1671 FBF: Harry Dent How to Profit from The Demographic Cliff - Central Bankers & the Creation of a Huge Bubble

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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 multimillionaire 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 episode number 545. This is your host, Jason, and thank you so much for joining me today. Today our guest will be Harry Dent. Yes, Harry Dent is back on the show for I think the fourth time. He has given us some great insight. As you know, I love to try and keep things simple and be guided when it comes to the economy and my investments by big principles. And one of them that makes me really like Harry Dent's work that I discovered back in the mid-90s actually is the concept of economic demography. You know, there's an old saying that demographics is destiny. And while Harry Dent has been, you know, right and wrong about predictions over the years, sometimes speculation spectacularly, he's out with some pretty heavy duty new ones that you're going to hear. I mean, gosh, if some of these things come true, I don't know what's going to happen. But we shall see. So he's going to talk about that with us in a few moments. Just a couple of things before that. First of all, a quick listener question. This one comes from our listener Daniel and he says, hey Jason, I recently flipped a house and want to use the profits to acquire a rental property and start building my portfolio. So of course he's doing the right thing he did to flip for some quick cash. Then he wants to turn that into a long term portfolio. So congratulations, that's a good way to view real estate as a vehicle. You know, Flipping is like a business, right? You got to pay a lot of attention to it. It's a lot of work. It's hard to find deals. Selling them is complicated. You know, there's just a lot of attention, a lot of moving parts, right. And what you want to do is take and turn that into your long term portfolio and your buy and hold portfolio. So that's a good thing. He says, I want to self manage this property, but do not want to do it under my own name. I'd like to create a sole proprietorship to operate as the management company, but the business would not own the property. I would still personally own it. I would like to get your thoughts on this or if you have any experiences with yourself or someone else relating to this. Thanks. And I love the show. Daniel. So, Daniel, good question. First of all, you must know that I am not an attorney. So I cannot really give legal advice. I can only talk from my own experience and the learnings that I get out there in the marketplace from our clients, which is really one of the best places to learn. And of course from our boots on the ground people and all of our affiliates in our rather large network. You know, the first thing to know is that a sole proprietorship will not offer you any asset protection and that's something you must know. So please, although I don't think you are, from the tone of your email, expecting it to offer asset protection, but don't because it is not an entity. It's just a name. It's really kind of nothing. Okay. And if you don't want your tenants to know that you own the house, you know, you can call it Hartman Management. Oh wait, you probably wouldn't want to do Hartman Management, but you can call it ABC Management or Daniel. Well, not Daniel Management because that would be your name. And so that can give a little bit of, you know, kind of a difference in the way they relate to your management company and so forth. But it would be better to set up an entity, maybe an LLC and make that the management company if you want to do this self management thing, especially in a big way. Again, we've talked a lot about different asset protection strategies. We recently had an attorney on the show talking about this and there are tax implications too. So nothing is super simple. I have never done this myself. I have always, when I've self managed, the people know who I am and they know my name and when I have managers, they don't know who I am and they don't know my name and they don't Deal with me directly. And you know, I really, I don't find tenants to be much of a problem at all. They send me the rent, I talk with them. They're usually quite nice, they're usually quite helpful. I'm here at a conference in La Jolla, California where I now live. And we were on the property tour of got back on Sunday and Fernando, who's one of our big clients and now an investment counselor with the company, Fernando and I are starting a sort of self management software company that we're working on to help people self manage their properties. And you know, he's been staying with me at my place for the last couple of days as we attend this mastermind meeting that we're in. And by the way, the value of masterminding, this is a tangent alert. Is really big folks. So if you have not yet joined the venture alliance Mastermind, you need to get into that. We're going to do some awesome, awesome stuff together. So keep that in mind. It's going to be well worth your money, maybe three times over. Okay. But anyway, what was I saying again? Yes, Fernando was just telling me yesterday morning a story about one of his tenants and one of his self managed properties that was just taking care of business for him, you know, calling apparently in this property, I think it was a Texas property, if I'm not mistaken, the air conditioning was blowing warm air, you know, needed a recharge of Freon and the tenant sends him a nice email, says hi Fernando, you know, it's blowing warm air. Do you want me to call an air conditioning