What Does the Future Hold For Us?
From the Rich Dad Radio Show with Robert and Kim Kiyosaki.
If you're sitting at home right now, worried about your job or your business, whatever you worry about, what does the future hold?
So, our guest today is George Gammon.
He takes the ultra-complex and puts it in pictures. Even if you don't understand the metaphors, just keep tracking with him, 'cause you're gonna see what 99.99% of the world's population will never see.
Understanding the macroeconomic picture Doesn't Need to be hard
Kim: What are you seeing in the future, George?
George Gammon: What I wanna stress, and I'll explain this momentarily. But what I really wanna stress to the viewer, is that if you're able to just start to understand the macroeconomic picture, and it doesn't need to be complex.
Listen, the reason you think it's complex is that all these economists and academics, they use all this jargon and technical terms.
But if you just break it down into simple English, it's actually very easy for people to understand.
And if they understand it, they're gonna be able to make much better decisions for themself and their family in the future for their finances.
So, whether it's me or anyone else, make sure that you're trying to really pay attention to what's going on.
Let's just say that you've been saving your money, you've been working hard, you've been doing all the right things, you've got a little nest egg saved up, and you go to the bank, and you're like, “Oh, my gosh, they're only giving me .5 interest.”
Or zero, or who knows what it is? You can't even see the interest rates they're so small nowadays.
So, you say, “Okay, where can I go “to get a little bit higher rate of return? “But I still wanna be safe. “It's gotta be safe.”
The Risky disadvantages of money market mutual funds
So then, you might look at a product like a money market mutual fund, or a money market fund. And then you look at this. You say, “Well, that's safe. “All my buddies are doing it. “It's just like a bank account, “but I get maybe a 1.5% return.”
Well, what the average person doesn't realize, is they're taking exponentially more risk just to get that 1% additional return.
So, how is that? Because the way that the money market mutual fund gets the additional return, is they take your hard-earned savings and money and they put it into the repo market, or they put it into the commercial paper market, which is basically funding for corporations, the same type of thing.
So, the question then becomes, that person that's just watching Monday night football, and just enjoying life, just with the white picket fence, the two kids, the golden retriever, they don't care about what's going on with the plumbing. They don't care about the dollar swaps.
But does that person really want to lend their hard-earned savings to Deutsche Bank, to HSBC?
You know, some of these banks that could be crumbling as we speak? Or, to put things into other terms, like more America-centric corporate terms, would that individual want their money being lent to American Airlines right now? Or Boeing, right now?
Or, every single time you turn on CNBC or the TV, you see that they're asking for another bailout because they're about to go bust. That's how this macro, and that's how the cash flow, and the plumbing that Robert's talking about, that's how, just one way, that it can affect the everyday person.
will banks run out of money?
Robert Kiyosaki: So, if our banks are going bust right now, what does that mean?
George: Well, it's not just the banks. It's the government. It's the private sector. It's our entire economy. Because these debt cycles run in courses of 75 to 100 years.
I'm going back to Ray Dalio. Right now we're at the top of a 75 to 100-year, long-term debt cycle. So, the only way from here is down.
And Robert, you called this in a lot of your books, and you kinda predicted this and had the foresight to see this coming. But when you get to the top of one of these debt cycles, the only thing the government can do, or there are four ways out of it.
How To Break The Debt Cycle
- Number one, they can choose austerity, which very few governments do. And that's just tightening the belt, spending less, everyone feels the pain. Think of the deflation or Depression we had in the 1930s.
- Or, they restructure the debt. Well, it's not likely we're gonna do that with China. It's not likely we're gonna do that with the big banks, because they're the creditors.
- Or, they could just default, say, “Hey, we're not paying you.”
- Or, what most governments do, is they choose money printing.
This is creating inflation to bail out all the people who have the debt, whether it's governments, or whether it's individuals.
So, once you get debt to a certain level, you've gotta, well, you don't have to, but most governments choose to inflate it away.
How To Protect Yourself Against Inflation
So, what does that mean for the average person?
Well, if the government is gonna try to create inflation, meaning the cost of goods and services going up, what you wanna do is you wanna make sure that you're positioned for that.
