The Danger of Inflation For The Future Of America
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Summary
Inflation is everywhere, people are telling us don t worry about it, there's no such thing as inflation, this is normal. Why is our gas prices up 49.6% in a year? What is inflation and what does it mean for the economy?
Transcript
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You cannot turn on a news today without seeing the word inflation, inflation, inflation, inflation.
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It's everywhere. People are telling, don't worry about it. There's no such thing as inflation.
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This is normal. Investors worry. Buffett is saying some stuff that's scaring some people.
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Why is our gas prices up 49.6% last 12 months? The eggs alone is up 16% a month of April.
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They said the inflation is only going to be 3.6% a month of April, ended up being 4.2%.
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Beef is up 20%. Real estate's up 12%. What do we do and what does this inflation really mean?
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So let's get right into it. In order to understand inflation, we have to first understand the cycles our economy goes through.
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So expansion. This is spring. When things are kind of warming up, it's looking good.
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Then we got peak. This is the hottest day this summer. Like the market is at the peak.
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Everyone's making money. People are making lucky type of money.
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Then all of a sudden we have contraction. That's the fall. Leaves fall in.
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It's kind of a different spirit. And then you have trough, which is the coldest day in winter, right?
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That's exactly how cycles work. This could be two to four years.
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This could be five to ten years. And then you have a recession here if it lasts longer than six months.
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So let's go a little bit deeper into what does expansion mean?
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This is when inflation is around 2%. This is when GDP is growing 2% to 3%.
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This is when unemployment is relatively between 4.5% to 5.5%.
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That's a bull market. A lot of confidence. Jobs are looking good. People are not stressed out about money.
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Peak. This is when GDP is around 3%. This is when things are overpriced.
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When you see regular, all of a sudden, a bunch of people are making millions of dollars.
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They're saying, how did this guy make the money? How did she make the money?
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We may be around peak, which many are saying today's that time.
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Then we have contraction, which is GDP falls below 2%.
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Markets down. Potential recession around the corner if it lasts more than six months.
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And then we have trough, which is we've already experienced some bad times.
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And things are kind of coming back when we've hit rock bottom.
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You know, demand and production is kind of coming back up.
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Unemployment's gone down, but it's kind of coming back up.
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So now that we've got an idea about how the economy goes, the different cycles we go through,
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He says, I'm shutting that one down and I'm moving to a different place.
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It's because they doubled rent for me from what it was a few years ago to what it is today.
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I either have to raise the prices of the Ducatis I'm selling.
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I either have to let go of employees or I have to downsize or I simply move to a different place.
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So that's when everything gets passed down to the consumer.
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So the second one is demand pull inflation, which is kind of like what happened with Trump.
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He lowers the taxes from capital gains, corporate taxes, every tax went down.
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This house typically would have only two people making offers.
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So I have to pay $28,000 more for the house because there's several more people that want this house.
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You were selling stuff that you only had a thousand of in your store and you were selling it for $1,000.
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They want it so much because they have so much money.
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Let me raise it a little bit to slow down a little.
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And last but not least is when the government prints money and they start sending money to people.
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Kind of like what happened last year during COVID or even earlier.
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This year last 12 months, somewhere around $6.5 trillion of money was printed.
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So nobody really feels like, did we really go through a recession?
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Did really anything happen because I have money to spend?
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That's how the government influences the economy to keep moving, right?
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So now that I know the three different things that cause inflation, the key now becomes how do we calculate inflation?
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Well, it's called the Consumer Price Index and the formula is quite simple.
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It's taking the cost of market basket in a year divided by cost of market basket in a base year.
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In a year means this year in 2021, what I spent to do, you know, food, beverage, housing, clothes, transportation, medical care, recreation, education, other goods, cigarettes, funeral, whatever it is.
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What I spent this year in a month of April versus what I spent last year in a month of April.
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And this leads me to who manages and controls inflation.
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When there is bad times, the Fed manipulate the market by lowering the rates.
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So if you look at the last 10 years where they've kept the rates really low, I'm talking below 1%, quarter, zero.
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Some of these places have been really, really low for our rates.
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It's because they believe we're in bad times, right?
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Let's raise the rates a little bit and they'll raise the rates.
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The one part most people don't know about is we got 6,000 small banks in America, of which 80% of them are in a holding company that's owned by the Federal Reserve.
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We got 6,000 small banks in America, give or take.
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80% of those banks are in a holding company that's owned by the Federal Reserve.
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So what they do is they use these small banks to kind of get a pulse of what's going on in the marketplace and then they go on, boom, control the knob.
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That's why Powell is so powerful in the USA today.
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You got Republican Party comes in, they lower tax.
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You got Democratic Party comes in, maybe they raise taxes.
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You got parties come in, they want to deregulate.
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You got another party comes in, they want to overregulate.
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Maybe they'll send money and they'll send Prince money and maybe they'll have a new infrastructure legislation.
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You keep hearing about Biden's, you know, my infrastructure plan is this much.
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But these two pretty much control what happens and they try to keep inflation at 2% by controlling the knob and moving the knob, right?
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Why should you and I be paying attention to it?
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Back in 1981-82, Carter was ending his presidency.
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If you bought a 30-year fixed home loan, you got an 18.63% rate.
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Dow Jones during a 20-year period hovered around 1,000.
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We got the Dow going to 33, 34, 35, 32, 31 going up.
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So a lot of people don't want to see this happening, especially that we hear the word inflation.
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You know, inflation is going to happen pretty much every year, give or take, minus some years that we have deflation.
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Deflation is when things actually, prices go lower because the economy is not looking good.
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And last but not least, we have hyperinflation, which is inflation goes above 50% per month, roughly 5% to 10% a day, similar to what happened to Venezuela when they experienced between April of 2016 to 2019.
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And obviously, neither the government nor the feds nor a lot of people in the market want to see that happen in the states.
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So when they're looking at gas prices being up, you know, 49.6% versus it was 22.5% in the month of March.
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Since one has a used car become an investment, well, that's kind of what's going on today.
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What is a good investment to make during times of inflation?
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Whatever I tell you, I want you to go talk to your advisor yourself to see what they'll tell you about it.
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But these are some of the things that you'll hear people talk about that do well during inflation.
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Whatever you cannot copy and duplicate does well when inflation takes place.
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Collectibles, cards, sporting cards does well when inflation is going up.
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Crypto, this is like heaven for crypto because they're sitting there saying there is a defined amount of numbers in mind.
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The stock market also does well because, again, it's something that you can go get that cannot be reprinted.
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You hear about tips, but I would be very careful with tips.
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Do some research before you do treasury inflation protected securities because they do very well if you can time inflation.
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I'm talking about horrible when you have deflation.
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But these are some of the things to be thinking about during inflation.
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So hopefully this gave you a better idea about how inflation works on it.
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If you want everything I covered today in a PDF, text the word inflation to 310-340-1132.
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Once again, text the word inflation to 310-340-1132.
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Or if you're not in the States, go down in the description, click on the link, subscribe to our newsletter, and we'll send a PDF to you as well.
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If you enjoyed this video, I've got another video I want you to watch.