Skip to content Hyper Inflation is Here - What That Means for 2022 Apr 2 · 54 min ...more
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Understanding Inflation, Deflation, and Stagflation 0:00 Hey there. Very quickly before you get started, if you have any questions or comments after watching this, please email me at feedback at russell gray dot com. Now enjoy the show.0:10 So who do we have on for today?0:13 Well, our good friend, Russell Gray. I can't wait. As you guys know, we travel a lot together. We meet them down in Belize. We've been on their cruises. They have syndication and gold0:25 seminars and all kinds of cool stuff. And it's gonna be fun to see what Russ has to say today.0:29 Yeah. Definitely. And for those that don't know him, what does Russ do?0:33 So Russ is 1 of the partners and 1 of the cohosts of The Real Estate Guys, and they're a radio show. They've been around for, I'll let him say, but I know it's been probably good 20 years and they've been0:45 partners. He's partners with Robert Helms and, they are, big, big fans of rich dad and the advisors and education and, and very connected, nationally and0:57 internationally.0:58 So what do you think you want to talk to him about today?1:01 Well, I want to talk to him about some of what's going on, and the different cities, because you know, what we're seeing is we're seeing migration patterns as a result of public policy. So,1:12 that's kinda where I wanna focus.1:14 When I know that he I was looking at his bio and he knows a lot about inflation and deflation and stagflation. And I feel like we haven't had a guest on yet that's done a good job of explaining We've1:25 tried. It's just We've1:26 tried. We always ask better. We always ask, like, what's stagflation? And I feel like some of our guest have dodged it or haven't answered it fully. So I'm excited to ask him about that.1:34 Yeah. Let's do it. Hey, everybody. It's Ken here. I'm with Danille. Hello. So we're excited about our guest today, Russ Gray. He is cohost of the Real Estate Guys. They're radio1:46 guys. They've been doing this business for a long, long time, way before YouTube, way before the Internet. They've been on the radio. Yeah. For sure. For real estate, at 1 time, I don't know. I'll let Russ1:58 say they, they, they were the most downloaded on Apple podcast. So they, they've been in the business a long, long time. I'm excited to have them on. Welcome, Russ.2:09 Well, thanks for having me. Yep. I am definitely part of the old guard now. Getting used to it. Robert started the show in 19 97. I started, partnering with him, working on stuff together in2:21 2001, 2004. I became the cohost temporary, and I've been the temporary cohost ever since. So Mhmm. Can't get rid of me.2:27 Yeah. It's fun. I mean, you guys are a great match. You know? Robert is, I would say more of the traditional radio host. He's got that, you know, radio voice and, and it's2:39 really deep. And, and, and, I love how he leans on you for all the data, you know, that which I love talking to you about. And you're so good at that. I remember we were watching, you with so many2:51 guests, but, I remember you, you have an incredible dialogue with ed Griffith about, you know, the creature from Jekyll Island and, and, you know, obviously we're big fans of ed and, just digging3:03 into all the things that he's writing about with the federal reserve and the inflation and deflation and how it's all kind of prescripted pretty much. Right? So what do you have to say about that?3:15 Let's jump right in on inflation deflation and some of the things that Danielle was talking about. Where you where you think we're headed?3:22 Well, you know, people ask all the time, you know, we can have inflation. Are we gonna have deflation? And I say, yes. I think we're gonna have both. And I think we can have both at the same time. And people have a hard3:32 time getting their mind around that because they only know how to think of numbers in terms of the dollar. And yet, you know, if you look at things like real interest rates versus nominal rates, or you look at real wages3:44 versus nominal wages and, you know, not to get wonky or anything, but basically nominal is just a number. So it's a number. It it you know, you and I are old enough to remember where if you made 50000 or a hundred3:56 thousand dollars a year, you were upper middle class. That was a good income. Well, it's not that way anymore. I read an article the other day that, you know, lower middle class just to scrape by in San Francisco's4:06 300000 dollars a year. Well, it's not, it's not that the lifestyle got so much better. The work became so much more valuable. It's that the dollar that you're paying for it all went down. So in terms of your4:17 lifestyle, in terms of your purchasing power, you deflate it. You lost the ability to purchase. And yet in terms of the nominal, the amount of dollars actually coming in flowing through your hands, the numbers went up.4:30 And you see that with your tenants. You know, tenants might be paying more rent and earning more wages, but they're getting smaller places, and they're having to pay more for their cost of living. They they're they're4:40 struggling. I mean, it's really I mean, you probably know a lot more about it than me just managing your portfolio of tenants. But, you know, gas and food and, and healthcare, everything has gone up. College tuition, you4:52 know, when you get