CW 936 FBF - Inflation Induced Debt Destruction as an Investment Strategy

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Hey, welcome to the Creating Wealth Show. I'm Jason Hartman, your host. Thank you for joining me for episode number 638. 638. And it's great to have you here today. And I, I have only done this on rare occasion and that is where I was interviewed on somebody else's show. But I kind of thought the points were pretty good. It was maybe a good review of a topic we've done before and I will play it for you on this show. So that's what we're going to do today. Your guest is none other than yours truly, Jason Hartman and someone else interviewing me. Occasionally we do this and this is one of those times. I don't think we've done it in a couple hundred episodes. So we will get to that here in just a moment. But first I will share with you something that I wrote on my Facebook page today and it will give you cause to ponder. It's a couple quotes from Ben Bernanke and then one from the brilliant old Yogi Berra. The late Yogi Berra, he has such great quotes. You know, I've shared a couple of those on the show previously. So, yeah, Yogi Berra said, when you come to a fork in the road, take it. Or the one I love the most, the future ain't what it used to be. What an awesome quote. You really got to wrap your head around that for a moment to ponder it, but it's really good. Anyway, two from Ben Bernanke and one from Yogi berra. Ben Bernanke 2009 no one will lend at a negative interest rate. Potential creditors will simply choose to hold cash which pays zero nominal interest. Says Ben Bernanke, our former Fed, our former Federal reserve chair in 2009. And then he contradicts himself massively in 2015. Quote I think negative interest rates are something the Fed will and probably should consider if the situation arises. Ben Bernanke 2015 I mean, this is unbelievable. And then Yogi Berra says in theory there is no difference between theory and practice. In practice there is.

Awesome quote Yogi Berra. You know, it just goes to show you, these central bankers around the world, they're frickin making this stuff up. I mean they really, these are not the brilliant people the world wants to give them credit for. They are simply human beings with their own agenda and their own self interest and they're making this crap up as they go along. And we realize that the only real tool in their tool belt is money creation. Actually, sorry, let me correct myself. Currency creation. To create currency, fiat currency out of thin air. Whenever the industrialized nations around the world meet, they have some big meeting in Davos, Switzerland or wherever it is. You know, Davos is only one of their big meetings or Jackson Hole, Wyoming or whatever. You know, they got their big important meetings for these self important people. They're meeting to see what they can do to fix the world economy. And the answer why do they need to talk about this for hours? The answer is let's just print more money. Let's just create more money out of thin air. We don't even have to print it anymore because we can do it on a computer screen. So it's just an absurdity wrapped in an enigma. I mean, it's crazy. And then I posted a little picture meme and it's good. I like this one, so I'll share that with you too. In the same Facebook thread it says give a man a gun and he can rob a bank. Give a man a bank and he can rob the whole world. It's so true, isn't it? Oh, it's just crazy. It's just crazy. So we'll see if we, if we really see a negative interest rate environment. We've got that in a couple places around the world. We talked about that before on prior episodes and we shall see how it all evolves. We are living in crazy times. Crazy times of financial repression. Financial repression. And we as investors must align our interest with these incredible powers. You Know before, I probably misspoke as I often do. By the way, there's my disclaimer, I often misspeak. How do you like that one? And I said these were self important people. They're actually not self important people, they are important people and the world has made them important. So we must align our interest with theirs. We must not fight it. We must, we can bitch about it, we can complain about it, but we must ultimately align our interests with theirs because we know their interest will win the day. It always does. And that's why we engage in lots of arbitrage as real estate investors. We get probably more arbitrage type opportunities than any other type of investor. And again my simplistic definition of arbitrage, you know, go look it up, I'm sure you'll get a much more academic definition. But you know me, I think a lot of times simple things are the best. That's why I think a good old Internet meme on social media can explain things much better than some long flippin essay. You know, if you, if you have to use a lot of words you're probably either hiding something, maybe you're hiding the fact that you don't understand it. Right? And that's what a lot of these people do. You know the Fed comes out with a beige book, right? They got a lot of words to explain something which basically means let's create some more money out of thin air or currency. Sorry, misspoke again. Currency, not money. There's a difference. Money is real, currency is fake. Okay? Currency is fiat, always by nature, by definition. So you know, a lot of times a simple little meme can explain it. Well, so what is the Jason Hartman definition of arbitrage? Simply put, exploiting the differences in things. Exploiting the differences of thing in things. Right. So you, when you geo arbitrage, you exploit the difference in geography. Right. For example, pay scales in different geographies vary greatly and that's why we've seen so many companies do offshoring and outsourcing and you know, moving to different jurisdictions where they can arbitrage the tax nexus, where they can arbitrage the payroll or the wage nexus, where they can arbitrage environmental laws, where they can arbitrage the cost of real estate, where they can arbitrage all sorts of things in the sort of the Tim Ferriss movement, he and those people in that movement have got this term they use a lot called geo arbitrage. And we can do that ourselves. I mean I like to do that in my company you know, I'm not too into the offshoring thing because I haven't had very good luck hiring people in the Philippines or India. You know, maybe it's a cultural barrier or language barrier, I don't know. But it just hasn't worked for me, I'll put it that way. So I hire North American workers to work in my companies and to do different things and provide different freelancer contractor oriented tasks for us. And I try to hire people and who are living in a lower cost of living market. I mean, if I'm gonna hire a person who, you know is gonna do a website for me or you know, edit a podcast and they live in New York City or they live in Los Angeles, California, or if they live in Miami or Boston, I know I gotta pay them a lot of money to be able to afford to live there. But I can hire a person who's very bright, who's every bit as capable in Phoenix or Dallas or Austin or Indianapolis or Atlanta or hey, coincidentally a lot of those are markets that we either recommend now or have recommended in the past, right? Linear real estate markets where the cost of living is reasonable, the cash flow is good. The lti, the land to Improvement ratio, another term I coined the land to Improvement ratio, is favorable to us as investors using the Hartman Risk Evaluator to reduce our risk dramatically when we invest in those markets. I'm geo arbitraging, right, because I can pay people more than they can get working locally. But to me it's a bargain compared to hiring someone in a really high cost jurisdiction. So it's a win win deal. We all win. It's a win win deal for everybody. So arbitraging. As a real estate investor, we want to arbitrage as many things as possible and there are all sorts of ways we do this with monetary and fiscal policy and tax policy and rent to value ratios and of course we've talked about those extensively over the many, many years and many prior episodes. But just keep that in mind and as you listen to this interview, I think you'll get a lot out of it. Join us in Salt Lake City. Coming up fast March 12th, we've got a great Jason Hartman University, a JHU live event there and a lot of you have registered already. So thank you for that and just make sure you join us. It's going to be an awesome event. I'm really, really looking forward to this event and we have made this one a lot more challenging. So if you came when we did it the first time in August, last August in San Diego. Come to Salt Lake City. Enjoy a little spring skiing. I think you'll have a great time there. It's got the best snow in the world. Enjoy the natural beauty of the Salt Lake City area. Great city, love it there. Also, learn some good stuff at Jason Hartman University. We've got a beautiful hotel there. Just really a great all around setup. A great room block with some low rates. We did just recently announce that. So you should have received an email if you've already registered with the booking link to book your hotel rooms at the bargain room block rate. And if that got filtered or you didn't receive it for whatever reason, check with your investment counselor and they will be glad to provide you with the information. And before we get to our interview, here's a little quick nice voxer message I got today that I wanted to share with you.

