Inflation: The Coming Tsunami
lot of people are in a real quandary today, trying to figure out what their next move is,
because they have not experienced what we’re seeing right now in our country and in our world.
If you look back to the 1970s and the early ‘80s when the U.S. had what was called stagflation (a very anemic, low-producing economy with high inflation and high interest rates), you'll understand that we're potentially entering a repeat of that era.
What people don't realize is how important it is to understand the forces of inflation, which are to a great extent caused by the debt and incessant borrowing of our country.
The United States is the greatest debtor nation in the world today by a massive amount. The unprecedented amount of stimulus money, fiat currency, digital printing, and the expansion of credit that has occurred in the last sixteen months has geometrically expanded beyond what we've ever seen before – way beyond what happened even in the 2008 downturn.
All of this money now is overtaking the deflationary effects that we've had due to the developments of globalization and technology, which typically cause deflation in the economy. Of course, the Federal Reserve says, don't worry, it's just transitory. Well, they said the same thing back when the subprime mortgage crisis was melting down. It’s all good, they said. They had it all contained…
You can't trust the Fed. They're going to tell you whatever they want to try to control people’s emotional response to the markets. We're seeing that response right now. The ugly head of inflation started to emerge in April, with the Consumer Price Index rising to 4.2 percent. In May it rose to 5 percent, and it’s going to go higher.
What most people don't understand is that inflation has the same effect as compound interest, but does it in reverse. If you've been trained in conventional thinking like most people, you aim to save your money and get out of debt. This was taught to us by our parents and our grandparents, and people like Dave Ramsey.
This goes completely contrary to what we were taught to believe, but if you follow the majority and do not change your wealth-building game plan, you're likely to be hit by the tidal wave of the government-debt fueled inflation tsunami.
The majority of people will keep doing the same thing they've been doing, keeping their fingers crossed or working with advisors who don't understand how to mitigate these massive forces.
It's critical that you understand that the massive debt of this country will force our nation to monetize the debt. Inflation is the way that our government can erode its debt. If you understand this principle, the coming inflation can assist you in building wealth vs diminishing it.
Think about it this way: if you are borrowing money at 4 percent interest for a business or real estate investment, and inflation is running at the same 4 percent, then the cost to borrow (the interest rate) will be negated by the inflation rate.
In this case the actual cost to borrow would be zero. What if the inflation rate is higher than the interest rate?
If you are borrowing at 4 percent interest rate and inflation is running at 6 percent (back in the ‘80s, inflation was running in double digits, up to 14.5 percent), then the cost to borrow is negative 2 percent. Well, that would really entice someone to borrow. That’s how the government can continue to borrow money with inflation because it will always be paying it back with inflated dollars.
What would you acquire or invest in if your long-term cost to borrow was zero or even negative? You would probably make some good moves.
Borrowing is not for a consumption lifestyle. I'm not talking about being able to build a bigger house or buy more cars because the cost of borrowing is so cheap. No, you have got to use debt wisely. So what assets can you invest in?
If you’re using debt at fixed rates over long periods of time, you want to be buying revenue producing, cash-flow producing assets, so that inflation will erode the debt over time.
A good investment could be a business. Owning or running a business is a good thing, but you have to ask yourself if your business is really an asset or just another job. I'm talking about looking for assets that don’t require you to be there working to produce the income yourself.
I love real estate because it can produce revenue passively. If it can be acquired with proper leverage and managed well, then the revenue will pay the loan passively with zero or even negative cost to you.
That's how you make proper use of debt and the coming inflation tsunami.
If you play the game on a conservative basis, like most people, you are going to get absolutely pummeled by the waves, and someday down the road you're going to wonder what the heck happened? You did everything right, by the book, yet towards the end of your life when you are ready to get out of your active income production, you’re left wondering where is everything I worked so hard for?
That's why the traditional financial models don't work. Financial advisors use the accumulation model. They tell you to pile up investments in all kinds of different products and that high income earners need $6 to $10 million.
Then they play the depletion model. They tell you you can take out 3 or 4 percent of that nest egg and it will hopefully last twenty-five years. Well, that's a hope and a prayer – definitely not the plan I want.
Now let's add in the inflation effect on top of the depletion model. If your nest egg is not producing income, inflation will eat away at that nest egg and deplete it so quickly that your ability to take any principal out will be completely negated. So you have to be able to learn how to invest in assets that produce income and are hedged to inflation, both on the value standpoint and on the revenue streams that they produce.
That's where alternative investments like real estate beat the financial, Wall Street investments hands down. And we're in an era right now that if you don't understand how to access the opportunities, where to put your money, and who the people are that can help you do it (not Wall Street, but the real people)…well, good luck.
This is not a time to be doing things by yourself.
You need people in your corner who can help guide you in the midst of a topsy-turvy world. In Freedom Founders, we have created a community with incredible access to real estate investment opportunities, and a model that is tailored to get you to financial freedom faster than you thought possible.
Here's the killer thing: The majority of our members are much closer to that freedom than they thought. They just needed a model.
If you want to learn how to make use of the forces at play and not be drowned by the inflation tsunami, you've got to take some next steps forward. I encourage you to watch this free training I recently did on inflation, or hop on a call with my team to see if you’re a fit for the community.
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
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