Silicon Valley Bank MELTDOWN Explained | How to PREPARE for the RECESSION | Jaspreet Singh

[Music] I wish that we were talking about better news I saw a video that you created about how the average person doesn't understand what we're about to go through and as we sat down to record this svb just got frozen Silicon Valley Bank um looks like there's going to be a tremendous amount of capital lost and thinking about what I'm calling the triangle of Doom with interest rates a slowing economy and inflation how does this all play together with what just happened and how does the average person if they don't understand what we're about to go through how do they protect themselves yeah svb Financial is really interesting because it's kind of a byproduct of what you just talked about the triangle of Doom so we have still have very high inflation and that high inflation is slowing down the economy now to fight the high inflation the Federal Reserve Bank is working to raise interest rates now higher interest rates help to cool down inflation but that also slows down the economy now the case of SBB Financial the bank is really interesting because they have been lending money to a lot of startups like Silicon Valley startups and when you have low interest rates it creates ease of access to money because like if you can borrow money for two percent I mean you only need a four or five percent return on your money to justify making an investment but if you have to borrow money at 10 now you need a much higher return on your money to justify that investment and what we've been seeing is this is not just svb I mean there's a lot of examples of this but what we've been seeing happen is investment institutions Venture Capital firms Angel firms and startups had such easy access to money I mean of course we've printed trillions and trillions of dollars over the last number of years but now if you wanted to raise money Venture Capital firms are sitting on boatloads of cash and they're competing against each other to get the best investments and so we saw the valuations of everything rise obviously we saw home prices Skyrocket over the last couple of years the stock market skyrocketed even though we were going through the worst recession during the pandemic since like the Great Depression the stock market grew real estate prices grew startup valuations went through the roof and the reason why these valuations went through the roof is because now every Bank every investment institution is competing against each other with both loads of cash trying to get into these firms now svb financially like I'm gonna be completely honest like this is happening right now so I only know based off the information that has come out over the last you know number of days so I'm giving you just based off of this things can change by the time this goes live but they were lending money to a lot of startups I think it was like four or five out of ten of of the startups out of Silicon Valley had money from svb and so now when you're competing against a startup you might say okay if you make a hundred thousand dollars a year I'll value you at a million dollars I'll give you a hundred thousand dollars for ten percent of your company something along that they'll value it at that but then if you go to bank number two and say what will you do and if bank number two says I'll value you at eight hundred thousand you're gonna say well I'm already valued at a million can you do any better now bank number two might say okay I value at 1.5 million based off your hundred thousand dollars of income then you go to bank number three and say hey can you do better and they might say I'll value you based off your hundred thousand dollars of income at four million dollars now you're like okay we're talking and now you you start to shop like this and valuations just started to Skyrocket and then you know when you have easy access to money it fuels I don't want to say it in a bad way but dumb Investments because I can pay if if you can get such easy access to money you can run a business where you're spending a dollar to make 50 cents and this is a tough concept to understand but a lot of companies actually do this especially in the early stages where they spend a dollar can make 50 cents because they're just trying to grow their market share they're trying to grow the number of users they had like uber used to lose money on every single ride why because they wanted to eliminate the competition and get the market share and they could get the cheap capital and they could get the cheap cap how much of what's happening right now do you think is a result of increasing interest rates is that a big part of this and obviously it's so early but do you think that there's Scandal here is it just oh interest rates are a huge part because what's been happening now is the Federal Reserve Bank is trying to bring down inflation because inflation is still even today extremely high we're closer to a peak of inflation than than our lows which means people's incomes are essentially shrinking even though like what we've been seeing happen is people's incomes are rising but they're not Rising fast enough to keep up with inflation so people are effectively becoming poorer across the country because the cost of living is going down but now interest rates are going up very quickly and so when interest rates go up that means now the investment institutions the banks they need a bigger rate of return because most debt I mean besides your mortgage is not a fixed rate debt it's a variable interest rate debt are most of our national debt most of our corporate debt and most of our little non-household debt is variable interest rate debt so when interest rates go up the cost of servicing that debt goes up so now you have something like svb financial and I'm not going to go too deep into what they do but I'll talk about just general because I don't know too much about their particular financial situation yet but what most companies do is now they have this boatloaded debt and the debt rate readjusts and so now when you're investing in companies your companies have to produce a return in order to continue making the payments on your debt well what we've been seeing across the board the reason why we've been seeing so many layoffs in the tech sector is now interest rates have gone up meaning the cost of these corporations debts have gone up and now you need to make more money to service the cost of those debts and if you have a high debt payment now you have to figure out how am I going to have the money to pay down this debt well you can either make more money or cut my expenses making more money is hard in a time where inflation's High people don't have the ability to spend so what's the alternative I cut my expenses I started laying off employees I cut my expenses it's now I have money to pay down my debt now that works if you're meta Facebook or Google but what about the smaller companies that are are still in the early stages now your valuation I mean I was you you've seen so many companies go from like a billion dollar valuation to 200 million overnight like you're talking about us at 80 percent drop yeah so now you have banks that show on their balance sheet your balance sheet essentially is your net worth statement so if a bank says I'm invested in 10 companies each one of these companies is worth a billion dollars that means I have 10 billion dollars worth of assets and so now if you take this 10 billion dollars worth of assets and go to get money you might be able to get let's just say 80 loan to value right eight billion dollars worth of loans that you can then go lend out but now when you see interest rates go up the valuations of these things go down that's why we've been seeing tech stocks crash well now if 10 if your 10 portfolio companies are worth a billion dollars each and they fall by 50 percent now you go from a 10 billion dollar valuation on your balance sheet to 5 billion your point about meta I think is really important here so the strategy that they deployed now it's it's too early for us to know if there was anything Sinister going on so setting that aside for now um assuming that there wasn't the strategy could potentially work in an environment where it's far more stable either interest rates are dropping or they're stable but when you get into a highly volatile either the companies at a volatile stage and can't absorb the losses like a meta which just has an insane amount of Revenue coming in the door then it falls apart but if if they had longer Runway they might not have gotten caught out but this is Warren Buffett's old phrase When the tide goes out you see the swimming exactly and that's exactly what's going on Rising interest rates is going to make money more expensive and that's where you start to differentiate the dumb money and the smart money and as you raise interest rates to cool down inflation it is going to cause economic pain and that is going to be the tide going out so what can the average person take away from this how how does the average person who probably isn't directly caught up in anything related to svb um how do they learn the lesson of the triangle of Doom the rising interest rates a cooling economy inflation what what's this moment about for them I think the most important thing here is you need to get financially educated and you can hear me say that a lot but the reason why is because anytime we go through this type of shakeup or change in the economy until it slaps you in the face everybody will keep saying oh it's contained you don't got to worry about it everything is fine and I can give you countless examples in 2020 we saw it happen in 2008 I mean in 2008 first it was there's no housing bubble oh there's a housing bubble but it's contained a housing and then oh crap the whole financial system is on the verge of you know collapsing and look this is not a political thing it doesn't matter which side of the political coin that you're on we're all on the same side of we're trying to become financially wealthy but the reality is we have our president saying there's no chance of any economic slowdown not just this year but in the coming years our treasury secretary has been saying the same thing the Federal Reserve Bank is saying we're going to see a soft Landing now let's just look at the numbers to really understand what's going on because the first issue is really what I call this idea of debt monetization which is probably one of the most concerning issues and what debt monetization is it's how is our government funding its operations and how is that going to impact the regular person that monetization as a term if I understand it correctly makes me very angry because it sounds cool I can monetize my debt this sounds amazing am I correct that debt monetization is printing money yes yes that's one of the same right it's the a basic way to explain it so essentially think of it this way uh our the size of our economy last year was about 25 billion dollars and over the last couple of years especially during the pandemic era we printed with the Federal Reserve Bank around five trillion dollars so to put that a perspective about 20 of our entire I mean every single person had to go to work for a year every corporation had to work for a year in order to produce 25 trillion dollars worth of money or wealth the Federal Reserve Bank was able to print five trillion with a push of a few buttons essentially so now when you think about that the question is why do you and I have to pay taxes if the government and the FED can just print this money well it's because there's a cost to this money printing what does that cost well that cost is inflation and so we're in a situation right now where the amount of money that has been printed is insane and we don't even know the exact amount of money like we know the stimulus was something around five trillion dollars but the Federal Reserve Bank also did a lot of unlimited quantitative easing the definition of money changed uh during 2020 M1 I'm not going to get into the technicals well so just really fast what's the difference between printing money and quantitative easing so quantitative easing is when the government does some sort of stimulus when the government spends money in a way to stimulate the economy got it they give you money so that is stimulus quantitative easing would be uh kind of where the Federal Reserve Bank Now is working to stimulate by printing so they're essentially go hand in hand because so wait I'm not understanding the difference between quantitative easing and debt monetization are they both printing money are they the same thing they're they're both printing money uh the government has one source of income taxes and so when they spend more money than what they bring in this money has to come from somewhere so in 2022 the government brought in about five trillion dollars in taxes they spent about six and a half trillion so where does that one and a half trillion come from well they can borrow money from you and I these are treasury loans treasury bonds when you loan your money to the government that is a treasury bond the government has to pay back plus interest but that's generally not enough money so then they might go to foreign countries China Japan and ask them for money doing the same thing selling them bonds essentially yeah they will loan other countries will loan money to the United States because they want to return and they like to store their their wealth and dollars because the dollar is the world's Reserve currency the government has to pay them back plus interest but that has not been enough which brings us to number three which is the better Reserve Bank who if option one and option two are not enough the Federal Reserve Bank will essentially print the money and give it to the government when you say essentially isn't it literally and obviously it's not actual printing like money machine go Burr but it's adding zeros and ones to a database somewhere yeah and if I remember this correctly uh what they do is they actually go and buy things from people to get the they'll go by it typically they're going to buy corporate bonds but they will they started buying private company Equity if I'm understanding correctly but that's how they get the money into the system so sort of so the Federal Reserve Bank will get the money to the government by buying treasury bonds meaning by loaning money to the government uh that they made up just to be clear they made they have no actual money but it in this new amount that they're going to go and purchase or loan this money they they make it up comes out of thin air and it goes into the system just make sure that people track this because the more I learn about this the more it's it's dizzying that it works at all and the more I learn about it there's that classic saying that as the island of my knowledge grows so grows the shore of my ignorance and so it's like the more I learn about this the less sort of fiery I get about it the more humble in the face of like whoa this is an incredibly complicated system um I won't even take a stance they're being Sinister but that is what they're doing they're they are inventing that money because the government says it's okay for you Federal Reserve to do that anybody else we'd put them in jail but when you do it it's okay and I I don't even mean that in a cheeky way but like just so people understand it it is counterfeiting by another name which is probably fine but just so everybody understands what's happening they're making this money out of thin air yeah so there's there's a lot more money out there which is then causes inflation because now money enters the economic system people have the ability to spend well not much is being produced now that's the first issue and this has been going on for a little while it's been going on since before the pandemic but it really just Amplified during the pandemic now the next issue is the amount of debt out there so the government national debt is breaking records like 32 32 or so trillion dollars uh we have the highest amount of household debt ever and the highest amount of corporate debt ever so we have more debt than ever before and now we have high inflation high amounts of debt now what's the next thing that's happening the Federal Reserve Bank is working to raise interest rates well what does Raising interest rates do they are trying to reduce demand this is what they're saying they want to reduce people's buying ability because when you have the ability to buy whatever home you want whatever car you want whatever vacation you want people will spend that then causes the price of things to rise because there's a limited supply of these things so they want to reduce demand how do they reduce demand they reduce affordability all right really fast I think