Jason, My name is Ross Johnson from Minneapolis, Minnesota. I heard about you from Ryan Daniel Moran on Freedom Fast Lane. I've been listening ever since, probably about 200 episodes now. Very intrigued in the Orlando market. I've definitely checked into it. I'm very curious to hear what your thought is on vacation rental properties there. I've not heard you talk much about it. It seems like there's a lot of upside and I know you're not big on hoas, but I just wanted to hear what your thoughts were on vacation rental properties in the Orlando area. Thanks Jason. Appreciate it. Hey Ross, thanks for the message. Appreciate it. And appreciate you listening to 200 episodes of the show. That's great. You've only got about 440 of them to go anyway. Yeah, I have talked a lot about vacation property over the years, you know, on various episodes. And it's not that I'm this is a statement on Orlando in any way. Hang on a second. There's a little noise.

But rather a statement on vacation properties in general. And I am not a fan of vacation properties. I think there's a lot more management involved. There's obviously a whole world of change that is occurring with Airbnb and various sharing economy sites like that that is changing the game quite a bit. There are huge tax implications that people don't even know about. And a lot of these owners that have vacation properties are going to be hit with big tax bills that they don't even expect.

And I have done some shows recently on that, so you've probably heard those episodes. And I've also, I think one of those tax episodes is on the AIPIS show. But you know, one Reason that regardless of all of this stuff that I'm not a fan of vacation properties is because they're not a necessity. And you know, if the economy goes down the tubes, the first thing people gonna say stop doing is taking vacations. Right? So I'm just not a fan. I think that stable necessity oriented housing is where it's at and that's what you want to be investing in. So I hope that helps and appreciate you listening to the show and referring your friends. Thanks again.

Hey Jason, just wanted to say thanks for the quick reply. That was some great advice there. Also just wanted to say I really appreciate your show and I've definitely learned a ton. I own two rental properties now that were bought in speculation and I was definitely led down the wrong path. And I'm very excited here to be getting close to having enough money to get back into this but with a whole new mindset. So I really can attribute that straightly to you and your show and all of your guests and I just really, really appreciate it and just want to let you know that. Thanks Jason. Have a great day.

