FCP 147: The State of The Economy: Where Are We Headed? Part 2

So what happens now is if people go out, and they’re spending their money, and prices go up. And there’s any kind of news frenzy like the news media spills, like twists everything and all of a sudden, the media starts talking about, “Hey, we’re having inflation and stuff like that.” And people are like, “Oh, my God prices are going up. Let me buy quicker.” So now they’re buying quicker, it means the merchants are sold out quicker. They’re replenishing the stuff quicker, their prices go up quicker. And now it becomes a spiral of increasing inflation. The last time that happened was in 1970s. It’s called Stagflation, right. So there wasn’t actually an increase in…there was a stagnation in the economy, but there was an inflation because the speed of the turn of money was there.

And if that was extrapolated by actually faster and more money in the system, more M1, more M2, then that can actually lead to inflation. Now, how fast can he lead to inflation? We don’t know. And I don’t think at the numbers that we are, it’s gonna lead to more like a 10% or 12% inflation. So we might see that some stuff, that interest rates go back up to 7%, 8%, 9%, 10% in such an environment, right, because…if that happens. It could be that the Fed have to raise interest rates quite a bit. But that wasn’t that far along that this was the case. When I bought my first house in the year 2001. Guys that is just seven years before the market collapsed in 2008 interest rates for my home as a starter home with good credit, were at 7%. I got a smoking deal buying a starter home with a 7%…for the purchase price of $151,000 with a 7% interest rate and at $1,200 dollars or $1,100 a month monthly payment. Like that was normal.

Today people are getting two and a half percent, three percent interest rates on their houses because interest rates are again at a rock bottom low. And they have been for like 10, 12 years at that level. So are going up between that and 4%. So people are not used to that. But getting back to a 7%, 8%, 9%, 10% interest rate can definitely absolutely happen. So what you want to do with that, again, this is not a problem. What this is going to be beneficial for is a couple of things, right is a couple things. So one of the things that you wanna do is, you wanna buy assets, you wanna buy assets, so you wanna make money. You wanna…right now is the time to flip land, right now is the time to make the most money that you can make because buyers are buying land, sellers are selling land. And then interest rates are low if you need to borrow money or anything, even for whatever it is for your deals or for education, or whatever it is.

So now is the time to get started, build up this pile of cash. And then what happens is when the interest rates are high, again, there’s gonna be a few asset classes where prices are actually going to be somewhat lower. And one of them is the big mortgage asset classes like multifamily, and those kind of things because if the interest rates are 10%, you can’t buy something that spits out only 5%. If the interest rates are 3%, you can buy something that spits out 5% and you make 2%. If the interest rate is something that…if the interest rate is at 10%, you buy something that spits out 5% you lose 5%. That’s just a very simplistic way of looking at that.

So some of these bigger asset classes are probably going to lose some value at that time. And therefore are going to be great investment opportunities. At the same time, what you also wanna be doing is you wanna make sure that if you expect that within two or three years from now and I don’t expect it to be earlier than that, interest rates are going up and so on, is that you actually, when you sell your land with seller financing as we teach it, that you actually go and ask for a high interest rate. So one of our students or one of our coaches, Mike Herrera [SP], for example, he charges currently 16% interest on his land loans. We charge 12.9% interest, what is allowed, some certain states don’t allow you to go that high, you follow the rules. But in the states where they allow you to do that, we charge 13%, basically 12.9% interest. We have lots of students that charge 13.9% interest.

So therefore if you charge that, you’re going to be protected against an environment where interest rates are higher because you’re still making a ton of money. Now when can it happen that worst-case scenario that you blow the currency into oblivion? That only happens when there’s a series of more crisis like that. And every time the government has to put another 10 trillion in, and another 10 trillion. And if they come in, more rapid and rapid fashion, in that case, you literally have the possibility that this spiral that when people feel safe again and they’re spending, or that there’s so much liquidity in there, that it just, it’s no more relationship to the actual value of the U.S. dollar. In that case, what you’ll see is that the prices accelerate like crazy as it…and that’s, for example, what happened in Germany in 1923.

Germany was in a situation and that is not necessarily comparable to right now, but there is some parallels, so it’s something for you to watch and actually make sure that you hatch your bets over time. I personally don’t expect that we will see obliteration of the currency anywhere in the next 10, 15 years. But I do believe that we’ll see it in our lifetime, all right.

