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Inflation Induced Debt Destruction

Jason Hartman



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In this episode, Jason Hartman discusses inflation and the six ways the government is likely to inflate itself out of a mess. He shares how inflation will erode our purchasing power, stocks, savings and how it makes the rich get richer. Then, Jason highlights how income property counteracts inflation.

Announcer 0:04
Welcome to the heroic investing show. As first responders, we risked our lives every day our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant, and we need to take care of our own financial future. The heroic investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Gary Pinkerton 0:39
Hello, and welcome to Episode 127 of the heroic investing show. This is a podcast for first responders, members of the military veterans, retirees from the first responder, world firefighters, police officers and EMTs. 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. We help current and prior first responders put protections and systems in place to enable them to build a life where they can focus on their passion, that service product ability that they are uniquely gifted with to share to the world with the world and Gain Compensation, be it through actual monetary compensation, or just improving their lives and the lives of those around them. That thing that we’re uniquely gifted to do, let’s set up a life so that we can focus on that, Master that skill, share it with the world. That’s my focus. That’s my vision for how we make America great again, and how we follow the path that our forefathers had in mind. When they did that incredible journey of leaving Great Britain and creating a country and fighting for freedom. They were focusing on that. And I hope that we focus on it more strongly here in the near future that we have been recently. You know, here we focus on those challenges that will help people get to that better place. And my name is Gary Pinkerton. And I’m co hosting this show with Jason Hartman. And hopefully you find this helpful and inspiring. And please never hesitate to leave us a review at either iTunes or Stitcher or wherever you find this. And again, always happy to hear from you at Gary at Gary pinkerton.com.

So in this episode 127 Jason talks in a clip from a creating wealth live event that I was at last year. And it’s about inflation induced debt destruction. So he opens this clip on a bit of a rant, I guess, I would say, maybe a distraction about a recent trip that he had taken to inflation or to New York City. And he comments that New York City is a look into the future, because it is so expensive. And we recently did here in 2018, we did a venture Alliance mastermind event in New York and I will agree with him is pretty expensive up there. So I thought that was relevant. And well, you know, it was pretty entertaining. So I left it in, because I thought it was relative relevant to the topic of inflation, and how it has an impact on either reducing your debt or increasing your debt if you’re working on the wrong side of inflation. So we’ve talked about this in several episodes. So I’ll list a few of those here. And if you’re not familiar with them, you weren’t able to see them before or just want to brush up on them, please do so go back and look at them because they were the best of the best of some of the creating wealth shows over the past 1000 or so that Jason has put out. And I thought you might also want to break from my tirade about property management and a better way to do so about my goals of hiring a personal assistant skilled in property management, to help me manage and show you a light towards helping you manage your properties remotely rather than, you know, having you being remote and your property managers being local and doing everything their own way. What I found extremely challenging about that is it’s very easy to get our interests misaligned. And for them to want to do it kind of the way they do it with all their properties. I’m more interested in having consistent practices across the different markets.

So I’ve diversified across Susan and I’ve diversified across five markets. It’s challenging with five markets and seven or eight property managers to get everything done even remotely close to the same way. It’s very difficult on our end, I’m going to turn that around and have the markets do everything the same way so that it’s more simplified and streamlined on our side. So at least as much as we can do So there we go, I got off on my tirade again about property management. This topic is not about that this is about inflation induced debt destruction. And basically, Jason’s terminology here is talking about the same thing that I talked about when I say for me, my real estate is not about cash flow right now, because I’m inspired to keep doing my personal financial management, coaching and mentoring and advising. And that’s where I make my livelihood. My rental properties are simply a, I call them a wealth bucket. It’s a place to store my family’s wealth, but also grow it efficiently offset the impacts of inflation, and in fact, turn the table on that and have them work actually, in your benefit. And a really good discussion about that were from one of Jason’s investment counselors, Doug Edberg, where he talked about defending against the demons of risk and inflation. And I ran that in Heroku, investing 113. And then shortly before that, and heroic investing 111 really my favorite is a discussion from Dan Ammerman about the different ways if you remember the boxer, the right hook, the left jab.