But that's the thing. See I hope everybody will listen to my show before they go. Buying real estate on a speculative basis. Commandment number five, thou shalt maintain. Well, that's commandment number three. What am I thinking? Commandment number five, thou shalt not gamble. Do not buy real estate on speculation. Buy it because it makes sense the day you buy it by cash flow income producing real estate. It's the only kind to buy. So definitely stick with that and you'll have a good experience. That's the thing to do. So yeah, I know a lot of people have been led down the wrong path by many different promoters out there. The other thing that I did not address in that voxer chat there by the way, sorry about the sound quality. I'll try to only respond when I have better sound quality in the future. But the other thing is I don't like condos as you know and he did mention that. So again, avoid condos. Get yourself single family homes or get yourself apartment buildings but not condos unless you control the homeowners association, which you're probably not going to do. So forget about condos and forget about vacation properties and forget about high priced speculative properties. Income producing real estate, the non sexy stuff with good land to improvement or LTI ratios. That's the thing to do.

Remember you're listening to Flashback Friday. Our new episodes are published every Monday and Wednesday.

Let's listen to this interview and hear more.

Well, hey, Jason, welcome to the show.

Thanks, Brian. It's great to be here on Investigation Investor in the Family. Love the name, by the way.

Hey, I appreciate that. It's something we're definitely excited about and also excited to have you here with us because a lot of our focus so far on this podcast has been on equities and will continue to primarily be on equities. But real estate investing obviously is your wheelhouse and I would love to use this opportunity with you to kind of knock those doors open for some of our listeners to get a better feel for opportunities in real estate and how to maybe make some first steps and kind of dipping their, their toes in the water. But before we do that, I would love to get or have you just introduce yourself to the audience, kind of give your background as an investor as well.

Yeah, absolutely. Thank you. So, first of all, today I want to share some truly new thinking when it comes to investing in income property. Okay. Stuff that your listeners have not heard before. You know, there's, there's no shortage of hokey real estate gurus out there that promise, you know, the world and, and, and fast fortunes and so forth. I, I want to talk about the prudent, tried and true approach to long term investing and some monetary policy issues and how we can align our interest as investors with the most powerful forces in the world, governments and central banks. Okay. Your listeners will hear some truly new ideas that they have not heard before anywhere else from other real estate people out there. And basically, to answer your question, the way I got started is I grew up fairly poor in Los Angeles, California. And when I was 16 years old, I kind of hit me, you know, that money is a significant part of life. It's important. You know, I didn't think too terribly much about it before that. I guess I happened to be at home and I was watching an infomercial and there was a real estate guru on there and he was talking about his book and how you could buy properties with no money, blah, blah, blah. The typical spiel that you, you'll see on TV if you can't sleep. Yeah. You know, insomnia cure, right? Yeah. And so, so I heard him talking about that. I went out and I got his book and I read three chapters of it. I was only 16 years old, mind you, and I put it down. My mom picked it up and read the rest and got really interested in the, the topic. Two years later, I was about to graduate from high school. I was now 18 years old. And my mom says, you know, Jason, you got me into this real estate stuff. I've been going to seminars, reading more books about it. And there's one this weekend by Disneyland here in Anaheim, California. Why don't you go? And so I rounded up nine of my buddies from high school and I, I got them all to go to the, the, the seminar with me, you know, because you can't do anything alone at that age, right? And, and so we all show up on Friday evening and the first speaker is talking about something called points. And I didn't know what points were. And you know, they're prepaid interest on a loan. I now know that. And one point is 1% of the loan amount, right? And so I remember I discovered Earl Nightingale, Dennis Waitley, Zig Ziglar, and Jim Rohn about a year before that, when I was 17. Totally changed my life. I remember Earl Nightingale saying, you know, that whenever you want to learn something new, you should just humble yourself. And he gave the example of real estate, actually. He said, if you want to get rich in real estate, learn the business first. So by the end of this seminar, I was just hooked. I was totally fascinated. I stayed all through the weekend, through Sunday afternoon. I saw all the speakers. All of my friends had gone off to the beach and boogie boarding and surfing and working on their tan. But I stayed and saw every speaker. And first thing Monday, I went and I looked for where can I enroll in real estate school? And by the time I was 19, I was in my first year of college. Now I got my real estate license in hand, and it was just a couple weeks before my 20th birthday, I went to work at a cheesy Century 21 office in Anaheim, California. And I started just selling real estate part time while I was going to college. And what do you know, I actually worked unlike most people in the real estate business, or at least at the time, it's, it's matured. Admittedly, that industry has gotten, you know, much more professional over the years, but this was a long time ago. And so, you know, I, I sold like five properties my first full month in the business. And I couldn't believe it. I had only earned minimum wage before that. I started working at age 4 14, the minute I could work and get a work permit. And I couldn't believe it. And one of my clients, a guy named Jim Wool, he was buying investment properties from me, and I was, you know, driving them around in my little Volkswagen Jetta. And I was working with a lot of investors because that was really my interest. It was the Investing side of the business. And he comes to me about six months into my career, I'm now 20 years old, and he says, you know, Jason, one of these properties I bought from you, I really don't like it very much. Why don't you take the listing and sell it for me? Find a buyer. I'll buy another property with the proceeds. And I said, you know what, Jim, I don't want to sell it for you. I want to buy it from you. And I actually bought this little property, this little one bedroom condo on Coventry Lane in Huntington Beach, California from Jim. And that was my first rental property. When I was 20 years old. I had what most people, people would consider a bad experience. My very first tenant stopped paying me rent after a couple of months. I had to evict them from the property and they left the property in bad condition. I ended up selling it to another investor who was doing a 1031 tax deferred exchange. And I actually did okay on it. And then I started buying properties and I was selling real estate and I was going to college. I was doing all this stuff at the same time. You know, I had just made a bunch of money both in the real estate business as an agent serving clients, and also as an investor investing for my own account. And I just, I just fell in love with it. I think it's the most historically proven asset class in the entire world, unless you're an insider. Now you can make a ton of money on Wall street if you're an insider, but you know, for the rest of us it's a little harder. And so, so that's the story of how I got started and, you know, glad to share anything or answer any questions you have.