we have to make it clear for people why that's problematic because it doesn't seem like it should be so here is how the here's how economists are looking at it the feds being a part of that system hey everybody you're acting like it's the 1920s rip roaring spending money everything's great and because of that the economy is hot as they say people are spending a lot of money they're going out they're buying things companies are investing they're hiring new employees and it's like a growth mode yeah now the problem is it when the economy is on fire like that and people are buying a lot of stuff there's a lot of demand for those products which causes the price to go up that is inflation as the prices rise for the same thing right and so what they know is that can run away with you and if wages aren't going up so people are making more money but the cost of things is going up the way that people fund that is through debt but debt has a Breaking Point debt is fine until it's not because you have to service the debt 100 and you know when most of us think of debt we think of something like a 30-year fixed rate mortgage but most debts are not a fixed rate debt corporate debts is not generally fixed rate it generally has some sort of variable rate to it meaning either after six months 12 months or a few years it is going to readjust our national debt is not a 30-year mortgage some of it is 10 years some of it is five years some of it is one year some of it is six months our household debt we have you know things like credit card debt which are variable interest rates so now interest rates are shooting up and they're going to continue to go higher uh the Federal Reserve Bank is saying the interest rates are going to have to go higher than what they originally expected no big surprise here we've been talking about this because we need to cool off the economy you guys are buying too much companies you're hiring too many people like I heard that they the FED in raising rates one of the things that they're looking at is they want to make sure that um that there's like an optimal jobless rate that you want is that true so essentially we have way everybody has a job according to the Federal Reserve Bank and because there are so many people who have a job we have a very low unemployment rate unemployment is around three and a half percent which is historically extremely low and this is where now the Federal Reserve Bank is saying one of the consequences of cooling the economy and bringing inflation down is increasing unemployment is their goal to necessarily increase unemployment no it's a byproduct of bringing inflation down according to the Federal Reserve Bank their goal is to bring unemployment from three and a half percent is 3.6 as of today to 4.6 percent by the end of 2023. this is what they've stated in their annual report that would mean that we would have about 2 million Americans lose their jobs according to those numbers now this is where also understanding what is the impact of that and is that going to be enough because what we've seen happen is it going to be enough to slow inflation is that so the Federal Reserve Bank has to raise interest rates to bring inflation down and the consequence of raising interest rates is a slowing economy AKA less people have jobs so is their current projection of raising interest rates which is bringing interest rates to about five percent is that going to be enough with about 2 million lost jobs is that going to be enough to fix the inflation problem no it's not going to be the Federal Reserve Bank has been wrong many many many times and if we just look at like the last few years first they said that this stimulus quantitative easing is not going to cause inflation then they said oh this inflation will be gone by the end of the year this is like 2021 2022 this it'll be gone by the end of 2022. then they said the inflation is transitory then they say the inflation is not transitory then they said the inflation will be gone like completely in the next couple of years now they're saying that the inflation fight is going to be much more painful and much more difficult than originally expected so okay now they're saying that if we can bring interest rates to around five percent then the inflation problem will be gone five percent is their terminal rate is what they're calling it meaning how high we expect interest rates to go and when I say interest rates I don't mean your mortgage rate I mean the interest rate set by the Federal Reserve Bank this is the wholesale rate that Banks get tomorrow money at so Banks borrow money at the wholesale rate this is the federal funds rate and then they Jack it up and then give you the retail price like your mortgage rate or something like that so the Federal Reserve Bank as of today are saying that five percent is the terminal rate as of today it's at around four and a half percent last year they said the terminal rate was going to be around 4.6 percent uh before that they said it would be even lower than that so they keep raising how high they expect interest rates to go they're saying that a five percent interest rate would result in an unemployment rate of an extra 2 million people losing their jobs the truth is hitting your career goals is not easy you have to be willing to go the extra mile to stand out and do hard things better than anybody else but there are 10 steps I want to take you through that will 100x your efficiency so you can crush your goals and get back more time into your day you'll not only get control of your time you'll learn how to use that momentum to take on your next big goal to help you do this I've created a list of the 10 most impactful things that any High achiever needs to dominate and you can download it for free by clicking the link in today's description alright my friend back to today's episode is there going to be enough well based off of the past Trends and based off of where inflation has gone it doesn't look like it's enough because what the Federal Reserve Bank is realizing that bringing inflation down to their two percent goal is going to be more difficult than they thought and if it's more difficult than they thought that means it's going to cause more pain to the economy than they thought so now what does that mean we're living in this world thinking everything is just fine everyone keeps saying that there's going to be a soft Landing everyone keeps saying that we might not even see a recession everyone keeps saying that there's nothing to worry about yet if you look at the numbers we have still extremely high inflation the highest debt levels ever we have interest rates that are rising which means your corporate debt costs are rising even if we don't increase your debt levels the cost payment is rising because interest rates are rising we have our national debt cost which is rising even if the government didn't spend more money their payments would still be rising household debt costs are rising why because our credit card debt is at the highest level ever now it looks like interest rates are going to have to go up even higher than four then if you dig a little bit deeper you start to see where the real issues start to arise because now if you look at for example if we just look at the government in 2022 are interest payments on the debt outpaced our total veterans spending Veterans Affairs spending and transportation spending combined that's 2022. in 2021 we spent more than 100 billion dollars Less in interest payments than in 2022 and the prediction is that by around 2025 our interest payment spending just on the interest on the debt is going to exceed our entire military budget here in the United States and now you have to ask okay is that a problem well if the government can continue generating enough tax dollars then maybe it's not a problem how does the government generate tax dollars you have to go to work to get paid your company has to make a profit people have to make money in their Investments let's start tying this together now if the economy is slowing people are losing their jobs corporations are making smaller profits less income less income means less taxable income less taxable income means less tax dollars so if the government is generating less tax dollars because the economy is slowing people are losing their jobs how are they going to afford a ballooning interest payment like it's our interest payments are growing so quickly not because now the government is spending like they were in 2020 and 2021 but because the cost of servicing the debt is growing really faster than ever and on top of that the Federal Reserve Bankers say that they're going to have to increase interest rates more aggressively and potentially even longer than what they originally expected so now you look at that from the government side it's like oh there's some issues on the government side but they should be able to figure it out where the world's observe currency okay let's go to the corporate side corporations are going to face one of their biggest tests because of this ballooning debt bubble and the reason why it's is because in 2020 2021 and even in 2022 corporations were making their biggest profits ever the economy was booming partially because of all the money that was now just entered our economy there's a lot of fresh money in the economy corporations are making money hand over fist meaning they're making big profits meaning they would have big piles of cash yet you're seeing layoffs accelerate why are corporations having to do layoffs when they're making the biggest profits ever just you know a year or two ago well it's what does a corporation do with their cash there's three things that a company can do with their cash they can save it for an emergency they can reinvest it back into the company hire more employees open more plans open more stores or they can give this money away to their owners and what's interesting is our economic system makes it so that saving money as a corporation is the least attractive thing to do now you might say what do you mean if you made let's just say a hundred million dollars of profit and you kept it because you said I want to keep this 100 million dollars for a rainy day as a corporation but the first thing you have to do is pay taxes on that money and that means that you're going to have to send a check of maybe 20 million dollars a little more than 20 million dollars to the government just in taxes now you if you're running a company that's a lot of money I mean 20 million dollars they can hire more employees they can open your plant you can invest in more whatever like there's a lot of things you can do with 20 million dollars so you're gonna say do I really want to do that with my money because as a CEO of a company you want to use your money in the most productive way possible and to you giving the money to the IRS is not very productive for the company so you might say well you know what we're not going to give this money to taxes we're going to invest it back into the company so now if you take all 100 million dollars and you hire more employees you invested in advertising you open a new store and all that money is gone you have zero dollars of taxable income three dollars a profit but you're making the company more valuable the third not presumably creating something that the world wants exactly that would have to be a product for the business to continue uh but then the third option is you can give the money away to shareholders and what what has been happening is shareholders when you say give it away are you talking dividends or stock BuyBacks or both yes both of them and so this you know I think this is where it's important to understand corporate governance because most people assume that if you're the CEO of a company you're the head you're the head Hot Shot like you run the company we used to have a boss your boss is now the owners of the company the shareholders and so if you're a publicly traded company your shareholders are anybody who owns the stock if you own one share of Amazon you're one of the owners of Amazon and what happened was in between 2020 and 2022 the end of 2022 the shareholder said wow I made a big profit we've been invested in this company for a long time it's time for us to see our returns give us some of that money you can give us that money in the form of a stock buyback which means the corporation is literally buying back their own stock to make the stock price rise or give us that money in the form of a dividend which is literally a cash payment a distribution and so for the shareholders they put a lot of pressure on the CEOs saying we want some of this uh we want this money given to us and so what did we see happen well we saw dividends grow very quickly and we also saw a record amount of stock BuyBacks stock BuyBacks broke a new record in 2021 they broke a new record again in 2022 and currently they're on Pace to break in new record in 2023. so now let's go back to the same example because I really want to highlight this one point because if you made a hundred million dollars in profit and then you announced a 100 million dollar stock buyback now you're using all their money to buy back stock you have to pay taxes on this money first but then you can use all whatever is left to buy back the stock which enriches the shareholders and there's a time and place for this but if you think that if a corporation is just going to spend a hundred million dollars in stock BuyBacks you're thinking very small because what can a corporation do then go to the bank and say hey Bank look at our balance sheet look at how many assets we own look at how much our stock is worth and look at how much money we made we deserve a loan give us a half a billion dollar loan so now this Corporation has 100 million dollars of cash of profit they got 500 million dollars from the bank at some of the lowest interest rates we've ever seen in history in 2021 and even in the early part of 2022 the lowest interest rates ever and now you have a 600 million dollar cash pile that you can now use for something like a stock buyback what does it do stock price is soar investors see their portfolios grow the corporation sees their debt balance balloon now if a corporation has an increase in debt because they're investing their money into more research into more employees into something else it's a income producing asset right because they're investing their money into something that will hopefully produce a much higher return than whatever the debt cost is if a debt is costing you four percent a year but you can invest it in your company get 20 it's profitable but if a corporation is going into debt to fund a stock buyback that means they're not borrowing money to essentially fund a liability because they're not getting a return on their stock buyback right if I go out and I borrow money to buy something for myself I make myself richer that stock buyback doesn't produce a return for the company it'd be like you going to Gucci and financing a new Gucci belt you don't get a return on it as opposed to you going out and buying maybe a rental property which is something that produces a return so what we've been seeing happen is Corporate debt balances have have been ballooning to the highest levels ever like corporate debt today is at the highest level really ever partially due to levered corporate BuyBacks meaning corporations doing stock BuyBacks with the help of debt why were they doing that because debt levels were at the lowest rates we have ever seen interest rates interest rates now today it's changing interest rates are growing at some of the fastest rates we've ever seen and this corporate debt that they have is not a 30-year fixed rate mortgage it's a variable meaning six months 12 months five years it is going to readjust and now when it starts to readjust they're going to have higher costs where they have higher costs they're gonna have to pay this money back again no big deal assuming you're making enough money how do corporations make enough money you need a growing economy you need people to have the ability to spend but people's ability to spend has been going down why because of inflation people can't spend as much because I got to spend more money on my gas and my eggs than I so I don't have money to go out and buy as much other stuff so people spending ability goes down and in addition to that what we've been seeing happen well okay I'm actually let me clarify this for a second because one thing that I I really really really really want people to understand is that there's a difference between data and Analysis and today most people's analysis is everything is fine why because of the way they interpret the data so let me explain what that means because the data today says that the economy is growing and it's and people are spending our economy