1668 FBF: Inflation Induced Debt Destruction at Creating Wealth Live

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multi millionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show. This is your host, Jason Hartman with episode number 843. 843. Thank you so much for joining me today as I just arrived back home to Las Vegas last evening from a week in the Big Apple, New York City, where it feels like you're going forward in time in the sense I'm only talking about fiscal and monetary policy that create inflation because everything is so incredibly, incredibly expensive in New York City. It is the most expensive city in the United States. And it's just kind of absurd, really. It is. It's such a contrast from where I was just a few weeks ago in Eastern Europe, whether it be Poland, Ukraine, Lithuania, Latvia. Then I also went to France and Germany. But those places are not inexpensive. So it's sort of this interesting comparison in time because if you look at the way inflation erodes our purchasing power and erodes our savings, our stocks, our bonds, mutual funds, and thankfully our debt. You really can see that when you go to these different places where put prices in Eastern Europe, for example, are so low, it feels like being back, I don't know, 20 years ago, 30 years ago, the prices are so inexpensive. And then when you go to New York, it feels like being in, you know, maybe 10 years forward in prices where there's been a lot of inflation and everything is just so, so expensive. So it is quite a contrast to say the least. But it was an interesting week. Not much time to relax at all. It felt like we were always moving. I've got a friend who wants to get into the Broadway scene and do a musical or a movie one or the Other he's kind of thinking about it to promote his business and get access to, well, need I say, the left wing population. And that's where they are. Well, they, they consume a lot of that type of material. So that's a good place to go to check it out. We saw a couple of musicals and I redeemed one of my charity auction winnings, which was a meeting with Bill Hemmer and Shannon Bream and a tour of need I say at Fox News, because half of the audience will think, oh my God, why would you tour that place? Fox News, F A U X News. But you know, you go across the street to cnn, the Communist News Network, the Clinton News Network network, and hey, you know, whatever. It's all, all partisan world in which we live nowadays. But I would have to say that the highlight of the week was the Tony Awards. Yes. I've never been to anything like that. The Tony Awards. And that was quite a production. It was very interesting to see that, you know, that TV show, it goes on about a half hour before it airs. They actually start the awards and give out some of the lesser awards off air. And the political correctness was everywhere. Everyone talking about global warming, yet doing nothing about it still. All of these celebrities living in luxury, flying in their private jets, out on their big yachts, making a huge carbon footprint and all complaining about what everybody else has to do to reduce and live a more meager life.

Everybody but them.

They're the elite class, of course. And then you hear them preaching diversity all the time. And it seemed like a pretty diverse crowd to me.

So I don't know what they're complaining about.

They talked about bad times, how this is. These are really tough times we're facing.

Really?

I don't know. Stock market is booming. Real estate market is booming. Unemployment is low. Bad times, really?

Yeah. I don't know.

They're all talking about Trump because they hate Trump. And this intolerance is just, it's totally pervasive. Hey, I'm no lover of Trump, okay? By any means. I think the guy's got a lot of problems. I'm concerned that he could start World War 3 with his Twitter account. You know, every president, no matter what side of the aisle they're on, seems to be beholden to what? Well, the military, industrial complex. All of them, all of them seem to be, you know, into intervention and getting into other countries, business. And I don't think Trump will be any exception. Obama wasn't. Bush certainly wasn't. And it's ridiculous. It really goes to show you that the President, who we think is the most powerful person in the world is, is really working for somebody else. I know you're thinking, oh, conspiracy theories here we come. You know, it's hard not to believe that, isn't it? I mean, look at what happens whenever they get into office. They all change their tune, don't they? To one extent or another. It's really amazing. But hey, all I say as an investor is, you know, take the most historically proven asset class and align our interest with the powers that be, the powers that want to spend money, the powers that want to. Well, whether they say they want to or not, they all increase the debt. And that means inflationary pressures, that means higher rents, that means higher prices, that means asset inflation. It means what? A greater concentration of wealth where the rich get richer, the poor are taken care of by the government to one extent or another. And, and the middle class has all the pressure on the middle class. The middle class shrinks, the rich get richer. The poorer, I don't know, they don't really get poorer because they live a lot better than they used to before. The middle class, that's the class that has all the pressure on them. Our mission as good investors is to try and move up as much as possible in the economic ranks. And if we are in the middle class, the lower middle class, the middle class or the upper middle class, let's try and move up one notch, maybe two if we can, because all of the pressure is on us. Those middle class and upper middle class people and even the lower wealthy classes have a decent amount of pressure on them. But the, the ultra rich, they pretty much have smooth sailing because in inflation makes them more wealthy. Also being government suppliers in the military industrial complex or the prison, the government prison industrial complex or the government student loan debt enslavement complex or whatever that complex is. There are so many of them nowadays, they are always, their wealth is always inclusive, increased by it. So let's align our interests with these incredibly powerful forces. They are too powerful to fight. I think we should continue to complain and be diligent, civic minded people, but at the end of the day there's going to be more inflation and we've got to align our interests with these very powerful forces. You know, they say never bet against the Fed. I would agree. I would not take that bet. I would put my money on the Fed, on governments, on central banks, and invest with my philosophy, which basically espouses just that, align our interests with these powerful forces. So that's what we want to do as investors. And we will talk more about that at our upcoming Venture Alliance Mastermind meeting in Chicago right around the corner, just a week and a half away. If you'd like to come as a guest, it's just $2,000. This is a, this is an upscale event. You're welcome to do that. Go check out venturealliancemastermind.com and also Jason hartman.com in the events section. You can register there. And you can also register for Just a few weeks later, a couple weeks later, our Oklahoma City Jason Hartman University event and Property tour in Oklahoma City. That is a relatively new market for us. So come out and join us for that. Meet all of our clients, learn a lot, have some fun, increase the size of your network, do some good networking and go to Jason hartman.com click on events for that and join us for those two events coming up. And without further ado, let's get to our main segment of today's show, which is a clip from a live event that I did a couple of years ago, a few years ago in Florida. And I think you'll enjoy it. So let's tune in for that live clip right now.