Yeah, well, I mean, I, lots of questions. I mean, I fall in the camp probably like many of our listeners, where, you know, I've, I've attended some seminars and I've read some stuff on real estate rental properties. I've actually been very close to purchasing one before, but I haven't actually followed through with it. And there's obviously a lot of different reasons for that, and some of them good, maybe some of them not. But I think a lot of my listeners probably fall in that category as well. And real estate, unlike some other investments, whether it be equities or otherwise, there is that, there's that kind of fear risk factor that comes into the game. And you mentioned earlier, there's lots of unknowns that can come in the real estate or it's how you mentioned how it's important to learn the business first. I would love for you to address that. Just people on the fence love the idea, but just don't know what to do next and fearful of taking that first step.

Yeah, yeah, absolutely. So first of all, one of the beauties of income property, and we really should refer to it properly as income property versus real estate because real estate could mean anything. But with income property, you know, income producing rental property, it is a multidimensional asset class. So when you look at stocks, if they're non dividend paying, you have one source of potential profit, capital gains only. If you look at precious metals, capital gains only. If you look at raw land capital gains only. But income producing real estate income property is a multi dimensional asset class. So you have capital gains opportunity through appreciation. You have tax benefits because it's the most tax favored asset class in America. Taxes are the single largest expenses in any of our lives. So that's huge just on the tax angle alone. And then of course you have income from the property and you have leverage and you have something that I want to share with your listeners, which is a concept probably nobody has really thought of. And I have a little trademark term that goes with it. I call it inflation induced debt destruction. And I'll share a real live example that happened to tens of millions, millions of people over the past couple decades. And it's this hidden wealth creator in the real estate or income property world. And it's, you know, you can use what I call the double inflation arbitrage to really, really ramp up your profits. So happy to take it wherever you want. But you know, when you, when you hear about these bad experiences in real estate, look at if you own stocks and lose money, you don't really feel the bumps in the road. Even if you make a modest return from those stocks. There may be a whole bunch of bumps in the road that you never heard about, you never noticed and you never dealt with. For example, you have so many layers, so many layers where you have to peel back this onion. You've got your financial advisor, hopefully you've got a good one. And hopefully, you know they're not a crook, right? So you get past them and then they put you into maybe some funds or maybe, maybe they put you into some different companies in which you own stock and you're subject to all the graft and corruption of the CEO and the board of directors of the company or maybe the middlemen in between, the fund managers, whatever, right? And so say all of that goes well and everybody's honest and Upstanding and you know, they comply with GAAP principles and proper corporate governance and all that good stuff. Okay, so say you get past all of that. Well, you know, the bumps you don't feel that you do feel in real estate because you're a direct investor in the property, right? It's yours, you're in control of it. So you feel the bumps if the tenant doesn't pay you, if there's a repair, if there's a disaster of some sort, you're going to feel that and know about it. Whereas if you invest in a company and own stock in them, you know, you don't know if the CEO is getting sued for sexual harassment and that could really screw up the company. You don't know if they're on the take. You don't know if, you know they've infringed on somebody's patent and they're about to get sued the way Samsung did and lost several years ago to Apple. You know, they're just, you don't know about their competitive landscape very well. You can't, you're not there. Okay. You know, it's just not possible to really know this stuff with. I mean you can be a great, very aware, very well read and well educated and investor but you can't know everything because it's not your company. You know. So those are some of the differences.

Yeah, no, and that's helpful. And of course one of the things that I think people probably think is good about that is even if you may not know those things are happening, you know, the worst case scenario in a stock investment is that you lose your entire investment, which would be very bad, obviously and rare. But that's, but that's it. But obviously with real estate, you know, you've got the debt you're responsible for, there's potential legal ramifications because you are the frontline person. And then you know, as the, as you've heard, I'm sure a million times, the three T's of taxes, toilets and tenants, you know, so I, yeah, I'd love to hear. Yeah, just how you address those things.

