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Infinite Debt and Money-Printing
Trump Administration Working on 50-Year Mortgages
Trump Proposes $2000 Stimulus Checks
The economics of the last five years clearly have taught us nothing. Trump continues to take bad financial ideas from the Covid/Biden era and supercharge them. Neither of these ideas create any tangible value in the economy; they’re simply defacto ways of printing new money by adding more to the debt on citizen and government balance sheets. What good is more money in our bank accounts if everything simply goes up proportionally in price? We will still only be able to purchase the same amount of goods & services as before these artificial moves.
Consider mortgages for the average buyer. Most people will judge what they can afford by the monthly payment. Assume a couple can afford a monthly payment of $2000. With a 15-year loan at current rates, they can buy a house for about $250,000. With a 30-year loan, they can buy one worth about $350,000. With a 50-year loan, they could buy one worth $400,000. There are a lot of variables to determine the exact amount, as banks generally charge higher rates for riskier long-term loans, but the point is you can buy more house for the same payment. Notice though that the amount doesn’t go up as much as you think. Making 20 years of additional $2000 monthly payments gets you only $50,000 more of house. Yes, you’re paying $480,000 more for that extra $50,000 of house!
But the other downside is that plenty of couples will do exactly that. A shortage of houses and the American dream of owning a home will simply drive up the bidding wars. So, with prices going up even more, you may end up being able to buy even less than you think with a 50-year mortgage. Plus, as we learned so painfully in 2007, when homeowners are building little or no equity, all it takes is a slight downturn in prices combined with a recession to create a crisis that threatens the world financial system.
Any economist could tell you things, and the fact Trump is still pushing the policies shows he’s willing to take advantage of the public’s lack of financial knowledge to score some political points, exactly as Biden did.
After all, who doesn’t like seeing that $2000 direct deposited to their checking? Who doesn’t like hearing the bank tell us we can now afford a 4-bedroom house instead of a 3-bedroom one for the same payment? Unfortunately, you’re trading those artificial good feelings for the pain you’re going to feel at the grocery store, and the pain when you’re financial advisor tells you that you can never retire.
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It’s too early for me to do math, but on the 50 year loan – don’t forget that if you can afford $2000 a month, roughly half of that is for insurance and tax escrow. You then really are only paying $1000 for the actual loan, so the $250k home you proposed is really a $125k or less home. I’ve moved several times in the past 40 years, so I can relate that of the 4 different mortgages I’ve had, half the monthly nut was escrow for taxes and (mandatory) insurance.
Also, who the hell buys a house and lives there for 50 years? Any professional will relocated 2 to 3 times during their career, usually earlier on rather than later. And since the first xx years of the loan you pay very very little on the principle and mostly it’s an interest payment, there is zero equity in the house when you inevitably move 5 years down the road. Under those economics, most young people would be better off renting. Except the rental market is also off the charts.
The best answer is to drastically cut or eliminate property taxes, encourage builders to build more starter homes rather than McMansions, and cut govt spending as much as possible. End the welfare state. All taxation is theft.
Man, too early to rant. Hope that made some sense.
I posted this a lot yesterday:
“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
― Murray N. Rothbard
Anyone taking on a fifty-year mortgage when they start out will also (presumably) continue to increase their income, allowing them to pay MORE than their minimum monthly payment, thus reducing their principal balance and the interest paid. We’re not talking about a McDonald’s lifer here. And if they CHOOSE to pay only the minimum payment each installment, well, that’s on them. ='[.]’=
Ray, while I’ve done that before (paying over the minimum), most banks make that difficult. There’s no EASY button on the website that allows additional payments or an easy way to change the automated payment without going thru 5 or 6 layers of BS. The banks don’t want you to do that and they make it difficult. And yes, I should choose a different bank, except like all big corporations, once you remove the banner and the fluff, they are all the same underneath.
Still, your point stands. I’ve paid almost all my loans (cars, house, etc.) off early by making extra payments when I could.
Adding – USABank where I got my loan for a RV does allow that fairly easily. It’s the only bank website so far that makes it easy. I’m probably 3 years ahead on a 10 year loan after 5 years.