runs on spending the more you spend at Chipotle the more money Chipotle makes if you go to Chipotle and you buy the extra guac they make more money right and so what we're seeing right now is that consumers are spending they think things are still good all's well so I get 21 and I get 22 in terms of the consumer thinking things are well in terms of the corporations thinking BuyBacks are the right play but I'm super confused why in 23 we're on Pace to set another record for BuyBacks do you think that's just going to absolutely die in the second half of the year or it's hard to time it I mean BuyBacks are still happening but what do they what do they understand that either I'm missing you're missing we're both missing like it seems self-evident that right now is the time to save and be cautious and you've got Warren Buffett and Charlie Munger saying I see red flags in the economy bro and so they're sitting on 90 billion dollars in cash so how on Earth are we on Pace why are consumers still spending like crazy and why are we on Pace to um again set another record for BuyBacks so on the consumer side consumers are spending and this is what the data shows which is why everybody's saying everything is it's great why are they spending what's the psychology the first issue is it's you have no choice inflation has made everything so much more expensive so people are spending more interesting so they're looking at spending and it's not that they're buying more cars and Gucci belts is that they're paying more for eggs so that's the first part and there's there's a holistic view the first part is they're spending more money for their eggs and that is made like if you look at the the recent spending reports it shows the consumers are spending but they're spending partially because of inflation which means people aren't just getting more things they're just spending more time out there spending like drunken Sailors they to some extent so okay this is very interesting so as you tease out the data raw numbers and the analysis the story you tell about the data that you see yeah people are confusing oh everybody's spending more money Good Times yay with no no just to get my Basics and and that's your analysis are there who else is saying that so let me explain me just hone in on that for one point because now if you look at the spending people are spending right but how are they affording it which is the interesting part because so I ran these numbers um on a YouTube video that I did recently and what it's the data shows us that inflation between the pandemic 2020 to now there's reported inflation number over those last number of years is about 15 whoa God I've known that but that just I don't like hearing that well now let's compare that to wages because according to the Bureau of Labor Statistics and I calculated this out in 2020 inflation was around two and a half percent I think it was 2.6 percent 2021 it was about 5.1 2022 was about five percent which means if you made a hundred dollars in 2020 you made about 13.20 today inflation is 15 wage growth is about 13 on average according to the numbers now most of us know that the reported inflation isn't the real inflation wait but sorry what time frame do we go from making 100 to making 13 100 to 113. there we go between 20. if I said 13 I apologize I heard 13 so I was like wait what no no 100 to 113. so wages have gone up by around 13.2 percent got it inflation about 15 and some change which means inflation has been growing faster than wages and so now people are spending how are they spending well what we've been seeing is credit card debt is not only at its record levels but growing at record speeds so people are going to credit card debt uh bank rate did a study that they put out earlier in 2023 which said that about 4 out of 10 Americans have been digging into their emergency funds uh to cover lifestyle expenses and in addition to that savings rates in America this according to the federal reserve banks are near record lows right now all time all time we're very close to the all-time the all-time was like somewhere in the last six months so our savings rates right now is very low and so people are spending way more so what we're seeing is yes people are spending how are they spending they're going into debt and they're digging into their savings at a time where variable interest is about to slap them about the head neck and chest and servicing the debt is going to get far more brutal but they have to do it because it isn't lifestyle at the club it's lifestyle eggs it's and it's a mix of both but the thing is there's a breaking point so do you think there's still Euphoria like are people I get the eggs problem I know you're just gonna ballpark this or maybe you have the data but I'm guessing you're just going to take a stab but how much of the increase in spending is eggs and how much is I don't want the party to stop well okay there are over 50 I think it's about 6 out of 10 Millennials who are making over six figures a year are living paycheck to paycheck yep and it's like a tail is all this time but if we assume that if you're making six figures that you should be able to invest some money and save some money and 6 out of 10 Millennials who are making over a hundred thousand dollars a year are living paycheck to paycheck well that gives us an idea that well you should be able to at least save some and invest some money and live so some of this is still I don't want the party to stop which is at least as long as I've been alive that's been the case everybody lives paycheck to paycheck almost no matter how much money you make which is very terrifying just like one thing to do this is not the year to finance a brand new truck let's just make that clear because now we're seeing all these red flags we have people spending and then you also have people if you're not aware of what's happening if you're let's just say a regular person I go to work I get paid and I like to spend money which is you know a lot of people because we don't have a lot of financial education and you keep hearing everybody saying there's nothing to worry about everything is fine you're still getting your paycheck what's the concern for you well we're talking about are things that I mean how many people understand what our national debt is how many people understand what debt monetization is how many people really understand what inflation really is I didn't I did a video a number of years ago this is before the pandemic I walked the streets of different cities around the country I went to San Francisco I went to Chicago I went to Washington DC I went to Manhattan New York and I walked I went to LA also and I walked around and I asked people the question this is like 2018 I think what is inflation and I can't give an exact number but let's say eight out of 10 people if not nine out of ten people had no idea what inflation was and the like the number one comment that I would get on these videos is how long did it take you to find these people like you don't get it this is like half a day I went there shot the videos and I left like I didn't go out and try to find people it was like this is regular people that I was asking these questions to now obviously inflation is becoming a little bit more of like front of mind because we see it everywhere but most people still don't understand the consequences when was the last time we saw inflation this high the late 1970s what had to happen in order to bring inflation down interest rates had to get jacked up mortgage rates in the early 1980s were over 18 percent it took a lot of work to bring inflation down are we gonna have to see that same thing happen now well we've taken our mortgage rates from three or under three percent to now over seven percent and inflation is still closer to its peak than it is to our goal so what does that mean I mean how much more are we going to have to do and how much more are we willing to endure we we're seeing the issues with corporations they have the debt problems our national debt is having some issues households are starting to have issues and yet we're sitting here like nothing is wrong and this is where like Michael was to say look let's run two scenarios nothing bad happens and something bad happens what's the best thing for you to do if you start preparing right now we start building a little bit of a savings cushion you put some money aside to invest you make some Investments and you start preparing and you start getting educated versus you don't well if you prepare and nothing bad happens you do nothing wrong like like everything is fine you have a big bank account now you can go to Disney World if you want if you prepare it and something bad happens you have a once in a lifetime opportunity to build a immense amount of wealth just because you're prepared because when bad things happen good assets go on sale and that creates opportunity because now you can come in and buy some of these distressed assets which are like when I say asset I mean an investment it could be a stock it could be real estate it could be a business when when people are are running out of money people become desperate and then they will need to sell or they'll be forced to sell because the bank is forcing you to sell and this can create an opportunity now for somebody who's prepared to go out and buy some of these Investments at a discounted price when the 2020 pandemic hit people were able to buy stocks for 50 off for a small period of time now most people running away getting a scared getting scared they had no idea what was going on but some people were buying and it created an opportunity I don't think like even myself I didn't expect the stock market to turn around that quickly I talked about on my channel how I was buying in phases on the way down because I didn't know what was going to happen but I knew that this was creating great opportunities I never expected the market to turn around as quickly as it did I never expected the Federal Reserve Bank to do the amount of quantitative easing that they did I never expected the amount of stimulus that we saw happen that was a surprise to me but that completely turned around the market and that made you know the people who invested they saw huge returns very quickly which I did that's what everybody thinks is going to happen again so in preparing for this episode I started looking what are most people saying and most people are like oh has the crash finally been canceled I think you actually even have a video along that vein there's a lot of people talking about oh the crash that we thought was coming it's not going to come we are going to get our soft Landing uh we have the increasing rates which has already started to really bring down inflation the government will do more quantitative easing AKA printing money we're going to be fine so here's the thing like yeah that has happened in 2020 it happened in 2008 it happened in 2001. the difference between now and then is we have an inflation problem now which we didn't have before which means let's just let's go with that right where let's say unemployment shoots up we start to see a recession and now the Federalists start to see a recession so you don't think we're in a recession now well I think the average person is in a recession I'm saying what the world is saying right we haven't been declared in a recession so let's just go with that because they changed the definition though they changed the definition of a recession and you know that's a whole different topic which we won't derail because you know at the end of the day if they're declaring a recession or they don't declare your recession if you're struggling financially it doesn't matter right the average American is feeling the effects of a recession right now plain and simple now whether they're declared or not it's a matter of semantics and you got to take care of yourself financially so if our economy gets worse and now the Federal Reserve Bank pivots well then what that means they're going to cut interest rates if interest if more if your mortgage rate dropped to two and a half percent tomorrow what's going to happen people are going to start buying homes again and people start buying homes again who've been waiting for the mortgage rate drop what's going to happen home prices will shoot back up and spending will shoot back up car sales will shoot back up people would spend more money or is that going to result in higher prices for things and so this is the problem where we don't have that same ability to cut interest rates without consequence like we did before and you talk about this idea of a soft Landing which you know I want to highlight that this isn't the first time we've ever heard of this concept of a soft Landing it's been talked about many times and the whole idea of a soft Landing like technically is you raise interest rates without inducing a bad recession without it seeing a huge increase in unemployment rates in 2000 before the 2008 crash let's start with 2005. the den chairman who was Ben Bernanke said not only is there no housing market bubble that's going to burst there is no housing market bubble so that there's like his famous three years from catastrophe three years of catastrophe 2007 now we start to see a little bit more issues we start to see the housing market go down a little bit and that's where Ben Bernanke brought up the idea of a soft Landing he says we're going to raise interest rates to ease the issues in the housing market but we believe that we can do a soft Landing without causing pain to the broader economy one year later the entire meltdown happened and so now what is a soft Landing you raise interest rates without inducing a major pain to the economy have we ever seen a soft Landing before yes we have if we go back to 1994 this is what all the economists are like talking about they're saying oh we can just do a repeat of 1994 because in 1994 the Federal Reserve Bank raised interest rates and we didn't see a major increase in unemployment and that was the only real time between 19 like the 1940s and now so like modern economy where we were able to increase interest rates without causing a big increase in unemployment are we the same economy that we had in the early 1900s no we have so much more national debt we have so much more corporate debt we have so much more household debt we're raising interest rates very aggressively and on top of all of that we have extremely high inflation and now on top of that we're also jacking up interest rates very aggressively and they keep saying that they're going to have to raise it like every time we hear oh I think we're getting close to the interest rate and we're gonna have to raise interest rates even more aggressively and so now it's look understand that just because somebody says something doesn't mean it's necessarily true right it's the data versus analysis the data shows if you take a snapshot of today's economy if you take a still picture it shows you consumers are spending and companies are making money now if we turn this into like a live photo where you can kind of see moving image now you see yeah consumers are spending how are they spending well they're going into credit card debt they're going into their savings they're spending more of their income so now you start to see oh there's some red flags there and oh debt levels are rising and corporate debt levels are rising and national debt levels are rising and household debt levels are rising there's got to be a cost for this and bringing inflation down like okay inflation by itself is slowing down the economy fight on inflation is bringing down the economy but inflation hasn't gone away and the fight on inflation has a lot to go so it's like a double whammy which are both hurting the economy and now everyone's saying don't worry we're gonna have a soft Landing well how is that possible if the inflation is hurting the economy the fight on inflation is hurting the economy and neither of these are close to being solved okay so I think there there is a debate to be had and it goes something like this so I was just talking to Rao Paul isn't uh isn't super concerned like when you talk to him it feels like soft Landing territory he said he thinks to use his words that the recession will be sharp but short and so maybe different than a soft Landing but he feels like the government is a hundred percent going to print its way out of this it's going to stimulate its way out of this either or both so it's either going to hand stimmy checks to people um or get money into the economy either way it's going to do it through printing certainly here in the us because we are the world's Reserve currency we can basically do whatever the [ __ ] we want until we can't and um we can get into bricks in a second but so the two competing narratives as I see it