Yeah, absolutely. I'd be glad to address those. So first of all, the vast majority of income property loans are non recourse loans. So you're not going to, you can walk away. That's the implicit, what I call nuclear option that over 10 million people did during the Great Recession. In fact, a lot of them walked away and got paid to walk away. Countrywide bank of America was literally paying people to do short sales unsolicited on their properties, they would send out, they probably sent millions of letters that said, we will pay you to do a cooperative short sale anywhere between, between $6,000 and $30,000. You know, you will let you out of the loan, you're off the hook, just sell the property. And of course they did that because of, you know, all of the dynamics to which we're not privy. But it's probably TARP and you know, the various omnibus bailouts the banks got and all of this kind of stuff. And so, you know, usually, very rarely is there actually a recourse loan on, on a, on a piece of housing.

And so just to be clear, when you say, when you say non recourse, that means. So if I'm, if I own an.

Income property, you can walk and the lender can't sue you for the difference.

Right. And so basically they would just, they would sell the property to cover the loan on some.

Well, they'd probably not cover the loan and you know, they lose money, but it wouldn't be your problem. You would lose your equity, your down payments. So if you put 10% down on that property, you could lose your 10% and you could walk. And as long as it's a non recourse loan, that's it.

But that would impact your credit, I'm assuming, right?

It would impact your credit, yes.

Right.

Okay. Yes. But then, you know, there are a plethora of places out there that can repair your credit.

Sure.

So sure. And some of them are very hokey and dishonest too.

Yeah.

So be careful with everything. Right. But, but you know, some are reputable and it can be done. Okay.

Of course, obviously that's an extreme situation.

Yeah, absolutely. You know, hopefully you're never going to face that, but certainly it's an option. Okay. Yeah. So what, where would you like me to go next? Do you want me to talk to you about inflation induced debt destruction?

Yeah, go. Yeah, I mean, I was going to get there eventually. We might as well do it now.

Yeah. And, and I'd be glad for your listeners if you'd like to supply you with some of these written materials, some of the actual PowerPoints slides I'm referring to here so that you could put them on your website and they could, they could actually download them and look at them. If you, if you'd like me to do that, I'd be happy to because I'm going to be talking about quite a few numbers. Okay. But let me just set this up first and let's look at the More macroeconomic environment. Okay. I, your listeners are sophisticated, educated people and they're certainly aware, as are you, as to the problem with our spendthrift government. Okay? We are in the hole in a massive way. Okay? And so with, in knowing that, I've identified six basic ways the government can get out of its debt and deficit problem. Okay? I had Lawrence Cutlikoff on my podcast a couple of times. And you know, he's the famous economist who, who has really probably studied this subject more than any anybody, and that is the unfunded mandates and the unfunded entitlements that are hitting us over the next 10, 15 and 20 years. And some would call this conservative, conservatively, the 60 trillion. And that's with a T. Trillion, not billion, trillion. Okay? The 60 trillion dollar time bomb. Lawrence Corporation Cutlikoff says it's about a 220 trillion dollars time bomb.

And this would be referring to like Social Security, pensions and things like that that probably don't have funding.

Yeah, absolutely. All the promises our government has made that it simply cannot keep. Okay? So there are really only six ways out of the mess that I've identified that I know of. Number one is to default. To simply say to everybody, look, look, sorry, you know, everybody before me, it's all George Bush's fault, whatever. You know, that's what they always, that's, that's Obama's favorite line. Not to get too political there, but you know, all my predecessors, they overspent and we can't keep the promise. So sorry, we just can't give you Social Security. Tough. We can't give you Medicare, we can't give you Obamacare, we can't give you disability. We can't, you know, we can't maintain the roads. We can't pay for national defense, whatever, Right? So that's one very politically unpopular, very unlikely option. Fortunately, the United States has the reserve currency, the world, at least for now, so we can inflate our way out of the mess very nicely. Other, other countries don't have this luxury that we do. The second option is to raise taxes. And there. It's simply not possible to raise taxes enough. If you literally taxed everybody at 100% of their income, if you said, you know, all of your income, give it to Uncle Sam, there wouldn't be enough to pay for this problem. The problem is expanded. It's, it's too big. Taxes will not do it. And of course, we all know as, as Reagan so aptly proved that when you raise taxes, you actually suppress revenue and you Suppress economic activity.

Yeah, yeah. You're punishing earning potential.

Right. So it's a terrible idea. Raising taxes is an absolutely terrible idea. Okay, so that's number two. Number three is we could have a yard sale. We can sell the ports to Dubai. We can sell military equipment to Libya, Taiwan, you know, and these are all things we've either considered or we've done. You know, the Bureau of Land Management.

You're seeing that in Greece right now, for example.

Yeah, yeah, absolutely. Greece is, you know, thinking about maybe they've actually done it now. Selling off islands. Spain is a disaster. Portugal is a disaster.

Right.

