"If I were the King of the World, I tell you what I'd do."
If I could have my world without debt, a world which could be created simply by all people and nations everywhere forgiving all debt and never allowing it again, there are some questions about how things could possibly work. Debt has become so mainstream, it is in practice the same as cash. Yet it is killing our economy. Read some of my previous posts on the subject for my logic in this area.
The first, most obvious question about how the world would work if debt was never allowed again is, "How could anyone ever buy a house?" Clearly, almost no family in America could rent a house to live in and at the same tine save enough money to pay cash for a house. Most people can't even save up enough for a decent down payment. Now, we borrow money to buy the house and pay it back monthly with interest for 30 years. If we take away the option to borrow money, almost nobody could save $120,000 to buy a nice house.
So let's take a family through buying a $120,000 house in my world. Since a house is such a big investment, and debt is forbidden, we have to have a way to buy some of the house each month. Let's do what we do now with corporations. Let's assign stock, or shares of the house, to the property. Since most people pay for a house monthly over 30 years, let's assign the number of shares to completely own the house to be 12 (payments each year) times 30 (the number of years houses are typically financed for). A house would therefore have 360 shares. If the house is worth (by consensus of the buyer and seller) $120,000, each share would be worth $333.33. (120,000/360).
Someone could buy a house over 30 years by purchasing one share each month for $333.33. Now we have to add insurance, typically $1200/year or $100 per month. And the government needs their tithe, which is typically $1500/year or $125.00 per month. So a house payment so far is $333.33 for a share of the house, plus $100 for insurance plus $125 for taxes equals $568.33, or less than 60% of what the payment would be if it was financed conventionally.
The seller doesn't really get to sell his house for $120,000 in cash, but since he doesn't have to pay a bank loan, he really doesn't need to. If he wants to, he could sell his shares in the house at a discount, and some investor could buy it at half price or something. That would be stupid, but is the seller's prerogative. Also, the seller could negotiate a down payment, or buy in, at the beginning. If the seller wants 20% down, then the buyer has to buy 72 shares of the house up front. If the seller wants to make the transaction more attractive to buyers, he may only ask for 36 shares (10%) up front. Of course the shares purchased up front would come off of the back end, so it really wouldn't take all 30 years to fully own a house. And if a buyer wanted to own a home in 15 years, he could buy 2 shares each month.
From a buyer's point of view, we know that almost nobody pays off a house. Buyers live in it for 5-7 years, pay the principle down a little, let the house appreciate in value, then sell it and buy something bigger (a fundamentally flawed plan that just happened to work while property values were inflated) In my world, since they buyer is actually buying a share of the house, if he decides to move, he can sell his shares, or maybe trade them for fewer shares in a bigger house. Possibilities are endless. And no debt is ever incurred, and not one dime is wasted in interest.
From a seller's perspective, it might be more fun to just sell the house for cash and be done. But without debt, that probably isn't going to happen. So we would have to rethink the strategic, long term goals of owning real estate. But we need to rethink that. We need to create a new world where debt has no role to play.
But my point is that if people can still buy houses in a world without debt, there's a way to do everything else too. And everyone on the planet will be better off.