And so he was talking about really the same topic about how to get inflation working in your favor. And that’s Jason’s inflation induced debt destruction. A few others where we talked about this, we talked about the three dimensions of real estate, inflation’s impact there on price discovery and some other aspects of it. And that was heroic investing. 107, Ken McElroy talked about this subject when he was on in hurricane investing 69. And then way back, and heroic investing 57, we talked about 10 reasons to carry a big long mortgage with Rick Adelman, and the biggest portion of that was offsetting inflation, and then the tax benefits of it. So quite a few of them in there to go back and refresh on. But I thought this was a really nice discussion by Jason, just kind of listening in on a recent creating wealth show. And hey, listen, you didn’t have to travel for this. So I hope you enjoy this one. And we will be back with new content next week. Can’t wait to share with you. And please enjoy Jason on inflation induced debt destruction.

Jason Hartman 7:22
I just arrived back home to Las Vegas last evening, from a week in the Big Apple, New York City, where it feels like you’re going forward in time in the sense, I’m only talking about fiscal and monetary policy that create inflation because everything is so incredibly, incredibly expensive. In New York City. It is the most expensive city in the United States. And it’s just kind of absurd, really it is. It’s such a contrast from where I was just a few weeks ago in Eastern Europe, whether it be Poland, Ukraine, Lithuania, Latvia. And then I also went to France and Germany. But those places are not inexpensive. So it’s sort of this interesting comparison in time. Because if you look at the way inflation erodes our purchasing power, and erodes our savings, our stocks or bonds, mutual funds, and thankfully our debt, you really can see that when you go to these different places where prices in Eastern Europe, for example, are so low, it feels like being back, I don’t know, 20 years ago, 30 years ago, the prices are so inexpensive. And then when you go to New York, it feels like being in you know, you know, maybe 10 years forward in prices, where there’s been a lot of inflation. And everything is just so so expensive. So it is quite a contrast to say the least. But it was an interesting week, not much time to relax at all. It felt like we were always moving. I’ve got a friend who wants to get into the Broadway scene and do a musical or a movie one or the other. He’s kind of thinking about it to promote his business and get access to well need I say the left wing population. And that’s where they are, well, they, they consume a lot of that type of materials. So that’s a good place to go to check it out. We saw a couple of musicals and I redeemed one of my charity auction winnings, which was a meeting with bill hemmer, and Shannon Bream and a tour of neat I say at Fox News because half of the audience will think Oh my God, why would you tour that place? Fox News, fa UX News. But you know you go across the street to CNN, the communist News Network, the clinton News Network network. Hey, you know, whatever. It’s all a partisan world in which we live nowadays. But I wouldn’t have to say that the highlight of the week was the Tony Awards.

Yes, I’ve never been to anything like that. The Tony Awards. And that was quite a production. It was very interesting to see that, you know, that TV show, it goes on about a half hour before it airs, they actually start the awards and give out some of the lesser awards off air. And the political correctness was everywhere. Everyone talking about global warming, yet doing nothing about it. Still, all of these celebrities living in luxury flying in their private jets out on their big yachts, making a huge carbon footprint and all complaining about what everybody else has to do to reduce and live a more meager life, everybody but them, they’re the elite class, of course. And then you hear them preaching diversity all the time. And it seemed like a pretty diverse crowd to me. So I don’t know what they’re complaining about. They talked about bad times how this is, these are really tough times we’re facing, really, I don’t know, stock market is booming. Real Estate Market is booming. Unemployment is low, bad times. Really. I don’t know, they’re all talking about Trump because they hate Trump. And this intolerance is just it’s totally pervasive. Hey, I’m no lover of Trump. Okay, by any means. I think the guy’s got a lot of problems. I’m concerned that he could start world war three with his Twitter account. You know, every president no matter what side of the aisle they’re on, seems to be beholden to what?