to that stage in life raising children, I mean, just everything costs more. And even though your wages are up, your cost of living is up more.5:01 And it's interesting, you know, because they try to the news and everything tries to tell you that it's temporary or that it's not Transit's5:08 not bad.5:09 And then, you know, all of us Americans, I mean, we see it every time we fill up our gas tank, every time we go to the grocery store, every time we do anything. I mean, everything's just going up.5:19 Well, the thing is it's been going on for a long time, and I I talked about this at our last investor summit. When I I don't think you were there, Kenny, you hadn't arrived yet, but I I dressed up as gray beard, the5:29 pirate. And I did my whole presentation in full pirate garb. And it was the kickoff presentation for the summit. I really wanted people to kind of understand what was going on, how the financial system evolved from5:41 where gold and silver were money and the paper were claims on that money. In other words, you could turn the coupon in the dollar, the paper currency in to get the metal and5:53 metal was money somewhere along the line, the system changed and the currency became the money. In other words, the unit of measure dollar was a specific amount of silver, and6:05 then all of a sudden a dollar went to being its own asset all by itself, not really indexed to anything. So the unit of measure became the money. And I kinda went through that whole evolution to help people understand6:16 that the system itself is flawed. And that's the core problem. We borrow our money into existence. I think we were all together many years ago when, Robert Kiyosaki did a event talking about6:28 gold, had Mike Maloney out. And Mike was explaining how we borrow our money into existence. And so because we do that, we have to repay all of the principal plus the interest, but there is no6:40 currency to pay the interest. So you have to go borrow more money. It's a cycle of perpetual debt. So it doesn't matter what the politicians say. Doesn't matter about the debt ceiling. They just raise it,6:52 and they really wanna just eliminate it. If they were to pay off the debt, they would eliminate all of the money and the system would collapse. It's the dirty little secret nobody wants to talk about.7:01 Can you explain that? If they if they pay off all the debt, the currency would collapse.7:06 Yeah. So imagine if we were gonna sit down and play the game of cash flow or monopoly, and you start out and the banker gives everybody a certain amount of money to start the game, and then it circulates.7:18 And so imagine if the 3 of us were playing a game and there were each of us had a million dollars. And so there's 3000000 dollars in circulation. And let's say the interest rate let's say let's7:30 say if we just started that and we just issued the money, then the money would have no interest attached to it unless we lent amongst each other. But what if in the game, the banker lent you the money? In other words,7:41 the money didn't exist until it got borrowed. It gets borrowed into existence. So let's say the interest rate is 10 percent just to keep the math easy. At the end of a year, you need 3000000 dollars of principal to pay7:53 off the debt plus 300000 dollars of interest. But how much money did we create? Only 3000000. So the only way to get the interest, the 300000 dollars is to borrow it8:04 into existence so we can pay the interest. And now we owe interest on the interest that we borrowed, and it compounds. And that's why the debt just continues to compound, has ever since they founded the Federal Reserve8:15 and created the system in 19 13. And I think if you really look at what's going on, we're at the end game. Interest rates got reset in the eighties all the way up to over 20 percent, and we're going systematically down.8:27 I mean, it was jagged. It would go up and down, but, basically, downward trend all the way till it hit the 0 bound coming out of the great financial crisis. Well, once interest rate hit to 0, you know, where do8:39 you go from there? And if you wanna kinda talk about where interest rate policy is, why Peter Schiff, our mutual friend Peter Schiff says the fed is in a monetary Roche Motel can't get out of it. We can go there. But,8:50 fundamentally, the system is flawed because if you were to pay off the debt, you would eliminate all of the money because all of it is debt. If you look at the dollars in your in your wallet, they say Federal Reserve9:02 note. A note is a debt. It used to be a certificate redeemable for gold and silver. And in that presentation,9:10 in fact, they used to have silver certificates and gold certificates. If you go back and Google it, it's actually literally printed on them.9:17 Yeah. Exactly. And and I actually I have some of those, and I keep them as souvenirs, and I like to show people. They look exactly the same.9:24 They do.9:24 And in that presentation they did on the summit, I showed really how we went from having gold and then cert certificates that were redeemable for gold to notes that look just like the certificates, but we went from9:36 money to debt. When the system flipped over and became debt, it became profitable not to save. You know? Kiyosaki says all the time, savers are losers when the system became debt. When the system became debt, the people9:47 who win are borrowers, and that's why real estate is the asset