The New Debt Crisis? Mortgages to A.I. Bills

Debt from your mortgage. Big Tech's AI A lot of bills going on here. There's a push to explore a 50 year fixed mortgage as an affordability tool. Longer terms do lower the monthly payment, but they raise lifetime interest and slow equity build. Especially since the typical homeowner moves in about 12 years. Meanwhile, DealBook, part of the New York Times details how the artificial intelligence build out is being financed with a surge complex borrowing, commercial mortgage backed securities tied to data centers, asset backed deals, private credit and off balance sheet vehicles. Because capex is enormous, while monetization may arrive later, parallels to 1929 are fashionable but the plumbing is different today. Fully amortized fixed rate mortgages, deposit insurance and stronger bank capital rules now exist. So that part is better than 1929. Two hard facts help anchor this Federal debt as a share of GDP is far higher today than in the 1920s. Household debt service ratios however are still below their pre 2008 peak. That's a good debt can be a bridge to growth or a very long tether. The difference is timing. So safeguards and cash flow reality. The real message here, this idea floated by some that we can make housing more affordable by having 50 year mortgages, that's frankly crazy. The chances of paying that off are slim and nil at some point. There's really no difference between owning a house and renting if you can't own it for half a century. That's not the solution to our housing affordability crisis. Let's dig a little bit deeper, deeper here. Now, I'm not the only one concerned about rising debt in every aspect of our economy, especially outside the banking system. With so many non bank banks and you know, so much crypto nonsense going on, so much private equity, it does make a lot of people worried that our entire economy is a house of cards and therefore easier to crumble. I'm not making any predictions here. I'm smart enough to be humble enough to know I can't see the future. Anyone who tells you they can see categorically the future is deluded. Now occasionally people do predict the future and they're right because they were so smart. Or was it because they were lucky or because they were smart enough to see various issues coming into play? They get they saw the sequence right once, but it doesn't necessarily mean it's going to work every time. Now there is a problem in our American economy specifically in that more and more households are really running high in debt. Credit card debt not able to pay their credit card debt not able to pay quite Often their automobile debt. It's compounded by things like if you're a federal worker or you're an air traffic controller, you haven't gotten paid in the last month. So if you're living paycheck to paycheck, then they're going to be skipped payments. Now you typically don't lose your house if you fail to meet a mortgage payment once, but certainly doesn't help your credit rating. Let's look at some more facts here. This concept floated by some in Washington that let's just have 50 year mortgages, it's really ignoring the fundamental problem that for decades and decades, until about 20 or so years ago, the average price of a house in America was roughly two and a half, three times an annual income. Now it's like seven or eight times an annual. It just isn't adding up. Now, it's for many reasons. For starters, so many communities have created zoning rules making it impossible, just impossible to build new housing. I think that's the number one thing. And here's where I'm going to offend some of you. I am a sane, sensible center. So this is one area where conservatives are absolutely right, ridiculing and mocking so called liberal democratically run states. You look at a place like California, especially San Francisco, you look at a place like New York and housing prices are up. Absolutely insane. And unless you're a hedge fund millionaire or billionaire, you're kind of priced out of ever having affordable housing. And in places like Texas, Florida, where I live, there's so many fewer zoning rules, it's much easier for developers to build and housing costs are much lower, although pretty high in South Florida, where I live now. So I don't think the issue is a financing problem. The issue is a supply problem. We live in a country where once people have their house, they say, I got mine. I want to do everything I can to boost the value of what is mine. And the number one way to do that is to restrict supply. Because if there are more people moving into your community every day and there are no new houses, and you want to put your house on the market to go retire in a desert island somewhere, well, you're going to make more money because more people in fewer supply, you can charge more. That's good for you individually, it's horrible for society. And it's why so many people in America today are feeling extremely frustrated because they cannot afford a house. And the idea of going into more debt and more debt and more debt isn't very appealing. Now we also talked about in the newsread of what's happening in the artificial intelligence world, the technology world, because more and more of the, these, these gigantic tech hubs, these, these server farms, the energy farms to give energy to the service, it's all being paid for by debt. It's going to work out for some because a handful of companies are likely to be the big winners in artificial intelligence. But if it's like anything else in the history of new technology, whether it's the Internet itself, whether it's telecommunications, whether it's radio stations or TV stations or railroads or automobiles, for every winner there's a few hundred losers. And that debt could cause massive problems for the economy. So what's my message to you? Let's switch gears to things at a personal level. It's very easy to get caught up in good times. Stock market's going up, up, up, up as it has been. It's very easy to think I'm rich and I'm going to get richer and money is easier than ever and why not go into debt, I'm just going to be richer next month. You've got to really watch out for that mentality. Now, can some people use debt very effectively to become extraordinarily wealthy? Yeah, but most people are really not good at debt. Debt consumes them, especially credit card debt. Now, I'm a big fan, frankly, of having zero debt, with a couple of exceptions. If you don't have wealthy parents, then having some debt for college can sometimes really pay off. If you have a family and you don't wait as long as I did, I didn't have a family till I was 50. But if you're a normal person and let's say you have a family at age 28, 29, 31, and you want to have a house and you don't want to have to move different rentals every year, yeah, you may need to buy a house and you may need to have debt. Very few people just have a giant lump sum of $600,000 sitting around to buy a house with all cash. So you may need some debt for that. But beyond that, be careful. You don't need to have debt for a car just because you need the latest car. I'm a big fan of buying used cars. Buying, buying the least expensive car you have. Now, I will give you full disclosure. I do have one car in my family now, where we do have it on debt based on the advice of my accountant that for tax purposes it would be irrational not to. But I didn't buy the house the car on debt with a car loan because I couldn't afford it. I did it for other cash, for not even cash flow for strategic tax purpose. I urge you, you can sleep better at night the less debt you have. If you want to spend money, spend it on investments that give you income, spend it on growth stocks, spend it on s and P500 index funds rather than buying things on credit. Do think regardless of what happens to the national economy, your own economy is what's crucial. And telling yourself let me have what I want today and I'll worry about paying it later is a way to dig yourself in a hole so that your future just isn't as positive and upbeat as it could be. So please keep that in mind. We've got more coming up. Especially some of you are not going to know what I'm talking about. But if you have any kind of kids in your neighborhood, in your own home and they like to mention this phrase 6767 we're going to talk about that in just a moment in the next issue. But first let's take a few more comments from you. Jules writes in from YouTube. You've changed the format of your channel. You were standing. Can you explain your thought that went through your thinking process? I love the news and comment format. Well, thank you. I will explain that in just a moment. US and Canada are in debt. What's the future for young so there is a difference between countries being in debt and individuals because a country is in debt to itself and it's self perpetuating. The United States has a specific unique position to the world of debt because we can print our own money and the US Dollar is the reserve currency around the world. So that gives us a lot of advantage. I personally am not worried about the overall debt of the United States. I do think it's a problem to continue cutting taxes and not ever cut expenses when in fact we may need to raise some taxes or reduce some spending. I do think in general it would be good for our country and most countries to run a surplus when the economy is going well and to have a deficit in recessionary years. That's what I think is the most important.