company, maybe get a couple of quotes and get the best price and you know, coordinate it or do you want to do this? Well, the tenant actually becomes your property manager in some ways. I mean, they're there. Most people are really good people. It's just not as big of a problem as you hear. After doing this for over two decades, I just don't see all of these tenant problems that people talk about. Certainly there are deadbeats, I know that. I don't see all of these slip and fall lawsuits that the lawyers love to talk about. Of course you should have good insurance. Maybe you should set up some asset protection entities. But again, I don't know if you need to have another name. I mean, sometimes I think if you deal with the tenant directly, person to person and they know you, I think a lot of times they feel the pressure of that social relationship and I think that they will treat you better than they might treat some, you know, company with a name that's kind of amorphous. That's not a human being. I don't know. Do what. Do what you wish. But do definitely know that that sole proprietorship will not offer any asset protection and buy our emails. I know you already know that, but I thought it was a good question for the show, so wanted to share it with the listeners, so. Venture alliance mastermind group. I tell you, I am in four mastermind groups now. One of them here. This is our second day of our conference here in La Jolla, and wow, this is my second meeting. This group. I'm paying 25,000 bucks a year to be a member, which, you know, if you asked me five years ago, would I have ever thought I'd be spending $100,000 a year on joining all these, you know, different four groups that I'm in, I would have thought you were crazy. Like you need your head examined. But in an exponential world, in the exponential world in which we live, knowledge is obviously power. You've heard that before. But connections have so much power. I mean, it is just amazing, the learning curve, the things you can do with a group of people that you hang out with, that you share meals with, that you have drinks with, that you attend conferences with. You know, when you both heard the same thing all day. Well, not both, but all of you heard the same thing all day. And then you kind of debrief on it at the evening over a meal. It is. It is just incredibly powerful. And, you know, you go into deals together, you joint venture things together, and that's what the Venture alliance is all about. You know, I haven't talked much about it lately on the show because we just didn't really have anything much to say. But we do have our next event coming up. Our very first members, Neil and Elizabeth, gave us some great suggestions that we're looking at for doing something in the Pacific Northwest in one of the San Juan Islands off of Seattle, which will be beautiful that time of year. And by the way, we're looking at the end of September, early October, probably for this, but we're also considering Lake Tahoe and, you know, maybe something back east, like a fall foliage tour type of event, you know, maybe in the Berkshires, maybe, I don't know, somewhere in the Northeast back there as the leaves turn. And it's just spectacular and beautiful. But most important is not just the fact that it's a vacation, you know, that you get a vacation element to the Venture alliance, but also that we get to spend time together, we get to brainstorm deals together and then actually do deals together. So a lot of good stuff coming up there. Check it out again. This pricing is not going to be so low forever. And I know you probably, as I say this, don't think it's low at $10,000 a year, but compared to other groups out there, that is really, really inexpensive. So you may be hearing the bell ringing back there and I've got to get back to my mastermind conference here. But anyway, let's get to Harry Dent and hear what he talks about. You know, one more note on that. The thing he talks about is largely deflation when he talks about what's going to happen to the Dow, what's going to happen to the gold price, and there's an interesting article yesterday about moon exploration and maybe colonization of the moon. Certainly there's a lot of industrial implications to this, to the moon. And with that, this article was talking about how the cost of colonizing the moon could actually be reduced by 1/10 or by 90%. I guess I should say by 90%. There are certainly some cases for some deflation in terms of looking at technology and the amazing things that it offers. But all that's going to do is give us a better life and more resources and just do tremendous things for the human race. So it's just an amazing time to be alive, all things considered. Real estate investing, income, property investing works best in the inflationary environment. It's a home run if you structure it correctly for that. But in the stagnation environment and the deflation environment, it works pretty well too. Probably better than anything else. Not quite the home run, but certainly better than anything else that I can see out there with that. Let's talk to Harry Dent. Hey, it's my pleasure to welcome Harry Dent back to the show. You've certainly heard his name. He's a very prolific author. I started following his work back in the mid-90s and you know, he's been right on with a lot of great predictions. You know, missed a few of course, but he's been on with a lot of them and it's great to have him back. It looks like Harry Dent is on a roll again with the predictions too, so it's good to have him. Harry, welcome. How are you?

Oh, nice to be back, Jason.

It's good to have you. And where are you located today?

