and to the US.
In reality, this is terrible advice if you can't service the interest. It's a scheme that worked in a low rate environment, but likely will no longer be viable.
In bust years, they're out of a job.
Having the capital to maintain having capital is a gigantic edge over wage earners.