The world is a disaster, basically. Right. And so at this dance of really ugly girls, the US Happens to be the prettiest out of the ugly girls. Okay? Right. Because it's got some special characteristics that other countries don't enjoy. So number four option after having a yard sale is just use the most powerful military force the world has ever known, the US Military, to basically steal from other countries, steal their resources. Certainly, you know, we were accused of doing this in Iraq. I don't know that it's true, but, you know, it is an option. A very famous person that is usually revered in history was just a thief with an army. His name was Napoleon. Okay. I mean, you know, he was a. He was a. He was a thief, okay. That had a military and, you know, he's a hero. Right. It's an odd view of the world. On the positive side, we could have a great technological innovation, you know, in the areas of maybe energy, biotech, nanotechnology. You know, there's all kinds of exciting things happening. I mean, I always say on my show, it's an amazing time to be alive, and it really is. If the US Is at the center of one of these innovations or many of them, that could dig us out of the hole pretty far. But the most likely thing, the sixth option, is to simply inform. Inflate our way out of the problem. And that is basically debasing the currency and paying all those promises back in cheaper dollars as. As the value of the dollar is inflated away. This is a fantastic business plan for governments. It's a fantastic business plan for investors. And what I'm proposing is that we as investors, align our interests with governments and central banks, the most powerful forces in the world, because, you know, they may be a total scam, they may be totally corrupt. And I agree that they are, but we're not going to change it. So we better get on their side of the table because they are so powerful. Okay? So to understand, and to get excited about monetary and fiscal policy, we need to understand inflation and what it really is. Okay? And I, I admit that inflation is pretty tame at the moment, but if you take out a 30 year mortgage that's at a fixed, artificially low interest rate today, and you have that mortgage against commodities that, where the debt is outsourceable to somebody called a tenant, I mean, look, I don't like debt if I have to pay it myself, but if I can outsource my debt to a tenant, this is a beautiful thing and that's why it's such a great asset class, right? So to understand inflation, we need to distinguish between real and nominal. Real is the real value of something. Nominal just means a name only. And, and we need to distinguish between price and value. We need to understand that inflation is this insidious hit, hidden tax that destroys our purchasing power and our standard of living. And we, we need to notice that inflation destroys the value of our savings, our stocks, our bonds, and thankfully the value of our debt. This is the beauty of it. Debt is my favorite four letter word when I don't pay it myself and when it's against what I call packaged commodities. See, I'm a commodities investor. I invest in lumber, copper wire, petroleum products, labor, energy, concrete, glass and steel. And they're always assembled in the form of a house or an apartment building. That's my favorite investment. And I get 30 year artificially low fixed rate debt against those assets. So I've got the commodity hedge against inflation and the debt being debased against inflation while the tenant is actually paying the debt. And I'm not. I call this the double inflation arbitrage. Now inflation is the most powerful method of wealth redistribution ever known to man. It's far more powerful than taxes. You may remember a long time ago, a guy by the name of Joe the Plumber, right, who asked candidate Obama, are you going to redistribute my wealth? Well, I had Joe the Plumber on my podcast, okay, and, and you know, he got sort of has his 15 minutes of fame from that line. But inflation is a much better way to redistribute wealth than taxation because not many people notice it. They all notice taxes immediately. But inflation is the slow burn, okay? And inflation redistributes wealth from lenders to borrowers.

Because borrowers pay their debts back in cheaper dollars. Lenders loan them out in current dollars. So you, you take advantage of this huge time value of money opportunity and it also reduces, distributes wealth from old people to young people. Now, why does it do that? You might be thinking, well, old people generally have assets in the forms of savings, stocks and bonds, while young people generally have debt.

So their debt is paid off through inflation. And old people suffer because the value of their assets is debased by inflation, See, because it's all denominated in dollars or whatever currency is being inflated.

Just a reminder, you're listening to Flashback Friday. Our new episodes are published every Monday and every Wednesday.

Yeah, so essentially, I mean, not to make it too obvious, but just to make sure it's clear for the audience and stuff, is that if you borrow $100,000 for a house in 2015 or 16 now, and each year there's inflation, you're paying, you're still paying back the same fixed amount of a hundred thousand dollars, but you're paying it back with cheaper and cheaper dollars moving forward.

Absolutely. That's beautiful. You explained it perfectly. And, and lest we think, unless your listeners think that this is some abstract theory, let me put into, into real terms here, okay? And I'm going to share with you an example. Now there's a quite a few numbers here, so just pay attention, okay? I'll make it easy to follow and I'll be glad to give you a copy of this if you want to put it on your website for your listeners. But, but basically this happened to tens of millions of people. What I'm about to share. Okay, so here's the example. In 1972, one year after we went off the gold standard, okay, the median single family home was priced at 18. I'm going to round off to make this fast, okay, about $18,000, okay? If you put 20% down on this property and you lived in it, this is not an income property. This is just a home you lived in. Now if it was an income property, it would be dramatically better than this example, but it's good enough without getting income. Okay? So if you put 20% down, you would get a loan, a mortgage for about $14,000. The interest rate on a 30 year fixed rate mortgage in the middle of 1972 was 7.37%. Okay, so that's what you start with. In 1972, $1 was worth $1. But we had some inflation. We had the Jimmy Carter era, which was a disaster. And we had Paul Volcker, the only Fed share, probably ever willing to make the economy take its tough medicine, which was tough, but he broke the back of inflation by doing that, by raising rates and you know, curtailing the money supply, which every Other Fed chair has done the complete opposite. You know, their idea of putting out a fire is to throw gasoline on it. If you're, if you're, you know, Ben Bernanke, Janet Yellen, or Alan Greenspan. Okay, so let's just fast forward 12 years now to a year that a famous book was written, 1984. Okay, the Orwellian era. Right. So in 1984, that $1972 is now worth only 40 cents. And this is by official numbers. In reality, inflation is always higher than the official number the government gives us. But let's just take the official number to be conservative. The example is actually much better than this in real inflation terms. So now that 1972 dollar, just in 12 short years has lost 60 cents of its value, 60% has been debased or paid off by inflation. Right? And every month for the last 12 years owning this house, you've been making mortgage payments of $101, 101 per month. But as the years went by, that payment felt cheaper and cheaper to you because by 1984, the real value of that payment, even though you were still writing a check for 101 per month, was only $41.

