HI 129 - Align Yourself with the Government & Dealing with Inflation

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Hello and welcome to episode 129129 of the Heroic Investing Show. This is a podcast for first responders, for members of the military, veterans and really anyone looking to improve their financial future and gain some freedom with their time. We teach America's heroes how to build passive income, build their startup business, and safely grow wealth through real estate and other alternative investments. I talk with clients every day about full spectrum from life settlements to merchant cash advances to investing in oil wells to leasing the land underneath oil wells, syndicated apartment buildings, Personal Direct Ownership of Properties I have to say I'm still a big fan of one to four family real estate. I was a fan of that before I met Jason Hartman and all of his education and my personal experience has led me to believe that everyone ought to first and foremost, if you have any kind of indication that or inclination that you could handle, could stomach the bumps in the road that come with the direct ownership, the tenants and toilets some complain about. I would highly recommend that you get as many of those conventional loans while you have a strong W2 income. And then afterwards after you've got that strong base of direct ownership, then maybe you branch out and you start looking into being more of a passive investor. Or perhaps you turn and start becoming a money lender or a note buyer. They don't have quite the tax advantages, the full package of multidimensional benefits that direct ownership does. But again, at the same time it's a bit difficult to scale, you know, one to four family properties and I certainly understand that. I'm starting to look towards larger multifamily stuff, looking into vacation rentals or short term rentals I guess is a better phrase. So lots of different options. What I work to do is present for my listeners some education as well as some connections, networking and resources that can help you get into those other alternative investments. When I say alternative I just mean not Wall street, right? We've all got our 401k thrift savings plans or IRAs and we have plenty of exposure to the market, plenty of our money locked away in 59 and a half jail that's just very difficult to get to. So I think we should balance. We should look to putting more money outside of these retirement plans out in a place where you have direct ownership and control and free access to use it for whatever you want to do. You know, start a business, like I said, start investing in direct ownership of property. So that's what I aim to do for my clients. Here on episode 129. We're going to listen to a clip that from an event that I attended last summer with Jason, and he's going over, you know, really the impact of inflation, the impact of the Federal Reserve's decisions. This comes right after President Trump, you know, takes office.

And.

And there's a lot of questions out there about what's gonna happen with taxes, what's gonna happen with interest rates, inflation. So far here we're talking in 2018 hasn't been a huge run up in either inflation or interest rates. Interest rates have bumped up. They're certainly higher than they've been for most of the last decade. But while we've changed hands to a new Federal Reserve chair, and it looks like things are slowing down a bit and just trending upward back to what I would call nor. But there was a really interesting discussion that Jason has here, and one of the big takeaways is never bet against the Fed. And I absolutely agree with that. I always think back to, you know, the old Bugs Bunny episodes. They were on when I was a kid. One of the great ones is Bugs is, you know, he's trying to win out against his enemies, his arch enemies. And eventually in the last scene, he's having dinner with them at this big table. And. And he says, if you can't beat them, join them, you know, and sometimes, you know, that's really what Robert Kiyosaki says, is I study the Fed so that I can see what they're doing and get on the same side of the table, do what they're doing, as opposed to trying to oppose such a large force that has printing presses and their own blank checkbook. They can squash you like a bug if you're on the wrong side of the table. So I don't make all my actions or take all of my actions simply to be on the side of the Fed. But I look at what they do, and when they do something that I can recreate my own world legally, not printing money, but the legal things they do, like use leverage and have other people pay it back at deflated dollars, then those things I pay attention to when Congress changes the tax code as they did in 2018 and signals that they really appreciate people running small businesses and having passive income to the tune of giving you 20% of it tax free. I pay attention to that. So that's what I try to do is simply educate myself, help educate others, and get us moving in the direction that clearly there are incentives to move. So with that in mind and being sensitive to the fact that this is a little bit longer clip, I'm going to shift over and let you listen in on a clip from Jason and he mentions at the beginning of this that the acoustics are not the best, but it's adequate. It's just fine to be able to get the context of the great message coming from this. And so let's turn it over to Jason, who's talking about inflation and the Federal Reserve.

