Jason Hartman brings on Investment Counselor Adam discuss Modern Monetary Theory (MMT). Adam gives us perspective on how we can use it in our observation of the economy, and what it can mean for our investing. At the end of the show the two discuss a property in the Atlanta market.
You don’t have any investment real estate investments, you will not have the opportunity to learn to make mistakes and learn from it. And then you will not be able to tell which one is a better investment. I think you just have to get it started somewhere and with the help of your investment counselor, and then keep moving forward.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on. Now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:09
Welcome to Episode 1363 1363. Today, we got a few things to talk to you about. Maybe a little market round up from last year, compare some asset classes, talk about the Atlanta market and talk about m m t. And I’ve I’ve got one of the biggest proponents here with me. You just heard him go, woohoo. And that’s Adam. Adam, you must be back from your Socialist Party meeting. And you want to talk about mmt Go for it.
Well, this is this is the part that kills me. Jason’s mmt is not socialism. It’s, believe it or not. Now we’re going to play a clip from a podcast I listened to mmt itself is not liberal. It is not conservative. You know what the biggest mmt thing government has done in the last two to three years. Jason,
Jason Hartman 1:58
what is that Trump tax cut? The Trump tax cut is empty. Wow. wait to hear this one. Okay, great. So first of all, let’s, you know, I can’t stand it when everybody’s using acronyms all the time. So let’s remind our audience we’ve talked about nmt before, but it stands for modern monetary theory, modern monetary theory. And I think it’s a bit of a pipe dream. Adam thinks it’s legit. We had Mike Norman on the show. That was our first episode about mmt. When I asked him a question, he hung up on me, but I called him back and convinced him to finish the show. So that was good. And, you know, you listeners you love that show. That was a really good episode. Yeah, there was hope everybody made really good comments about that episode. So
and you got Randall Ray, who’s one of the original fathers of nmt. He’s not like the main main guy, but he’s one of the
Jason Hartman 2:50
main guys out there. And for any of these past episodes, of course, go to Jason Hartman calm and use the search engine on there. We’ve got a great search engine there. And you can type mmt or modern monetary theory or Mike Norman or whatever else you want, and find any of our past 1300 and 62 episodes. All right, Adam, you want to play this clip, or tee it up.
So there is a podcast. It’s called the mmt podcasts really tricky name for those of you out there. And I listened to it religiously. And the people here they do a very good job of making it understandable for the average person now, they’re going to be talking about the pound because they’re not from the United States. But the British were home to Sterling. Okay, here we go. We’re going to get started and he mentions the name Kevin, that’s his guests for the week. It’s not important to the very beginning.
All right, you’re new to mmt. The reason that some market practitioners like Kevin find it useful, is that the descriptive part of mmt is an objective analysis of how modern money systems work. What happens on the balance sheet of a nation when the government spends What happens when it taxes? Now, we all have our ideas about how real wealth real goods and services should be distributed. And that should be debated. And that’s what politics should be about, in my opinion. But what shouldn’t be up for debate is whether or not currency issuing governments like say the UK, the US, Japan, Canada, Australia, can run out of their own money because they can’t. Some of the characteristics of the way money comes into being the way it moves through an economy and the way exits and economy have been remarkably similar the world over for quite a long time. As john Maynard Keynes wants to put it, all modern states have had the ability to decide what is money and what is not for at least 4000 years. So what makes money money. The mmt money story goes like this, a state desires to provision itself it needs roads, bridges, soldiers, hospitals, schools, infrastructure, a health system, an education system, you name it, but to achieve These things it needs to be able to hire people and buy resources. But why would anybody want to work for intrinsically worthless pieces of paper? The way Hyman Minsky. That’s what I say anyone can create money, but the problem lies in getting it accepted. So how do you make people accept your money? How do you get them to value your bits of paper enough to work for them?
Jason Hartman 5:23
It’s very interesting that he says that and you know, with that awesome British accent, he sounds more intelligent than me for sure. But, you know, how do governments get people to accept it? Well, I’m sure he’s going to say something nice and clean. But the reality of it is no, no, he Oh, oh, he’s gonna agree with me. Because the reality of it is they get them to accept it at the point of a gun. That’s why they call it fiat money. Right?