So what happened in Germany was the following. Germany went through World War 1 and lost World War 1 of course, right. So therefore the Allied forces France and England and so on, put pressure on Germany, actually decided in the freedom pact of Versailles, I believe, decided in 1918 that Germany needs to pay reparations, basically, that Germany needs to pay a ton of money. And they need to do that in the form of gold and silver because they didn’t trust the German currency. So they needed that in goods, in goods, in coal, in beans, and in grains, and in hard assets that the German government needed to go and buy with their currency. So they went to the farmers and they bought grains. They went to their coal mines and they bought coal. They went and bought gold, they went and bought silver and they shipped it off to France and England, and all the Allied forces, but soon enough, they ran out of money to do that.

So what did they do? They ended up printing more money, right? They ended up printing more money to buy more of that stuff. At first the people didn’t know this right? At first, they’re just like, yeah, gladly accept that, like a ton of coal is still 1000 Deutsche marks or Reichsmark as it was called. Reichsmark is still 1000 Reichsmark. So they gave them more coal, more coal, and soon enough they realized that there’s this abundance of money floating around, that’s looking to put them someplace. And soon enough also from the world where people were, they were holding back, they were in fear, right? This is the parallel, right? We have a big crisis.

The government needs to print money to give to people who are in fear, right? It’s a very similar kind of scenario, they’re in fear, but at some point of time, they started realizing that so much money’s being printed, that prices are going up rapidly. So they went instead of from hoarding their money to spending their money as fast as they could. And literally the Reichsmark went from a ratio of 4.2 Reichsmark for one U.S. dollar within a matter of one year, it went to 4.2 trillion Reichsmark for one U.S. dollar. So in other words, if you held on literally my parents tell me and my grandparents told me that you held on, you bought an egg, you went to the baker in the morning with literally a bag full of cash and that bag full of cash was something like 100 million Reichsmark, and you payed. And that’s literally…my grandparents went through that and told me about that.

And then you literally went through there and you got yourself a dozen eggs with that. That same night, you have to instead of paying 100 million Reichsmark for a dozen egg, you paid $1 trillion for one egg. That’s the level of inflation that they went through. Now that is crazy, unimaginable loss of value, of inflation. And it was so fast that they actually gave cities and towns the authority to print their own money because by the time the money was printed, it was worthless. By the time it was printed in Frankfurt and was shipped to all these different cities, to the banks, it was completely worthless. So they gave the local printings an authority to print more money in it, and it just completely fell apart. People refer to that as this is what could happen in the United States. And I think this is ridiculous, because for that to happen, the American government would have to print something like 100 X what it is in circulation right now. And that’s just not going to happen.

Having said that, every one of these crises where they throw another 5 to 10 trillion in the market is going to get us closer to a constant devaluation of the American dollar. Which means that the stuff that you pay, for that your job income if you make $40,000 a year, it will soon…will be buying you less and less and less stuff. So what is the way out there? The way out of it is, make as much money as you can right now, and then invest that money into asset classes that will maintain their value. And I did a lot of research of what are these asset classes that maintain the value through or at least make it through such a reset of a currency, that make it through such a tremendous phase of huge inflation? And the number one asset class that makes it through the number one and two asset classes it’s the ones that have always made it through. Gold and silver and real estate, right? That’s the asset classes that in doubt, in the time of those kind of times, people revert back to. Now I’m not a gold hog.

I’m not a gold digger in that sense, right? Am not a gold hog. I’m not one of the guys that says like, oh gold, gold, gold, gold, gold. No, but I’m aware that I’m watching M1, M2. I’m watching the government action. So you should do the same thing. Just be smart about it, there’s currently no reason to think that anything of that is gonna happen. probably in the next couple of years. There might be again, as people feel safe again, there might be an inflationary time at that point. There might be a time where gold and silver really goes up during that time. So it might be smart to take some extra money if you have laying around and instead of the stock market, put in the gold and silver or stock market, though during those times also gets inflated, it usually goes up quite a bit because it’s pumped up by the government still putting in more money into the system and taking the bad assets out.

So people invest in it. It’s one of the asset classes that gets pumped up. But then ultimately, it’s real estate because if we ever go in our lifetime, I believe the answer is yes. If we go through some kind of a obliteration of the U.S. dollar through some…a condition of war, to some additional things, something that the government just has to print sh…loads and loads…you know what I wanted to say. Loads and loads of money like 10 x, 20 x, 50 x what it’s printing right now. In that case there is a possibility and is a high likelihood that the United States dollar will be obliterated, will be replaced with something else, whatever it may look like, some people say it’s cryptocurrency. Some people say it’s only online money which is basically like cryptocurrency. Some people say it’s a new dollar. Some people say it’s a world currency, who cares, who knows, but in that environment, I know one thing.