Well, the military industrial complex. All of them, all of them seem to be, you know, into intervention and getting into other countries business. And I don’t think Trump will be any exception Obama wasn’t bush certainly wasn’t. And it’s ridiculous. It really goes to show you that the president, who we think is the most powerful person in the world, is really working for somebody else. I know. You’re thinking, Oh, conspiracy theories, here we come. You know, it’s hard not to believe that, isn’t it? I mean, look at what happens whenever they get into office. They all change their tune, don’t they, to one extent or another. It’s really amazing. But hey, all I say as an investor is, you know, take the most historically proven asset class, and align our interest with the powers that be the powers that want to spend money, the powers that want to it well, whether they say they want to or not, they all increase the debt. And that means inflationary pressures, that means higher rents, that means higher prices, that means asset inflation, it means what a greater concentration of wealth, where the rich get richer, the poor are taken care of by the government, to one extent or another. And the middle class has all the pressure on the middle class, the middle class shrinks, the rich get richer, the poor, I don’t know, they don’t really get poorer, because they live a lot better than they used to before the middle class. That’s the class that has all the pressure on them.

Our mission as good investors, is to try and move up as much as possible in the economic ranks. And if we are in the middle class, the lower middle class, the middle class, or the upper middle class, let’s try and move up one notch, maybe two if we can, because all of the pressure is on us, those middle class and upper middle class people. And even the lower wealthy classes have a decent amount of pressure on them. But the the ultra rich, they pretty much have smooth sailing, because inflation makes them more wealthy. Also being government suppliers in the military industrial complex or the prison, the government prison industrial complex, or the government, student loan debt enslavement complex, or whatever that complex is. There are so many of them nowadays. They are always their wealth is always increased by it. So let’s align our interest with these incredibly powerful forces. They are too powerful to fight. I think we should continue to complain and be diligent, civic minded people, but at the end of the day, There’s going to be more inflation. And we’ve got to align our interest with these very powerful forces, you know, they say never bet against the Fed. And I would agree, I would not take that bet, I would put my money on the fed on governments on central banks, and invest with my philosophy, which basically espouses just that align our interests with these powerful forces. So that’s what we want to do as investors.

And we will talk more about that, at our upcoming venture Alliance mastermind meeting in Chicago right around the corner, just a week and a half away. If you’d like to come as a guest, it’s just $2,000. This is a, this is an upscale event, you’re welcome to do that. Go check out venture Alliance mastermind.com. And also, Jason hartman.com. In the events section, you can register there. And you can also register for just a few weeks later, a couple weeks later, our Oklahoma City, Jason Hartman University event and property tour in Oklahoma City, that is a relatively new market for us. So come out and join us for that meet all of our clients, learn a lot, have some fun, increase the size of your network, do some good networking, and go to Jason hartman.com. Click on events for that. And join us for those two events coming up. And without further ado, let’s get to our main segment of today’s show, which is a clip from a live event that I did a couple of years ago, a few years ago, in Florida, and I think you’ll enjoy it. So let’s tune in for that live clip. Right now. We talked about the six ways the government is most likely to inflate their way out of the mess, the six ways just to quickly review default, that’s politically intolerable, right? It’s just not a good solution.

The government is very unlikely to default on its promises, because it is too severe, you’re not going to win any elections by saying no more goodies. Look at Greece, look at the austerity look at those kinds of problems. And you’ll see that default is not an option that government wants to take, okay? government could raise taxes, they can’t raise them enough to solve the problem, the problem is far bigger than you could possibly collect in taxes, they can have a yard sale and sell things off. That’s certainly an option they could use the military to steal. You look at military heroes throughout history, like Napoleon. That’s what he was basically, a thief with an army. The great news would be technological innovation. Certainly it is, what time is it? It’s an amazing time to be alive. Okay. So we could have technological innovation. And that’s certainly the positive way out of the mass, no question about it, the most likely thing is, of course, we’re gonna have a blend of all of this. That’s really the answer, everything is going to happen. There are going to be some degree of default, with government promises, there has to be, the government cannot defy gravity forever, there will be theft, there will be innovation, there will be higher taxes. And the biggest part of it, the likelihood is there will be inflation. Of course, there’s much disagreement on this issue. But inflation is a really good business plan for governments.