Yeah. The example that they give and a lot of people give is the hot tax and Africa that the British us and for those of you who don’t know, they came in and they tried to get the citizens to Work for the pound. And they basically said No, well, you have no need for it. We don’t care about your money. So they brought the military and and said, Alright, we’re going to charge you property taxes, essentially. And you’re going to work for us and we’re going to pay you and you’re going to pay us back or else we’re basically going to take your house away or burn your house down or whatever it is. And that created the value for the pound in Africa.
Jason Hartman 6:21
Isn’t that nice? Isn’t that pleasant? You know that? I love it when these governments just impose their will on these poor people, right? You know, there’s this great meme that’s floated around, and it says, Well, first of all, I have to tell what the picture is. The picture is a bunch of really ominous looking police in riot gear all lined up, like they’re gonna kill you. Okay? And the caption says at the top, it says, socialism. And then below it, it says, ideas so good. We have to force you to accept them. So there you go. Anyway, Okay, comment or play more of the tape? No, I think we should play more because
the party was really good coming up.
All right through taxation, a monetary the sovereign government presents each individual under it so authority with a tax bill, payable only in the state’s chosen unit of account. In the UK that unit is called the British pound and only pounds will settled tax obligations to the state. So the tax bill creates people needing to earn the government’s currency, the government can then spend it otherwise worthless bits of paper to hire people and buy resources. So a five pound note is a promise to pay off five pounds of your tax bill. It’s a five pound tax credit. Because of this, it circulates as currency because all citizens need to pay taxes, and only the government’s designated tokens are acceptable for payment. So a permanent demand for pounds or dollars or yen depending on where you live is created by this need to pay taxes
and that right there is why Bitcoin and other cryptocurrencies will never take off in my opinion.
Jason Hartman 8:08
I couldn’t agree with you more on the cryptocurrency and as I’ve been on the record many times, I would love to be wrong. However, we should make the distinction that look cryptocurrency is going to take off. Okay? I think you probably didn’t mean it quite the way you said it. The distinction is it’s going to be a government or central bank sponsored cryptocurrency, right? I mean, look at a digital currency is the future, okay? And the future is probably not even blockchain. There’s better ways to do it. The blockchain blockchain, opened the world’s eyes 10 years ago, as to a pretty awesome system, but they have better ways to do it, then blockchain blockchain is sadly really quite inefficient once the currency grows to a large size. Yeah.
Jason Hartman 8:58
Yeah. And blockchain is the concept that tracks the accounting for Bitcoin and many other cryptocurrencies. So cryptocurrency is definitely the future. It’s just not all these private cryptocurrencies are not the future. Okay. Now, I’d say the one that is my favorite out of them is Bitcoin because it’s not centralized and, like one of our venture Alliance members says so, so well, Keith, I’m talking about you, you really said this. So well, he says, you know, the reason bitcoins gonna win is because the government can’t knock on any CEOs door and say, close it down, or you’re under arrest. Right? And that’s true. That’s a great point. But you don’t have to, well, it’s harder to close something like Bitcoin down. Really easy to close down a theory em, or Dogecoin or any of these other ones, right? They don’t have to care about Bitcoin.