We talked about the six ways the government is most likely to inflate their way out of the message. The six ways just to quickly review default. That's politically intolerable, right? It's just not a good solution. The government is very unlikely to default on its promises because it is too severe. You're not going to win any elections by saying no more goodies. Look at Greece, look at the austerity, look at those kinds of problems and you'll see that default is not an option that government wants to, to take. Okay? Government could raise taxes. They can't raise them enough to solve the problem. The problem is far bigger than you could possibly collect in taxes. They could have a yard sale and sell things off. That's certainly an option. They could use the military to steal. You look at military heroes throughout history, like Napoleon. That's what he was, basically a thief with an army. The great news would be technological innovation. Certainly it is. What time is it? It's an amazing time to be alive. Okay, so we could have technological innovation and that's certainly the positive way out of the mess. No question about it. The most likely thing is, of course, we're going to have a blend of all of this. That's really the answer. Everything's going to happen. There are going to be some degree of default with government promises. There has to be the Government cannot defy gravity forever. There will be theft, there will be innovation, there will be higher taxes. And the biggest part of it, the likelihood, is there will be inflation. Of course, there's much disagreement on this issue, but inflation is a really good business plan for governments. It's a great way out of it. We owe so much money to China and so much money to Japan, and they know they're doing this. They know we're going to inflate our way out of it. Virtually every currency on earth is fiat currency. It's by authority, it's nominal, it's in name only. It has no real intrinsic value except the power of the economy and the military behind it to force its value on other countries and their citizens. So we talked about monetary policy. We filled this out yesterday. We talked about how inflation. To understand it, we need to distinguish between real and nominal, between price and value. We need to understand that this is the insidious hidden tax that destroys purchasing power. It debases and destroys the value of our stocks, our bonds, our savings, and thankfully, the value of debt. It is the most powerful method of wealth right redistribution known. It redistributes wealth from lenders to borrowers and from old to young. This is exactly where we left off. Why does it do this? What do you think? It does it because the lenders loan their money at current value and they get their money back at debased value, inflated value. The money coming back is worth less than the money they loaned. So think about it. If you loan $1 million today to a borrower, and over the course of that loan over several years, say for example, that there is a cumulative total of 50% inflation, you're only getting back 500,000 real dollars. The debt goes down in value, it's paid off by inflation. So to put yourself on the right side of this equation, you want to be a borrower, not a lender. If you're going to lend money, lend money on a short term basis, but borrow money on a long term basis. So you might be asking yourself, well, how would a bank be this stupid? Why would they agree to this deal? Because it's not their money. They get that money from bondholders, they get that money from the Federal Reserve System and they loan it out. And they're simply playing the margin. They get the money at 3%, for example, and loan it at 4.5. They're playing the margin. That's all that matters to them is the margin on that money. Remember that recent podcast I did with a deep explanation of Adjustable rate mortgages. Remember those five different elements of an adjustable rate mortgage, right? You got the start rate, you've got the index that the rate is indexed to. And the most important element there you have the margin. The margin is the difference between the index and the rate the borrower is charged. Same concept here. They're making the money on the margin. Now, why from old to young, why is that significant? Why would it redistribute wealth from older people to younger people? Because older people have assets, they have savings, generally, hopefully, and younger people have debts. So through the generations, inflation is this redistribution of wealth from lenders to borrowers. So many people say, and this is what's interesting. If you look at the political spectrum and you look at the left side of the political spectrum and the right side of the political spectrum, the left seems to own the concept of compassion. Would you agree with this? You know, they seem to have that brand tied up. We're the more compassionate people. We're going to help people, we're going to give them free health care, we're going to give them more government benefits. You know, they sort of somehow own that concept of compassion and the right, you know, not completely, of course, but they kind of own the concept