1726: How Savers Lost 80% & Debtors Gained 80%, Nixon Kills Gold Standard

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, 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 episode 1726. 1726. And it is an important time. Yesterday we did a live stream and it was all about. What? What was it about? It was about the 50th anniversary of Richard Nixon, our former president, closing the gold window. As he said in his famous speech that took place on August 15, 1971, he would temporarily. Yes, you heard that right, temporarily suspend the convertibility of dollars to gold. That was five decades ago. Yes. You can't write fiction this good, folks. It's just amazing. You can't make this stuff up. The truth is better than fiction, as they say. It's really incredible. And that has meant a lot to us as participants in the economy, as investors, especially as real estate investors, or let me correct myself, income property investors. Because that's what we really are, income property investors. And since this happened five decades ago, guess what? The dollar has lost 80%, 80% of its value. Yes, that 1971 dollar is now worth 20 cents. But guess what else? Take a little hypothetical with me here for a moment because you can't quite do this in the US but you can get pretty darn close. Pretty dar. This morning I was talking to a portfolio lender and guess what they have. They have mortgages. Yes, mortgages. But they're not 15 year mortgages or 30 year mortgages. They even have 40 year mortgages. Wowza. Wowza, wowza, Wowza. Okay, now imagine, just take a little hypothetical. Imagine if that was a 50 year mortgage because, hey, we're talking 50 years since we went off the gold standard. 50 year mortgage. Just a hypothetical. I know, look at, you can get these kind of mortgages in other countries. Japan, I believe, has 50 year mortgages. Check me on that and go to jasonhartman.com ask and tell me if I'm right or wrong. I think they even have longer mortgages there. And I believe that has been offered in the US at some time or another. But again, these weren't your traditional Fannie Freddie type mortgages. 40 years is the longest I know of in the mainstream and the vast majority are 30 years. But let's just go with my hypothetical experiment, right? So someone who saved a million dollars over that 50 years, they, they did the right thing. They delayed gratification. They didn't buy the new car, they didn't go on that great vacation. They didn't buy the big house, they didn't marry the expensive. I had to throw that one in. They didn't do whatever it was, Right. They didn't do all of those lifestyle things. Instead, they did the seemingly right thing. They saved their money, they put it aside. They didn't buy all the treats, the perks, the, the pleasantries of life, the hedonistic pleasures. They saved their money, they did the right thing. And then let's compare that to a person who got that hypothetical. And it doesn't matter because the concept is the same, but the numbers are even. When we do the hypothetical, they got a 50 year mortgage. 50 year. And let's make it a little more hypothetical. Let's make it interest only. So they weren't paying down any of the principal on that mortgage for five decades. Now granted, even though there is no 50 year mortgage in the US that I'm aware of, you could easily refinance an interest only 10 year mortgage five times. So this concept absolutely is the same. It's not even exactly hypothetical. Okay, not even exactly hypothetical. So let's go with 50 years of mortgages. Maybe it wasn't one mortgage, it was five 10 year interest only mortgages, which you can get or whatever, right? And they borrowed a million dollars in 1971. They only today in real dollars, in constant dollars, not nominal dollars, meaning the name of them. In real value of the dollars, they would only owe $200,000. Compare that to the saver who did all the right stuff, didn't go into debt. And, and, and when I say the right stuff, I, I'm winking at you. You can't see me winking, but I'm giving you a wink over here. Wink. Yeah, they did all the right things. They saved their money, delayed gratification, Their savings is now only worth 20% of what it was. Their million dollars is worth $200,000. And the person with the million dollar mortgage has a mortgage that has been debased through inflation induced debt destruction. My Trademark concept that I've been teaching you for many years. It has been debased to only 20% of its face value. In other words, instead of owing a million dollars, which is what the mortgage says, the real value of it is only $200,000. This is how you do the trade of the decade. Last week, I was at a speaking engagement in Sarasota, Florida. Well, I'm in Florida, so would be kind of weird to say Florida. Don't you love, by the way, these Canadians? I've noticed this with Canadians and Californians, two groups. Where do you live? Oh, Canada. Hmm. It's a big place. Where do you live? California. Where are you from? California. Where are you from? Canada, folks. Be a little more specific. So anyway, I was in Sarasota and I gave a speech called the Trade of the Decade and the Trade of the Decade. We will go into this in more depth and detail over time and at our Empowered Investor Live conference coming up in Orlando just in less than a month. It's less than a month away. Go to empoweredinvestor.com Be sure to get your tickets. We will look forward to seeing you there. And we will be fist bumping at that conference, by the way, because, look, I'm not in favor of wearing a mask or getting a shot, but what I can give up is the handshake, which is the super spreader. That is the super spreader. And it's easy to give up hugs. That's good. I'm good with hugs and I'm good with fist bumps, you know, But I know I got some flack on this. Last time I talked about it. The handshake is the super spreader. And it doesn't get vilified enough as it should in the mainstream media, because the mainstream media, well, they have their own agenda. And do they really want to stop the spread or do they really want to increase the spread so the tyrannical dictators can have more control over our lives and our economy and so on and so forth. Right? That is the question. Okay, so at Empowered Investor Live, I will be talking about the trade of the decade. And you must attend this conference. Tickets have been selling like hotcakes. I wonder where that old saying came from. I guess the hotcakes on the griddle, they must sell really well. Not today as much in the low carb gluten free diet era. Well, I still love hotcakes. You know what makes the hotcakes really good, though? Butter. Butter hotcakes and syrup. Serpal. Really good stuff.