you've got raoul's idea of short and sharp then you have and I'm gonna have to look up her name unfortunately it's a it's a slightly complicated name but the new co-cio of Bridgewater so Bridgewater Ray dalio's company largest hedge fund in the world right uh Karen canoyle Tambor I'm sure I just brutled that uh brutalize that but you get the idea so she is saying that she thinks that we could be in for deeper and longer recessions than what we're accustomed to so if we've got sharp and short government is gonna and I think it was the FED that said this like we it's okay if we end up breaking the bone being that we raise interest rates too high that breaks the economy because we know how to repair a broken bone what we don't know how to deal with is Runaway inflation so we're going to go in we're going to hammer that down we're going to keep cranking up the in uh the interest rate until inflation comes down uh now the bad news is it sounds like we don't think we're going to be back to two percent until 2025 which is very little comfort in 2023 early 2023 and we're recording this but they feel like okay we we've got that in hand and so that speaks to what Raul is saying which is okay we're going to break your leg it isn't going to be fun but we know how to fix it we're going to stimulate we're going to print some more money and we're going to make sure that you don't end up in the ICU yeah whereas the other narrative sounds like you and Karen at Bridgewater are in a more similar vein of like we're out of tricks and if you continue to raise interest rates you are going to break the leg and you you can't keep stimulating because at some point not only so let me finish that thought uh you're gonna break the leg but you're going to have a hard time getting it to heal the reason you're going to have a hard time getting it to heal is complicated it's a triangle of Doom which we've already talked a lot about here the next part which is a signal to me and again I'm playing the role of the lay person here is a signal to me that you'll only be the reserve currency until you're not and so you've got the it's bricks right the brics Nations yeah Brazil something China South Africa Russia Brazil Russia Russia India India China South Africa there we go okay thank you so they're going uh yeah U.S you can't just keep printing your way out of this and uh devaluing the dollar we're not going to stand around for that and so they're now making moves to create a new Reserve currency that's backed by gold right and we see um uh central banks the world over now scrambling to buy gold in fact I have established I may have gotten from you oh God am I going to be able to find this but yes so in the third quarter of 2022 central banks bought more than 400 tons of gold the last time they bought this much gold was back in the 70s when Nixon took us off of the gold standards yes and this is now what you're saying look real Paul's a very smart guy and and you know the government no okay just because this is a lot to unpack here eventually you know the raising interest rates is going to cause pain even though most people say it's not going to cause pain because you're raising the interest rate on the debt that I have you gave a really good example in one of your videos you said let's say your cousin buys a house and based on um the cost of the house it costs them fifteen hundred dollars a month to service that debt and own the house to make his payments on the house you then buy the same house which has gone up a little bit in price yeah and your interest rate though is higher and so now for the same house he's paying 1500 you're paying 2500 by way of example right and that this is a very common thing happening because home prices haven't come down enough to uh kind of make up for the higher interest rates but that's a separate topic from this which is now the government no government wants to see economic pain while they are in power because it looks bad on you so why would I want to have to deal with the pain and actually fix the problem when I can stimulate and try to push it off Kick the Can down the road essentially that's okay exactly like what's going to happen and that is what has been done and it is what everyone will want to do the problem is right now if we keep doing that it's going to cause even more problems because right now you're right our dollar is being tested uh we can like we haven't most of us myself included haven't lived through a period of sustainably rising interest rates and we haven't seen what that does to our economy because from like the 1970s until now it's been a drop in interest rates uh yeah we have ups and downs but from this from like the 80s 70s till now it's just been steadily downwards and so we haven't seen a period of growing interest rates growing interest rates makes borrowing more expensive it slows down the economy and we haven't experienced that and for the last 15 or so years we've only seen low interest rates next is zero interest rates and so for the first time we're actually experiencing higher interest rates that is something new for most of us myself included so now higher interest rates are going to have an impact and now if the government just starts stimulating they try to like kind of bring us out of this that is going to hurt the dollar even more and then that poses the second concern like you brought up is we have major countries around the world Russia India China that are coming together and saying we don't like being controlled by the United States we don't like being controlled and subservient to the dollar we don't like that the dollar isn't backed by anything so in 1971 the United States was I'm going to say this in a kind of like let's say the politically correct way in 1971 or before 1971 our government was on the verge of default we had a lot of debts our dollar was then backed by physical gold so we didn't have the same ability to print money we needed more gold to print more money we had limited amount of wealth and so now our government had a lot of debts that it owned especially to other countries around the world and we were struggling to make these payments and we were on the verge of default and that was when President Richard Nixon in 1971 severed the tie but the dollar and gold temporarily he said no he said I've put the speech many times on my YouTube channel where you said I am temporarily going to sever the link between the dollar and physical gold what does that mean that means that now the government and the Federal Reserve Bank have the ability to print money on command now we have all these debts to pay we have to pay you know hundreds of billions of dollars in debts fine just print that money here's your money and now you're a little confused you want in Gold but you have the money so it's like I got the money okay and everything was just fine obviously inflation really kicked up after that but now what we're seeing happen is okay inflation is becoming a bigger concern countries around the world that own dollars are saying oh this inflation is a problem this money is just pieces of paper what is the real value of this money is backed by the economy it's backed by the military and we don't like but we don't like being bullied by the United States what if we work together to create our own currency and we back it by a metal like gold now this is still in the early stages but you know the brics Nations that we talked about have been working to build their own Reserve currency potentially backed by physical gold and we have seen more central banks like you said working to purchase and hoard gold then the last five decades the last time we saw them go after this much gold was when the gold set was severed from the dollar temporarily and we think that they're doing that because at the brics Nations pull this off then to increase their own wealth they will have to acquire more gold exactly and then it's kind of like a economic Warfare type of situation where it's like if the United States is getting weaker economically and they're getting weaker internally because people inside the country are you know fighting each other that creates weakness and people around the world want to capitalize that weakness now of course we're in a situation right where most of us have grown up never having to worry about inflation most people never have to worry about like the long-term concern of our economy or anything like that but what other countries are saying is we don't want to continue being bullied we want to have our own independence we want something a little bit different and so that's concerning because well if more and more countries don't rely on the dollar they're going to be less willing to loan money to the United States and if they're less willing to loan US money okay well that could create more of an inflationary issue here what is up my friend Tom bilyu here and I have a big question to ask you how would you rate your level of personal discipline on a scale of one to ten if your answer is anything less than a 10. I've got something cool for you and let me tell you right now discipline by its very nature means compelling yourself to do difficult things that are stressful boring which is what kills most people or possibly scary or even painful now here is the thing achieving huge goals and stretching to reach your potential requires you to do those challenging stressful things and to stick with them even when it gets boring and it will get boring building your levels of personal discipline is not easy but let me tell you it pays off in fact I will tell you you're never going to achieve anything meaningful unless you develop discipline all right I've just released a class from Impact Theory university called how to build Ironclad discipline that teaches you the process of building yourself up in this area so that you can push yourself to do the hard things that greatness is going to require of you right click the link on the screen register for this class right now and let's get to work I will see you inside this Workshop from Impact Theory University until then my friends be legendary but then secondary is many of these countries own our dollars and so if they decided to play the game and dump our dollars you increase the supply of our dollars which would increase essentially inflation it would increase the amount of the supply of dollars in our economic system and so those are the concerns how where will that play out I have no idea I'm just telling you what's happening right now right I mean there's a lot of conspiracy theories we're kind of saying this is going to happen and look you know you can kind of you can kind of play out where this could go but this is where it becomes so important for us to become economically strong and really understand when you say us do you mean us as a nation us as a nation well our nation is made up of individuals and so you know the government doesn't have its own stream of income well so that's interesting I would say there's a pretty big difference between appealing to the individual and appealing to the government because the individual can be disciplined and the government can still spend like drunken Sailors and now you're still in trouble but the individual has their ability to vote and to pick who's in government right and so if the individual is educated financially then you can make a more educated decision of who's running the country as well because the country is run up by do you have faith in what you just said look man you have to I feel especially look my family is from a state in India called Punjab and we have obviously issues here but economically there's nowhere else in the world you'd want to be I agree with that but I also am very sensitive to the reality of your the leading Empire until you cease to be the leading Empire because you deteriorate from the inside which feels like what's happening right now so there's that famous John Lennon quote about in the 80s um you know if I were living in Roman times I would live in Rome where else and now I live in New York because America is the new Roman Empire and New York is Rome itself uh I feel like there's a similar quote to be had which is that there there's just a psychology that ends up happening when Empires end up declining and some of those same things are happening right now so the fact that we're so over leveraging from again I'm I am the lay person I'm educated enough to know that I'm on the right track um that directionally what I'm about to say I think is very accurate that we are over leveraging our position as the world's Reserve currency that the fact that we have created so many new dollars I forget what the percentage but it's absolutely ridiculous in the last like whatever five or six years we've created something like 40 of all the dollars that have ever existed in the history of this country so it's like that's so crazy and so when I think about appealing to the average person hey please be thoughtful about who you vote for we want to be careful as a society the problem is when everybody has grown up being the reserve currency for as long as we have and Ray dalio has a map of the changing world order it goes in six stages every Empire ends up collapsing there's only six stages stage six is Absolute Total collapse he puts us somewhere around stage five and a half so it's like we're just headed down this path and when he looks at what are the indicators of that it's the fighting inside of a country he talks endlessly about how we treat each other I I saw him backstage uh literally like weeks ago and you know I was like Hey because we were in Dubai and I'm just like whoa Dubai is like popping off I'm like you're a guy you travel around a lot like how do you think about where to go you know where is going to be the Economic Opportunity and he said Tom it's all about how people in the country treat each other yeah and I was like that's so interesting now you mentioned earlier that we're colliding internally and that's part of the weakness I think it's a multi-pronged thing part of the weakness you and Ray are saying the right thing we're just we're not treating each other well and we have to be very thoughtful but the other part is what you're bringing up now that you have faith in that maybe I have a little bit less faith in which is I don't think I'll get there let me bring this all together I don't think that we're going to make the wise decisions that we need to make unless there's a enough suffering because what ends up happening is when you look at the the way that we're going it is more and more uh richer evil companies making money like their evil companies need to pay their fair share all this stuff not understanding that the the miracle is not the redistribution of wealth the miracle is companies creating something that people want badly enough that they pay money this is how we've pulled people out of poverty production by creating something that's amazing and so what I'm worried about is there there has become an attitude uh because things have been so well for so long you said for 50 years we've been in a declining interest rate environment money is easy to get you can finance things on debt and that's fine because the the rate is going to go down like what could be the problem now in the moment where the rate's going to start going up the mentality of people has been formed over 50 years if it's all good it's raining money everything is well and so now people go into oh the miracle isn't like all this wealth we've been able to create and isn't this amazing and look at how productive we've been it's like oh people that are succeeding like this is evil and what are they doing and so now when they vote they're voting from that perspective and so I they they will change their tune but it will require so much pain and suffering for people to realize oh [ __ ] like we've been barking up the wrong tree and so I to to say it in a single sentence I don't think people are going to vote in the uh austere way that you want them to vote which would be fiscally responsible of course until they are in agony well I think you're 100 right on that and I I think many people are emotional and one we don't understand money now what I'm saying is for the first time people have access to real Financial education with ease YouTube podcasts newsletters we have access to this information and you're right people are generally emotional and the third issue is we are becoming a two-class nation which is the probably the biggest issue causing the Divide and what I mean by that is you have the rich and the poor but in order to have a healthy Society you need a rich the poor and the middle class as a middle class it's completely being decimated by the system and you know going back there's a saying it's like a tough times create tough men which create