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But I want to take you to a clip of me talking live about some of this stuff and how you've heard me say this before, but talking about the impacts of what the government will probably do and really governments, I should say that plural, not just the US Government, but governments around the world will do in reaction to various inflationary and deflationary pressures. We've got them both playing out at the same time in a much different dynamic than we've ever had before at any time, really in human history at least. And any major shift toward these things. And we've got all of this stuff going on with the cryptocurrencies, bitcoin, the other cryptocurrencies. And I'm telling you folks, do not bet against the Fed. Do not bet on anything that would be against the Fed, especially these cryptocurrencies. I think you are playing a dangerous game. And as I said many more, many times before, before, I would love nothing more than to be wrong about my advice on cryptocurrencies like bitcoin, but I don't think I'm wrong. So just heed my warning. I met someone in Jamaica. She has an app, a startup, kind of a social app, and very, very smart person who has basically her entire net worth in Bitcoin. And I said, boy, you better sell some of that bitcoin off and get out of that. And you know, it's very appealing, especially if you're techie and a tech minded person, to think that this is the answer and we're going to decentralize the monetary system. But you look at the reaction of China to that just recently. Never bet against the most powerful forces in human history. And that's why this live clip is important. Because I've identified, most people have identified one, two, maybe three ways governments will deal with this massive debt load and the inflationary pressures it will cause. But I've identified not one, not two, not three. Most people stop at three. But I've identified six, yes, six ways that governments around the world, but especially the US government, because the US government is in a very unique and very special and very enviable position to deal with inflationary pressures as they come about. So yeah, the times, they are changing in not every way though. That's the dangerous thing. It's easy to think that this is happening in every way, that the rules are just changing in every way and they're not. Some things will stay the same. Maybe it's like there are some sort of basic things, the fundamentals that will always be the underpinnings of the economy, of the real estate market, of. But then some other things that are really changing. So it's, yeah, it's kind of an amazing time to be alive, but it's a complicated time for sure. It's a time when there's more options and more information than ever before in human history. And so that's all the stuff we continue to talk about on upcoming episodes of the show. And so we'll dive into that more deeply. But I don't want to take too much time in the intro portion here. I want to get to this live clip. Again, whenever there's a live clip, you gotta bear with us a little bit on sound quality. The sound quality isn't too bad. And maybe in the future I'll tell you how basic that this recording, that this recording was done in such a sort of a basic format with basic, basic equipment that you probably use every day. Okay, let's get to this live clip. And here we go.

Okay, so as we have talked about, it is an amazing time to be alive. And during the break, you know what we just did? Sepon Adam and I just recorded the podcast intro for tomorrow's episode, uploaded it to Dropbox so our editor can grab it and Publish it to tomorrow. Isn't that easy? You know how difficult that used to be? It used to be much more difficult in the old days. I had to walk to school, and it was uphill both ways in the Southern California snow. Yeah, that's what they always say, right? That's what older people always say. Younger people are always so spoiled. We're saying that now about the millennial generation. This time I actually think it's true. And they are so spoiled. So inflation. There's a lot of inflation fear with Mr. Trump in office. Inflation fear or inflation opportunity. I don't know which it might be. Opportunity, certainly, for real estate investors. And basically, we as a country are in a mess, okay? We are in a mess. We have spent way too much money. Ronald Reagan used to say to say that the government spends money like a drunken sailor is an insult to drunken sailors.