Tampa, Florida.

No income tax state. Good place to be.

Exactly. That's why I'm here.

You, Tony Robbins, Rush Limbaugh, a whole bunch of others. Yeah, absolute.

And I was in California before this. And Tony moved because they raised it, I think the 14% and made it retroactive a year. So he said, you know, hasta la vista, baby.

Yeah, well, he, he was right about that. So that makes a lot of sense. Socialism doesn't work. We all know that by now. And when we look around the world, you look at Greece is, is on the verge of epic disaster again. Spain is a mass. Portugal, you know, when will people get the message, Harry, this doesn't work. You can't have something for nothing.

I know that. For nothing. Those cells, I mean, that's what marketers do. I hate to say it, but I mean something for nothing. People want life to be easy. They want it to be, you know, no stress, no problem, no pain. And that's not the way life is. The people who, who do something to make a difference in the world and who are successful do go through pain. And that's how they get gain. And you know, the markets are like this. No, we will, hey, we won't let the markets go down. We'll just print money. We'll just fill up every hole with, with free money. I mean, how stupid is that? And yet I go on these financial shows and have to argue this as if it's as it shouldn't be obvious.

This is, this should be, you know, basic economics, supply and demand. You know, you increase the supply of money, you're going to have problems. But really, if we look at that, and I want to make sure we talk about China because the president of your company, Rodney, just released an interesting piece about China. But, but why don't we have some significant inflation with all this money creation?

Well, it's because we had one of the greatest debt bubbles in history. In fact, the greatest. And what happens once we get too much in debt? We're no longer expanding the money supply and that debt starts to deleverage. Now it's deleveraging very slowly because the government is stimulating the economy. But what they're doing is basically, Jason, they're fighting deflation with inflation. Every major debt bubble in history, like the roaring twenties and then the 1870s, railroad bubble before that, and then the canal bubble before that in the 1830s, they're always followed by deleveraging of debt. Financial bubbles bursting and money disappears. Money is created by the banking system too fast, and then when it deleverages wealth, I mean, stock market goes down 89% in 1932. Wealth disappeared and didn't come back. Bank loans, we wrote off about half the private bank debt and mortgages and stuff in the early 30s. So that is money created like magic by the banking system and then disappears. Now you see it, now you don't. And we had debt grow at 2.7 times the rate of GDP growth from 1983 to 2008 for the entire boom. Any economist that does not see that as a problem shouldn't be an economist.

Okay, Harry, I want you to. I want to make sure we just really comprehend what you just said because I think it was very important. Say that again. Give the years and the amount of debt versus gdp and you're only talking about us, I assume, right?

Yes, in the U. S of course, this happened around the world. But the US from 1983 to 2008, where private debt peaked at 42 trillion and the government deficit about debt back then was 10 trillion. At federal level, debt had grown for 25 years, 2.7 times faster than GDP. So, you know, you can't have debt grow that fast and not have a debt bubble, not have a debt crisis. And when there's too much debt in the economy, people speculate more. They buy bigger houses than they can afford, cars, all this sort of stuff. And then when the economy goes bad, they're underwater and they're in trouble. And that's what happened in 2008. And again, the government solution is we'll just pretend like it never happened and just keep printing money. And I'm like, hey, if you're going to print money, don't give it to the banks. And Goldman Sachs and all these people send people a $10,000 check. If you're going to create something for nothing, at least send it to the people. All it's doing is going into financial institutions who are borrowing money at zero rates, leveraging up 20 to 30 times and speculating. Banks don't lend money anymore. They speculate in the stock markets and commodity markets.

Yeah, well, Glass, Steagall, you know. Yeah, yeah, it's something else. But, but see, their argument, the powers that be. Unfortunately, their argument is that if we give it to the banks, of course the banks have lobbyists and there's all kinds of, you know, crony capitalism going on. But if we give it to the banks, their, their rationale is there's a multiplier effect.

No, it's not. No, not when you speculate. When you lend it, there's a multiplier effect. But first of all, we don't need the banks to lend more money. Consumers and businesses borrowed the most in history. Private debt is twice as a ratio to GDP what it was at the top of the 1929 bubble. And we've got on top of that the government debt. And on top of that we've got unfunded liabilities for Social Security and Medicare, Medicaid that are alone four times our gdp. So we've got eight times our GDP in total debt obligations. We don't need more debt. What we need to do is deleverage. Especially the private debt that got so far out of control at $42 trillion. We got to work with here what.