Because of inflation paying down the loan. Okay, now let's fast forward to the very end of it. 30 year mortgage. This happened to tens of millions of people. It's not a theory, it actually happened, but most people thought they, they got wealthy by owning their real estate because it went up in value. But what they didn't usually realize is the debt went down in value. Okay, so they got this double inflation arbitrage, as I call it now in 2001, when you're making the last payment on that mortgage, the value of the $1972, now only 24 cents. The payment, when you're writing that last check for $101, the feel value, the real value of it, what it feels like is only $24. You know, it's basically like buying lunch. Okay? And that's the last payment. So let me summarize this. The mortgage, the money we borrowed was only $14,000 thousand dollars. In nominal dollars, we repaid $36,000. But after inflation attacked those dollars and debased them and paid them down to the benefit of the owner of the property and the holder of the mortgage. The debt being a huge asset, not a liability as most people think. The real dollars that we repaid was just over 6, $16,000. Now it gets better. After tax benefits, the real inflation and tax adjusted dollars was only $12,000. But wait, you say, didn't we borrow 14,000 and we only in real dollars, paid back in real terms 12,000. Yes. We thought we were paying 7.37% interest, but after inflation, our effective rate was only 1.06%. And after tax benefits, it was negative 1.16%. We got paid to borrow the money. We got paid. And I didn't even mention that we lived there for three decades for free. We got free rent for 30 years and got paid.

How does the free rent come in? Because I thought you were this income property.

Well, because in, in it. No, this is not an income property. If this were an income property, it would be dramatically better because, see, we were making these payments ourselves. If we could outsource the debt to a tenant and have them hopefully pay us a little extra every month called positive cash flow, this example would be like infinitesimally better. Okay, but if I, if I even did that example, if I did the math on it, no one would believe me.

Like lottery numbers better?

Yeah. It'd be insane. Okay. It'd be like your return on investment was like 9,082% or something. I don't know.

Okay, so I guess you're saying they live there for free because they had to pay back less than they borrowed. Is that what it came down to in real dollars?

Yes. And just so you know, there was some high inflation in there for a few years under Carter, but overall the average inflation rate over the three decades was only 5.1%. It was modest. I mean, it wasn't, you know, if, if, if this deal were in Zimbabwe or Spain or Mexico or Portugal or Brazil or Argentina or, you know, any of these countries that experience very, very severe inflation. The Weimar Republic, you know, Germany, for God's sake. I mean, the returns would be insane.

You know, going by official numbers, even in a relatively lower inflation environment like we have today, the principle still holds. It may not be quite as compelling, but the principle is still there. Unless we fall into deflation, which is.

It'S not as dramatic, the greatest enemy.

Of the central bank. So I think we're probably on a safe end on that front. But no, that's compelling. And I think it's helpful to hear perspectives like that because again, as we mentioned, real estate, it does involve more hands on, especially at maybe an early, excuse me, income properties. Especially at an early, early level. Because if you're maybe more deeper into income properties, you can, you know, hire management companies and have a little more hands off, I guess in the process. But realizing that there are those benefits like that. And of course, you know, in the back of everyone's mind, there's going to be that one story you heard over here about the tenant.

Yeah.

And, you know, it was just this disastrous process, and then there's a. There's gonna be one story over here.

Yeah, yeah. I had to evict somebody, you know.

Yeah, yeah. Pipes bursting, a repair issue or something. Yeah, sure.

They're out there. Hey, listen, I have them. It's not perfect. I'm. I am by no means saying this is perfect. It has problems. But look, I'll tell you. You never hear a story from any of your friends. Friends, cocktail party, conversation of, oh, yeah, I got a bunch of properties, and my tenants pay rent every month perfectly on time, yet that is what happens most of the time.

And I'm extremely wealthy because of it. Yeah, no one says that.

Yeah, right. That. That's what happens the vast majority of the time. You only hear the exception to that. Okay. You only hear the negative story.

Yeah. And that's my point. And that's my point. Yeah. People, we get scared off by the one or two stories that very likely may not be indicative of reality.

Absolutely. Absolutely. So. So, you know, don't let them scare you. And you. I just want to compliment you for having me on your show because, you know, this is not your thing. You're interested and your audience is interested in investing in stocks, and, you know, I'm the outlier here. So, you know, it. It really shows that you're a journalist by having me on and showing another viewpoint. So I appreciate that. That's. Your listeners should appreciate it, too. Yeah.

