‘Old Curmudgeon’ Has Audacity To “Force People To Confront The Consequences Of Their Own Debt”

“I own my house. I have no debt. Why? Not because I was lucky or rich. But because I never borrowed for consumables. My house is not an investment. Whether it is worth $100,000 or $1,000,000 is irrelevant. It’s where I live. It’s a roof over my head. I had to get a mortgage for the house, but worked on paying it off with spare cash. I didn’t have to have a car. Nor yearly vacations in exotic locales. I didn’t eat out a lot. I didn’t need a lot of clothes. And I don’t give a sh*t about impressing the neighbours.
For the most part, all the debt problems people have stem from their own greed, consumerism and lack of self-control. Don’t blame the market. Don’t blame the banks. Blame yourselves. But in our society, it is impolite to force people to confront the consequences of their own actions.”

– Old Curmudgeon, commenting at ‘Why lower home prices are a national priority’, Globe and Mail, 11 Jan 2013 9:26PM

‘Old Curmudgeon’ is in this situation in part because of his sensible ways with money, but also because he was very likely fortunate enough to buy at a time when house prices were more reflective of underlying fundamental value. And that is how it should be, after all. Homes as places to live, rather than as financial instruments.
His indignation with debt-spending is well placed.
– vreaa

From the article on which ‘Old Curmudgeon’ is commenting:

If Canada wants to slay its household-debt dragon, it will have to cut down house prices at the knees. But there’s an economic price to pay for that – and it goes well beyond a cooling of the residential real estate sector. …
“…house prices appear to drive non-mortgage debt, too – the more valuable your house, the more debt you’re likely to take on outside of your mortgage. And, since close to half of all non-mortgage debt is used to finance consumer purchases, higher house prices ultimately boost our national consumption, too.” …
“… the 52-per-cent rise in national house prices from 1999 to 2007 was responsible for a 19-per-cent increase in homeowners’ non-mortgage debt.”… “Multiply that by approximately 13 million households, and that’s nearly $10-billion more in annual consumption – or roughly a 2-per-cent juicing of non-housing consumer spending.” …
“A substantial downturn in prices – say, 10 to 20 per cent – would, in theory, not only reduce mortgage debts for new home buyers, but, significantly, push down non-mortgage debt to the tune of 4 to 8 per cent.” …
“A downturn in consumer borrowing is going to put a serious lid on consumer spending growth – which up until now has been a critical driver in Canada’s economic outperformance since the 2008-2009 global recession.
In the long term, this is the price to pay to get Canadians back living within their means, and the economy on more solid footing. But in the nearer term, the medicine could well feel worse than the disease.

– from ‘Why lower home prices are a national priority’, David Parkinson, The Globe and Mail, 11 Jan 2013

16 responses to “‘Old Curmudgeon’ Has Audacity To “Force People To Confront The Consequences Of Their Own Debt”

  1. A couple of graphs for you today

    Note that this data is only up until 2010. Every city in those graphs except Edmonton have experienced higher house price gains than income gains in the last two years.

    There are definitely other factors such as interest rates, demographics, debt levels, equity levels, mortgage financing,etc, that determine house prices than just incomes. But the next time someone says that house prices in Canadian cities rose because of incomes, show them the above graphs.

  2. Old Curmudgeon is presumably a boomer and likely completely unaware of just how much many necessities have increased in cost at a pace far greater then inflation. The NYTimes had an interesting article about this http://www.nytimes.com/2013/01/13/opinion/sunday/cant-save-heres-why.html?_r=1&utm_source=buffer&buffer_share=ac0e7&

    But my wife and I were just talking about this the other day. I remember my grandfather, born in 1923, telling me about going to the movies on Saturday as a kid, I guess in the 30s in Toronto. He would pay a nickel, get to see two movies and eat a bag of popcorn for that price. Today a movie and a bag of popcorn is close to $30. I don’t know what the inflation adjusted value of a nickel from 1933 is, but I suspect it’s not 60000%

    I blame my own people, us MBAs, because we are the ones who figured out how to minimize consumer surplus and calculate the price elasticity of demand. If there had been MBAs back then, I’m sure one of them would have figured out that you could charge a quarter and only lose 15% of customers.

    But Curmudgeon isn’t entirely off track, today credit has become so easy to get and use, that price elasticity is out the window, we never feel like we are really paying for anything, so we become immune to price increases. Real Estate is just the biggest and most destructive example.