Good Times which creates soft men which create bad times something like that I've probably butchered it but yeah pretty close and this is kind of what we're seeing yeah you know we became this country because of tough times we fought for it and then things became great and then we grew up in the times where money is easy everybody's Rich you can Finance whatever you want buy as much Gucci Gucci as you want we're a consumer Nation we become fat as a society We Want It All We don't want to have to work for it we become lazy and things are seems great like I can have anything I want that's gonna have a Breaking Point eventually that party will stop and when that party stops you know it's what will we do hey guess what we still have a ability to learn here we're still the most creative place and hopefully we stay this way where we are the Hub of Entrepreneurship in the world we are the Hub of business innovation in the world we are the Hub of production in the world we have to stay that way if we want to continue to compete in the world and I'm hoping that will happen I'm an optimist like I have a lot of faith because you know people here we are still I mean you think of all the major companies in the world this is we are the producer of them and we provide a lot of benefits to encourage entrepreneurship and I hope that we will continue to do that and there's a lot of people now thankfully on the internet I mean people around the world look at what we put out on the internet to learn from us uh you know like I was invited recently to a couple shows in London I was asking about their demographics and all that stuff and they're like yeah you know most of the people here in the UK watch U.S Purdue U.S content creators and that was a really interesting thing to me I was like what do you mean because I you know I I don't consume like that much content I I really try to just learn my own ways and I don't really follow what's going on in the world like that they were like yeah you know we have some creators here but most of the people here are just watching people in the US and I realized it's not just the UK it's many people around the world and so we have a lot of Educators here we have to be now the consumers of our own understanding okay we have to be creators we have to be innovators and then that also goes through education system where we can't just produce Factory workers anymore we have to innovate our education system and we I was gonna say we suck there but we have to really fix that up I mean we have to really encourage Innovation we have to encourage the ability to think freely because the advantage that America has is we became Who We Are by thinking differently than everybody else that's kind of like that Minority mindset message because we didn't follow what everybody else did I mean we have a completely different like economic system tax system than the rest of the world we cannot be a follower we have to be a leader in order for us to do that we have to continue innovating and thinking differently from the People level to the National level and you're right you know we have a long way to go but we are going to have to if we want to stay competitive all right so I want to get into the specifics on that so if you were a benevolent dictator and you were going to say okay here's what we have to do here are the principles whether it's you know fixing education or what have you what what do we need what are a small handful of things that we need to do to continue to lead to innovate to learn the lessons that we need to learn well I think part of that is the straight Financial education and it has become much more accessible but we have to know how to learn right well so let's not move off the first one so what the in fact I'll let's get them out so Financial education that's the first one we're going to circle back to that to a couple key points that you think people need to learn about financial education uh what else so we talk about now as a society what do we need to learn to be yeah like so the we started this episode by saying look before we turn the cameras on you were like thank you so much for having me back on I'm getting really paranoid that people are going to get really hurt by what's happening they don't understand that the triangle of Doom uh they they just don't understand how money works all of that so we're going to like help people get themselves out of this mess it's going to be partly Financial education so I think what else the financial I mean if we talk about the financial side it's the fact not just Financial we're going to come back to that I want to know if you were the benevolent dictator and we know America needs to continue to lead you were saying that you know all across the world people are listening to American Educators which I have a hypothesis about why that is that I'll round to we're like the only country that until recently was not into the tall poppy syndrome so in the UK in Australia like if you stick your head up and say I can do something amazing people just SWAT you down and it's like whoa I don't want to try to be cool I don't want to try to do anything amazing because people are going to make fun of me when I was a kid 100 I was just like I'm going to be rich yeah like I was so like I'm going to go do amazing things but I think all of that like Innovation right the idea of the next one yeah Financial education you need to innovate I think that is a part of financial education understanding the ability to lead management all these things are all part of financial education now if we talk about how to succeed as a country it's Financial education and that can be period if I mean look I think we need health education I think we need to understand how to be spiritually fit I think we need to know how to be mentally fit and then we need to know how to be financially fit these are the four aspects but now if we talk about now if we're on the economic side how do we produce entrepreneurs how do we produce smart investors how do we produce people who know how to save their money how to invest their money that's the financial education part but what stops so many people from being able to do that well I feel depressed or I'm anxious I don't think that I can do it I don't have the confidence to go out and do something I don't believe in myself I'm surrounded in a toxic environment if if you grow up look I used to guess teach in Detroit public schools and these kids are smart hard-working kids I was actually just talking to a guy last week teaching Finance I was teaching life skills and part of that was Finance but it started with the core of just building some confidence of thinking bigger because I was talking to a guy uh he came to my office last week he grew up in a rough neighborhood in Detroit and uh we began talking and he was like look I wanna I wanna get to somewhere else in my life he's like I got to where I am today because I was an athlete I didn't want to be like everybody else in the neighborhood I started working out and I became a good athlete that got me through education now I work an okay job I own a lot of shoes but I don't have much else like I don't have any savings I don't have any Investments like I don't even know what this stuff means I want to do something different so now I start talking to them and what he tells me is like I grew up with this mindset of I don't care about being rich I just want to get by that's all he wanted and now he's like he was telling me he read this book called the millionaire mindset I think that's what it was and what he was like he was like that book talked about how people who say I don't want to get rich are lying to themselves and you have to say that you want to become successful that way you can actually achieve more because we create these taboos around money but like what stopped him it's he had this limiting mindset that because of where I came from because of all I saw somebody like me can't do it then he got a little bit of a taste of weight you're telling me that I can achieve more because he never had been exposed to that before and now because he just read or listened to an audiobook that said that now all of a sudden he's trying to put himself out there we happen to just talk in the gym and now you know he's like dude like can you please give me some sort of guidance and now I started talking about different things that he could do and he was like dude like I cannot thank you enough because it's just like it's not even that I did anything it's just he got a little taste of what's possible trust me this is the entire reason that impact Theory exists so you're in Detroit teaching I was in Compton building a company and I'm encountering all these people very bright some of them look there were morons just like there are anywhere else but there were a lot of incredible people and I began to realize intelligence is evenly distributed but mindset is not right and because they have the wrong mindset because they're asking the wrong questions because there was one kid who I was like bro you're so smart like why aren't you out there pushing yourself and he said oh my mom told me that the world doesn't want people who look like me to succeed right and I was like that is the worst [ __ ] advice you've ever heard in your life and I'm like I've become obsessed with the Kobe Bryant quote that booze don't block dunks yeah you can get so good at finance that no one can stop you like you can just out invest people and this is where I get obsessed about okay there are a cluster of things that mindset is certainly one of them Financial education is certainly one of them the education system in and of itself is certainly one of them the self-loathing thing that's become so prevalent in America is one of them it's like I what I want for people is for them to feel like I felt in the 80s now I didn't grow up with money uh we weren't poor I used to think we were poor but now I've seen real poverty we weren't poor but we were lower middle class and so I couldn't have the things that I wanted to have I had to start working when I was 12 years old to buy I had to buy myself a Nintendo my parents couldn't or wouldn't buy me one and so I took a job in a door Factory at the age of 12 so that I could buy a Nintendo now when you come up like that you learn a couple things depending on how you're wired for me what I learned was I really hate work but it's really cool that I can go do something someone will pay me for it and then I can get the things that I want so it gave me a sense of self-agency then as I got older I read my own equivalent of the millionaire mindset it wasn't that but things that ended up teaching me oh whatever you dream for you're gonna fall short of so you better dream really [ __ ] big and then go just relentlessly acquire a skill set in order to get good enough so in the 80s I just believed I could become anything I wanted but I was going to pay an extraordinarily high price to get there I was gonna have to figure it out I was gonna have to outwork everybody I was gonna have to go harder nothing was going to be given to me nobody owed me anything I was gonna have to head down and just learn to fight and that sense of like Hey You can have anything you want this world is amazing it's your oyster let's go but let's go means let's go get strong let's go get smart let's go get educated let's like figure out what you have to do but booze don't block dunks you can get so good that even if people want to stop you they can't stop you right now if I could give people that mindset uh an overwhelming number of them are still going to fail I get that but you create an environment like the US where man really amazing people from all over the world want to come here so that they're not struck him down by other people who don't want to see a tall poppy they don't want to see somebody stand up above other people they're cheering for it they want to do it themselves and it's become a meme this really pisses me off it's become a meme the whole idea of people voting against their own interest because they're just a temporarily embarrassed millionaire yeah that that was my entire youth until I was in my late 30s I acted like the temporarily embarrassed millionaire and it led me to becoming an actual millionaire if you see yourself as like this is all you're ever going to be and you're stuck then you won't do the things you need to do to at least have a shot a lot of people are still going to fail I get that but man if you think oh if I it's what I call the only belief that matters if you believe if I put time and energy into getting better at this thing the world will still punish me uh rich white people are going to take it away I will never get anywhere that I want to go you won't do the things but I think that goes to that this is really a mindset think of like like I don't even know if it's self-confidence or a little bit of arrogance or a little bit of ignorance where like for me I you know you said that a person you talked to their mom told them someone like you can never make it the world doesn't want someone who looks like you to be successful and you know what you said that was the worst advice I think that's the best advice that you could get because that makes you well at least because I heard some things very very similar and for me that put a fire on my butt where I was like I'm gonna prove you wrong I'm gonna prove you wrong I'm gonna give you a middle finger and I'm gonna go do what I want because I heard did your mom tell you that my mom told me that somebody who looks like me will never be the CEO of a company so I need to shut up and go study to become a doctor wow I wish the world were more like you I mean the thing is I always had just a little bit of a hard head and my mom said it out of love like I love my mom yeah they always do it was for because I was such a like I was very rebellious but not in a bad way like I wasn't doing drugs and drinking and doing things like that I was like trying to start businesses and in a traditional Indian household like my house like my parents were like you have to become a doctor that's like from the the since I turned like one or two years old they told everybody from America to India just pray that's going to become a doctor for my entire life that's all I heard me playing football was a distraction for me becoming a doctor me doing a newspaper route was a distraction from me becoming a doctor me wanting to go to the gym was a distraction all these things were discouraged I told my dad I wanted to start investing in real estate told me you're stupid focus on your studies and then when you're a doctor you can do whatever you want I want to be clear though that was all terrible advice it happened that you pushed back against it and proved them wrong but the advice because most people listen the advice was god-awful but I think it's like you know we have to be able to channel pain we have to know how to do that because pain creates purpose pain can create purpose it can and we but you have to like I mean I don't know if it's confidence or a little bit of again like I was saying arrogance or ignorance where you have to we have to want more from ourselves as people we have to know that we can produce more we have to believe in ourselves I mean I don't even know if it's belief because I never like I if I look back to like my 17 18 year old self and I remember telling myself like dude if one day I ever made a hundred thousand dollars in a year like man I'm gonna be flying in private jets so I'm gonna have all like I'm gonna have all the money in the world and then you do it and I was like wait like this was a dream like one day and then they did it and it's like well I'm not flying in a private jet I don't have all the nice stuff but I'm pretty surprised that I did it and then you surpassed that and then you take it from a hundred thousand dollars a year to a hundred thousand dollars a month and like I can't imagine like when I was like 17 to think that somebody could make that in a month and you're like wait that is possible but in order for that to be possible you just have to like you you have to have some sort of taste and belief and that belief I don't know where that comes from and I don't know if it's just like you have to just be like you have to have this like I don't know what the best way to explain it where it's like dumb belief you gotta want something really bad that you just nothing like science doesn't add up like two plus two is four but you're telling me that two plus five is 44. here's what people have to understand the human animal is designed to grow and get better it's it's cultural transmission of ideas that's how we become the dominant apex predator we're not smarter sorry we're not faster we're not stronger we're smarter and so it's the ability to