When I last time visited Rome, Italy, there is buildings that are standing there for 2000 years ago, for 2000 years already. I tell you one thing, these houses are worth millions of dollars today. They were worth the equivalent of millions of dollars back during the days of the Romans. They’re worth millions of dollars during the days of the medieval times. They were worth millions of dollars during the times when…during the 1800s. They’re worth millions of dollars ever since they were built because they’re built in beautiful locations that the world likes to go to, the same with Paris, the same with Frankfurt. The same with New York City. The same with Phoenix, Arizona, the same with [inaudible 00:38:11] Real estate will continue having a value. If the currency goes away, it might not be this $3 million building anymore, it might now be a 75,000 cryptocurrency pieces off gold worth or it might be worth a pound of gold at that point of time. But a pound of gold buys you at that point of time, the equivalent of $3 million.

So the point is, fixed assets, real assets, tangible assets, that are going to continue to be worth something, and cash will be obliterated. So therefore, don’t necessarily save your cash, invest your cash in the number one resource that is most important which is your own education. I know these things, I have done this podcast which we probably gonna split into two pieces again. But I’ve done this podcast because I’ve gone through, I’ve studied economics in college, I had many economics classes, right I did a degree first that was basically not a business administration degree because it was a business/economics degree. So I had lots of microeconomics, political science, political economics, different kind of things, statistics, all kinds of stuff classes.

And but then I kept my interest in it. And I’ve continued to read about these different things over the last 30 years. And so your own education in real estate, that’s why we invest in real estate that’s why we learn about the industry. That’s why we have our own coaches. That’s why we invest in coaching, and so on, are all pieces that are crucially important to you, because I know that if I would lose all my money tomorrow, it would probably take me less than two or three years to rebuild my wealth. And that’s because I’m investing in my own mind, right? Now, having said that, I don’t wanna be stupid, I don’t wanna lose my money again. So therefore, when we have cash, what we do with the cash is we invest in our own selves and our own education.

But we also buy…we use our land flipping as our cash machine. And then we roll the money from that over into other assets that ideally, we have either with fixed low rate mortgages for a long time. Or we take them, and we pay them off so that we have a free and clear asset. So that if the currency goes into oblivion, we still own a free and clear asset that now has a reset different kind of value, but it still has a value. Let’s say the average house still is worth about 10 times somebody’s income, let’s just pick that as a number. The average income is $40,000. The average house is worth between 5 and 10 times somebody’s income. If we reset the economy, we come up with a crypto dollar and the average person now makes 10,000 crypto dollars a year. Then my house is going to be worth between $50,000 and $100,000, my rental houses are gonna be worth between 50 and 100,000 crypto dollars. But a beer is not gonna cost five crypto dollars anymore, it might only be costing one crypto dollar. So therefore the cash flow from a house that’s being paid off, that the rent is being paid in crypto dollars is going to be the same as it was before.

And therefore my financial position after such a scenario is the same as it was before. What I do need to account for is that phase of transition, if we go to such an environment, where I need to have enough firm assets to keep paying my mortgage, but even there, it’s a good thing because if everything and prices go up like crazy, but my mortgage stays low, then my rents go up in prices. My rents go up very quickly, as it has happened over the last 10 years. So it’s actually going to be easier for me to pay that mortgage off. But even easy as this is to pay those things off, have them free and clear and you can ride out almost every crisis without a problem.

The prerequisites for all of that is, you gotta make money. And that’s what we’re doing here, what we’re talking about here in, “The Forever Cash Real Estate Podcast” where we tell you about ways to make money. So go listen to the…what I would recommend is you go listen to my very, very first three or four podcasts, you go all the way back, when it’s still Michelle and I together and where we talk to you about how land flipping works, what’s the power of it, how to go about it, and how to find out more.

So with that said, Thank you very much. That concludes another episode of “The Forever Cash Real Estate Podcast” and with that said, you guys, as always give us a five-star review. Also, if you’re watching this on YouTube, give us a feedback on it. What do you think about that? What do you think about this area? Does it make sense? Do you agree? Do you disagree? I would love to hear your feedback. With that said, thank you very much. Bye-bye.