Yep.

And that's how the tickets are selling for Empowered Investor Live. So be sure to get yours@empoweredinvestor.com and we will talk more about the trade of the decade. And the trade of the decade involves a big short squeeze. Yes, there's a big short in the trade of the decade, but let's not go into that now because we'll go into that live at empowered investor live. Empoweredinvestor.com for tickets. But as we talk about inflation induced debt destruction and as we talk about the 50 year anniversary, mostly the end of the Bretton woods system, which started in 1944. Allies knew they were going to win the war. The US had the bomb that was the magic ingredient that ended Japan's imperialism. You know, it's hard to believe how Japan back then was such an evil, imperialistic country and today so much different. It's amazing how things change over the course of time, isn't it? Really is amazing. Japan, you know, isn't like that at all nowadays. I would say China is more of a concern than Japan and in that realm, but that is another rabbit hole. The Soviet Union, well, the Soviet Union after its collapse, but even just the Russian Republic, right, I would say would be like that if it had the capability. But you know, these countries, if they don't have children, they just evaporate. They just evaporate. And that's what's happening to Japan and Russia and Western Europe and the European population of the U.S. they are evaporating. Japan literally will cease to exist. I mean, what will that country be like in 70 years? What will Russia be like in 70 years? What will Western Europe be like in 70 years? Will there be a real French person in seven decades? A Japanese person? A Russian person? An Italian? Spanish, From Spain. I mean, from Spanish, not Latin America. These people are all just going absolutely extinct. It's absolutely amazing. And you know, just notice how their economies are just in parallel with their shrinking populations. That economies are just wasting away. They're shriveling up, they're just gone. So, you know, hey, look, if you want to preserve your heritage, have some children, right? You know, that's the thing. But look, I'm only looking in the mirror when I say that because I do not have children. So I have employees. Yes. And they're my kids. I love them, love them, love them, love them. But you know, occasionally your kids, well, hey, you know, you know what it's like, right? Parents, okay. But I don't know why I'm actually saying that, because I'm completely happy with my, my staff. Now, they're not even employees, they're contractors, but you know what I mean, Same idea, same idea. Still management. Like the late great Peter Drucker, the greatest management philosopher of all time. If you haven't read any Peter Drucker books, I highly recommend. Oh wow. Because he's just not about business and management, but just life in general. I mean, Peter Drucker, brilliant. Absolutely brilliant. Which by the way plays into the Japanese miracle and how they became such a large economy so quickly until they had the demographic cliff and of course they had other issues with their bubble and so forth. But anyway, let me get back to this gold standard thing for a moment before we get. And by the way, today we've got some Q and A stuff, okay? But largely this economy for the past five decades and even before that to a lesser extent, ever since we had this centrally planned, you know, Federal Reserve over a hundred years ago, centrally managed economy, but mostly after 1971. It's a house of cards. It's smoke and mirrors. It's fake news. Right? And we can use this to our advantage when we take advantage of inflation induced debt destruction through our income, property, investments. Many prior shows and episodes on that and on the YouTube channel as well. Lots of info about that. So I won't go into it now, but I did give that example of how the debt evaporated by 80%. But so did the savings, so did the value of your stocks, bonds, everything evaporated by 80% in the last five decades, including debt, thankfully, debt. Right. So get that long term mortgage debt. But let's just look at some of the expansions that we've had in the U.S. right. And we are just. I'm looking at a chart about. And here's what the chart is called. And by the way, this data is from the National Bureau of Economic Research and basically it says the pandemic ends the longest growth cycle in US history. The longest growth cycle in US history. Now it doesn't mean it was the most pronounced in, in terms of the highest growth rate, it just means it was the longest. It was 128 months from June of 2009 to February of 2020, the longest cycle. And overall while the annual growth rate in real GDP was 2.3%. And by the way, that's an important word said real GDP growth. That means it's inflation adjusted versus nominal GDP growth. Very important. So that was the longest expansion, it was not the biggest expansion. But when you start at a historic low that of course you did in June of 2009 from the great Recession, the biggest economic collapse since the Great depression of the 30s.