    But I have a particular pet peeve for boomers who love to romanticize the circumstances of their success while actively ignoring the way the world has changed around them and the challenges that creates for the rest of us.

    • I’m not a boomer (I am in my early 30s) but my parents are. They did scrimp and save and are of a different mindset. Today’s generation is more entitled. They think they are entitled to good jobs, good grades, acceptances to universities, living in a detached house, etc. Because of easy credit, RE prices have shot through the roof. It’s got nothing to do with supply and demand anymore, nothing to do with median incomes in the city, but more to do with who is willing to take on that bigger mortgage. My parents and your grandparents probably didn’t lust after that luxury car, luxury hand bag and that huge TV. My generation does. And therein lies the difference.

      • Typical boomer self-aggrandizement. Why don’t you actually look at what it costs to live today and the opportunities and compensations available to today’s youth. You are as guilty of delusion as today’s bulls if you think the veneer of borrowed wealth and conspicuous consumption that Vancouver clings to is a reality for younger generations today. I’m not lusting after luxuries, I’m struggling to keep a roof over my head and sustain a reasonable quality of living, I’m struggling to pay down the student debt that I have and failing to save for the further education I need. And guess what? Those young people you do see driving Ferraris or sporting Luis Vuitton? They did not earn that money, that is yet again the unprecedented wealth of the previous generation, that is their parents’ money. Wealth like that is unobtainable for today’s youth and you should well know that. The privileged ignorance of the realities of the contemporary economy that aging Boomers cherish is offensive and unjust, so don’t think what you’re lording over the young speaks of any immaturity but your own.

      • And while I came here to direct that rant against “Old Curmudgeon” and see that you don’t identify with his generation, you still parrot their drivel about entitlement and are equally guilty of that narrow and deluded worldview. There has been outcry over the wanton way of the young since the time of Plato, but I don’t think there has ever been such a stark gulf of intergenerational inequality as there is today.

    • Lexlimo and kaspen– you guys are both awesome!

      “But I have a particular pet peeve for boomers who love to romanticize the circumstances of their success while actively ignoring the way the world has changed around them and the challenges that creates for the rest of us”

      AMEN!

      “There has been outcry over the wanton way of the young since the time of Plato, but I don’t think there has ever been such a stark gulf of intergenerational inequality as there is today.”

      So true and so well said!

      I was going to say that I don’t have a car and I don’t take annual vacations and I don’t eat out and I rarely buy clothes and somehow I’m still an impoverished renter. What’s the difference between me and Old Curmudgeon? I was born in the 80s.

      • I tend to agree with you guys. Old Curmudgeon does not get my vote that is for sure. I am from the same generation as he is and I know factually that we lived through a tremendous period of the best economic circumstances that probably existed for anyone in all history (I am dead serious saying that). Who else on this planet had so many benefits and opportunities put in their lap at one time and made so little personal effort to acquire them? OC is not a genius to merely have lived and participated during an unprecedented economic boom. Lecturing the young about personal sacrifice is just so lame in my books. What OC does not admit is that our older generation has already taken the benefits of the future and consumed them in the present and the past. Now he is part of the voting bloc that will deprive the next generation of equity while he fills his boots for retirement and cheats them out of what remains of the fair distribution of future tax revenues. As if it is deserved.

      • And a post script…

        It is VERY relevant “whether it (his home) is worth $100,000 or $1,000,000” dollars. Nobody in the city scrimped and saved to have a West Side house valued at 75,000 in 1975 so that it became worth three million in 2012. That is patently ridiculous. This man is suggesting that he acquired wealth through prudent household budget practices while avoiding the pitfalls of consumption but he is throwing out a Red Herring in the process. The suggestion is that he “earned” his good luck through foresight and economy. That is dishonest.

      • Real Estate Tsunami

        I agree that the Boomers in Vancouver West are selfish, opportunistic pigs. But, how about the Boomers in Surrey Newton.
        Also, Mark Zuckerman and cohorts are not Boomers.

      • Real Estate Tsunami

        SugarMountain not SugarMan, of course!

  3. >> Don’t blame the market. Don’t blame the banks. Blame yourselves.

    Heh, if schools taught this instead of subordination, who would need the State?

  4. The economy is terminally ill, and there is really no medicine to cure it.

    The only fix is to “euthanize” consumer spending,.

  5. What I will take issue with, as always, is not considering the house an “investment” at all. I could argue a rental agreement is an investment as well.

  6. The entire economic system is based on people getting into debt.

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