class to be in in this type of an environment.9:53 I I remember, you know, meeting with Mike Maloney and, him saying, you know, you just gotta follow. He said in the history of the world, over 2000 currencies10:05 have never survived. Not 1. They've all basically been what he calls Fiat currency. What a lot of people call Fiat currency. They basically go and tell they don't exist anymore.10:17 And, and so 1 of the things he brought was a gold coin. He said, you see these edges on the edge, on the gold coins Back in the day, they used to shave the edges. So they'd get a gold coin. They'd shave the edge. They10:29 get a gold coin. They shave the edge or the silver and the co the cars again be getting smaller and smaller and smaller as they became circulated. That's why they put the edges on them.10:38 Oh, interesting.10:39 And then it moved to the gold certificate, the silver certificate, and then they dropped those words. And then it was tied to gold, and now it's not tied to gold. Right? So that's been kind of the10:51 evolution.10:52 Yeah. And the modern day version of that is shrinkflation. When you go in and buy a box of cereal that used to have 16 ounces in it, now it has 12, and you're paying the same price. And so it feels like prices haven't11:04 gone up, but in fact, they have. And it's the same same concept. The other thing you have to understand is that as an entrepreneur, I mean, I know you know this. You get up every day and you think about how to make11:14 strategic investments, technology, training, so that you operate more efficiently and you reduce your cost to do. You negotiate better contracts. You create alliances, purchasing alliances, whatever you can do to drive11:26 costs down. And then you take that extra profit and you spread it out to your employees. I know MC companies is 1 of the best places in Arizona to work, and you take care of your people. You also continue to make those11:38 strategic investments in better systems, better processes, and greater efficiency. You lower your prices to your customers to attract more market share. All of those things go on. Those are productivity gains. And when11:49 you have a Federal Reserve whose policy is to maintain prices up and create inflation, they're gonna print as much money as it takes to suck up all of those productivity gains and then make the price actually go12:00 up. And so you say, well, I don't see the prices going up. And so people think this inflation that we're experiencing now that we see the prices going up is a new phenomenon. But this has actually been going on for quite12:12 a while. It's just that we've been stealing the productivity gains, and now we've eaten all those up. And now the actual inflation is coming out above the surface where people can actually see and feel it. They've got a12:23 big problem because people are upset about it.12:25 So can you break it down for me what so we understand what inflation and deflation is. But what is stagflation? Because that's where I start to get confused.12:34 Yeah. That's perfect. So stagflation is where you have nominal growth where the numbers get bigger, but the the actual productivity goes down. And the way I explain it is if you12:46 had, say, an economy that was producing or a business that was producing a million widgets at a hundred dollars a widget, then you'd have a hundred million dollar company. And let's say you needed12:57 10000 employees to do that, and that means each employee creates what, a hundred widgets, you know, a year or whatever the number is, whatever their productivity is. But now because of inflation,13:10 you actually have to sell those widgets at a hundred and 8 dollars or a hundred and 20 dollars. I'm sorry. Hundred and 20 dollars. So now you'd say, well, if I sold a million dollar widgets at a hundred 20000000 dollar13:21 company, but I lose some market share when I raise the price. Some people can't afford the hundred and 20. So now I'm only selling 900. Well, if you do the math, and this is coming right out of the presentation I did on13:31 the summit, if you do the math, the 900 times 1 20 is a hundred and 8000000. So in other words, your company has grown nominally by 8 percent because of 20 percent13:43 inflation. Your price went up from a hundred dollars a widget to a hundred and 20. You sold 10 percent less widgets. But when you do the math, your sales in terms of numbers, nominal dollars went up 813:55 percent. So you look like you grew. But based on the same level of productivity, you need 10 percent less people. So you lay off a hundred or a thousand people. Now you only need14:07 9000 employees instead of 10000. And so and instead of selling a million widgets, you're only selling 900000 widgets. So what the world got in the real in the real world, what the real14:18 world got was less jobs and less products, and yet it looks like the business grew. That's stagflation. When the numbers go up, but the supply goes down and the14:30 economic activity goes down, and that's how inflation distorts what's going on. It's very hard as an investor. It's very hard as a business person to know what to do in that kind of an environment.Show more In this video 0:00 Understanding Inflation, Deflation, and Stagflation14:33 The Great Reset and Currency Dynamics37:52 Preparing for Economic UncertaintyContemplating Contemplation and Meditation Russell Gray Oct 20
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