of, well, we want to be more responsible fiscally and we don't want to have all this debt, right? Would you agree that this is the way the political ideology is at least branded? I'm not saying it's actually true. I'm saying it's just branded that way in most people's minds. Right? But I ask you this. If the left, you know, wants to spend all this money to dole out all these goodies, well, what do you have to do to pay for the goodies? You got to have a bunch of debt, right? So the government goes more and more into debt, and who do they pass the debt on to? The next generation. Okay, how compassionate is that? You know, there are all these statistics about, like every baby born in the United States, the second they're born, they have like $87,000 in debt just because they arrived. That's because of all the government debt. That is a liability and it will somehow have to be paid. It will either be paid through taxes that they will have to pay, or it will be paid through inflation, debasing the value of their savings, their stocks, their bonds. It has to be paid. Now, why hasn't the old saying, right, that chickens always come home to roost, right? Isn't that the saying sometimes, something like that, right. You know, or the other one, you always gotta pay the piper. Well, does it seem like we've paid the piper or we're paying the piper? Not really. Why is that? Because of this concept that the government is defying gravity. It's totally illogical. What's going on? They're defying gravity because. Why can they get away with defying gravity? Because they import deflation through immigration policy. Think about it. If you let all of these workers come in from the southern border, that will accept less pay, then you're importing a deflationary force. If Giovanni or anybody that's doing rehabs on a house can hire cheaper labor and you can deliver that house rehabbed to the buyer for less money, that's a deflationary pressure. And that would seem good. It means you get it for less money, and it is good in a way. And then the other thing they do is they import deflation in manufacturing from places like China, the workshop of the world. So everybody criticizes companies like Walmart. It's a hard problem to solve. It really is, because you can either have low prices or you can have jobs. Which one do you want? I mean, this is. This is a conundrum, right? You know, it's a problem. If we want to have a really protectionist policy, and we want to say, look, you can't bring all your cheap goods into the US without paying what, a tariff? You can't do that. Well, then the prices go up in the US and you look at countries around the world that have these policies, and you go into their stores. I remember when I was in Bermuda, okay, And I went. And, you know, I. My earbuds broke for my iPhone, and I went in to buy a new earbuds, and there was this. They didn't have an actual Apple store there. You know, the earbuds that are $29 in the US were $44 in Bermuda. And why is that? Because of the trade policies. People in Bermuda told me that they always went to the U.S. they went to Florida or New York to go shopping, and they would bring lots of stuff back, like. And I would say, well, isn't it expensive to bring all that stuff back on the plane? They go, no, it's worth it because the prices are so much higher here. You know, you can either have that or you can have Jobs. And it's a hard problem to solve. I'm not saying I have the answer. You import deflation through trade policies, and you have these big container ships come in and deliver all the goods, and they're not made in America. You import deflation through immigration policy. But ultimately, it's. You could argue that that costs more in the long run, right? You could certainly argue that. It's a fair argument because you could say that all of these goods that are imported cost American jobs. And so American workers haven't had a raise in decades. And then, you know, you look at, like, the union debate, right? And Bernie Sanders, who takes so much money from unions, right? You know, they criticize the people on the right and say, well, they take all their money from Wall street and big businesses and the corporatocracy. Agreed. They do. You know, the elections are bought. Unfortunately, I don't think it's right. You know, I think we gotta get the money out of politics. And then you look at Bernie Sanders. Well, he gets all his money from unions, and they're just as corrupt. Corrupt as Wall Street. Okay? You know, it's like one or the other. Pick your poison. You know, the old saying, meet the new boss, same as the old boss. You know, it's really about the same thing. You know, this whole debate between Republican and Democrat and left and right. It's like watching a wrestling match on tv. It's show business. It's bread and circuses meant to distract and divide and conquer and divide the population. So nobody agrees on anything, and everybody's just arguing amongst themselves. Well, the real people at the top, the Bilderberg Group. Okay, You've heard of the Bilderberg Group, right? They're like, you know, playing this like a puppet, right? They're playing the whole thing.