And that's a great quote. I love that one. Reagan had a lot of great quotes. So the question is, what do we do now? Right? What can we do as a country, as a nation, to get out of the mess we're in? What do we do? Well, there are six ways out of the mess that I've identified. You're welcome to add a seventh or disagree with one of my six. I don't know. But these are the six that I've identified. They basically go like this. Number one, we have all this debt. We could just default and say to the. To Japan and China and all of the countries that we owe money to, and all of the people and companies that we have obligations to in terms of repayment of debt, and then also entitlement obligations, which are much, much bigger than the debt. Okay? That's the. What? Lawrence Cutlikoff, the economist, was on my show a couple times. He talked about the $220 trillion time, okay, of entitlement obligations that simply cannot be paid. Now, to put this in perspective, just know that the country's gross domestic product annually is somewhere around about $18 trillion. And if we have to pay $220 trillion over the next 15, 20 years, obviously this math doesn't work, right? The tax revenue is dramatically lower than all of this. So the idea of taxing our way out of it is very, very unlikely. Okay? Even if you taxed everybody at 150%.

There wouldn't be enough money. This is just math, okay? It's just math. That's all it is. There simply isn't enough money. So the first two options, default on our obligations. That would be very politically unpopular. It Would probably create multiple wars, okay? And it would not be good. The other option is tax our way out of it. That's impossible. The third option, have a yard sale. We could sell stuff off, right? We could sell off assets that the country has. Many of our roads now are owned by businesses or governments in foreign countries. Literally. Okay, remember a few years ago, they wanted to sell the ports to Dubai, right? That was a big thing in the news. Didn't happen. But it, you know, it was, it was talked about, remember, several years ago when he was alive. It's just funny how we go back and forth with these little tin pot dictators around the world. It's really stupid and ridiculous. You know, Ron Paul, he's the man, you know, Too bad he's not going to be president. Maybe his son will be. He's not quite as good, but, you know, his, his dad really got it. Like George Washington said when he was leaving office, you know. Do you remember when Washington said this? I don't remember it, but I heard that he said it. He said, avoid foreign entanglements. You know, try to stay out of everybody's business as much as possible. In a, in a connected world, it is impossible to do that. But as a philosophy, as much as possible. Let's just stay out of all these dumb wars and all that, you know, it's just not worth it, right? The old saying, you got to pick your battles. So have a yard sale, sell something off. We were selling military equipment to our arch enemy for so many years when he was alive. We just had started this selling military hardware to Gaddafi, our arch enemy. He's blamed for the Lockerbie, Scotland bombing of that 747 where everybody died, you know, so this is crazy how the world works, right? So we could have a yard sale. We could sell assets. The other thing we could do is we could steal, we could just pillage, right? We could rob other countries of their assets. And so you heard a lot about this during the second. Well, the first and the second Gulf War. You know, we're in Iraq to just steal their oil, right? Well, if everybody's going to blame us for it, I wish we would have actually done it. We might as well, right? If they're going to blame us for it, that's what we could do. I mean, if you look at the history of the world and all these different military conflicts, what you realize at some level is all of these great military leaders, like Napoleon, he's a great example, okay? Napoleon was really just a burglar with an army Right. You know, he used to invade countries to steal their wealth. That's what he did. Right. And so, you know, militaries are used to steal. That's one thing they do. Right. But there's a softer version of it. And I interviewed him on the show, John Perkins. He wrote a great book called Confessions of an Economic Hitman. And he talked about how he worked for this consulting firm that was hired by the US Government to go in and negotiate with foreign leaders about making deals with them. Saudi Arabia, when it was just a desert wasteland. We basically made that country incredibly rich by the economic hitman deal we made. And this is very complicated and nuanced and there's lots of opinions back and forth. My mom listened to his audiobook and said, oh, he's such a hypocrite. You know, he's just a guy who went in and profited from all this and then years later is saying, it's so bad, but he kept the money. You know, I don't know, whatever you think, you know, I'm not sure, but. But it's interesting to say the least. Right. Okay. So a positive way, those are four negative things that we just talked about. But a positive way that we could get ourselves out of the mess is through technological innovation. Energy, biotech, nanotechnology, you know, all these great technologies like 3D printing, etc. Maybe there will be some America centric big innovation or many big America centric innovations that will create tons of wealth for the country and in so doing create a lot of tax revenue for the government. And if that happens to possibly, I guess we could essentially grow our way out of her mess. But it's super unlikely because the numbers are so big and ominous.