learn this is why I call it the only belief that matters everyone needs to believe the following statement if I put time and energy into a specific thing I will get better at it once you believe that everything else is going to take care of itself you're failing you're not making as much money as you want you don't know Finance whatever go learn it and once somebody is like okay I'm going to go get good at this thing I didn't need to be born good at this I don't need to have a natural inclination to it I have a goal and my goal makes demands if you're Kobe Bryant you have to practice basketball why because your goal is to become the best basketball player of all time if you're Kobe Bryant and your goal is to become the best basketball player of all time and you spend your time swimming or studying math you're never going to get there so your goal makes a demand so your parents weren't wrong if you wanted to become a doctor then going on a paper route didn't make sense what they weren't realizing is you want to be an entrepreneur and so that was just a misunderstanding of what your goals were but you both were right in the sense that hey figure out what that thing is that you really want to get great at and then go do that thing I think that the society also molds it because like it wasn't that what's it so for example you said my parents like what they didn't know that that I wanted to be an entrepreneur and I don't I think it's more that they didn't understand that other opportunities were possible because when I said I wanted to be an entrepreneur that was like they just thought you were stupid there was a horrible thing I mean I think that you know whether it be your parents your cousin your family your friends or Society we we Encompass ourselves into this little box that this is what's possible for me somebody that grew up like me somebody who's good at what I'm good at somebody who looks like me somebody who comes from my background this is my possibility but the opportunity we have here is the whole table the whole world is your opportunity but you have to believe that first and that means then you're gonna have to go against what you know maybe what a lot of people are pressuring you maybe you have support maybe you don't and it's it doesn't really matter because what you need is up here that belief in yourself to now do whatever it takes because for me it started with listening to motivational tapes like I listened to Eric Thomas blueprint to success so many times that I knew the words to like every single word of that CD and I was like wow like I can wake up earlier I might not be the most smartest or whatever but I can work harder than everybody else because that I can control how did I learn that because I started this motivational CDs and and I tell everybody to listen to it and I'm like yo did you listen to it they're like yes basic stuff I'm like oh okay like you already knew this then I read a book called Rich Dad Poor Dad by Robert Kiyosaki the first time I ever got exposed to financial education and I was like holy moly like this is the most important thing he taught you in that book well like cover the cover like I you got to understand I didn't grow up with any like I don't know what investing was I never heard a passive income I didn't know you could invest in real estate like I was so naive I like I didn't know anything in that book that's my beef people don't know how the world works and this I was as guilty of this as anybody but going back to the triangle of Doom this is the so as a refresher triangle of Doom interest rates economy yeah and um sorry which one am I forgetting interest rates economy and uh inflation and so you've got if people don't understand how that works they don't understand how to move in order to either survive or take advantage of the opportunities that are going to present themselves but it starts with understanding how the system works understanding the system and then not blindly trusting everybody like you said you know you have distrust look I'm on board with you I don't really trust many people I don't trust what the government says I don't trust what the Federal Reserve Bank says I trust myself but you gotta have take everything with a grain of salt now why do I say that because okay we'll talk about interest rates just for a second The Mortgage Bankers Association without a statement in 2023 and they said that by the end of 2023 that they expect mortgage rates to fall to like the low five percent the National Association of Realtors said something very similar they said that by the end of 2023 they expect mortgage rates to fall under six percent I forgot the exact percentage but it was under six percent why what is their intention you have a lot of Mortgage Bankers and Realtors out there saying what the heck is going on why aren't people buying homes why aren't people getting mortgages and so now you have these I mean these are Big agencies saying calm down it'll be just fine what is their justification mortgage rates are too high right now people can't afford home so they have to go down again analysis that's their analysis versus the data now if you dig a little bit deeper this is the financial education aspect that I'm keep talking about now you can answer this question yourself instead of just trusting somebody else I mean I'm not saying trust me I'm saying learn it so you can figure out how to do it yourself because I could be wrong you can be wrong anybody can be wrong but at least you know how to come up with their own analysis what affects mortgage rates two things the interest rate that the Federal Reserve Bank sets and inflation when the Federal Reserve Bank raises interest rates that makes borrowing for banks more expensive which means they're going to have upward pressure on where you know what they have to sell it to you like if you if you sell it a hat for ten dollars and then the cost of the head goes up to eleven dollars now the store is going to have upward pressure to sell the hat for 20 as opposed to 15 right because their cost is going up so when the Federal Reserve Bank raises interest rates that's upward pressure mortgage rates the second aspect is inflation why inflation because well when inflation happens it's a little complex but when inflation happens people are less people are more worried about the dollar and when people are worried about the dollar they're less likely to loan money to the government this is called a treasury bond so in the financial world there's something called the risk-free rate the risk-free rate is if I loan money to the government through a treasury note or a treasury bond the return that the government gives me the interest is risk-free because we expect the government to always pay back their debts so when inflation happens people are less likely to loan money to the government because they're worried about the health of the dollar they're worried about the government which means that for the government to incentivize more people to loan money to the government they have to offer a higher rate so when inflation happens people are worried about the dollar people are worried about the government the risk-free rate goes up interest rates on government debts go up if the interest rate on government debts go up that's going to push up the rates on mortgage bonds as well because now your mortgage return would naturally have to be higher than the risk-free rate because when you if you're loaning money if I'm loaning you money to get a home in traditional Finance that's a riskier investment for me than me investing my money into the government because that's risk-free so you have to give me a higher rate of return than what I'm getting from the government so higher inflation higher treasury yields pushing higher mortgage rates so now what is the analysis inflation is higher than expected looks like it's going to be around higher than expected okay that's higher treasury yields higher pressure mortgage rates the second factor is Federal Reserve Bank interest rates well the FED keeps saying that they're going to keep raising interest rates now of course all this can pivot they can pivot tomorrow but based off of this information this tells me that there's a lot of upward pressure on mortgage rates mortgage rates are around seven percent right now but you have the National Association of Realtors The Mortgage Bankers Association two very credible sources who are like the the source of information for realtors and bankers saying don't worry mortgage rates are going to fall by the end of the year this is why that education is important yeah we're already so 2.3 trillion dollars according to Fortune Magazine have already been scooped out of the U.S housing market alone so I'm very shocked that in the face of 2.3 trillion dollars of losses that people are pretty chill got some more stats than that that I found super disturbing um we've got um month over month housing prices have declined for the first time since 2012. um you've got uh home builder sales have collapsed by 46 home buyers canceling 20.8 percent of their construction contracts like it seems like we're in the middle of a housing reset of pretty aggressive proportions so do you think people are um willfully lying are they blinded by their own narrative are they just trying to be optimistic to keep people from panicking this feels a little bit like uh masks don't help you're fine because we had a shortage in hospitals and then once that shortage was over it's like nope actually you do need masks you know that question I think it's it's uh it's like are they a Sinister or are they stupid okay that's the question Sinister stupid or doe-wide and naive right and so I mean I think that I'll leave that up for anyone watching this so listen to you come up with another interpretation right no do you have you don't have to tell me but do you have an interpretation I don't know if I do because I go back and forth because it just doesn't but I think my wife talks to me about this I think I have a very trusting personality by Nature I have gotten scammed and screwed over so many times interesting but I I refuse to give up this idea of wanting to trust people now yes that's on me I get that but and my wife was like dude you can't keep doing that and I'm like look if you scam me you screw me over I'm not gonna do business with this with you again sure you hurt me but do I want to give up my trusting nature and do I want the jagged personality or whatever and you know I go back and forth I don't have a you know a good answer on this because I'm still trying to figure that out about myself I don't think many people are Sinister my gut instinct is that's going to be the most rare I think people this is exactly how it plays out in business certainty intoxicates people to be a good leader you have to give people certainty that's one of the most important things you do as a leader to give them certainty you have to develop certainty in yourself to do that you need a narrative The Narrative allows you to connect dots so as we talk about the triangle of Doom it's like we're telling a narrative about how those things flow but the reality is if we could predict it precisely we'd be gazillionaires so nobody can really predict it but you have to move you have to do something and so you look at the triangle Doom or whatever you look at the signs and the housing market and you come up with a narrative and there are incentives if you're us if you're in a certain governmental body or whatever there are certain incentives for you to since you don't know to create a narrative that leans one way or the other yes and so um if you're a YouTuber there's an incentive to uh do Doom porn because that's going to get a lot of clicks and so even if you're like I'm I I'm not being Sinister because there really is something over here but it's like I'm also nudged because like I have an incentive so I have a feeling to give them self-certainty to give other people certainty they begin telling themselves The Narrative that they happen to be ever so slightly incentivized to tell I don't think they're doing it on purpose but you have to have a narrative that's going to allow you to move yeah so I we end up there it's a combination of doe-wide optimism and uh willful not willful they they have to tell themselves a narrative in order to be effective in life yes and that narrative gets a little rose-colored and then the catastrophic mistake that entrepreneurs make that I've been guilty of a gazillion times you forget to question your narrative yes you get so busy telling other people what it is telling yourself that you forget to seek disconfirming evidence which brings in the last piece of the puzzle which disconfirming evidence feels super bad right it does not feel good when people are like you're wrong and especially now in the days of the internet you're wrong usually is said you're a [ __ ] you're an idiot or Worse yeah and so then you're you really want to defend yourself which means Defending Your narrative which then you entrench yourself and it becomes Dogma yes put one more point in this even Einstein who gave us the theory of relativity could not in the later part of his life become one of the people pushing the envelope of his own theories because he got trapped in his own Dogma I think you're 100 right on that and like it gives us I mean that's what I've been experiencing too like so on YouTube let's just talk about that we can expand other places if we don't have a very attractive title no one clicks on it it goes into the YouTube Cemetery no one's going to watch it which was a huge like pull on my heartstrings because I'm like why do we have to title videos like this or come up with these thumbnails and the reality was like look if you want people to watch your stuff like you know my team was like you know you have good content if you want people to actually watch what you're putting out you gotta be able to play in this game and that was one of the reasons why I created my briefs media newsletter because because now I can avoid the sensationalism I can avoid those titles avoid all that click bait because in the newsletter you get all the news that you want like our Market briefs email you get all the news you just click on the email it doesn't matter like our subject lines are like black cups are cool you know it's like you click it and then all the information is there and now we can give you because my goal is is unbiased I want to give you the data so you can create your own analysis and understand what's happening because nobody else can do that most media companies don't have the ability to do that because they have to get you to click and that's all they tell you and I want to change that and so for me it's like okay well if I want to get you to hear about me and YouTube I gotta I gotta come up with the title but my goal is to make the content educational so you learn and then say look if you want more go to market briefs briefs.co and you can see our emails and join for free and get the news in your inbox and you don't have to worry about it and I think when it comes to incentives though like what you were saying where we kind of forget or or we get put into a box and then we ignore all the other things or we have no interest no reason to understand and what I mean by that is if we go like the 2008 crash right what led up to it well a lot you know we like to point fingers well Mortgage Bankers were making um just bad loans they were loaning money to people who shouldn't have gotten it now if you're a mortgage Banker what's your incentive my sentiment is to make loans I'm on commission I want to make as many loans as possible if you got a 600 credit score you can't qualify this I'm going to give you this I'm gonna get a commission okay so am I a bad person because I'm trying to make money and take care of my family well then it's the bankers the the CEOs of the company that are that are ruining it well what is their incentive their incentive is to increase the earnings of the company their incentive is to make sure that they can issue more loans than their competitors so are they even for trying to increase the value of their company increase the share price well no it's the people because they should have known better they shouldn't have gotten these loans they should have known that if you're making 75 000 a year you can't afford a million dollar home well how many of them are financially educated how many of them know the basics of of how much mortgage they should buy how to save their money how to invest their money like none of us have grown up learning about that so is it their fault unless the government's fault they should have regulated it do we want more regulations so now it's like everybody's going to have their own incentive everyone's going to have their