It’s a great way out of it. We owe so much money to China, and so much money to Japan, and they know they’re doing this, they know we’re going to inflate our way out of it. Virtually every currency on earth is fiat currency. It’s by authority. It’s nominal. It’s a name only. It has no real intrinsic value, except the power of the economy and the military behind it to force its value on other countries and their citizens. So we talked about monetary policy, we filled this out yesterday, we talked about how inflation. To understand it, we need to distinguish between real and nominal between price and value. We need to understand that this is the insidious hidden tax that destroys purchasing power, it did bases and destroys the value of our stocks, our bonds, our savings, and thankfully the value of debt. It is the most powerful method of wealth redistribution, known. It redistributes wealth from lenders to borrowers and from old to young. This is exactly where we left off. Why does it do this? What do you think? It doesn’t because the lenders loan their money at current value, and they get their money back at debased value inflated value, the money coming back is worthless. Less than the money they loaned. So think about it, if you loan $1 million today to a borrower, and over the course of that loan over several years, say, for example, that there is a cumulative total of 50%, inflation, you’re only getting back 500,000 real dollars, the debt goes down in value, it’s paid off by inflation.

So to put yourself on the right side of this equation, you want to be a borrower, not a lender, if you’re going to lend money, lend money on a short term basis, but borrow money on a long term basis. So you might be asking yourself, Well, how would a bank be this stupid? Why would they agree to this deal, because it’s not their money. They get that money from bondholders, they get that money from the Federal Reserve System, and they loan it out, and they’re simply playing the margin, they get the money at 3%, for example, and loan it at four and a half. They’re playing the margin, that’s all that matters to them is the margin on that money. Remember, that recent podcast I did with a deep explanation of adjustable rate mortgages. Remember those five different elements of an adjustable rate mortgage, right, you got the start rate, you’ve got the index that the rate is indexed to, and the most important element there you have the margin, the margin is the difference between the index and the rate the borrower is charged, same concept here, they’re making the money on the margin.

Now, why from old to young? Why is that significant? Why would it redistribute wealth from older people to younger people, because older people have assets? They have savings generally, hopefully, and younger people have debts. So through the generations, inflation is this redistribution of wealth, from lenders to borrowers? So many people say, and this is what’s interesting, if you look at the political spectrum, and you look at the left side of the political spectrum, and the right side of the political spectrum, the left seems to own the concept of compassion. Would you agree with this, you know, they seem to have that brand tied up, we’re the more compassionate people, we’re going to help people, we’re going to give them free health care, we’re going to give them more government benefits, you know, they sort of somehow own that concept of compassion. And the right, you know, not completely, of course, but they kind of own the concept of what we want to be more responsible fiscally, and we don’t want to have all this debt. Right? Would you agree that this is the way the political ideology is? At least branded? I’m not saying it’s actually true. I’m saying it’s just branded that way in most people’s minds, right. But I asked you this, if the left, you know, wants to spend all this money to dole out all these goodies?

Well, what do you have to do to pay for the goodies, you gotta have a bunch of debt? Right. So so the government goes more and more into debt? And who do they pass the debt on to the next generation? Okay, how compassionate is that? You know, there are all these statistics about like every baby born in the United States, the second they’re born, they have like $87,000 in debt, just because they arrived, that’s because of all the government debt, that is a liability. And it will somehow have to be paid, it will either be paid through taxes, that they will have to pay, or it will be paid through inflation, the basing the value of their savings, their stocks, their bonds, it has to be paid. Now, why hasn’t you know, the old saying, right, that chickens always come home to roost? Right? Isn’t that the saying something like that? Right. You know, or the other one, you always got to pay the piper? Well, does it seem like we’ve paid the Piper or we’re paying the Piper? Not really, why is that? Because of this concept that the government is defying gravity, it’s totally illogical, what’s going on? They’re defying gravity, because why? Why? Why can they get away with defying gravity? Because they import deflation through immigration policy. Think about it. If you let all of these workers come in from the southern border that will accept less pay than you’re importing a deflationary force.