When you're looking at 220 trillion plus plus plus. Right. It's pretty hard to imagine that, but I don't know, could happen and it would be great if it does, who knows? I believe the most likely way we will work ourselves out of the mess is we will inflate our way out of the mess. Using inflation as a tool to avoid repaying debts and avoid paying obligations is really a fantastic business plan for governments and central banks around the world. And certainly many, many governments throughout history have done this, and many are doing it today. One huge difference though is that the United States has the reserve currency of the world and it also has the largest economy in the world. And it also has, and don't underestimate this. No one really talks about this that I know of but me. It also has the biggest brand in the world. Okay. A brand that stands for freedom and opportunity. And we can certainly argue that that brand has been tarnished and diminished. And I would agree. Right. You know, especially with the government spying on us and so forth. Right. But still, in comparison, America's pretty good place. And a lot of people around the world still want to come here. They may talk out of one side of their mouth and say they hate America and America throwing its weight around, around the world. And on the other side, they'll say, but I'd love to come there, you know, Right. At the same time. So America has a big asset in its brand name, and that's very powerful. I don't think that should be underestimated. Okay. But it certainly has the largest military, the reserve currency, and the largest economy. And one way or another, America can get away with a lot of stuff with all those assets. Okay? And it also has obviously very good geography. The American geography has really allowed it to be very safe. It's got a very secure geography with oceans between it. Right. You know, poor Kim Jong Un in North Korea, you know, he's really struggling to get a missile to come all the way here, right. To those evil American oppressors. But he'll probably one day, you know, pull it off, right? Hopefully he won't. And so the geography is a big American asset, too. You know, if you, if you're in Europe, you know, you're just susceptible to all kinds of problems because of your geography. And we've seen that throughout history. So with all these assets America has, it can get away with a lot of stuff, and it can spend like crazy, and it can go into debt like crazy. And it can just create more fake money to repay the debt in dollars that become cheaper and cheaper and cheaper over time. And that is basically the definition of inflation.

Okay?

So inflation is our friend as a real estate investor. It is the home run for real estate investors. And there's really only one opposing force to this. Inflation. This is going to happen except for one wild card, which is a significant wild card, and that's technology, like we were talking about when we started this morning. Okay? So technology is deflationary. Everything else is inflationary. Okay? So these two will be opposing forces, and we'll see which one wins out. None of us really know. Okay? So getting excited about the government's mismanagement of our. Our money is. Is a pretty big thing to be excited about.

Okay?

It's. It's pretty good. And we got a question here. First name and city.

Around in New Orleans. Is that a new suit?

Got it.

Okay, go ahead. So going back to your last slide.

You have technical, technological innovation and equation. I love them trying to get of paper money.

Oh, that would be bad. Paper money is a real asset. It's actually a big part of our freedom as people. And we've seen attacks on higher value currencies like what happened in India fairly recently where they demonetized the largest bill they have. And in Sweden is almost a cashless country now. It's pretty much everybody just uses credit cards or wireless payment systems like Apple Pay. So believe me, you do not want cash to go away because cash is a very private thing. You can spend it without people knowing how you spend it. If it's all electronic, the government can track every move and that is very bad. You know, I mean part of our privacy is how we spend our money. Right. Okay. So yeah, I think technology of electronic currency, unless they're not controlled by the big powers that be like Bitcoin or these other cryptocurrencies, those would be great, but I wouldn't bet on them. You know, I wouldn't hold out a lot of hope for Bitcoin because the likelihood is that, you know, the fight between huge governments and central banks all around the world, not just the US and the standing armies they control and an idea like bitcoin, I think bitcoin is likely to lose.

Okay, just did a really good podcast with a guy that went to jail for being a bitcoin broker.

They'll find every possible way to crack down and squash it, you know. Yeah. And quick. We got to not do a lot of questions because of time. Okay, but what's your question?