I agree. Because it’s like we just listening to you can’t pay your taxes with Bitcoin. So what do they care? They don’t care if bitcoins at a million dollars A coin are $5 a coin. As long as you can pay your taxes at the end of the year,
Jason Hartman 10:04
they care a little bit. And the reason they care a little bit is because if that cryptocurrency is convertible to the British pound or the dollar or whatever currency you need to pay your taxes, then I mean basically look at the concept of having, like America has the reserve currency of the world, which is an awesome position to be in. And the way it maintains the reserve currency of the world is at the point of a gun or more actually the point of a nuclear missile, right? Or, or 6000 of them to be exact, to be more precise. That’s how it maintains the reserve currency status within the country, rather than within the entire world within the country. It maintains its own reserve currency status, through legal tender laws and the legal tender laws saying the dollar is the only valid legal tender for all debts public and private and enforces that at the point of a gun, and it’s the point of taking away your freedom. So that’s what it does. But if that Bitcoin, for example, is convertible, which it is now, certainly, and could stay that way, it doesn’t completely work unless you have a 100% tax rate. Okay, it works on the margins, but they could just make it illegal in general. Like I’ve used the example before of illicit drugs, they are illegal, you, but people still trade in them to a small degree, but it’s a very small part of the economy. It’s just never going to be a thing because it’s illegal and nobody wants to risk going to jail, over trading in drugs rather than dollars, right. So they’re going to use the dollars if they made Bitcoin illegal. Instead, it’s illegal to trade in this, then it would vastly dramatically reduce the amount of trading and the price of it and the value of it. Anyway, go ahead. We’re on a tangent
Hampshire understanding what drives money is called charter lism. And you can find it cropping up in the writings of economists all the way back to Adam Smith. When governments spend more money into existence than they tax back, when they run a deficit, that deficit is the private sectors surplus. government spending is private sector income. It’s our money. Because this isn’t widely understood by the public politicians score own goal after own goal by equating government spending with household spending, and accusing their political rivals of being immoral for increasing the government’s so called debt. Now debt for currency issuing government, a government that can issue it will without limit the very thing it needs to pay off its so called debt is very different to when you or I go into debt. The national debt is the sum total of all the government deficit is around since the inception of the currency. So by definition, it’s a The sum total of all the private sector surpluses ran since the inception of the currency. As mmt founder Warren Mosley describes it the national debt is nothing more than the pound spent into existence that haven’t yet been used to pay taxes. At his lead mmt academic Professor L. Randall, right puts it, the national debt is not what we owe, is what we own.
Jason Hartman 13:25
So Adam, illuminate that a little bit for our listeners. That was very fascinating what he just said. And of course, I had l Randall Ray on the show before, but what’s your take on that? Let’s smoke that out of it. Yeah. So
I’ll start with the household thing. You know, he talks about how the government doesn’t run like a household. And that is true of the federal government, the state, this does not apply to states. States have to be run like a household. They can’t run a deficit because they can’t issue currency. So think about the states as more like you’re getting more honestly the euros countries, you know, they are only allowed to spend what they take in in revenue and what they’re allowed to by the EU. They’re kind of told what to do with the federal government, they create the currency. And what they, we don’t have anything until we’re given it. You wouldn’t have a single dollar in your pocket if the federal government had never issued a single dollar bill into existence. So the way that our politicians say it, is, we’re going to have to tax you so that we can pay for this. And that is not true. The only thing and this is one of the things that modern monetary theory espouses that I believe the only thing that we have to worry about when we implement a tax cut or public spending or anything like that is will it cause inflation, and the only way it’s going to cause inflation is if the government is paying for things and competing with the private sector for those resources. So they need you know, cotton They’re buying up all the cotton. But you know, t shirt manufacturers still need cotton as well, and they start fighting, it’s going to send inflation through the roof. But if we have pounds and pounds and pounds of cotton sitting on the side, and they need the cotton then no harm, no foul, they can do it until they reach the point that it’s full. And that’s why you’ve heard a lot of people saying, Well, why isn’t why aren’t we seeing inflation? Well, that’s because we have a lot of resources in our country that aren’t being fully utilized. One of the things the most the biggest thing is employment. I know our unemployment rate is low, but we still have unemployed people. So we still have resources that aren’t being put to their highest and best use. And we we shoot for the one to 2% inflation rate for the Fed so that if you miss and you’re too low, you’re not contracting the economy, but the federal government since they give out the money, what they quote, unquote, oh, is what we have in our pockets. They’re definitely Is our savings.