If Giovanni or anybody that’s doing rehabs on a house can hire cheaper labor, and you can deliver that house rehabbed to the buyer for less money. That’s a deflationary pressure. And that would seem good. It means you get it for less money, and it is good in a way. And then the other thing they do is they Import deflation in manufacturing from places like China, the workshop of the world. So everybody criticizes companies like Walmart, it’s a hard problem to solve it really is. Because you can either have low prices. Or you can have jobs. Which one do you want? I mean, this is this is a conundrum, right? We, you know, it’s a problem. If we want to have a really protectionist policy, and we want to say, look, you can’t bring all your cheap goods into the US without paying what tariff, you can’t do that, well, then the prices go up in the US, and you look at countries around the world that have these policies, and you go into their stores. I remember when I was in Bermuda, okay.

And I went, and you know, I my earbuds broke for my iPhone. And I went in to buy a new earbuds and there was this bit where they didn’t have an actual Apple store there, you know, that your bugs that are $29 in the US were $44 in Bermuda. And why is that because of the trade policies. People in Bermuda told me that they always went to the US, they went to Florida or New York to go shopping. And they would bring lots of stuff back like, and and i would say, well, isn’t it expensive to bring all that stuff back on the plane? They go? No, it’s worth it. Because the prices are so much higher here. You know, you can either have that or you can have jobs. And it’s it’s a hard problem to solve. I’m not saying I have the answer. you import deflation, through trade policies. And you have these big container ships come in and deliver all the goods and they’re not made in America, you import deflation through immigration policy. But ultimately, it’s you could argue that that costs more in the long run. Right, you could certainly argue that it’s a fair argument, because you could say that all of these goods that are imported cost American jobs. And so American workers haven’t had a raise in decades. And then, you know, you look at like the union debate, right? And Bernie Sanders, who takes so much money from unions, right, you know, they criticize the people on the right, and say, well, they take all their money from Wall Street and big businesses in the corporatocracy are greed, they do, you know, the elections are bought, unfortunately, I don’t think it’s right. You know, I think we got to get the money out of politics. And then you look at Bernie Sanders, well, he gets all his money from unions, and they’re just as corrupt as Wall Street.

Okay, you know, it’s like one or the other, pick your poison. You know, the old saying, meet the new boss, same as the old boss. You know, it’s really about the same thing. You know, this whole debate between Republican and Democrat and left and right. It’s like watching a wrestling match on TV. It’s show business. It’s, it’s bread and circuses meant to distract and divide and conquer and divide the population. So nobody agrees on anything. And everybody’s just arguing amongst themselves. Well, the real people at the top, the Bilderberg Group, okay, you’ve heard of the Bilderberg Group, right? They’re like, you know, playing this like a puppet. Right? They’re playing the whole thing. So, so it’s interesting. But when it comes to inflation, okay, now, so do you? How many of you think we have significant inflation? It’s not really that bad anymore. I don’t know. You do think we have significant inflation? Let’s hear from the audience on this one. So Carrie Lutz is here, host of the financial survival network podcast. Tell us what you think about inflation?

Kerry Lutz 28:27
Well, I just got my car insurance bill. The cars are a year older. I haven’t changed my driving style. I’m still as reckless as always admits it. And it went up 8% and 8% 8%. Wow. All right now, maybe your insurance didn’t go up. Health insurance,

Jason Hartman 28:46
health, my health insurance just went up like, extraordinarily, I couldn’t believe it.

Kerry Lutz 28:50
Yeah, so we’re talking needs and wants, the things that you need to have, they’re going up in price, you want to go out and buy a new car, you know, you’ll get a great deal because, you know, the bubble is starting to burst there. But things that you need to have health insurance, education spending, assuming you’re going to send the rotten ones off to college, when they reach the age online education. So Way to go, you can go to Stanford now without leaving your house, but seriously as

Jason Hartman 29:18
University, it’s free.

Kerry Lutz 29:19
Exactly. But it’s for workman’s comp, taxes. All the things that you have to pay are going up.

Jason Hartman 29:28
It’s interesting. You mentioned taxes, are taxes considered a part of inflation? No. Yeah.

Kerry Lutz 29:34
It’s a cost. But it’s a cost comes out of your pocket.