Well, I'm just going to make a point to you, Brian. A real good point to that is if you look at, especially the last couple years, look at the 10 year treasury, how much money has actually come to this country even though extremely low rates, the fact that it had more other place to go. Yeah, it's actually forced our rates to stay lower.

Yeah.

The US government can basically force other countries to buy our treasuries. And we knew that to some extent. If you read the economic Hitman book, you'll see how this works. It's a really interesting, you know, peek behind the scenes of this world that most of us don't even know exist. I didn't know it existed until I found found that book. Okay, okay. So understand that in to understand inflation we need to distinguish between real and nominal and price and value.

Okay.

Real and nominal and price and value. So I have in my wallet exactly $1. That's all I have. Okay. In cash. Because I mostly don't use cash. Right. So I've got this dollar. And this dollar has been around for a long time. Not this particular one, but the thing called a dollar has been around for a long time. So, for example, the Federal Reserve was created just over 100 years ago. And one of our Venture alliance trips was to the place of its creation, Jekyll Island, Georgia, where they created the Federal reserve just over 100 years ago. And when the Federal Reserve came about, it's the United States, I believe it's the US's third central bank. They had two other failed attempts, and Federal Reserve has stuck around for a while. But when the Federal Reserve was created. Does anyone have any idea what this was called?

Reserve note.

A reserve note, Yeah.

I agree. It was. You could exchange it for silver. Right. But I'm not getting that technical. I'm just getting really simple. Yeah. Greenback. Yeah. Okay.

Iou. Well, it was an IOU for silver, I guess.

Right?

I don't know if it was called that, but I'm just being really simple here. It was called a dollar, okay? It was still called a dollar. That's the point I'm making. Right? It's called a dollar. It was called a dollar over a hundred years ago, and it's called a dollar today. Yet the value of this dollar is only about 4 pennies versus what it was back then. So you'd have to just rip a little tiny piece off to illustrate the real value of it. The value has changed significantly even though the name is the same. Nominal means in name only. Okay? That's what that word means in name only. So the dollar is called a dollar in name only. All right? So we need to distinguish the difference between the name of something and the actual value of it. The value is a fluctuating thing even if the name stays the same. Inflation is the insidious hidden tax that is a pickpocket. It literally takes money out of our wallet, out of our savings account, out of our stock brokerage account, out of our bond account. Okay? You know, it is a pickpocket. It's a thief. It's a liar and a thief. And why is it that way? Because it keeps calling the thing the same name yet diminishing the value of it. Okay? So it's. It's something very few people really understand. It's really hard to truly, like, wrap your head around it. And I would say that I still haven't wrapped my head around it. And I've been studying this stuff for. I got really into it in about maybe 2003. Okay. I mean, it's interesting that I took an econ class in college and I didn't get that into it then, but when I self studied and became interested for personal reasons, I did get interested. Keith, quickly.

Yeah, I just would say it helps to think about how it works because if money is printed in a central place, that money actually goes to somebody first. That's the tax.

Right, the tax.

Because if I put money in my basement, put $100,000, I get the most benefit from that. But let's say I go buy a car, the guy that gets the money for the car gets it next, and then who he gives the money to until the entire money supply recognizes that it's out there. So the poorest people get punished the most.

Yes, very good point.

So it's not like just, it's not like the prices just move up and walk several corners if circulates out.

Yeah, absolutely. That it gets spread around, it's slow and insidious and it hurts the poorest people the most. That's the thing. And this is why, by the way, I can't be a liberal because they say they want to help the poor, yet their policies hurt poor people the most. And remember, I grew up poor, so I know what it's like to be poor now. I wasn't destitute poor. I still ate okay. Although not much okay. But anyway, I ate a little bit. Being poor is no fun. Right? But the inflation hits the poor the hardest because when gas prices go up, for example, a fairly large part of their income goes to gas. Especially because a lot of the poor people have to commute the longest to have a job. I'll just give you a great example in Southern California, Riverside, they if you don't have as much money, you live in Riverside, but you likely work in LA or Orange county, so you've got this long commute. And when gas prices bump up a buck, that's like hugely significant to them. Okay, richer people, well, first of all, the dollar increase in gas prices doesn't matter that much. But second, they don't have a long commute because they can afford to buy a more expensive home near, near their work. Right. So anyway, yeah, it's, it's really a bad deal. Okay. So it's this insidious hidden tax inflation destroys the value of savings, stocks, bonds and actually equity and real estate. Equity in real estate is denominated in dollars. Anything denominated in dollars loses value proportionately. So even equity in real estate. But thankfully, it also destroys the value of debt. That's why it's a home run for us, because we love debt. Debt is our favorite four letter word. Okay. Raise your right hand and say, I love debt.

