First up we have Nassim Taleb, who is crying wolf on how the government will fail us again.
"The way to restart everything is restructuring, conversion of debt into equity, convince people that debt is not good," Taleb said.
Gee Taleb, you are only 600 years late to the party!
DEBT MAKES THE WORLD GO ROUND BECAUSE WE DON’T LIVE LONG ENOUGH!
Here is Peter Schiff and his rant against debt.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Peter Schiff | ||||
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They are ranting on how much debt there is and how we people should be savers? Really? We should? Wow, you are ONLY 600 YEARS LATE and you are making useless arguments. Because let’s talk about Christopher Columbus shall we.
About half of the financing was to come from private Italian investors, whom Columbus had already lined up. Financially broke after the Granada campaign, the monarchs left it to the royal treasurer to shift funds among various royal accounts on behalf of the enterprise. Columbus was to be made "Admiral of the Seas" and would receive a portion of all profits. The terms were unusually generous, but as his son later wrote, the monarchs did not really expect him to return.
Christopher Columbus relied on debt and funding to make his voyage to the America’s. He did not have the money, and he could not have saved enough to make his voyage.
How about the Louisiana purchase?
The American government used $3 million in gold as a down payment, and bonds for the balance to pay France for the purchase. Because of the impending war with Britain, French banks would not buy or market the American bonds. The American diplomats Livingston and Monroe therefore recommended the firms of Baring and Company of London and Hope and Company of Amsterdam for the transaction which France agreed upon. Because of their reputation as the two most stable financial houses in Europe and because Napoleon wanted to receive his money as quickly as possible, the French treasury minister Barbé-Marbois made arrangements with the two firms to convert the bonds France would receive into cash. After the American bonds had been delivered, the French government then sold them to Baring and Hope at a discount.
The reality is that debt is what makes our world go round. These examples are high profile corporations, or countries. But the type of debt is irrelevant, since it could be consumer debt, corporate debt or whatever other debt there is. Without debt nothing would work because we simply do not live long enough!
Think of it as follows. You want to buy a house and you have a limited pay. The most you would probably wait to live in your own house is 10 years. That means if you earn 100K and 30K is saved then the cost of a house has to be less than 300,000. If you earn 50K and can only save 10K then the house can cost at a maximum 100K.
The problem is that the cost of bringing a house to the market is more than that! Hence the price of a house is higher than you can afford. So that you don’t have to wait 20 years to be able to buy a house you get debt!
This is the core problem in that saving does not work for higher ticket items because the amount of time you get to enjoy that higher ticket item is quite a bit less.
So would you rather go into debt and enjoy a house for 30 years, or save, and enjoy the house for 10 years? Answer is 30 years, and that is why Taleb, and Schiff are completely misguided into believing that debt is bad.
Of course there is an argument to make regarding the total amount of debt, but that is not the argument they are making.
Taleb and Schiff as saying, “Debt is bad”, and that in itself is dumb!
Though I understand why Taleb and Schiff is saying what they are, “its cool and hip to go against debt since that the fashion of the moment.” After all it is a problem and hence we tend to listen to those who say what we want to hear!