Finance 101 For Dummies

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tx_floods's picture
tx_floods
Status: Silver Member (Offline)
Joined: Feb 28 2009
Posts: 155
Finance 101 For Dummies

Sometimes, I think that I've entered into the world of CM as the most financially illiterate person here. See below:

Everyone seems to think owning a house is bad.  I'm not so sure about that.  As long as you have assets to weather the storm until inflation (which will come) occurs.  At which point you can trade in your PM (a small amount) and pay off your debt completely (as long as it's a fixed rate loan).  Would I rather be on a farm? Yes, but selling a house in todays market would require a huge write off, perhaps to zero.  So it seems better to sit tight, buy solar arrays, PM, food and wait for inflation to make the debt go away. 

Could someone please explain how inflation will make the debt go away? I really don't get this one. Thanks, in advance.

Gungnir's picture
Gungnir
Status: Platinum Member (Offline)
Joined: Mar 2 2009
Posts: 643
Re: Finance 101 For Dummies

It doesn't but what it does is devalue the loan.

However there are some things that also need to happen to take advantage of it, like have investments that are inflation proof (generally hard commodities), work in a job where they can link your salary to the inflation rate, and maintain your real buying power, and finally have a fixed rate on the loan so that as inflation grows any adjustments to the interest base rate does not affect your loan repayments.

It's a risk like any investment.

pir8don's picture
pir8don
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Joined: Sep 30 2008
Posts: 456
Re: Finance 101 For Dummies
tx_floods wrote:

Sometimes, I think that I've entered into the world of CM as the most financially illiterate person here. .

I'd like to argue for the honour of that position. It may be a huge advantage.

Many systems that have got too big shroud their paucity of product in jargon that only insiders can learn (and then argue forever about the meaning of).  Economics is a prime example and money might come a close second. Want to argue the difference?

With a concentration on money; It seems a game except when someone is prepared to work believing that their piece of paper or coin will have or has value to them. The rest of it is shuffling paper. Someone buys something. Ownership changes. Yawn. Maybe its portable so it gets taken somewhere, eaten, driven or lived in. The buyer moves money from their account to the former owners. A commodity was always there or its components were. Oil just gets pumped, shipped and refined. The only thing real is the work people do along the way. 

Now money exists in accounts on ledgers or in someones back pocket. When there is a lot of it and few people doing anything for money it gets called deflation. If more people start working for money then we get inflation. The money 'get legs'. Note that according to my understanding above buying and selling existing things will hardly make a bit of difference in the real word. So to get inflation we must see more people working for money.

Don

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Too big to fail, too big to fix, too big to care

 

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