Money and Illusions

Funny that I should run all of this together in one post, but such is life these days.

First, I’ve been meaning to blog something for the last couple of days. I’ve got plenty of things to post, but the one idea that keeps screaming at me is that there’s nothing like a heavy dose of wedding planning to screw up what used to be a perfectly good blogging practice.

Then this showed up in today’s Daily Reckoning email…

…imagine a typical householder. We saw him just the other day, courtesy of a Fed study. He has a house, but he has almost no money. He has no pension, no stocks, no bonds, and no savings. Nada. Zilch. His real hourly earnings are either flat for the last several years, or actually going down, depending on whose numbers you believe. He can barely pay his mortgage. He cannot seem to pay off his credit cards. When the week’s bills are paid, he has less money left over to spend as he pleases – according to Elizabeth Warren’s calculations – than he did during the Carter administration.

Now imagine that his house suddenly doubles in value. Is he really better off? What can he do but borrow against the inflated value of the house. When he borrows, the air holes grow smaller. He’ll have an even harder time paying his bills. He can barely breathe as it is. Being a fatter cat makes him feel good about himself, but it doesn’t really help.

Somehow it’s all about Money and Illusions, except the wedding is actually shaping up pretty nicely. Think Appreciative Prairie-style Catholic Buddhist Open Space Hippie Solstice Drum Circle and if that doesn’t really mess you up, you might just have some sense of what is actually goin’ down this June.

2 Replies to “Money and Illusions”

  1. What happens if he sells the house? Can he use the profit to suppliment his income for a period of time? And what about drawing $100/month from a home equity line of credit? Of course he’ll have to make the minimum payments on that credit, but does that action help at all?

  2. well, if he sells his house and pockets the gain, he still needs to find someplace to live. if he moves someplace smaller and cheaper, then he could live on the gain. but most people aren’t doing that.

    adding more debt, by drawing out the equity isn’t going to help. he can barely make the payments already. so more debt only delays and deepens the problem.

    what’s more, if he loses his job (in the recession that’s coming, we just don’t know if it’s this year or next) then he has no choice but to dump the house and live off the equity. lending rules will have tightened and the home equity line won’t be available.

    if he loses his job the month after his neighbor has to dump his house in a soft market at a lower price for the same job-loss, no-savings reasons, then the price of our guy’s house might actually be less than he thinks. so less gain. and less time to find a job and a way to survive.

    it just gets ugly. saving is the only way to go.

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