Happens in a business trillion with a.

That's a T. Yeah, with a T. 42 trillion in private and 18 trillion in government and $67 trillion in unfunded liabilities for Social Security and Medicare. That's how in debt we are. We've got like $130 trillion in debt and all people hear about is the 18 trillion from the government. So we have to do a big, what I call a debt detox, a debt deleveraging. That's what happened in the 30s was very painful. But note that after that bottom in 32 in the stock market and the bottom in the economy, unemployment, housing, everything else in 33, we turned around and grew like crazy and didn't stop until 2008 pretty much. So debt deleveraging is a good thing. It takes burdens off of business and consumers. But what they're really doing, Jason, is the reason they're funneling the money to the banks. They don't want the banks to go under because that's what happened in the 30s. You had a run on the banks. Banks failed, loans failed. By giving this money free money. So banks and financial institutions can speculate with a slam dunk with free money, it's free long term, adjusted for inflation, a 10 year treasury bond and it's free short term, it's at zero rates. They basically are getting a free gift and they're able to keep alive through speculation. But all that is doing is creating more and bigger bubbles than we had before. The stock market is at substantial new highs now. Real estate in a lot of cities is substantial new highs. It means now we're going to have to, you know, deleverage these bubbles again. And it's just, it's the sickest thing I've ever seen that anybody would tell the public that the way to cure a debt crisis is through more debt or by creating more money out of thin air. Banks created most of debt, not the government. In that boom I talked about 2.7 times debt growth. But now the government's creating money, you know, 4 trillion in the U.S. about 14 trillion around the world. Central banks are just creating money, throwing it into the economy, and it's not being lent, it's not creating jobs. It is creating speculation and bubbles.

Okay, so, so couple comments on that. Number one, I have long said that the prosperity of the United States over the last few decades is an illusion. It's, it's, it's a game of smoke and mirrors. We're not really as prosperous as we think we are. From Nixon on closing the gold window, you know, this is just like we get to, we get to sort of bully our way around the world and be irresponsible because we got the reserve currency and we got the military to keep it that way. You know, I mean, this, this is not a, a sustainable thing. I mean, are, do we, are we in a legitimate recovery?

No, no, no. This is, we would have had a depression. We were going into a depression, which is just a big debt deleveraging and financial bubble. Deleveraging. We were. This was exactly like the early 30s, except this time the governments bailed out everybody but Lehman Brothers and the governments pumped money. I mean, in the, in the early 30s, they took interest rates down to near zero short term, but they didn't do this QE thing. They didn't just create money and throw it in the economy. So they've had to just to keep GDP growing at 2% on average since that crisis, they've had to pump $4 trillion, you know, you know, almost, you know, 20, 25% of GDP. That's the only reason we're growing. We would have been in a depression without that. Actually. We would have been over it by now largely, and we would have been in better shape. And now we're still going to have to, now we're going to have to deleverage an even bigger bubble. More debt's been added around the world. $57 trillion globally has been added to the debt pile since the crisis in 2008. And the majority of that's come in emerging countries. And they're suffering from falling commodity prices, which is something we predicted very strongly. In my last book, the Demographic Clip. We said, hey, the countries that have the good demographics, emerging ones are going to get hit by plummeting commodity prices. And that's exactly what happens. And now they've got more debt than ever. So it's a global debt bubble.

I totally enjoyed the demographic cliff, by the way. I thought that was an excellent book. I mean, I've read so many of your books over the years. How many books do you have, by the way? I'm curious.

Oh, I don't know, probably seven or something. The important one were the great boom ahead. The great boom ahead in late 92, that was prophetic. And then the roaring 2000s was the book I sold the most of in early 1998. And then the great depression ahead. And now the demographic clip. Those are the four books I would tell people to go back and look at.