Jason Hartman 29:38
See, the real life inflation is so much different than what the government tells us.

Kerry Lutz 29:42
Right? Good. Right. Good. Not to mention CPI is is all bogus. Yeah.

Jason Hartman 29:47
Consumer Price Index. Yeah. So it’s fake. The CPI, the consumer price index, like the unemployment rate. It’s bogus. It’s manipulated. So how is it manipulated a few ways. One is through weighting. How much weight do they give to the cost of food? How much weight do they give to the cost of healthcare? How much weight do they give to the cost of rent that changes the CPI, the consumer price index, certainly. And then there’s something called the core rate of inflation or core inflation, which strips out the cost of food and energy. Okay, so it’s the inflation rate, not counting food and energy. How did they ever get the justification to strip this out? Because they said, well, food and energy, those are just too volatile. So we got to take those out of the index. And certainly you can live without food and energy right? Now, those are the most fundamental things that every human consumes, right? Because they’re in everything. I mean, the cost of energy is in this clicker. It’s in everything, right? You know, and petroleum costs, right? But that’s gone down. Okay, because there’s a glut of oil. Remember, in the 70s, this whole idea of peak oil, I mean, these Malthusian idiots, they just keep trying this stuff. And it’s never true. You know, they remember the movie Soylent Green, and all these 70s movies of like, you know, the disaster is coming in Apocalypse, and everything’s only gotten better, you know, so Malthus, and that kind of stuff is just, it’s just, I don’t believe in it, because they never consider human beings as a resource. They only consider them to be a cost, and all of the great discoveries that all of you have made, and all the contributions that you have made to the economy, you know, and to progress and innovation. It’s just never considered in the equation. You know, I mean, look at food production. It’s phenomenally efficient now. Now, granted, you could argue GMO, and I agree, but still gotten really efficient. How’s this part of the

Kerry Lutz 31:51
I just don’t I don’t get how this is being part of the solution. Real Estate, for instance, at counteracting inflation, besides protecting ourselves?

Jason Hartman 31:59
Oh, because real estate is the ultimate well, income property. I shouldn’t say real estate, especially leveraged income property is the ultimate inflation fighter. Okay, it’s the it’s the best thing ever. So we’re gonna see that for you. Membership has its privileges. Okay. I mean, you know, those people who didn’t buy it don’t get the benefit. weighting is one way that they manipulate the consumer price index and your opinion of inflation. Another way is called substitution. Okay, so if the price of say you like steak, right, and you eat beef, and if the price of beef goes up, they just assume everybody will switch to chicken. So they substitute and, and you might not like chicken, but they will substitute it so that it will have no effect on the index. And then the other way they do it is through something called hedonic AX. Remember the word hedonism, it means seeking pleasure. So it means how much pleasure Do you get out of something? My first cell phone costs 30 $200. I actually financed it.

Okay. Yeah. And I got it when I was like, 20 years old. Okay. And it weighed 14 pounds. And it was installed in the car. But you could take it out of the car and have a little cord and a lunchbox. Yeah. So that’s the deal. So hedonic. Basically adjust for this the in the index, it says that you will get more pleasure out of your iPhone, especially with a bling bling. Okay, definitely, you’ll get more pleasure out of the iPhone, certainly than he gets out of his Android. Okay, for sure. We know that that’s obvious, okay. But you’ll get more pleasure out of the iPhone 10 years later, even if it costs the same than you did out of the Nokia phone 10 years earlier. And they think that your pleasure will be 10 times as much. And let’s just assume the Nokia costs the same amount in nominal dollars. But since you get 10 times the pleasure out of the iPhone, we’re gonna assume the iPhone only costs one 10th as much even though it actually costs the same. Okay, we’re gonna adjust for that in the index. And you know what, I think that’s actually pretty logical, don’t you? Isn’t that fair? I mean, if you get more out of it, but it costs the same, shouldn’t we be allowed to adjust the consumer price index to assume that things are getting better? See, if the index gets to make the adjustment, then that implicitly says to all of us that we are not entitled to progress. The Consumer Price Index is not you.

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