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Debt-free in 15 months? How un-American!
Monday, October 13, 2008
Can you imagine what would happen to the U.S. economy if the entire population paid down their debt and started living within their means? We may be about to find out.
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9 comments:
Just Stop Paying your Mortgage
By : Peter Schiff
Euro Pacific Capital
www.europac.net
If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government's landmark $700 billion bailout package has an important message for you: stop making your mortgage payments... immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government's message is clear: relax, don't bother.
While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here's why. Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.
When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.
The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.
Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.
If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable. To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.
If you do get the opportunity to live for a while with no mortgage payment, don't make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.
Taxpayers, however, will not be so lucky. The savvy investment strategists who see the government turning a tidy profit on its mortgage purchases have not factored in the incentives that will discourage nonpayment. The only way the government will be able to profit would be to buy the mortgages at deep discounts to actual loan values. However, if the purchase prices are too low, the plan will bankrupt the institutions it is trying to bail out. On the other hand, if it substantially overpays, which seems far more likely, it will bankrupt the nation.
In any event, as more and more borrowers succumb to the allure and safety of nonpayment, look for the number of troubled assets to swell. This will ensure that the $700 billion merely represents the first installment in what will be a multitrillion-dollar plan. Just as government policies provided the primary impetus in blowing up the housing bubble earlier in the decade, its latest attempt at market manipulation will only result in making a terrible problem far worse.
Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach, CA 92660
Toll-free: 888-377-3722 / Direct: 203-972-9300 Fax: 949-863-7100
www.europac.net
"Living beyond your means is a patriotic duty"
Precious
Can you imagine what would happen to the U.S. economy if the entire population paid down their debt and started living within their means?
Bankruptcy for the Federal government or massive immediate cuts to defense and entitlement spending. 8% economic growth in 2012, slowing to 5% by 2016. Millions in new manufacturing jobs, new nanotech industries financed by American savers, and new all-time highs on the Dow & S&P 500.
"life is cyclical" - lots of wisdom in that statement.
Yeah...debt free....except for the 1.5 - 2 million of her share of the national debt.....other than that its smooth sailing.
We could all go the SaveKaryn route...
That is indeed a wise statement - 'life is cyclical
People in debt need to re-educate themselves period when it comes to money and finance. I've been there and it's not pretty at all. You can do anything you put your mind to!
How I and other "Real" Americans got "Debt-Free"
About 10 years ago I owed around $12,000 in Credit Card debt.
Well, I decided I wanted to be "Debt-Free" so I just stopped making the payments!! (Well, after I stopped by my bank to get cash advances on all my cards to their respective maximum limits) I took the cash and then cut my cards into little pieces.
After than I NEVER paid them a dime. I changed my phone number to a new unlisted number, that stopped the annoying calls from collection agents. After that I bought a paper shredder and any bill or letter I got from creditors immediately found it's way to my shredder before I even opened it.
Yep, I was Debt Free!!
Well, Now 10 years later, I actually have a credit score of 790 because all these credit card accounts came off after the 7 year mark! So I never paid a dime and I still have Great Credit!!
Thanks Credit Card compaines!
So if you get tired of making yoru payments, just STOP PAYING THEM!! You'll be fine, you can just start living "Debt-Free" and go Cash Only. Today, you'll fit right in!
Sounds like Mr Schirff is offering sound if sarcastic advice. Why shouldn't Main St follow Wall St?
I have awesome credit, and my retirement plan is to borrow every dollar I can on every card I can, mortgage my house to the hilt, convert it all into diamonds and Kruggerands then move to Cancun.
It worked for Wall Street, it should work for me.
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