Okay, so I gotta ask you this and I want you to answer, answer this honestly, please don't feel like, you know, you're playing to the host here. Not as if you would, but I just want to make that disclaimer. So in the great Depression ahead or the demographic cliff, I mean, in the demographic cliff book you talked about real estate. And of course, you know, I'm in real estate in the investment side. And I agree with you on the McMansions and the high end real estate that, you know, I mean, you, you predicted that many years ago, I want to say a good 15, 18 years ago. You predicted around 2012 the McMansions would start to soften. If I'm getting that right. I think I am. And you're predicting that still, that, that, that's, that's not a good place to put your money. My mom owns a big 9,600 square foot McMansion herself. I've been trying to convince her to sell. You're not bullish on real estate, but you don't make the distinction as I would on, you know, low end real estate sort of necessity housing versus high end real estate or, or different localities, like high end markets. I mean, I don't like any market with high land value. So I throw out California, the Northeast, South Florida. We only like these sort of cheap middle markets like Memphis, Dallas, Houston, Indianapolis. Boring places. You never hear about that. Nobody. They're just like really milquetoast kind of investments. $100,000 properties. What do you think?

Well, yeah, actually there's a huge difference for a couple of reasons. The affluent, the top 10 to 20% and really the top 0.1 to 1%, even more so, have done incredibly well in bubble land. And especially since 2008, everybody else has seen their wages go down, their buying power, all this sort of stuff, student.

Loan debt, don't forget that.

Yeah, they're the ones making this McMansion bubble and high end bubble. You know, houses selling for 100 million, 150 million, 8,000 square foot condo in New York sold for 135 million. I mean, I mean, this is absolute insanity. And the thing that I get that the rich people are the dumbest. They don't think their real estate can go down because they think they're always going to be rich. And rich people like them will always want to buy this. It is the high end real estate that bubbles the most and goes down the most. And as baby boomers are done buying housing and what they're going to do is trade down into smaller places, while the millennials come with much fear and difficult to get credit and they want small places so that everyday house is the best place to be. And the very, very worst are these super expensive, I live in an expensive neighborhood. And people don't think this is going to go down, this is going to go down. Palm beach is going to get plastered. Manhattan, San Francisco, Vancouver, on and on and on. Our number one rule is bubbles always burst. And the bigger the bubble, the bigger the burst. So it is the high end that has got the most risk in it by far.

The thing that makes me want to say that maybe that's not true is because the rich do get richer. And when you have economic policies like we've had, you know, the, the wealthy benefit from inflation. I mean, it's just amazing to me. You have, I'll say it, idiot. Bernie Sanders yesterday commenting, or maybe the day before commenting on Greece and how, you know, they, they shouldn't be willing to have austerity, as if, if, you know, like, what is he, a child? I mean, you know, do you think someone else is just going to bail you out all the time and you can be irresponsible?

Well, and the flip side's worse. Banks and governments made loans to those people that they couldn't afford to pay. They made bad loans. And when you make bad loans in the free market capitalist system, you're supposed to lose money. So people ought to write off these loans and Greece should default. But if Greece defaults, they're going to lose their ability to borrow money and they're going to be forced to, to live within their means for the first time in decades. That's the only way it would happen. If they're forced and Greeks would never choose austerity. They're going to get it. They're going to get it big time.

Right, right. So these kind of policies that we have really pretty much around the world, they always benefit the wealthy class.

Well, you know what, Jason, this is not true. This is true at times when you have a bubble boom and when you have high credit creation. Yes, the wealthy get wealthy faster and that's been happening for the last couple decades. But what people don't understand and when these bubbles burst, guess who owns most bubble financial assets. Guess who owns these hundred million dollar dumbass condos in New York, in San Francisco and Shanghai and stuff, it is the uber rich. They get slaughtered. The rich went from 20% of the income in 1929. The top of the 1% went from 20% share of the total income, which is huge, down to 8% in the early 70s. They did not get rich faster after that. They got the everyday Perth in advance. We had the first middle class society to emerge in all of history from the Great Depression and after World War II. So I'm telling people it's the rich that are going to get smacked the hardest. It's not going to be easy on Homer Simpson.

I bet people will be happy to hear that. Because the uber rich I think are just ridiculous. They're the crony capitalists and they think they're invulnerable.

Every person I know that has owned something, you know, super expensive real estate in Martha's Vineyard or London or New York or San Francisco or Sydney, Australia or Vancouver, I can't talk one of these people out of it. They think these places will never go down and people like them will never stop buying. And they are going to be so wrong. It's going to be unbelievable that that.

