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Forum Post: Interest v Taxes

Posted 1 year ago on May 16, 2020, 10:15 a.m. EST by agkaiser (2492) from Fredericksburg, TX
This content is user submitted and not an official statement

About every dozen years or so most people get a new house. We pay a lot of interest to the bank in the first years of a mortgage. But the loan is paid off from the sale. We put the equity down on the new, usually larger mortgage. The interest and principal from the previous loan are re-loaned to someone and so the interest is compounded. The price of real estate appreciates at the rate the banks allow by the loans they are willing to make.

Eventually the prices of real estate will rise so high that only banks or corporations like Blackstone will be able to afford them by the profits from rents or usuries on debt their activities have caused to inflate.

We will become a world of banker, landlord and productive capacity owners versus employee/debtor/tenants.

That looks a lot like feudalism. I think others have called it neo-feudalism.

So there we are and that's what we have to look forward to.

How is this playing out?

Housing prices reflect the exponential expansion of mortgage debt that grows at the rate of compound interest. That's true for the all the growth of the imaginary wealth of the FIRE sector that sucks the life out of the real economy of production and consumption of real goods.

Fools blame all the economic hardships on government and taxes. They do so in spite of the fact that they've undoubtedly spent orders of magnitude more of their earnings on interest and even real estate commissions than they have on real estate taxes. But the morons will sell their land and homes and pay a larger commission to the agent than all the taxes on the property for all the years they've lived there. [As of 2018, the median duration of homeownership in the U.S. is 13.3 years. However, homeowners in some cities have moved more recently—or more frequently—than groups in the rest of the country. - valuepenguin.com] The profit they make will barely, if at all, cover the mortgage interest paid. The more we "upgrade," the more interest we pay. Remember, the interest to principal ratio of each amortized payment is greater in the first years of a mortgage. Thus the buyer will pay even more interest and the banks and landlords (whose tenants pay the interest and taxes) not the government, will be the only real winners.

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