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I agree that while a car is necessary, the number of people that could/would buy $80k cars is WAY less than what we are seeing. They are paying $100k including interest that they would never pay if they couldn’t get 60 or 84 month terms.

So, probably the same amount of steel, fabric, etc in a $40k car and nearly all the utility compared to an $80k car, but the debt based lifestyle makes the decision strange.

Same for $200k humanities degrees, $600k townhouses, etc.

Dr. Hax 2y ago

Ah, okay. So if I understand correctly, it's a culture problem of people wanting nicer things than they can afford and debt being the mechanism that allows them to get these things (at least, temporarially).

In contrast, of they couldn't go into debt, they'd buy more durable and/or less expensive cars (and other things).

The way this ties to the fractional reserve banking system is that it's entirely based on debt (hence the "fractional" part of the name). Thus debt is just considered normal operations and not something that is necessarially bad.

Did I get that about right?

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Hal 2y ago

Yes, something like that, and the reason that most people have been able to vastly outspend their means is the ~0% interest world we lived in. Now that it’s more punitive to get a loan, buying behavior has to change or if people aren’t running the numbers, they are going to erode their personal financial positions.

“Gradually, then suddenly” was Hemingway describing bankruptcy. When debt gets harder to refinance, lots of people are going to suddenly realize their position.