2 hours ago Internal Strength A Positive Sign For S&P500 http://www.otterwoodcapital.com/blog/internal-strength-a-positive-sign-for-sp500/…
Debt doesn't necessarily mean a household is doing worse. In fact it's could mean quite the opposite. Who here trades on margin?
I never said all debt was bad. I didn't even say uncontrolled debt was bad, but we all know it is. If you're losing money trading the market with margin, that's really bad.
As long as the debt is incurred for investing and NOT consumption and the return rate on the investment is larger than the interest they are paying on the debt, it's Ok. It's only bad when the debt is incurred purely for consumption then there is a problem.
I was looking for that @Covertibility Increasing household debt is not an issue when payments are easily made. So, currently at low interest rates it's not an issue (yet). When interest rates do go up... that might become an issue... but only if there's no inflation or income growth. And I strongly doubt that in the next 10 years interest rates will go up without those two. The GFC happened partly due to oversupply in housing in certain area's... and people/investors loading up on those with low interest rates. As long as there's no big oversupply, housing prices will rise due to inflation.... and the mortgages on those houses should not become a problem. So keep an eye out for the Australian housing market in the next 2-4 years. We are in the middle of an apartment boom in the mayor cities, lots are being build. Demand is currently high, big part due to investor buying of homes... prices have soared over the last 4 years. It will be interesting to see what happens when those newly built apartments all hit the market in a few years.
Even then it's not necessarily a problem. If you make $50,000 a year and take out a $75,000 mortgage on a $100,000 house, are you in a better financial position than someone who makes $500,000 a year and takes out a $200,000 mortgage on a $400,000 house? If you're just looking at debt you'll say the $200,000 mortgage is more debt...more debt bad bad bad! But if you're looking rationally at it you'll realize the $200,000 mortgage has far better income coverage and equity in the house. Debt's only half the picture, it's really meaningless without the income piece.
Another thought on that is that after 2008 a much higher proportion of the home owning public is on a fixed interest loan. So they aren't really impacted by rising interest rates as long as they're staying in their house, and rising interest rates will eventually bring inflation and income growth relative to their mortgage payment (not necessarily real income growth). Of course there are impacts on housing prices because of less demand for new mortgages, so it's not all moonlight and roses, but the fixed rate loan factor certainly mitigates the impact of rising interest rates on a big chunk of the home owning population.
American's economic have a problem, invester need to care about house hold. When you start you need know basic and practice this. You can't do alone, you need someones help you do that. I used to study at Teletrade, it's good. You can try.
I thought that household debt is income indexed, i.e. already taking into account of the income of the household. I didn't read the article; I was just responding to the thread title but now that I read the article, that article was DUMB!!! Talking about debt level without taking into account of the income level and ability to cover the debt is of course meaningless!! I mean if you have $50K debt that grew to $75K but if your income also grew from $50K to $100K, who the f cares if the household debt is not a "pretty picture"??!! especially if you are investing the money that you got from the loan with the purchase of a house so you are actually earning a return on the money borrowed??!! US deficit and government debt is 100+% to GDP http://www.tradingeconomics.com/united-states/government-debt-to-gdp, now THAT'S NOT a pretty picture especially considering that large part of that debt is incurred all on consumption and NOT on investment. Our most beloved China, just to put it in perspective only has debt-to-gdp of 43%. Of course you can say that's cuz China doesn't give a shit about its own people and has nil welfare infrastructure but still 100+% of GDP??!! If you look at the rest of the western nations, both Britain, Germany and Austria has debt-to-GDP ratio of just 80+% and even France and Spain, France, the country that we all think is the "joie de vivre" spending country has only 90+% of debt-to-gdp ratio. This is what we should talk about, the uncontrollable government debt!! Why doesn't the Fed talk about that instead of picking on us ordinary citizens!!!