US Business Booms and Depressions Since 1775 (1943)

Re:US Business Booms and Depressions Since 1775 (1943) by abeppu on Tuesday May 21, 2024 @04:38PM (#40433580)

I've heard that the ultra-rich borrow a lot against potentially illiquid assets to avoid realizing gains and taxes, but I'm confused how it works long term. Do you just keep taking out new debt to pay back your old debt, and continue doing that until you die? It seems like eventually you would need to sell something to pay back your older creditors.

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Re:US Business Booms and Depressions Since 1775 (1943) by kasey_junk on Tuesday May 21, 2024 @06:23PM (#40434777)

You don’t even need to do it for illiquid assets, the important bit is to have appreciating assets.

You avoid taxes by not getting cash in a tax inefficient way (income, capital gains) and instead you get it in loans (which can be tax deductible!)

Then when an event happens that allows you to pull cash efficiently (capital losses, inheritance asset step up etc) you service the loan.

Your lender is happy to do this both because the loans are fully backed by real assets and they want to sell you or your businesses other services.

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Re:US Business Booms and Depressions Since 1775 (1943) by ryandrake on Tuesday May 21, 2024 @05:36PM (#40434309)

I guess if you have, say, $50 billion in assets, you can take out a new $5 million loan each and every year, and by the time you die, and never have to pay yourself back. You've barely leveraged 1% of your assets. Their reality is unfathomable to us little people.

$5 million, to someone that rich, is like $50 dollars to us. It's chump change you might find laying around your house.

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Re:US Business Booms and Depressions Since 1775 (1943) by mitthrowaway2 on Tuesday May 21, 2024 @06:33PM (#40434864)

Furthermore borrowed money increases the money supply, and at that scale, the money you're borrowing can even be used to increase the price of the assets that you're using as collateral, allowing you to borrow even more.

It can also unwind just as quickly if you need to pay those debts back in a hurry, causing your asset prices to tumble on the way down. But if you're big and have borrowed enough money, whole jobs and industries will be dependent on your continued solvency, and so you can sometimes maneuver to put the public on the hook.

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