Right.

It's somewhat easy to have a long expansion and in 2015 and 16, as Trump was coming in in 2016, of course, and 17, but even in 15, we were talking about this on prior episodes of the show about the business cycle and how the business cycle didn't really apply to this in the way most people think it do because they mark the date of the start of the cycle of June of 2009. But I mark it at about 2012 because that was sort of the point where we got back to kind of a reasonable equilibrium rather than coming from a trough, a real low point, which I think is a misnomer. You had to kind of normalize what was going on in economic activity.

Anyway, I actually want to talk to.

You about the way the gold standard has, while coming, ending the gold standard has created this fake economy. And so we're going to go through that on a future episode. But we've got to get to our Q and A today. Now, our client, Gene, great guy, he hosted a Q and A with me last week. And let's just go and share some of this with you because I think these questions were good. And I know a lot of you have the same exact questions about real estate and about the economy in general and, and the macro. Look at it. So be sure to go to empoweredinvestor.com get your tickets for our upcoming conference. And by the way, also, I should mention one more thing. The Collective Mastermind that I started with George Gammon and Ken McElroy, the applications are now open on the website. We closed it down for about three weeks because we just had too many applications and we had to process them, you know, approve the members that we approved, get them in and get them kind of settled with the group. And we are having our first event for the Collective Mastermind in Scottsdale, Arizona in November. So if you want to know more about that or you want to apply, go to the collective mastermind.com it's thecollectivemastermind.com and there's a really easy short application on there and you can, you can fill that out. And then of course, our event in September as well. So two events coming up, empoweredinvestor.com for the conference and the Property tour, and then the Collective Mastermind for the Collective Mastermind group. Okay, now let's go to some Q and A with you, our audience members. And you know, when you ask a question A lot of people have the exact same question, so let's listen into that.

Hey, everybody, we are live. I'm here with Jason Hartman. Jason, how are you? It looks like you're someplace different. What's going on?

Where you at? Yeah, I'm doing. Well, greetings from beautiful, charming Sarasota, Florida.

This is such a charming town.

All right, buddy, because I know you're short on time tonight, so let's knock out some questions and. All right, let's help some folks out with their real estate investing. We got John Elliott here. He says, hey, Jason, love your work. Gene recently mentioned a quick rule of thumb you use for investing in single family homes, which is if it's over $250,000, it isn't worth it. Why is that?

Start with that. Oh, that's a great question. Well, the 250,000 number needs to be adjusted for inflation. Probably not so surprised. I'm going to say that. I did say that a long time ago. But housing prices have gone up, rents have gone up. So everything is relative, right? You know, and basically the reason I said that is because as the housing price goes up, the rent to value ratio or the RV ratio gets more and more out of whack. And so what I was saying there is if you're going to own a house that you rent to others, you want to rent them an inexpensive house because the rent to value ratio on inexpensive properties is very favorable to you as the investor, you as the landlord, you as the owner. However, if you're going to rent a house for yourself, assuming you can afford it, you want to rent a high end property, because that higher end property, the rent to value ratio becomes very favorable for the tenant. And really the ultimate arbitrage with these two things is to rent the house in which you live. That is hopefully an expensive, beautiful home. And to own a lot of other affordable sort of bread and butter necessity type houses that you rent to other people, because then you have the rent to value ratio in your favor on both sides of that equation. I would modify that now, though, and I would say really 350 or $400,000 based on current prices. When you get under that price, you really do want to be an owner. You want to be the homeowner, you want to and live in that house you own. If you get much over that price, consider maybe renting the house in which you live and still investing in real estate by owning a lot of cheaper properties you rent to other people.