Yeah, I know, it's counterintuitive, right? It's totally counterintuitive. But it really does make sense. As long as the debt follows rules, it's not consumer debt. It's debt against assets that produce income or produce wealth in some way at least. Okay. And it's long term, low interest rate, fixed rate debt, investment grade debt. That's the kind of debt we love. Okay.

Inflation is the most powerful method of wealth redistribution. Most people will think taxes redistribute wealth. I had Joe the Plumber on my podcast before, remember him? Yeah. He was on the Creating wealth show a few years back and he became famous for walking up to candidate Obama and really surprising him and saying, hey, you're going to redistribute my wealth. And you know, Obama is accused of being a socialist and communist and all this stuff. Right? So most people think, think that the powerful method of wealth redistribution is through taxation. That's a amateur method. The powerful method is inflation because inflation redistributes wealth from lenders to borrowers, from lenders to borrowers. And by the way, this is. You can fill this in in your workbook, okay, if you want to. And from old to young. So why does it distribute wealth from lenders to borrowers? Well, if you loan money, and when you loan the money, you loan it in today's dollar that has a certain value. We know what a million dollars today means. We know what that means. Right. But in the future, we don't know what a million dollars means. That's up for grabs. So as you go through time and you're say 10 years in the future, okay, and now it's 20, 27. I mean, what do you want to bet that that million dollars is going to be worth less than it is today? And you, or really not even you, but your tenants pay it back in cheaper dollars on your behalf. Your tenant is like your representative that pays your loan back for you, okay.

So that's a pretty great deal for a borrower. Why would it distribute wealth from old to young? More specifically, you kind of got at it. But old people have assets, usually, hopefully, and young people have debts.

And so that's how it's just distributed through the Generation, you know, it's redistributed from old to young, and it's totally unfair. Old people that did the right thing, delayed gratification, saved money, invested, they did all the right stuff, they got totally screwed by the system. And here's the thing that's hard for a lot of people to come to grips with. Look, we all have parents and grandparents that we heard say things to us about money throughout life. And a lot of our beliefs were formed by that. And one of those beliefs, at least I heard all the time, was don't have debt. Debt is bad, right? And my mother and my grandmother who told me that and my grandfather that told me that kind of stuff. Basically, they played that game that was the right game. That all changed. The rules of that game changed in 1971 when we went off the gold standard. Why did it change in 1971? Because when the. When Nixon closed the gold window and the government was allowed to spend without being tied to any intrinsically valuable thing like gold. And I'm not a gold bug at all, but, you know, it is a measuring stick. When the government was allowed to just spend like drunken sailors. Insult to drunken sailors. Okay? Then inflation, we saw in the 70s, it went crazy, right? And inflation really has been going crazy even since then. Most of the time, the government just figured out ways to manipulate the numbers really well, to hide it from us. And technology, which is a positive thing, also hid it from us. Okay, all right, the example is that million dollar mortgage. If over whatever amount of time you want to pick, one year, six months, 10 years, doesn't matter if you have 10% inflation in that given period. That real value of that mortgage is $900,000. That's what you're really paying back in real dollars, not nominal dollars. In nominal dollars, you're still paying a million, but in real dollars, 900,000. Okay, so that's the very swank deal. Okay, here. Oh, now here's a good video from cnbc. Now, this video is several years old, but it is very, very telling. It's got Peter Schiff arguing with a guy named Harvey Hirshhorn from Bank of America. Peter Schiff. Although I would never invest with him. Actually I did, and I lost a bunch of money, so I would not recommend investing with him. And like, they couldn't care less how much money I lost there. They were so arrogant and terrible. They didn't even return a phone call half the time. Awful experience. But I invested with Peter Schiff many years ago because he sounded so good. You know, Peter Schiff is a very intelligent person. He's like quick witted. He's the master of the sound bite. He's just got these zingers and he's zinging here. And he's right, okay? You'll love this video. It's great because Peter Schiff is right. He just nails it. Harvey Hirshhorn, this guy from bank of America is just a total idiot, okay? And the host, it's interesting how the host at CNBC just, you know, rails on Peter Schiff. Like he's, you know, they try to totally marginalize him and make him sound like an idiot because they're part of the big Wall street central bank government scam.

