[deadwing0]

This. I struggle to see how higher savings by the wealthy can cause me to take on any more debt. Is the argument the wealthy use cash to invest in assets (houses), thus driving up the price and causing middle and lower class people to be forced to borrow more to buy a house?

[dastbe]

Savings is probably confusing here, because savings change based on your socioeconomic position. People go from not saving anything, to saving cash, to saving in assets.

Some of these assets have a poorer counterparty who is getting access to that money in return for repayment + interest. Perversely, the more money is available in these assets, the lower the interest rate and so the more money these counterparties can borrow. This drives up the cost of physical assets being bought with this money, like homes, because the value of the home is dictated by the debt load a buyer can bear. Lower interest rates means you can support more debt, which means someone will take on more debt and outcompete you for that house.

[fancifalmanima]

I'm definitely speculating, but I could see banks having a glut of money to loan contributing to the low interest rates that have existed for a while now (thinking of money from a supply/demand perspective). With those lower interest rates leading to more interest in buying homes and pushing up prices (during the subprime crisis, to folks that couldn't necessarily afford it). While you'd also expect a housing construction boom, its certainly plausible that the industry would have to play catch up to demand. (It seems easier to me to hire a realtor to go look at homes than to start or expand a construction business). Zoning/other regulations can also slow down that process. The low interest rates also make larger/more expensive homes more feasible for buyers, due to the fact that a smaller percentage of the monthly payment is interest. I could certainly see ways that the above would lead to an individual having a higher debt load than they otherwise would.

[uuidgen]

Banks, having surplus cash, offer low-monthly-payment loans which allows more people to buy them, by the way earning 0.6-0.8 * X to the banks.

Since there is a lot of cheap credit price stops constraining the demand side. You can get almost arbitrary large loan with arbitrary long timespan. This causes prices to rise. Houses seem like good investment so wealthy buy them restricting supply side, causing prices to rise even higher.

Rising prices make it impossible for most to save for the house. They have to take loans.

Now poor people who want house need to pay the inflated price + credit fees on top of that. Sellers see their assets rise in value, creditors see more customers and more revenue.

If there was no cheap credit then the prices wouldn't rise so much because nobody would be buying them.

Now, I don't know how true is all above but that seems to be the explanation of the issue I've seen many times.

[metrix]

They are not forcing you, it's that the 1% have savings and want that savings to make money so it's invested. Portions of that investment go into banks who loan out money to the middle class.

The middle class uses this money to buy cars/houses which helps the 1% to increasing their savings, which they then invest a portion of into banks...

BUT like another comment discussed, a lot of this is going over seas. Right now this cycle is pushing US asset values higher, but at some point this will come crashing down, and the money that was invested in under inflated markets will be valued correctly/over valued.

At which point that money will flow back into the US.

[kiba]

But people do want to own homes, but the problems is debt and the fact that homes are seen as a way to accumulate wealth. Affordable housing clashes with that.

Also, the article seem to treats building a new road as an unalloyed good.

[mason55]

> homes are seen as a way to accumulate wealth

It's worth having a discussion about whether this makes sense and is something to strive for.

Unfortunately, because society has been based on this for so long, the people who spent their lives paying off a 30 year mortgage would never agree to make any changes that would reduce the value of their house. You'd need to come up with a plan to transition away from a house-based model of wealth over a long enough period of time where current home owners don't get screwed but people know what it means to buy a house now.

And I don't think any plan that's long-term enough to be sensible could actually survive politics long enough to be successfully implemented.

[js8]

Do you think advertisement works? It is certainly possible, using advertising, to convince many people that NOW is the special time when taking on debt is actually OK, because rising house prices lift all boats. (Not really that different from any other gold rush..)

Which is what happened before 2008, when there was very little oversight in borrowing (e.g. NINJA loans). We know empirically that if the lenders are not obligated to make sure that the loans can be repayed, predatory lending will occur and cause social problems.

[imtringued]

No, nobody is buying your products. Nobody wants to hire you. Nobody is investing in a company that will hire you. If you have no income you must go into debt. It's that simple.