Well, you're very kind to say that, Jason. And yeah, I mean, our. Our goal ultimately is to become better investors, period. I always love saying that every dollar we spend and every minute we spend is an investment in something, and you want to make the best possible investment. And if that's inequity is great, and if it's not, then we want to go there, too. And I think, obviously you said before we started the interview, you could talk for three days in this topic. And I don't doubt that because I would like to keep picking your brain.

In the topic, but I love this stuff, man. I just love it. I absolutely love it. But. But, yeah, it's great. And I'd be glad to come back on. You know, there's another whole principle that's kind of a big. A big chunk. I call it the Hartman Risk evaluator. It took me 19 years to discover this of what really can dramatically reduce risk in an investment. You know, it'd take another half hour to go through that, but you know, maybe we can do it another time. It's pretty interesting, but you know, I just wanted to get this stuff out because I, I think it'd be interesting to your investors and you know, we'll, we'll see where it all goes. It's, it's quite interesting. And I would say if you're going to be in the stock market, buy dividend paying stocks because, you know, you got to have income. In fact, I definitely, fine. I say in, in on my podcast and in my seminars, I say anything without income does not qualify as an investment. It's simply a speculation. So vacant land, that's real estate, but it's, it's a speculation, it's a gamble, it's not an investment. In order to have an investment, to use that term, you have to have income without income. You know, if you, if you buy gold or silver and listen, I own all this stuff too, okay? I own some of all, everything pretty much, you know, except I don't own any stocks anymore, okay? Or mutual funds, but I used to own a bunch. If you buy precious metals, you know, they don't produce any income. That's a speculative deal. You know, it's gambling. And so you. Listen, I've won a lot of times gambling, okay? So I, I freely admit that. But I'm just saying the older I get, get, the more conservative I get and I just want things. I like mailbox money. I just like getting income every month. I like my tenants paying off my loans.

No, I mean, that's a good word. I think the more I grow as an investor with experience and otherwise, you know, it's one of those age old investing truisms that usually the more boring the investment, the better the investment.

And so.

Yeah, you know, and you think it's so easy to get in that mindset of, Especially when you're looking at something that you hope will have quick appreciation or significant appreciation. That's exciting, but it's almost, it's very rare that an exciting investment doesn't have usually an equal amount of risk involved too. And so that.

Yeah, yeah. The more simple and boring. I agree.

Yeah, sure. Well. And over time, this, this what you're.

Talking about is so true because there is nothing sexy about my investments except the risk returns. You know, it's, it's the difference, it's the difference between having a wife and a mistress. One is exciting. But really scary. And the other is dependable.

Yeah.

And if, and if, and if you measure, if you get caught up measuring things in months versus measuring in years and decades, that's the difference. It's when you can think in years and decades, that is where you're positioning yourself for great success, in my mind. And that's, that's definitely the game with real estate and the, the local real estate mentor that I've been working with and, you know, he's talked about, you know, everyone wants to say, well, I'm not quite ready for real estate, or I'm not quite ready to do this. But the thing is, it's the, it's one of those where you want, you don't want to wait to buy. You want to buy and wait because you're, you let that tenant pay off that mortgage and then it's like you said, mailbox money, and all you're dealing with is, you know, taxes or whatever else. But, Jason, again, I want to respect your time. Like I said, I could pepper you with questions for the rest of the day, and I know you could. You could offer great stuff that entire time, but you've got a lot on your plate right now. We want to wish you the best with your upcoming conference, and we look forward to hopefully connecting with you again sometime and also getting Some of those.

PowerPoints you mentioned to give their audience. That'd be a real help.

And yeah, I'll email those over to you so you can put them on your website. And if they have questions for me, My website is Jason Hartman dot com. It's just my name, Jason Hartman. H-A-R T M A N dot com. And then of course, podcast is on itunes and all the usual places.

Yeah. And we'll be sure and link to all those things from our website to make sure our guests and listeners can find you as well. And hey, Jason, thanks for coming to the show. We wish you all the best.

Hey, thanks for having me. And happy investing to you and your listeners.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be. Really? Now, how is that possible at all? Simple. Wall street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life. I know. I mean, how many people do you know, not including insiders who created wealth with stocks, bonds, and mutual funds? Those options are for people who only want to pretend they're getting ahead. Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little, you lose a little and spin your wheels for decades. That's because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you're one of them, you will not win. And unluckily for Wall Street, Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is is disappointing. Yep, and that's why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us. We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely. I like how he teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government. And this set of advanced strategies for wealth creation is being offered for only $197. To get your Creating Wealth Encyclopedia Book 1 complete with over 20 hours of audio, go to jasonhartman.com store if you want to be able to sit back and collect checks every month. And just like a banker, Jason's Creating Wealth Encyclopedia series is for you.

This show is produced by the Hartman Media Company. All rights Reserved. For distribution or publication rights and media interviews. Please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.