own reason for wanting to do something and this is why I go back to the financial education aspect like we can point fingers all day long that is your fault their fault their fault the end of the day if you cannot protect yourself it doesn't matter you have to know how to protect yourself and that Shield is that Financial education because now look your Bankers in the business of making loans they want to make as much money as possible it's reality the realtor wants to sell your bigger home they get a bigger commission check the car salesperson they want to sell you a bigger car the corporation they want to sell you more stuff your company wants to keep you employed there this is the incentive you can hate it love it or understand it and the financial education is understand it that way now you can at least make an educated decision on what type of home you want to buy and that's what is lacking and this is where you know kind of for me it keeps coming back to the same thing because yeah everyone's gonna have their own incentives politicians are going to have incentives to get votes they're going to want to say things to get votes corporations are going to want to say things to get you to buy their stuff sales people are going to want to push their thing and everyone's going to have an agenda and now your agenda needs to be protect yourself how do you protect and you know we focus on the financial education side but you can apply this to every aspect of life but you got to know how to protect your wallet and that that only I mean you cannot tell me that your Banker is going to have a better protection of your wallet than you are you cannot tell me that a corporation is going to protect your wallet better than you can you cannot tell me that people don't know how to protect it though but so what are we doing this scares me and we're relying on the government to tell us what to do and so this is where like what do we do look and you know I could I keep going back to financial education that's why I'm an advocate for that because what I'm saying is dude look you can rely on the government all you want maybe they'll help you man but I do not want to rely on them I want to rely on myself my own Financial education don't rely on like I'm not saying you rely on me I'm not saying don't rely on a random guy on YouTube learn and what you said I'm 100 in agreement with listen to people who disagree with you listen to both sides of the aisle because if you know if you agree with one thing and social media amplifies this you go down a rabbit hole as soon as you start learning about one thing whether it's money health or it doesn't matter you're going to get bombarded it's only that one thing because that's how the algorithms work you go deeper and deeper and deeper down the rabbit hole and anybody who disagrees with you is stupid but if you really want to build intelligence you've got to break out of that algorithm come out of the rabbit hole and now study this side too and maybe they're wrong and maybe you learn it you realize wow they're even more wrong than I thought or maybe you have a more balanced opinion and this is where real learning comes into play because we have to learn how to learn and we're not taught how to do that how do we learn how to do that do you think that game of money is too complex for the average person to ever win this is what I think is happening to the middle class it's just too complicated and unless the uh I'll I'll expand on that the reason that we've created rich and poor is because of the fact that the way that we're getting money into the economy is by buying assets to buy assets you really have to understand an obscenely complicated game and most people don't understand that game and so they just say I'm just gonna go work and I'm going to earn a paycheck and I'm gonna I know how to live paycheck to paycheck it's not ideal but like I get by and I have fun and I'm able to raise my kids and all as well well most people aren't most people but fewer and fewer people are having kids now and so we're simplifying the game we're collecting a paycheck we're entertaining ourselves for reasonable amounts of money Amazon's helping make like your average stuff cheap so people don't really have like a big incentive especially in an era where the rates were just declining in some debt basically was pretty easy to get a hold of goods are getting cheaper and cheaper so I don't have to Tony Robbins money Master the game I just play the game of going and getting a paycheck and now all is well but the way money Finds Its way into the system in an era where we have to like inflate inflate inflate is only going to people to hold assets I don't think that is too complex but I think the first issue is Comfort is one of the biggest drugs in the society and we many people are I'm going to back you up before we get to comfort I think it's so complex you sound crazy so that means I think you're carving out a small piece of the money world and saying just focus on this piece what's this piece then look money at its core is very simple just like how Fitness at its core is relatively simple in the fitness world it's it's eat less work out more to live a healthy lifestyle in the financial World spend less than what you make invest the difference in what and and this is where it can be as simple as you put your money into the S P 500 now I'll explain what that means because it's going to sound very complicated if you've never been exposed to the money S P 500 literally all that means is the 500 biggest companies in the stock market historically the S P 500 has grown by seven to ten percent a year on average over almost the last century which means if you took you know a hundred dollars a month and that's all you did you don't look for the next Google the next Amazon you didn't try to find real estate Investments you didn't try to do anything complex all you did you had a system and you just put your money into that fund a fund that gives you exposure to the S P 500 and you did nothing else and he even automated it so you don't have to do it manually because there's brokerages out there that do that for you if it was just completely automated and you never looked at an individual stock you never touched your Investment Portfolio and all you did was spend less than what you make and you just invested 100 a month you would have retired a millionaire with a hundred dollars a month investment so now what do we do we like to complicate it we like to say man this stock looks hot get into this dock before it pops off should we short this stock should I do options should I go and do this or should I do that should I you know and we start trying to play this game think because now we start to get into the whole idea of this is fun this is attractive how can I make more money for a lot of people it becomes gambling and this is where now understanding investing versus everything else investing look spend less than what you make if you're making 25 000 a year two hundred fifty thousand dollars a year or two point five million dollars a year doesn't matter spend less than what you make and you know it doesn't matter how much money you make it starts with a mindset thing there's a reason why you've seen so many athletes make millions and end up bankrupt I think it's like almost 8 out of 10 NFL players and a broker Banker within five years of them leaving the NFL okay it's not just a money thing there's we talked about six out of 10 Millennials making over 100 Grand a year are broke there's a a crazy high number I'm gonna say around 50 I don't remember the exact number but of people making over 250 Grand a year that are also paycheck to paycheck it starts here spend less than what you make live smaller smaller apartment smaller car for a little while have some extra cash now what do you do with that you can save some and you invest some where can this money be invested I gave the example of the S P 500 how do you put your money into it well in the stock market you can look at something like spy Spy is a ticker symbol that gives the exposure to the s p 500. another one is voo I personally am invested in voo that gives the exposure to the s p 500. so if you just put your money in there historically you would have seen seven to ten percent growth a year if you say you know what I don't even know what the S P 500 is can't I just put my money into the stock market vti is an ETF meaning it's a fund that gives you exposure to the entire stock market it's a total U.S stock market fund so now if you just put your money there now you don't have to you're not investing in Amazon or Google you're investing in all the stocks Amazon Google you are technically investing not the individual company every everything and so now it's it's we can dumb it down to as simple as you know just put a little bit of money into these things and now you're just going to meet the market you don't got to worry about all the fancy stuff all the fancy stuff is what generates all the clicks and the excitement and the fun and the noise and the you know that's what gets all the headlines it's also where people lose their money so yeah getting to getting to someone like Ray dalio and a huge hedge fund those guys are gonna time the market those guys are going to use Ai and hundreds of millions of dollars in research and all of that to stay ahead of the curve Ray was the one that said to me he's like man the problem is that they don't understand how sophisticated we are and you've got your average person on the street that thinks that they're going to beat us to the punch and he was like we measure our trades in milliseconds we've got AI we've got like they've got 1800 employees or whatever and he's like yeah the odds of you beating us are effectively zero so that puts people back into the passive investing mode which is what you're talking about okay I will say that even that like you're so immersed in it that you forget how complex even that is like the ticker symbols people are like what's a ticker yeah so and and so like you know I'm gonna go back to the conversation ahead with the guy from Detroit recently where he was had we had the same talk because I don't I have no idea how to invest in a stock where do I start and so now you're right that can be daunting because now you open up one of these apps and they're going to ask you for your bank information they're going to ask you for your social security information which can be like overwhelming you can be distrustful like who are these people can I just say something really fast yeah in high school I was taught calculus but not about the stock market that's crazy you and me both uh I had look I didn't know what the word dividend meant I didn't know what passive income was I don't know what wealth meant I had no idea what these things were until I started reading books and we all live in a bubble each one of us every single person lives in a bubble and until you get yourself out of that bubble you don't realize how big the world is and how many different things there are like when I broke this bubble and started learning about money I mean I I become obsessed with things like I started just like I couldn't stop learning and it blew my mind how much I didn't know and then you know I started learning about Fitness and Nutrition I'm like oh my God so my stuff I didn't know that I started learning about spirituality what this is all the stuff that I had never learned about before there's a world of things out there and when you think you know something I can pretty sure like guarantee you that you don't know it like the more you learn the more you realize you don't know and so like when we talk about okay how do you now make your first stock market investment there are apps out there that will even do that for you like they will just like they will just ask you how aggressive do you want to be with your Investments a little bit medium a lot and then it connects to their bank account and then they just invests it for you but I think the biggest the psychology like the education part can be learned relative with a few YouTube videos like if you devote yourself for let's say three hours you can figure that out just search it on YouTube Google there's a bunch of content there the difficult part which is not so easy to learn is the psychology part because now if you're getting started in the money game and you start investing your money and then you see markets go down and now you see a portfolio in the red that's where now most people will Panic freak out and sell because they're like I was supposed to get rich because of this I put in three thousand dollars now it's down to eighteen hundred dollars what the heck happened and this is where that psychology is so important and that you cannot learn as easily and what should the psychology be so here the great irony of investing is the best advice anyone is ever going to get is Buy Low and sell High the thing that people are least able to do is buy low and sell High the reason is when the price is low everybody else thinks it's terrible it's trash and so now you have to believe in yourself and your analysis of the data enough to go okay it's the right play to do it now even though every the price being low means everyone thinks it's trash and so you've got to buy it when everyone else thinks it's trash and then as the price goes up then you have to think it's not going to go up forever and so I'm actually going to take some wins I watched this happen with crypto it was surreal I had never paid attention in the markets before so I didn't understand what Euphoria looked like and so everyone was just like it's going to go up forever nothing bad could ever happen and they were buying in at the high and then as soon as the price started dropping and look Michael Saylor may end up looking the fool but what he tried to tell everybody was any increment of time less than in four years in Bitcoin is just noise don't do it and people still sold like [ __ ] crazy and so yeah getting people to buy low and sell high is already the most difficult thing so if that's the wrong psychological approach what's the right approach how do you build the resilience so on the first kind of basic level it's when things are going around if you're investing in the funds like I talked about if you look at history we have seen recessions and Market crashes happen almost every decade which means you see boom boom boom ups and downs and ups and downs and ups and downs and the people that make the money are not the people that sell at the bottom is there a long Arc so if we're going up and down is the market just yeah realize as it's going up don't buy because you know it's going to crash seven years later buy when it crashes write it up sell it'll crash again or is it like up and down but with this trajectory for those watching I'm raising my hand up and to the right yeah um listening I should have said uh so is is there like you know over the last hundred years has it returned seven to ten percent yes because it's actually gone up in value or including the recessions and crashes the markets have gone up a seven to ten percent a year on average and so and is that due to an increase in productivity of companies like people are actually spending more is it birth rate like how is it possible that it could keep going up like does at some point yeah doesn't even the long Arc have to go we this isn't sustainable so there that's a good question and it's actually probably a more complex question that uh than you might be thinking because it's yes and more so what I mean by that is okay if you bought before the before at the peak of the 2008 crash if you bought before everything Tanked and you held on you would still assuming you invested into funds not individual companies have a bankrupt if you invested into the marketplace you would be richer today than then why if you held on so the psychology is now you hold on and buy more when things go down assuming you're investing into funds if you're investing in individual assets that then the research and Analysis is completely different because you want to make sure you're not buying your way into bankruptcy so now the question is why does the market go up well the first part is value creation right Amazon is working every day to increase how much value that they're putting out they're working to create new products they're working to make buying online better they're working to increase efficiency and I'm going to talk about efficiency in a second because that gets into like artificial intelligence and reducing costs and things like that in addition to that so you have company every single company is trying to do this if your company's not trying to do this they're dying every single company is trying to produce more value make more money create a better product