That's what I mean.

I love that idea.

Okay.

Cool. Next one. If I blindly dropped you in a random state somewhere in the US and told you to invest in single family homes, what metrics would you rely on to find a good area to invest in? Excluding politics and the financial aspect of the house itself.

Oh, you. Did you say excluding, Gene?

Excluding politics in the financial. John, just tied your hands behind your back.

Yeah, well, no, you know, politics. I, I mean, look at some people. You know, I get reviews on my podcast, people complaining that I'm talking about politics. If you're not thinking about politics, you cannot. I mean, look at. That's today. That's like the air you breathe right today. It's the backdrop of our lives. It's the backdrop of our financial lives. It's the context in which we live is political. Okay? It affects everything. It affects whether there's going to be a moratorium on evictions or forbearance, on mortgages or tax benefits or everything. The regulations and building the houses. You know, politics is not separate from this. Right? It's intertwined. It's like, fingers crossed, it's totally inseparable. But metrics I would use. Well, one we just talked about is the rent to value ratio. The RV ratio. That's the first one. I would also really look to buy single family homes, ideally not condos or townhomes. Single family being my favorite. You know, less so. Plexes, duplexes, triplexes. Single family really is the best. I was saying this at dinner tonight here in Sarasota with a couple of people. I was saying, you know, the best tenant you will ever have in your life is a family whose kids are in a certain school district and they want to stay there. That tenant will fight to keep that house and figure out how to pay you the rent. That is the best quality tenant. And the reason I'm up at dinner tonight, Gene, is because we were talking about apartments versus single family homes. And look, you know, I've owned many apartments. I've owned a couple of large complexes. I've made a lot of money on them, don't get me wrong. But I'm just saying the quality of tenant you get is the best in.

A single family home.

You just get a much better quality tenant. And many of our investors have asked, or not investors so much. Actually, I shouldn't say that. Listeners. My, our audience has asked, you know, what about these eviction moratoriums? It's terrible. Is it ruining your business? Look, we thought that would be the case just over a year ago when they started talking about this and announced it. Right. It has been a non event for us, a non issue. But guess who it's affecting? The real estate investors that are getting hurt by this are the institutional apartment owners or General. Because they have these lower quality transient tenants.

Yeah.

And of course you can get bad tenants in single family homes. I don't deny that you could bad apple everywhere. But by and large, the law of large numbers, the law of averages, you're just going to get better quality tenants in a single family home. So, so I would look for rent to value ratio single family homes. I would get the best neighborhood I could get and the best school district I could get for the price. Okay, look, that's not going to be the neighborhood you probably live in or the school district you probably live in, but it's going to be the best for the price that you can get. You know.

You know, Carrie was sending me thousand dollar house.

Yeah.

Carrie was sending me reports on like the local neighborhoods and so forth. How accurate do you consider those reports? Like when, like for, for an investor who's, you know, across the country and it isn't going to visit the house. What's your recommendation for doing due diligence with respect to finding that you know the right district? Like how do you, how do you, how do you tell from like afar?

You know, there are a lot of.

Different places you can go for school reports, crime reports.

Okay.

I mean, just duck, duck, go it. Do not Google it, because Google is evil. Okay. But just go to DuckDuckGo, which should be your search engine.

Yeah, yeah.

I actually interviewed the founder of DuckDuckGo on my podcast.

Oh, you did? Oh, that's cool.

Yeah, just look it up. Reports, all that kind of stuff. How reliable are those reports? You know, that's. I don't know. No one's ever asked that question. Okay, we kind of don't question it, but this is just the world of big data. They're just aggregating data from all these sources, you know?

Yeah, for sure.

I think they're probably pretty reliable.

Okay. All right, number three here. Lastly, where can we download the inflation induced debt destruction spreadsheet? Look far and wide and can only find images of it. Thanks, man.

You can go to Jason hartman.com, click on resources and scroll down the page.

I'm doing that right now.