So.

So it's interesting, but when it comes to inflation, okay, now, so do you. How many of you think we have significant inflation? It's not really that bad anymore. I don't know. You do think we have significant inflation. Let's hear from the audience on this one. So Kerry Lutz is here, host of the Financial Survival Network podcast. Tell us what you think about inflation.

Well, I just got my car insurance bill. The cars are a year older. I haven't changed my driving style. I'm still as reckless as always.

At least admits it.

And it went up 8%. And 8%.

8%.

Wow.

All right, now maybe your insurance didn't go up. Health insurance.

Health.

My health insurance just went up, like, extraordinarily. I couldn't believe it.

Yeah. So we're talking needs and wants. The things that you need to have, they're going up in price. You want to go out and buy a new car, you know, you'll get a Great deal, because you know, the bubble is starting to burst there. But things that you need to have, health insurance, education spending, assuming you're going to send the rotten ones off to college with when they reach the age, online education is the way to go. You can go to Stanford now without leaving your house.

But seriously, iTunes, university, it's free.

Exactly. But Khan Academy, workman's comp, taxes, all the things that you have to pay are going up.

It's interesting you mentioned taxes. Are taxes considered a part of inflation? No.

Yeah, but it's a cost. But it's a cost comes out of your pocket.

See, the real life inflation is so much different than what the government tells us.

Right. Good.

Not to mention CPI is all bogus.

Yeah. Consumer Price index. Yeah, yeah. So it's fake, the cpi, the Consumer Price index, like the unemployment rate, it's bogus. It's manipulated. So how is it manipulated? A few ways. One is through waiting. How much weight do they give to the cost of food? How much weight do they give to the cost of health care? How much weight do they give to the cost of rent? That changes the cpi, the consumer price index, certainly. And then there's something called the core rate of inflation or core inflation, which strips out the cost of food and energy. Okay, so it's the inflation rate not counting food and energy. How did they ever get the justification to strip this out? Because they said, well, food and energy, those are just too volatile. So we got to take those out of the index. And certainly you can live without food and energy, right? Yeah. Those are the most fundamental things that every human consumes. Right. Because they're in everything. I mean, the cost of energy is in this clicker. It's in everything. Right. You know, petroleum cost. Right. But that's gone down. Okay, because there is a glut of oil. Remember in the 70s, this whole idea of peak oil? I mean these Malthusian idiots, they just keep trying this stuff and it's never true. You know, they remember the movie Soylent Green and all these 70s movies of like, you know, the disaster is coming in apocalypse and everything's only gotten better. You know, so Malthus and that kind of stuff is just, it's just I don't believe in it because they never consider human beings as a resource, they only consider them to be a cost. And all of the great discoveries that all of you have made and all of the contributions that you have made to the economy, you know, and to progress in innovation, it's just never considered in their equation. You know, I mean, look at food production. It's phenomenally efficient. Now, now, granted, you could argue gmo and I agree, but still gotten really efficient.

How is this part of the.

I just don't. I don't get how this is being part of the solution. Real estate, for instance, counteracting inflation besides protecting ourselves. Oh, because real estate is the ultimate, well, income property. I shouldn't say. Real estate, especially leveraged income property, is the ultimate inflation fighter. Okay?

It's the.

It's the best thing ever. So we're going to see that for you. Membership has its privileges, okay? I mean, you know, those people who didn't buy it don't get the benefit. Weighting is one way that they manipulate the consumer price index and your opinion of inflation. Another way is called substitution. Okay? So if the price of, say, you like steak, right, and you eat beef, and if the price of beef goes up, they just assume everybody will switch to chicken. So they substitute. And you might not like chicken, but they'll substitute it so that it will have no effect on the index. And then the other way they do it is through something called hedonics. Remember the word hedonism? It means seeking pleasure. So it means how much peace, pleasure do you get out of something? My first cell phone cost $3200. I actually financed it. Okay. Yeah. And I got it when I was like 20 years old. Okay. And it weighed 14 pounds. And it was installed in the car, but you could take it out of the car and have a little cord and a lunchbox. Yeah. So that's the deal. So hedonics basically adjusts for this in the index. It says that you will get more pleasure out of your iPhone, especially with a bling bling.

Okay?

Definitely. You'll get more pleasure out of the iPhone, certainly, than he gets out of his Android. Okay, for sure. We know that. That's obvious. Okay? But you'll get more pleasure out of the iPhone ten years later, even if it costs the same than you did out of the Nokia phone 10 years earlier. And they think that your pleasure will be ten times as much. And let's just assume the Nokia costs the same amount in nominal dollars. But since you get 10 times the pleasure out of the iPhone, we're going to assume the iPhone only costs 1, 10 as much, even though it actually costs the same. Okay, we're going to adjust for that in the index. And you know what? I think that's actually pretty logical, don't you? Isn't that fair? I mean, if you get more out of it, but it costs the same. Shouldn't we be allowed to adjust the Consumer Price Index to assume that things are getting better? See, if the index gets to make the adjustment, then that implicitly says to all of us that we are not entitled to progress. The Consumer Price Index is not you.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out this show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own and if you require specific legal or tax advice or advice of any other specialized area, please consult an appropriate professional and we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.