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That’s a tough one. Borrowed money is not really a cushion in my opinion. A cushion is cash unencumbered, physical gold or silver in your possession, productive land, cash flow from a business that is not in debt.
However, if you can get your current note refinanced at a much lower rate, that in and of itself is worth looking into, simply due to the lower payments.
The way I view it, Going into household debt to create a cash cushion for a business that may have inadequate cash flow just changes the projected date of insolvency of said business. If you run into a situation where cash flow (consistently) is lower than expenses and you find your self dipping into the cash cushion to meet current expenses, then you find your self on the hook for the new money borrowed.
Unless you plan to walk away from the new mortgage if things go south (IE strategic default).
On Mish’s comments, I have a mixed opinion. On the one hand he says that cash will be king, because deflation will ravage the land. But then he says, go get a loan. At an interest rate that is by definition higher than what happens in a deflationary environment. If you think that we will have deflation, then you run away from debt. If you think inflation (but stable economy), then debt makes sense (as long as you can keep cash flow up).
I think that FOFOA’s take on what is happening (A,FOA, etc) is the best interpretation of the situation we are facing. But be careful if you read him; it’s a deep, dark rabbit hole 🙂
As Chris has written from time to time, Trust yourself.
With that said, here are a few things to consider,as you decide what to do.
1. You have $75K in a variable rate loan. That is bad news! Maybe not right now, but you are at the mercy of the market. And if rates go back to what they were in the early 80’s that $75K at 20% doesnt look so hot.
2. Is this is all of your debt?
No CC debt?
No student loans?
3. Assuming no other debt, you have the chance to get all of your debt squared away at 3.5% and it will be paid off in 15 years at the same monthly note that you are already accustomed to paying. I am assuming that this is a FIXED APR.
4. You write that you will keep 1/2 of the money aside for emergency cash flow. I don’t agree with your mixing of those terms. Debt is not cash flow. Debt is money encumbered. So even though you can get $50K and have that as "CASH", it is not the same as a cash flow. Hopefully that makes sense. Your statement makes me nervous reading about what you are contemplating.
I wil tell you that back in 2008, we did a similar thing to what you are contemplating (Pull suburban home equity out and put it into other tangible items). And we haven’t regretted it at all.
But we also have no other debt than our suburban home, and we didnt look at that cash out refi money as cash flow.
It is actually the other way around. Warren’s dad gave that speech in 1948. Amity Shlaes wrote TFM in 2007.
I think different markets have different levels of economic freedom. For example, in baseball in the states, athletes are allowed to make as much as any owners is willing to pay them. That market is free in the sense that the owners can pay whatever they want, but after a certain point, they (the owners) have to pay a luxury tax. So one could argue (based on that one example) that it is not a free market. I would still call it one, because if a team bets poorly on an athlete, the commissioner doesn’t bail them out by borrowing money and paying them because they are TBTF, as it were. But purists would disagree that it is a "free" market.
The US small business market (dry cleaners, small restaurants, boutique stores, etc) is essentially a free market. That is not to say there is not regulation (which is needed in the same sense that stop lights or a stop sign are needed at an intersection), but I don’t think you will see the US gov’t saying that Ma and Pa’s feed store in Lincoln, Nebraska is TBTF
The US stock and financial markets are *not* free markets and haven’t been for a very long time.
Personally I have no problem with *anyone* making money. I remember applauding A-Rod when he scored his $100 Million dollar contract, I have no issue with Hannah Montanna making a bazillion dollars singing songs about sunshine (or whatever she does), I applaud Chris Rock, Michael Moore, and everyone else who makes big dollars.
I hope that they buy yachts(and therefore employee.builders), purchase mansions (and thereby employing homebuilders), and buy cars of their choice (and thereby employ carmakers).
What I absolutely detest is paying one red cent to bail out any executive, or any company that has failed or should fail.
Since I lost that that vote (I called and e-mailed and screamed at my representatives) think that every executive of every company that is getting any government bailout money should have their total compensation package limited to seven times the earnings of their lowest paid employee.
I think that Robert Rubin should be forced to give up his $100 million dollars that he made, as part of the horrible bailout package that we did for Citigroup.
I think that Alan Greenspan should be seen for the fraud that he is. He is *not* a free market capitalist. He is a big business conservative who thinks that it is the government’s job to guarantee that no pain should ever befall our economy, or big business. I am anti-big business, anti-big labor, and anti-big government. Those three groups have destroyed our country.
I could go on, but I hope that I have made my point. I do not begrudge any person any amount of money that they make in a free market system, but I’m steadfastly opposed to spending *any* taxpayer dollars to bail out *any* company.
But if I am forced to do it, then I want *severe* even punitive limits put in place for executive level compensation. and if the executive leaves that company I want those limits to follow them for the rest of their lives.
I tell people that there are interesting questions raised and I would like their opinion on it. Ego appeal in other words. So far it has only sparked interest from 5 of my family/friends, colleagues, but I think that it will continue to grow as they continue to see the govt completely collapse and lose all sense of economic and fiscal responsibility.
Even if you don’t agree with everything presented, it is still fantastic material to begin discussions from. Those discussions *must* take place if any change is to come about.
I had done that and received 80 separate threads. I was hoping their was one that I could focus on w/o all the digging. But no prb. I will take a look see when I can.
I will check them out and get back to you after I read them (and hopefully have more cogent questions).
Can someone point me to the thread where this was discussed? I dont want to waste anyones time asking questions if my questions have already been asked and answered.
BTW, I am downloading the audio book The weather makers and will start listening to it tonight.
I am late to the game on this discussion and if this is covered somewhere else, I would appreciate someone pointing me to the thread, but I have always been curious as to why the Earth’s temperature has varied over its lifespan. When I watch a Global Warming report, I never hear any talk about the warming (and cooling) that occurred before man started burning fossil fuels. Heck that occurred before man occurred.
Any pointers to read are appreciated.