Continued
If engineers were capable of these feats 60 and 40 years
ago, how can yearly variations in machines that roll
along the ground at less than 100 mph possibly be
exciting. Going into debt to buy useless variations
in automobiles is economic insanity. Retooling
factories to make parts that are shaped differently
but not technologically different increases the cost
and therefore the price of consumer products. From
1908 to the early 1920's the Ford Motor Company made
the same machine, the Model T. When introduced the
Model T sold for $850. By the time it was
discontinued in the early '20's the price was less
than $300 and 15,000,000 had been manufactured. If
the engineering capability that designed the Lightning
had been combined with manufacturing philosophy that
produced the Model T to manufacture cars in the '50's,
how good a car, at how low a price could have been
sold by 1960?
In an economic wargame society it is necessary to know
how to keep score and the tactics of the enemy. An
individual's wealth is indicated by his or her net
worth. Net worth is assets minus liabilities. Assets
are anything which can be assigned a monetary value
that can be realized by selling the item. Liabilities
are debts, which have to be paid eventually. So
maximizing assets and minimizing liabilities are basic
objectives. However, all assets are not created
equal. Some assets maintain or even increase their
value over time while others leak like a sieve. If an
asset is so expensive one has to go into debt to
purchase it, then it is important to know how long the
asset lasts; how rapidly it depreciates. Financial
advisors tell us that a home is the most expensive
purchase that most Americans ever make, followed by
automobiles. Hopefully the value of ones home will
increase but the value of a car can only decrease. By
not supplying reliability and durability data on their
products automakers are leaving consumers in the dark
and engaging in information hiding.
If auto manufacturers produced lower cost, longer
lasting cars by eliminating useless design and brand
variations (Chevy and Pontiac are both by General
Motors), then the savings on cars could be applied to
home mortgages. A $100,000 mortgage over 30 years at
8% will ultimately cost $264,153.60, that's $164,153
in interest alone. By paying an additional amount
each month a mortgagee can reduce the total interest
paid and eliminate years of payments.
Regular Payment: $733.76 Total Interest: $164,153.60
- .....Extra Amount.....#....Approx....Total Amount of
- ....Added Each Pmt...Pmt...Yr..Mo....Interest..Saved
- ......$.... 0.00.....360...30...0.....$........0.00
- ...........50.00.....287...23..11.........39,907.13
- ..........100.00.....242...20...2.........62,458.66
- ..........150.00.....212...17...8.........77,433.46
- ..........200.00.....189...15...9.........88,262.94
Paying an extra $200/mo. nearly cuts the time in debt
in half while saving $88,000 in interest. But the
money for that extra payment has to come from
somewhere. Cars and credit cards are two possibilities.
In 1983 I read a letter that a bank sent to its
stockholders. The bank informed its owners that it
encouraged the customers to take as long as possible
to pay back their loans. This will of course maximize
the time over which interest is charged, thereby
maximizing the dividends to the stockholders. My bank
recently sent me a credit card bill of $0.00 even
though it should have been over $100. Their
explanation was:
"There is no minimum payment due because last
month's payment exceeded the minimum payment due.
Your normal payment schedule will resume next
month. Finance charges will continue to accrue if
the new balance is not paid in full by the due
date."
They're content to charge me interest while "graciously"
allowing me to "save" money by not paying them one
month. Apparently I'm paying them faster than they
would prefer. Making minimum payments on credit cards
means being in debt for years and paying 2 to 3 times
the purchase price for everything bought with the cards.
There is no limit to how dumb consumers are expected
to be, some company named Providian keeps sending me
an application for a Visa "Classic". It has a $500
limit, 23.99% interest, a $49 application fee, a $59
annual fee and they have the NERVE to say it's a
limited time offer. It's the third time I've gotten
the offer, I don't see how it could get worse in the
future. If some fool were to take this offer and make
minimum payments of 3% per month with this interest
rate of 2% per month that would amount to
approximately $180 + $49 + $59 = $288 paid in the
first year and still leave a bill of $440. How many
dummies do they find every month?
Continued
