Consulting by RPM || Free Advice Blog

3 Responses to “Welcome to the Infinite Banking Institute YouTube Channel”

1. Reply

   andrew' says:

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   I’ve always distrusted whole life, but always wondered why the product can’t just be made better. I blame the market. Can you allay my fears?

   • Reply

     Bob Murphy says:

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     Did you read my “My History With…” for starters Andrew’? I can certainly try to help with specific questions but I don’t know where you’re starting.

2. Reply

   Tel says:

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   Here’s my take on it, which could be a bit confused in places. So you have a young couple who want to buy a house and they go for the standard mortgage system offered by the banks. Good thing for them is they get into their house right away, they need a house and they get one by just proving they have jobs and signing an agreement.

   Let’s suppose the house cost them $250k and they sign up for a 20 year mortgage and because of interest payments, at the end of 20 years they have actually paid $500k, and I’m just going to make that double the original amount for the sake of round figures here. The bad thing for this couple is the house ends up being pretty expensive for them… but it’s not all bad because after 20 years almost certainly the house has a higher nominal value, thanks to overall asset price inflation that we all know and love.

   So now a very similar couple decide to go for the BYOB concept and they signup for life insurance with a guaranteed pay-out after N years, but this couple still need a house to live in. If they have only just signed up for life insurance, it seems unlikely that the insurance company will immediately loan them back $250k to buy a house. They would have to be paying in for some time to be able to borrow that back… am I right? That means they have to pay rent in the short term, but while they are paying rent inflation is moving the price of the house out of their reach. If this second couple are bidding against the first couple, then the second couple always lose the bid.

   This is where it gets shifty. If everyone went down the BYOB path and to quote Murphy:

   If people could become disciplined and save up before making major purchases—so that they were relying on their own accumulated capital rather than what others had saved—they would be able to finally start getting ahead.

   Yeah, that would work if everyone was disciplined like this then we probably would not have the same asset price inflation, and overall people would pay less for houses (both less in nominal prices, and also less in interest payments). Here’s the rub though, when some people have access to very large sums of instant cash, but others need to delay gratification, the physical assets will end up in the hands of the first group of people.

   My feeling when I took out a mortgage was that I was depending on inflation to come along and make it worthwhile, and the house across the road from me, recently sold for not quite double what I paid for mine, after only approx 6 years of asset price inflation. I’m aware that with everyone also going into debt we get a debt mountain that ultimately is also the cause of asset price inflation and I guess there comes a right time to sell.

   These debt mountains are also the cause of financial instability, but government won’t allow the Ponzi scheme to collapse so they will tip money into the banks to ensure those prices keep going up.

   I think Tom Woods spoke about this effect, there’s a kind of insidious effect of playing the debt mountain game that even people who know perfectly well how it works and why it’s a dumb game, still play it, because gradually it becomes the only game in town.