So, as an example, if you just own your own home, you've gotta make sure that you've got a 30-year, fixed-rate mortgage.
Because if they try to create inflation, if interest rates go up, then your interest rate is gonna go up unless it's fixed.
And what happens when you're a debtor and they create inflation, you're gonna have the opportunity to pay the loan back, your mortgage, with cheaper, devalued dollars.
So, the way they can think about that is, if they borrow, let's say $100,000, the rate of interest means that they're paying the bank back with increased purchasing power because you've got principal plus interest.
So, what happens in inflation though, is inflation allows the borrower to pay the debt back with less purchasing power.
So, if your rate of interest, let's say, is 1%, or 3%, we'll call it, but if inflation goes up to five, 6%, the delta between those two is a transfer of purchasing power from the bank to the individual homeowner.
And I think a lot of people listening to this probably have a mortgage, if not on a rental property, on their own home.
And I think that's the very first thing they can do to be proactive.
coronavirus economic impact
Kim: We're sitting on this coronavirus, which is changing everything. What is your crystal ball? What are you seeing? Not your crystal ball, because you're studying it, and you're seeing all the charts and the numbers. What are we looking at?
will we have inflation or deflation?
George: From an economic standpoint, I think the biggest question is, do we have deflation or inflation?
And that's kinda the debate going back and forth.
And for the average person, I think they just have to look at the entire economy as supply and demand.
supply vs demand
So, the supply is how much stuff do we produce? How much goods and services? Demand is how much money we have, or willingness, or our access to credit, to go out and buy this stuff.
So, as most people know, we're in lockdown, depending on what state you live in, what city, so there's a lot less demand. There's a lot less of the goods and services that are actually being purchased, right?
So, that decreased the demand equation. That's what most people get fixated on. So they say, “Okay, well we'll just, “we have to have prices going down; deflation.”
But they forget about the supply side of the equation, because if the people can't go out to produce goods and services, well, the supply will go down fast as well.
So then, the question becomes what's going down faster: demand or supply?
Well, then you look at the supply chains that have been disrupted coming into the United States.
If you go to Walmart, Target, Home Depot, the majority of the stuff you see on the shelves was produced outside of the United States.
So, if those supply chains get disrupted, that means less supply. Then what happens is usually, going back to Dalio's example of long-term debt cycles, you get social unrest.
And I hate to say that, but that's just the reality of the situation if you look at history.
And typically, the way the politicians take care of social unrest is through helicopter money.
So, whether you wanna call it MMT, UBI, it doesn't matter. It's basically the government spending money into the real economy, getting into the back pockets of the average Joe and Jane.
We could see a situation in the future where the Fed is actually doing it. They're not technically allowed to do it right now, but they've been breaking all of the rules.
So, if there's more money in the pocket of the average person, that means there's more demand, even though they're sitting at home not going to work, for those goods and services in the economy that don't require debt.
That's key, Kim. Because people see deflation and inflation as binary, right? It's either one or the other. But it's actually very nuanced.
So, if there's less debt in the system, that means asset prices could go down, or cars. Anything that most people buy using debt, okay?
The prices of those go down. But anything people buy, or most goods and services people buy on a daily basis that doesn't require debt, such as groceries, those prices typically go up.
And if you saw on CNBC the other day, that in a lot of markets around the United States, food prices are up as high as 25%.
high consumer price inflation is now a reality
Robert: So, it's starting.
George: It is, yeah. You can see this happening in real life.
Robert: Yeah, what's happening is because of the COVID, or whatever they call it. The meatpacking companies are shutting down. And so, there's now shortages of meat. What, George is–
George: So, a great example of supply decreasing faster than demand.
But what's happenings is the government, and the Fed is pumping trillions, 2.2 trillion into the economy.
So, you have a decreasing supply, increased liquidity, and that's why the shelves are empty for pork, and beef, and all those things.
Robert: And Arab Spring, which I don't forget when that happened. But the real rioting wasn't about Muslimism, or Christians, and all this. Arab Spring was because of mom and pop couldn't afford to go to the store.
food price inflation
Prices went so high. And I think that's what you're saying, is when people get hungry or they can't afford food, that's when the social situation gets worse.