but in addition to that it goes back to everything that we just talked about why does inflation happen you know the FED says our goal is two percent inflation why why why not zero percent why not negative inflation because that would make things cheaper right and so now understanding well why does inflation happen if you look at our economic system and this is where again Financial education is so important two percent inflation is just enough inflation the most regular people don't notice it doesn't mean that it doesn't happen it's just enough why do we want it and so I'm gonna get to that so it's just enough that most people don't notice it but why does it continue to happen because what is inflation it increases the amount of dollars out there right it increases the monetary of supply for dollars mean more money to spend more money to spend means you got more money to go to Chipotle that's why over the last 50 years we have seen the prices of things steadily increase a hundred dollars in 1970 could buy you way more than a hundred dollars today I'm not sure that's quite true so here's how I've always thought of inflation and the reason that we want a little bit of inflation is that if it I'll call it the Bitcoin Pizza problem so Bitcoin is a finite Supply which means that it will you'll never be able to inflate it now it can still lose value obviously we've seen that it can go up in value we've seen that but if if the cost if the value of Bitcoin goes up over time because it can't be inflated then you could buy a pizza today this happened to a guy he buys a pizza for what 17 Bitcoin whatever and then that 17 Bitcoin goes on to be worth 200 million dollars and it's like oh God like that was a mistake I should have held on to it so if money has a deflationary effect meaning that if I have a thousand dollars today that thousand dollars tomorrow might have the buying power of two thousand dollars today so it's like I'm incentivized to hold it now if I'm incentivized to hold my money there's no velocity of money there's nothing moving Goods aren't being bought and sold people are just trying to hoard their money and so even though people have this money and it it's able to buy more in the future the same thousand dollars then I'm incentivized to hold it whereas if it goes down a little bit it loosens that sense of well this isn't going to be more valuable tomorrow so I'm never going to look like a fool so I might as well go get the thing that I really want well why not zero percent inflation then why doesn't the fact I do that it's an excellent question because I don't have it that doesn't increase the economic system it doesn't increase the size of the economic system if you want to is it really though so is the only way to get inflation to print because what I'm trying to reconcile in my head is yes there's more money but the price of things then just goes up and so you're still only buying the same amount so okay there's a couple aspects of this when inflation inflation by its definition means you're inflating the monetary Supply what that results in is the value of the dollar dropping which means so like for the government example why does the government want inflation because that means they can pay back their debt I get why they want cheaper down because they're printing money right and so the first aspect is they can continue to pay back their debt with cheaper dollars but then it's basically an extra two percent tax or whatever percentage they get a little bit of extra right that benefit the second thing is they have more spending ability it goes to increasing the size of the economy because look I'll go a financially smart person is going to make fifty thousand dollars a year invest some of that save some of that and spend some of that the government doesn't work that way if the government made 50 Grand they're going to spend all 50 and then an extra 10. and so how do they do that well why well why do they do that it's stimulative it's it grows the economy when the government spends money what does that mean well if the government spends money and let's just say infrastructure they're paying contractors they're paying a company more money is entering the economic system so as inflation happens when the government spends more money more money is coming into the economy and so what does that do that grows the economic system at a cost the value the dollar goes down and so our system we have companies right the economy you have investors who own a piece of the economy and you have consumers every single person is a consumer Rich poor middle class businesses every single person is a consumer but most people stop there most people are just consumers investors own a piece of the economy now the Federal Reserve Bank you have kind of over here they're working to increase our economic system they want to grow the system they want to grow the economy how they do that you increase how much money comes into the economy you increase consumer spending ability how do you do that increase how much money is out there and so if consumers are spending money well how can you increase how much they spend you can give them more money to spend and if more money keeps flowing into the economy there's more dollars in there that can be flowing through the economic system which then will benefit the economy because I mean businesses can get more money because there's more dollars out there and businesses are getting more dollars the investors also benefit because now businesses show more Revenue more profits sure the value of the dollar has gone down slightly but on a nominal level there's more dollars more wealth more money accumulated here this is why inflation is so important to understand because consumers don't benefit from inflation sure maybe you can buy more stuff if more money comes and if you get more dollars but consumers now have to pay for things with a deflated dollar but am I crazy you get two percent more dollars but things cost two percent more sort of that would be in a perfect world in a vacuum but it's roughly that right I mean this really is a tax this is the government it's getting the ability to spend two percent more money it is 100 attacks but it isn't looked inflation has been around two percent a year historically or three percent historically but does that mean that the monetary Supply is increased by three percent a year no the mo the amount of dollars out there has increased way faster and this is the big argument that people say that spending money does not cause inflation this is the big argument here because if you look at the 2010 spending money like the government well spending more money than they have so printing uh and spending with the 2008 crash happen and we started the unleashing the quantitative easing we started opening up the money printer and money is flooding our economy uh you had some people saying this is going to cause inflation but we never really saw a tidal wave of inflation after the 2008 crash inflation never really saw a big spike at all like it was pretty contained around like that three percent Mark and so now we had everybody saying hey look money printing doesn't cause inflation we can print as much money as we want we saw inflation at around three percent but our monetary Supply didn't increase by three percent it was way more than that I have a hypothesis I'll be curious to see if I'm going in the right direction here sure the money printing that they did though was just to keep people from losing their homes so they printed the let's say roughly exact amount of money they needed to print in order to keep things status quo well it's you that's that's like the government cannot predict how much money will be needed in order to do that they they sent out stimulus checks in order to stimulate the economy during the 2008 crash what does a stimulus check intended to do it is intended to stimulate the economy but we assume that it's intended to con to stimulate the individual the individual is a consumer so if you get a two thousand dollar check what does that do or maybe you can make one month of mortgage payment but what were people doing they're going out and spending it stimulates the economy it gets the economy moving again businesses start making money again and so that's that's really dark but then so I I'm hold on I might be misinterpreting this but that could be really dark so let me say what it sounds like happened in 2008. I just lost my home brutal gut punch I'm living in a tent this is so gnarly oh my God I get my two thousand dollar stimmy check and I just go buy the normal things that I would buy but maybe this goes back to your initial statement I I'm buying food that the vast majority of the things that I buy are going to be my Mainstays so I'm it's not like I go out and buy a new truck I'm gonna go out and buy my eggs and uh you know go see a movie or two maybe go out to dinner or something like that but that's really what it sounds like if they can pour that much money into the system and inflation doesn't go up then people spending habits roughly would stay the same unless somehow that money went into the system and it created additional productivity so that the there wasn't people fighting for the same number of items the number of items actually went up and so the price of everything stayed the same that what you said makes that prediction so okay the government if the government center two thousand dollar stimulus checks and everybody put that money in their savings account and didn't spend it yep it wouldn't grow the economy correct that's not what the government wants they want you to spend that money yes it's a way to encourage spending because we are a consumer people should have saved that money let's be very clear unless they needed to eat so I'm talking about what the government attends people should invest a piece of their money save a piece of their money yeah but I'm trying to speak to human behavior is does the government understand just the ugly truth is is what I just said true 100 look the government knows we're a consumer Nation like it's not just the US like the whole world knows the United States is a consumer Nation people here spend more than what we make so like because you talked about the inflation issue in 2008 I wanted to expand on that a little bit because money isn't just money like our we have two types of money in our economic system we have actual money and then we have credit people don't spend based off of how much money you have in my bank account they spent based off how much debt I can qualify for so if I have a hundred dollars in my bank I can still spend 500 dollars and what happened in 2008 is first credit levels fell because now if I so I couldn't even get credit I couldn't get credit because if my income goes down I lose my job I'm no longer credit worthy to a bank banks are not going to want to loan me money so before I had a hundred dollars in my bank but 600 worth of spending ability because I could have let's just say got a 500 loan or credit line or whatever now can I ask you a question keep keep where where you were going but I need to understand something so fractional Reserve banking I understand how that works so when you go for a home mortgage they don't have to have that whole price it's like only whatever 10 yeah but how do credit cards work are they able to create debt out of thin air in the same way that a bank does or are they do they have actual one-to-one reserves so let's highlight this and then we can get to credit card companies about that too so I have the spending ability of six hundred dollars 500 is a loan 100 is actual cash in the bank money yep I lose my job like everybody else now I lost 500 of the spending ability I only have a hundred my spending ability crashes then come the stimulus checks as a way to stimulate now I have a hundred dollars of money and then two thousand dollars in the government now I have twenty one hundred dollars now I can go out and start spending again I start spending again businesses start making more money there's more dollars in the economy and then I get another job and now I go from a spending ability of a hundred dollars because I already spent the two grand back to 600 so now there's more money out there and the credit starts to go up but the inflation never really happened like we never saw it really pass through and now we're seeing the effects of the inflation I forgot the original question delayed oh 100 like it's what we were trying to figure out to reorient was in 2008 housing crash stimulate the hell out of the economy pump a bunch of money in but inflation doesn't go up I then had a hypothesis about why which is very gloomy yeah and so now you know you said was it delayed you know I think we talked about this previously where if I took a dose of heroin to it today I'm not gonna die you know I might like it and I might say okay let's do another one and but to keep chasing the high I might keep increasing my dose now if I keep increasing my dose but nothing bad happens to me does that mean that it's bad for me or good for me well nothing bad happened yet but eventually right you're going to hit a point we know scientifically that if you keep increasing it your odds of something bad happening keep increasing well what are we seeing now in the money world in 2008 we printed a lot of money we didn't see the full side effects of the heroin we didn't see the full effect the pain of the inflation we did it again in 2001. now what we're starting to see happen is over the previous Decades of money printing overspending we're starting to see the side effects of it and now the question is what are we going to do are we going to just shoot up again and try to delay the real effects of it and just like okay calm the withdrawal symptoms or are we going to actually solve the issue and fighting an addiction is painful you want to get off of a drug addiction you're going to have to go through pain and to get back out of analogy and into what we're talking about that's spend less money spend less money from the government and that means people have less stuff that means less government spending that means more saving less spending and that is painful especially when you're accustomed to having the nice stuff and being able to buy whatever you want that causes Financial pain people lose jobs that causes economic pain businesses go under and that is like we don't nobody wants to see that pain but the unfortunate reality is now because of the inflation problem if you want to solve inflation you're going to have to go through that pain and what the Federal Reserve Bank is saying is we want to solve the problem without enduring the pain we want to get off the heroin without having to withdrawal symptoms well unless you have some fairy dust where you can do that sure but withdrawal symptoms are often a byproduct of trying to leave a drug that you're addicted to in the money world trying to get off of the inflation High is has a side effect of economic pain and now this is what everyone's saying that we can avoid but what I'm saying is be prepared that way if we do see more economic pain that you can protect yourself and not just protect but also capitalize in opportunities that might come your way and so you know we've had a lot of kind of build up and this is where now understanding look we are starting to see some effects of this and over the next you know decade we're going to see a lot of things change we have a lot of corporate debt a lot of national debt a lot of household debt as interesting if interest rates continue to rise it's going to cause pain now we could shoot up again the FED could cut interest rates and start stimulating and they kind of get the economy going again but then that makes the inflation problem worse where can people stay in touch with you to um be up to the minute on this stuff absolutely so I covered this on my YouTube channel minority mindset if you go to briefs.co you can join my free newsletters we have newsletters for investors newsletters for business owners called business briefs to keep you up to date on latest business Trends uh for financial education you can go to marketinsiders.com and yeah all of that guys if you haven't already be sure to subscribe and until next time my friends be legendary take care peace oxygen pretty important for human life there's no price on it why it's not scarce something like diamonds not that important to human existence yet has a huge price because the demand way out strips of supply

Channel: Tom Bilyeu

Views: 924,210

Keywords: Tom Bilyeu, Impact Theory, ImpactTheory, TomBilyeu, Inside Quest, InsideQuest, Tom Bilyou, Theory Impact, motivation, inspiration, talk show, interview, motivational speech

Id: dVO-7rchstw

Length: 133min 47sec (8027 seconds)

Published: Fri Mar 10 2023