Whole market in, in, you know, uber rich real estate market, it operates on one principle, the greater fool theory. No matter how much I paid, some greater fool will come along and pay more. There, there's no sense to it. There's no cash flow metric. There's nothing logical about it.

Well, guess who the greater fools are today, Jason? The wealthy Chinese. Just like the Japanese were in the late 80s. Japanese had a big bubble while nobody else did in the world. It made them a lot wealthier. And they go around, start buying real estate in London, New York, pebble beach and Stu. The Chinese are doing today. And I'll tell you why they don't care about the price, Jason. Because they're laundering money. They're getting money out of their country and this is the only legal way they can do it. They pretend like they're moving temporarily to California to get their kids in a good college and they buy as expensive a real estate as they can because they're trying to get their money out of China before the bubble flows. They're not idiots.

They're looking for the Brinks truck. Okay? And America's always been the brink struck not, not. I'm not sure if that will continue. But you know, it's, it's a, it's a game of relativity, right? It's just all we have to be is slightly better than everybody else, right, As a place to put your money. And that's what the South Americans are doing in Miami and South Florida. That's what the Chinese are doing everywhere in the US And Canada.

Brazilians have been. Yeah, that's right. You go to Miami, it's Brazilians, bags of cash from illegal activities, buying condos. They don't haggle either. But it, but it's more than anybody now. The Chinese are the last fool standing because the Russians got do this. They got killed by the ruble being smacked. The Brazilian economy is doing really horrible. So it's really now made. The Chinese are the last fools. And I tell you, when their real estate and stock market implodes, and this is beginning already and we've been forecasting this for years that China was going to be the biggest bubble burst. China was going to take down the world more than any single country. When that real estate bubble implodes, these wealthy people are not going to have the money to buy these 50 million, 20 million, $100 million condos and houses.

Okay, so tell us more about China. Like, like, I mean you've spoken about the Chinese demographic problem with a one child policy and you know, you wait, I don't know how far you push that out, but I want to say it's like 15 years from now. China has a big lopsided demographic where you got too many older people, not enough younger people. I'm not sure the number of years, but you're the expert. Tell us more about China. It's interesting.

Yeah, yeah. They're the only emerging country that doesn't have favorable demographic trends. Their workforce has already peaked in 2012. It slows and it kind of, kind of flattens out over the next decade and then about 10 years from now they start aging as fast as Japan did in the 1990s and stuff. So China doesn't have the demographics. They overbuilt their infrastructures, their industry, their housing, their offices by I'd say basically 12 to 15 years out. So they've been building stuff for nobody. 27% of condos in Chinese cities are empty. You got whole cities like Ordos built for a million people. Nobody there got empty malls and stuff. So they've been building stuff just to drive the economy and keep people employed and what happens to these? Right now there's 240 illegal rural migrants in Chinese cities that have no access to health care, welfare, education, anything. They're only legal back in their rural areas which are now paved over and they can't go back. They're trapped in these cities with low skills, they're an underclass. And when this machine of building stuff for nobody stops, they're going to be dead. They're just going to be trapped in these cities. And the only positive thing is there's going to be a bunch of empty condos for them to squat in. But, but these, China is the last place I'd want to be in the world right now because they're going to have unbelievable urban unrest when this happens.

Wow, that's a big deal. When you look at economy as large as China and a population as large as China. I mean, will the Communist Party survive that, I wonder?

I don't think so. The only thing they got going for them is older people don't rebel and revolt like younger people do. And like you said, they have an aging problem which is unique in the emerging world because of their one child policy. All the way back to the 70s is when the, that started. So that's, that's hitting them now and like I said, it's going to hit them much bigger ten years from now. By time they get to that real point of demographic weakness, they're going to have gone through a 10 year digestion of all this overcapacity of everything. So you know, I, when we do finally have this crash and this reckoning, I'd invest like crazy in a place like India and many other emerging countries. But I still wouldn't, I still wouldn't be bullish on China even after they have a major crash.

So what's going to cause their crash? Like specifically?