Okay?

That's really like the. And you know, you hear this stuff about like the people in the media. Well, they'll say things like this, well, it's not like we had any meeting to decide which candidate to support. Like the media will defend themselves. You know, they're constantly accused of being left wing, right? The media. We've all heard this. This is not a surprise. Right? And you know, journalists usually are left leaning people, right? So you know, they'll defend themselves sometimes and they'll say, well, you know, we never had any meetings saying we're going to support Obama or Hillary or anything. I believe them. I don't believe they had a meeting. It's just the general zeitgeist, the thought, you know, it's just their world that they're talking about that they believe in, right? So this is their world. CNBC is like the mouthpiece for the vast Wall street conspiracy. And you just hear it all the time, just a constant theme. It's not like, it's not like they got together and had a collusion to, you know, probably. I mean, maybe they did. It's just like part of the way they think, okay? It's just the way they think. And so this video really illustrates it. Now, the three basic ways that the government manipulates the inflation statistics when they publish them in the consumer price index is through three basic things. Weighting, substitution and hedonics. Okay? Weighting just means, you know, in this basket of goods that makes up the consumer price index, the government will say, well, you know, we're going to give more weight to this item, this widget, and less weight to that widget. And if that widget, widget A goes way up in price, they'll just weight it less. As though people buy less of widget A, okay. And more of widget B, which didn't go Up. And so it makes the index look better, like inflation is lower than it really is. Okay? And then substitution is kind of similar. With substitution, they'll say, well, hey, the price of beef went up, so everybody will just buy chicken, and we'll just put chicken in the index and take beef out, okay? And, you know, maybe you don't like chicken. Maybe you think chicken's a dirty bird and you don't want to eat chicken. Right? You want to eat beef. Right? And anyway, so, you know, that's substitution, Right? The third way is hedonics. And hedonics basically says it's from the word hedonism, Right? And hedonism is pleasure seeking. The amount of pleasure you get out of something. Right? So if I take this laptop computer here, basically every time Apple comes out with a new laptop that's got enough of an upgrade, I buy it, okay? And I always buy the most powerful, best thing they sell. And every time I buy it, it pretty much costs the same amount of money. It's $2800 for the best laptop they make at any given time. That's about the price. Always the same price. For years, it's been the same price. Now $2,800, the value of that's obviously moving target, right? But the technology keeps getting so much better. And that's why what incentivizes me to buy a new one? So Hedonics will say that even though Jason bought his new computer and paid $2,800 in actual dollars, the computer is twice as good as the last model. So we're going to assume he only really paid $1,400.

That's hedonic indexing. And that is addressed in this video quite dramatically. So you're gonna like that. When Harvey Hirschhorn talks about. He's gonna say, well, the power of a processor has gotten faster. Well, yeah. So, you know, I mean, then Peter Schiff just kills them. But understand that the concept of hedonic indexing is logical. It's true. Like what they're saying is true. That happens. Technology gets better, products get better. Right. But you know what they're saying when they hedonically index? They're saying that we are not entitled to progress.

That doesn't belong to us. It belongs to the misstated index of inflation.

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