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Asian Crisis versus US - Do as I say, not as I do...



April 14, 2008 – Comments (4)

Bloomberg has a good story about Korea during the Asian financial crisis of the 90s

"The U.S. is doing most of what it told Asia not to.(emphasis mine) It counseled higher interest rates, stronger currencies, fiscal belt-tightening, avoiding fresh asset bubbles and limits on bailing out investors. These days, the U.S. is reminding the world it's better at giving economic advice than taking it. "

According to the article, weak banks were allowed to fail.  Korea came out of the crisis first.

Another note about what I know about Korean culture from my interaction with a Korean family.  Korea doesn't have the social support programs that the US has.  The further I get in life, the more I disagree with the social programs that we have, Canada and the US.  I think people should be required to put money into a pension plan and it should simply be frozen until old age or serious illness.  But, none of this lumping everything together and creating an expectation that you are owed more than you've paid.  If it is in an account where you can see what you put in, then you have no such expectations.

The mother in the family said that Koreans believe that you need at least $100k in the bank for emergencies in terms of lifestyle, a serious illness, etc.  The fact that they don't have the social programs means that they save and they take responsiblity for their lives. They cut middle men and tend to not buy insurance, but save the money themselves.  The insurance middlemen in America suck the economy dry and the insurance companies don't live up to what they promise.  The mother in the family that I knew thought that having a quarter of a million saved was better.  She said that that could be gone with just one partner in the family facing a serious illness, and then there were the saving for retirement concerns.

Anyway, being savers makes a nation stronger and American policy encourages a nation of debtors.  I don't think America has a hope of coming out of this the way Korea did because of the social policy that encourages debt.  Killing the ability to deduct mortgage interest and giving tax breaks on the first $5k of investment income would go a long way to correct American thinking. 

4 Comments – Post Your Own

#1) On April 14, 2008 at 12:50 PM, ricoy5 (25.62) wrote:

Please explain how killing the Mortgage interest deduction would help anything, other than destroying the finances of 50 mil responsible homeowners???  What exactly would be the  incentive to purchase a home?  pride? 

I'm confused what the purpose of this rollback would be, the upside.

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#2) On April 14, 2008 at 1:28 PM, dwot (28.81) wrote:

Americans have an acceptance of debt unlike any other country in the world, and what has that gotten you?  People with an attitude to do their best to maximize debt to avoid paying tax, and this policy is at your peril.

A much better one would be to allow $5k per year tax free savings towards a first home purchase, or half of what goes to principal after the first $5k up to $5k is tax deductible. 

Written policy to encourage debt is bad.


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#3) On April 14, 2008 at 4:56 PM, ricoy5 (25.62) wrote:

5k a year towards first home purchase... so, in some places, the cost of homes might go down to... 15K???  really? or the only people buying a home (without debt) are 80y old???

Look, I'm all for policy that encourages savings, encourages proper use of debt but overturning the system will be catestrophic.  Demand caused the housing ramp up in certain areas, loose credit was the excellerant.  not the other way around.  Don't burn the barn because the horse escaped. 

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#4) On April 14, 2008 at 8:08 PM, dwot (28.81) wrote:

If people had decent down payments to start they wouldn't need mortgage interest deduction.

Being able to deduct $5k per year, 5 years you'd have $25k that was tax-free, and hopefully more.

I didn't say no debt here, I suggested policy that rewards for decreasing debt, not keeping it. 

Too many Americans don't blink twice at debt and that's why America is in such a mess right now. 

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