Well, you see the stock market has started going down crazy because there's too much speculation and went up 160% in one year while the economy declined because the app, because people in China saw that real estate, the greatest bubble in history, finally started going down so you couldn't make money there. So they all of a sudden became stock flippers. So people just buying stocks and they said two thirds of the people who open new accounts there, which were meteoric in the rates of opening new account, 2/3 of them didn't even have a high school degree. So this is the dumb money piling in the markets. And now what's it doing? It's just falling apart. The government had to step in and get brokerage firms to pony up $20 billion to buy stocks to buoy the markets. They told all their pension plans. And in the country you can only buy stocks. We will not. It's against the law to sell stocks. Do you understand how desperate this is? So this bubble, this bubble is going down just like 1929 did. And the US government at first did the same thing. They had brokerage firms step in and purposely buy stocks. And it only worked for a couple of weeks. And next thing you know, the market was down, you know, 89% couple, couple years later. So this is not going to work. It may work a bit temporarily, but when a government has to step in and tell people it's illegal to sell stocks and you have to pump up, prop up the markets artificially, it's just, I've never seen anything this insane. And the one thing I've done more than anybody is study history. And this is central bankers gone mad.

It really is. It really is. Well, speaking of central bankers, any thoughts on Janet Yellen? You know, bring us back to the US and just, you know, any of your predictions? You predicted some amazing declines for gold. You know, I'm sure you view the stock market as being in a just ginormous bubble right now. But, you know, tell us, what do you think is going on here?

Well, again, you know, they've reinflated the bubble. They've done it now for six years. Things are starting to crack. Greece, the neck. You know, the next problem is going to be is not just Puerto Rico and Illinois and Chicago and the United States, the frackers. That's a trillion dollar industry with 600 billion of highly leveraged debt that is going to default and make Greece look like nothing. And that's just one sector. And it's going to start killing the junk bond market. And then of course, Portugal, Spain, as you said earlier. I mean, we've just got a whole string of debt defaults coming around the world. You can only keep a bubble going for so long. And whoever is sitting in the chair, that is Janet Yellen, that is the next president, whoever it is, when this bubble burst, is going to take the blame for it, even though they didn't create it. But Janet Yellen has followed Bernanke. Bernanke didn't create this bubble either. You had to blame it more on Alan Greenspan and George W. Bush.

Well, I think Greenspan was the bubble.

Maestro, you know, but they get blamed and nobody wants a bubble to burst on their watch. That's why these central bankers Just keep printing money. They really don't have any other option. As soon as they, if they were to stop printing money, this bubble would burst so fast it'd be unbelievable and we'd be in a depression, you know, within six months.

Okay, so, so a couple just rapid fire things. So what's the future hold inflation, Deflation, Deflation.

Long term we'll go back to an inflationary economy at mild levels. But deflation always follows. And deflation is a sign that a bubble is bursting, a credit bubble, debt is being written off and financial bubbles are coming down to earth and it destroys. I estimate, and this is a big figure Jason, 100 out of $225 trillion in financial assets including loans and mortgages around the world. 100 trillion of that could disappear in the next several years. $100 trillion disappears. That's less money chasing the same goods. That is deflation. I've had this debate with the gold bugs over and over and over again and I keep winning the bets. I keep saying gold is an inflation hedge and a really good one. It did wonderful in the 70s when inflation was a trend. But what the gold market realized in 2013, that's why it dropped so strongly that Japan just tripled their QE. The US just committed to QE3 forever and inflation kept going down. So the markets finally got that we're not going to get inflation in a deflationary world. And the only reason we have mild inflation is because of all the money that's printed so far. So gold's going to go down, we're going to see deflation. Dow, I think the next stop is below 6,000 and that's not the final stop. I think the Shanghai is going to go from 5,200 down to a thousand at least.

Wow. I mean listeners, do you, do you hear what he's saying? So the Dow is going to go below 6,000. You were talking about the Chinese stock market. Where's that going?

A thousand from 5,000, 250 know, over 80%.

So that's, that's going down by 80%. Wow. That's.

