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What you need to make taking large amounts of debt impossible is not something as drastic as a deflationary crisis but substantial downward risk in individuals' personal income.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Wed Dec 30th, 2009 at 09:43:00 AM EST
[ Parent ]
That depends on what is your fallback.

I am in general sceptical over the merits of homeowning. But at least that gives an option to rent out the place if you can no longer pay the mortgage, provided you have a fallback of course.

Similarly, if you were to borrow in order to own a wind turbine, you may be able to refinance against the income stream, if your income dropped.
On the other hand, if you want to buy an expensive car, there's no way out of it.

So, borrowing in order to get a reasonably safe asset (or a potential one if you intially live in the house) is far less risky than borrowing for consumption.
I realise that's hardly a major breakthrough in economic wisdom, of course.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Dec 31st, 2009 at 05:28:02 AM EST
[ Parent ]
The value of a home is that you can live in it.  
by paving on Thu Dec 31st, 2009 at 02:51:45 PM EST
[ Parent ]

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