All right, you don't have to go down very far. Reports and articles. Click on 30 Years of Inflation and.

There you have it.

And you've got one iteration of it right there, which is great. So there you go. Great.

All right, problem solved.

Cool. All right, that's Jason hartman.com click on resources and then click on 30 years of inflation right there.

All right, fantastic. Okay, let's see here. Okay, we got ourselves a nice one here. This is, this is from Cole Powell. He says, jason, I'm a new income property novice investor and appreciate the education you, George and Ken are providing for single family homes. Number one is an RV ratio of 0.7 still your target in the current, current linear markets start there.

Yeah, 0.7 today is pretty good. And just remember something, the rent to value ratio ain't what it used to be. And what I mean by that is that the interest rates are so low, they're toxically low, they're artificially low, they're manipulated. Whatever they are what they are, right? The mortgage rates are so cheap that you don't need a 1% RV ratio to make a deal work anymore. 0.7 will give you very good numbers in almost all cases. Of course, the higher the better. But again, you know, the prices have come up. The rents always lag the prices. So the rents always take a while to catch up. If you're expecting 1% or above, you're not going to be buying a house.

Okay?

So unless it's in a really bad area. Now there are still these super cheap houses. You know, the fifty thousand dollar house on paper look really good in practice they just never work out as well. But yeah, you know, okay, all right, cool. It's going to be pretty good.

All right, Number two, going to be using cash out refi primary residence to help fund income property investment portfolio with, with your network. Do you have a rule for debt to equity ratio on, on a primary residence?

Well, look, I always say debt, I mean sarcastically of course. Debt is my favorite four letter word. And what I mean by that is, look, when you use leverage and you use it prudently and you attach that leverage to good quality properties, as George and I have talked about many times, you're basically shorting the US dollar and it is the best thing. You get inflation induced debt destruction, you get more tax benefits and you get better insurance. And what do I mean by that? Well, I always say the best insurance is a high loan balance. Let's talk about two situations, Gene. One is natural disaster. So remember back to the days of Hurricane Katrina where basically the attorneys general of several affected states essentially made a deal with or forced the lenders, the big banks into putting a moratorium on mortgage payments for I think six months initially. And then I think they extended a couple times and you know, if, if you had a lot of equity in your property, you got nothing. You had a big loan on your property, you got a bailout. Okay, the, it, it's not right. It's, it doesn't reward the right behavior, but it is what it is. If you look at the Great Recession just a couple of years after that, who got all the breaks? Who got the loan modifications, who got the short sales, who got the workouts right, who got the interest rate reductions? All of the people that got, that were the people with the most leverage, the highest loan balances. I remember one of our clients had several rental properties that they purchased through our network. Got a bunch of loan modifications. And then he was saying to me one day, he said, you know, I couldn't get a loan modification on my personal residence. And I said, I bet I know why. And he says to me, we had too much equity so they wouldn't give us a loan mod.

And I crazy.

I knew it. I knew it.

You know, remember when you have a lot of equity, you're a safe bet for the lender. You're basically a target for them. They predatory on borrowers with a lot of equity. And you know, just think about that real quickly. If you're a lender and you're analyzing a portfolio of say 10,000 mortgages that you own, you're a big lender, right? You look at these 10,000 mortgages and 5,000 of them are non performing, they're in default, right? Then you take that 5,000 that's in default and you further dice it up and you subdivide it to analyze the portfolio and you look at, okay, well of these 5,000, 2,000 of those properties have more than say 30% equity at the current market value of those homes and 3,000 of them have less than maybe 20% equity. If you're the lender, which ones are you going to call and say let's give you a loan modification, let's help you sell the property into a short sale. Let's work this out. And which ones are you going to say, hey, you know, we're going to send you letters and we're going to be strict with you and say we're going to foreclose if you don't start paying.

Yeah, yeah.

The people with the most equity get burned and the people with the least equity get all the benefits. It's, it sucks.

It's just, it's like, like a lot of things in life if you don't do the equity stripping. Somebody will do the equity stripping for you.

You know, Dean, I love that. That's a really, really good way to put it. Yeah, we recommend equity stripping. Stripping the equity away from your properties over time using my refi till you die plan. And yeah, I love that, by the way, I haven't heard it said that way. If you don't do the equity stripping, someone will do it for you.

There you go.

Good one.

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