The US market has to be 70% now I'll tell you the neat pattern and I don't understand people in so denial on Wall Street. This is the simplest pattern. It was the same thing that happened in the late 60s, early 70s when the last generation peak. You get, you get. The market keeps going to new highs and then crashing to new lows. It's called a megaphone pattern. So we're right back at that you know, we're in the third bubble. We're right at the kind of the resistance line, around 18,000 on the Dow. And the next new low in that pattern would be projected to be just below 6,000. So I have a specific reason for having that target. That may not be exactly what happens, but that is what you should expect when, when a debt bubble bursts, when I. When a financial bubble burst, every burst is going to take the market to lower lows because we pumped up the economy even more and got more out of balance. The economy knows how to balance itself. I tell people, like, hey, you eat some bad sushi, your body knows what to do. Flush it out as soon as possible. It's poisonous. The body's good at this. That's what the economy wants to do. And central banks won't let the economy do it.

They keep interfering. Yeah, yeah. You know, what is a good metaphor for. That's a great metaphor you just made. And so I'll just add to that a little bit. It's like, like, you know, you go to the doctor, the traditional Western medicine type doctor, and you say, well, you know, my back hurts. They give you a painkiller to cover it up that you don't fix the problem. If you go to a more holistic thing, they actually look at the problem. Whereas what we do in, in the, you know, Keynesian economy is we just cover things up. We cover up symptoms that are too painful, you know, we don't want to experience.

Yeah. You know, at Keynes, I mean, brilliant guy in some ways, and they. And people abused what he said, but basically he was the original pusher. He invented financial drugs and it got acceptable in economics starting in the early 70s. Like you say with Nixon and everybody else, we're all Keynesians now. We've been printing money, borrowing money, running deficits, running trade deficits, creating debt ever since then. Because you're supposed to borrow more and run deficits in bad times to offset the private economy. But you're supposed to run surpluses. We haven't run a surplus in hardly anything since the early 70s. So we've gotten addicted to financial drugs and we can't kick the habit. And boy, when you go down, when we finally come down, I don't see how it couldn't be worse than the Great Depression. And that's the worst downturn we had in history. And by the way, what preceded the Great Depression, the creation of the central bank, the Federal Reserve, they prevented the economy from rebalancing. So we got bigger and bigger bubble and so when it burst it was horrific. And that's what we're going to get again.

Again, it's hard to argue with that. It certainly does. Okay, what about interest rates? Where are they going?

I think that, well, junk bonds are going to get crucified. So you're going to see a huge spike in that like we've already seen in Greece and some of the southern European countries, fracking bonds are going to totally default. What's going to happen is interest rates are all going up now. Despite quantitative easing around the world that's a sign that the central banks are finally losing control of zero long term rates at some point the safest, the highest quality government and corporate bonds like a Coca Cola bond or a ten year treasury, their rates are going to go down for them when the deflation sets in. But they're going to keep spiking up for junk bonds and riskier bonds because there's going to be growing default risk. The more governments and the more companies default, the more the bond market worries about it. The more it raises rates, the more credit costs, the more defaults. So it's a vicious spiral. So interest rates are going, going up for most bonds which is going to kill the bond market. But ultimately after maybe six or eight months, and this happened in the Great Depression, there was an initial spike in all rates including government bonds. But after that the government and the triple A corporates did well. Their rates came down, their bonds appreciated and the risky bonds just rates kept going up. So this is something if you look at past debt crisis is what you'd expect.

Okay, but what about mortgage rates though?

Mortgage rates will tend to come down because they, they play off of the 10 year treasury and 30 year Treasury.

Right? Yeah, the bellwether rate.

So yeah, I tell people, you know, you might want to get a, an ARM rate now but, but maybe three or four years from now you're probably going to get the lowest cost mortgage of your life.

Very interesting. Good stuff Harry. Give out your website.

Okay, it's Harry Dent.com we've got a free newsletter Economy and Markets. I've also got you know, other products and things, things you can look at. I've all, I've also got an unpublished chapter on China you can download@harrydent.com so, so that's the best place to go daily newsletter for free. And if you, if you, you know, if you like us after a while you can subscribe to our, our big boy newsletter. And, and, and I would get that chapter on China. The book was just Too big the demographic cliff to put that in there. So I, I, I let people download it for free on our website.

Good stuff. Harry Dent, it's always such a pleasure to have you on the show and it's so interesting to talk to you and look at these patterns and so much of this stuff is based off of demographics and, and when that interplays with the economics and the, the fiscal and the monetary policy, it just gets really fascinating. So it's great to have you back and look forward to having you on the show again. Thanks for joining us today.

Okay, thank you, Jason.

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