Elon Musk recently crossed a net worth of
300 billion dollars. That's more wealth than the entire GDP of
countries such as Greece, Portugal, or Finland. If he spends 1 million dollars a month, he
would need 25K years to spend all of that money. Even if he would spend 1 million dollars a
day, he will need more than 821 years to spend 300 billion dollars. Imagine how your life would look like if you
could spend a million dollars a day. Elon Musk is 50 years old. Let's assume he will live for another 50 years. He will have to spend 6 billion dollars every
single year, or 16.5 million dollars every single day for the rest of his life to be
able to spend all of that money within his lifetime. Can he do it? You can ask him on Twitter!
The only problem with this wealth is that. It's not real! This wealth only exists on paper! If he tried to turn it into real money, he
might end up losing all of his fortunes. When the CEO sells off his shares when the
company is barely profitable. That can scare off investors, and an oversupply
of Tesla shares can easily drag the stock price down. On top of that, He will have to pay a 20 percent
capital gain tax, further diminishing his net worth. So at the end of the day, he is not as rich
as he might appear on the Forbes List. But that's not a big deal. When the world's richest man wants cash, he
can simply borrow money by putting up some of his Tesla shares as collateral. Elon Musk can walk into a bank and say, how
about you loan me a 100 million dollars. In case if I won't be able to pay back, I
will give you the authority to sell my Tesla shares. Since Tesla is booming, the bank isn't taking
any risk, so they will loan him as much money as he wants at 1 or 2 percent. Elon Musk, or any billionaire, can access
their wealth that exists only on paper without paying taxes since you don't pay taxes on
debt. In 2012, he bought his first mansion in Bel
Air for 17 million dollars. Back then, Tesla's stock price was 6 dollars. Ideally, he should have sold 17 million dollars
worth of Tesla shares to buy that mansion. But instead, he put his shares as collateral
and took a mortgage. Since then, Tesla's stock price has grown
by 17K percent while he only had to pay a 2 percent mortgage. If he had sold his shares, he would have paid
a 20 percent capital gain tax and would have missed the opportunity to grow his shares
by 17K percent. Do you realize now why billionaires love debt
so much?! Here is another strategy. Buy a piece of art for 10 million. Pay some journalists to create a buzz around
it. Pay some experts to write about what a great
piece of art it is and why it worth a 100 million dollars. Go to a bank, give them your piece of art
as collateral, and boom, you can borrow up to 100 million dollars in cash at a 1 or 2
percent interest rate. Now you can buy a mansion, a yacht, or throw
a huge party. Just make sure to make the minimum payment
when your business generates some cash at the end of the year without selling any shares
and paying millions in taxes. If you think it ends there, then you have
no idea to what extend billionaires love debt.
Soros
It's the 1990s. The British economy is suffering. Inflation is high, unemployment is rising,
and the government is in chaos. Britain had to devalue it’s currency to
survive, but it was part of the ERM or the European Exchange Rate Mechanism, which fixed
all European currencies against each other to prevent currency fluctuations to make it
easier for businesses to trade across Europe. The demand for the British pound kept declining
as Britain fell into a recession. Hence, the bank of England had to buy billions
of dollars worth of pounds to keep the pound at the same rate as other European currencies. While it was bad news for Brits, it was a
billion-dollar opportunity for George Soros. By looking at the numbers, he realized that
sooner or later, the bank of England would have to devalue the pound even if that meant
leaving the ERM. Soros was one step away from a gold mine. He went to various hedge funds, borrowed billions
of pounds at a very low rate, and then sold them in the forex market in exchange for german
marks. The idea was simple. When the British pound will collapse. Soros will buy those pounds cheaper and return
them, pocketing the difference. On September the 16th, the president of the
Bundesbank hinted in an interview that it's possible for some currencies to come under
pressure. That night when Europe was asleep, Soros began
calling all the major banks or, in fact, any bank to borrow as many pounds as possible. By morning, Soros borrowed and sold over 10
billion dollars worth of pounds. The bank of England was in absolute disarray. The British pound was collapsing. The bank of England purchased 27 billion dollars
worth of pounds, raised interest rates to 15 percent. But it was already too late since the entire
market began to sell their pounds after Soros's move. Before the day ended, England left the ERM
and devalued the pound, and Soros profited over a billion dollars. Without spending a single penny out of his
pocket, he borrowed billions of pounds, broke the bank of England, and pocketed a billion
dollars. Can you really say debt is bad after that?!
Michael burry
It's 2005. Michael burry is going through mortgage-backed
securities, and he is suspicious. Something unusual comes up. He can't believe his eyes. So he starts digging further and further,
but the more he digs, the more he is shocked. Every mortgage-backed security is filled with
multiple junk loans. In fact, these loans are given on the basis
that the borrower doesn't have a deadline to pay the principal. They can even skip the interest on the interest. Which meant that even a high school dropout
with no job or savings could buy a house. Ideally, the rating agencies would give these
loans a C rating, but investment banks piled them with good loans, and boom, now they are
rated as AAA loans. If a small minority of these borrowers will
default on their loans, it will drag down the entire market. In 2007 alone, 500 billion dollars worth of
these loans were sold. That's when Michael Burry shorted mortgaged-backed
securities exactly like Soros shorted the pound. He borrowed as many mortgage-backed securities
as possible and immediately sold them in the open market, hoping that when the market crashes,
he would be able to buy these securities at a much lower price and return them back. Everyone thought he was crazy betting against
the housing market. But this is what happened on September the
16th (video of housing crash). Micheal Burry walked away with a personal
profit of 100 million dollars. All of that was done with DEBT! But not everything is sunshine and rainbows. Its April 2020, Melvin Capital, Citadel, and
a few other hedge funds decided to make a few billion dollars by bankrupting another
barely surviving company called Gamestop. By that time, the hedge funds had already
shorted 140 percent of the total stocks. More shares were shorted than actual shares
in circulation. It was a matter of time before the stock collapses,
and hedge funds would close the deal with a few billion dollars for their investors. But something went wrong. A Reddit user realized that the only way these
hedge funds can get out of this deal is by purchasing back all the existing shares. If he purchases Gamestop shares and holds
them long enough. These hedge funds will pay whatever price
you want to buy back these shares because if they don't, they will keep paying interest
since these shares have been borrowed. The Reddit post went viral and everyone began
buying game stop shares to the point where the stock price soared. Hedge funds purchased the stocks at 5 to 10
dollars but now had to buy them back at 300 to 400 dollars to give them back. The news broke the internet. Wall Street was in absolute chaos. For the first time, retail investors beat
wall street at their own game. At this point, the hedge funds knew that if
they won’t stop this rebellion, they might go bankrupt. First, they pushed Robinhood to stop selling
GameStop shares on their platform. Soon other brokers followed. Even though they stopped the rebellion, Hedge
funds ended up losing almost 13 billion dollars in the process. Debt is a powerful tool, but it's not for
everyone. It can be your best friend or your worst enemy. Even if you have hundreds of millions of dollars
stashed in your bank account. Not a single, smart businessman will use that
money to grow the business. Instead, let the banks know that you or your
company actually have the money and borrow an equivalent amount of money to finance your
operations. At the end of the year, when it's time to
pay taxes, you can claim that you didn't make any profit on paper since you owe the bank
so much money. Suddenly instead of paying a 21% percent corporate
tax, you pay nothing. And in case you need money to finance your
lavish lifestyle, use the company's funds to pay for your private jet, expensive restaurants,
and luxurious hotels and write them off as a business expense at the end of the year. That's what almost every company does in the
US or in fact, anywhere else in the world. Before taking advantage out of debt, any rational
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