Jason Hartman 16:01
Interesting? Not exactly. But it’s definitely interesting. And the idea of your first statement when you started, you know, in about inflation, that’s not exactly a minor detail. It’s pretty important. Right? But I don’t know how the whole mmt theory seems to be sort of this wishful thinking fantasy that the government can spend and tax and everybody’s just going to be okay. I just don’t think it works like that. But it’s, I don’t know, these arguments are sort of obtuse a bit hard for me to, I don’t know. Go ahead. So the one time I’m bamboozled, I don’t know what to say. So, folks, mark this moment on episode 1363. Jason is speechless.
So first, you can’t just spend without concern at all. I will admit that, you know, every modern monetary theorists, anybody who believes in it knows, you cannot just spend and spend and spend and spend and never worry about it.
Jason Hartman 17:11
But they seem very, I’m worried about it like you can. Yeah, I mean, there’s a certain limit, like what’s the limit,
there is a limit. And the limit is when they start competing with the private sector, whenever all the resources have been utilized, and when there’s competition that will, and as soon as you see the inflation start going up, you start cutting back. And so one of the reasons why this is the interesting thing is if you look at the deficit in the United States, and you go throughout history, if you look back, you will see that every single time that we have run a budget surplus, we have gone into recession, every single time. I think there have been seven or eight times when we paid off the federal debt and full we went into a recession for two years. Whenever in the 90s whenever we Whenever Clinton balance so bad.
Jason Hartman 18:03
So what the modern monetary theory people say is it’s bad to have the country actually have a net gain. And it’s bad for the country to pay off their debts or its debts. Yes. And it’s good to be in debt. Now, you know, on the personal level, I’m going to say that as long as it’s good long term fixed rate mortgage debt attached to great income properties,
I love that it’s the greatest thing. So the way you have to think about it, though, is if the government runs a surplus, that means that they have taken more from their citizens than they have given their citizens. That would be like on your birthday, if your parents said You owe me $20 we’re not paying you $20 this year, it’s everything that the government takes away from us would be considered income, but the stuff that they give us is their, you know, expenses. So if they give us more than they take away, we are able to save that money. And if they don’t, then we’re giving them So if you think about it,
Jason Hartman 19:01
conceptually, if that if the government has a year where it runs at a net gain or I guess a profit, you know, that sounds awfully like a business. Right. But, but if the government taxes more than it spends, and has a profit, it should just give the money back to all the taxpayers. I mean, it shouldn’t keep it. I mean, yes, it should spend some on infrastructure and such and national defense, or, you know, in many cases on offense, you know, they used to call it the War Department. Now, they call it the Department of Defense used to be called the War Department.
But essentially, so what they do when they run a surplus is they contract the economy. They don’t allow it to grow, you know, they’re removing resources from the economy and not allowing investment to happen.
Jason Hartman 19:47
Why not just go into massive debt and spend freely and give everybody wipe out their student loans given free health care? I think everybody
run out of resources. You can do that until you’re ready. amount of resources. As soon as there’s too many cars. It’s not an all or nothing thing. There is a limit. We’re just not at that limit yet.
Jason Hartman 20:09
All right. Do you have Do you have more? There’s more here. Okay.
Public misunderstanding of this leads politicians of all persuasions into vowing to cut deficit, even as unemployment rises, and public goods and services go on the funded, they reduce the deficit, which reduces the money circulating in the private sector. Spending goes down, somebody’s spending is somebody else’s income. So income goes down. The economic downturn deepens, unemployment rises, public infrastructure crumbles, and politicians blame the bad economy on the deficit, then they vowed to reduce it even more. The government acts pro cyclically, when it should be acting counter-cyclically.
Alright, so that is a very important thing. So if you want to know when should we run budget surpluses The only time you can run a budget surplus and not kill your economy is if you’re a net exporter. If you’re bringing in more money from outside your country than inside, you can afford to run a surplus. Otherwise, you can’t do it and not hurt your your economy,
because politicians have to play to the public mindset. And empty scholars and activists since the 1990s have been engaged in an effort to change public understanding about the way a lot of money systems work. My own personal feeling is that I’d like political fights to get back to arguing about what the public interest actually is. I’d also like is to get back to argument about what should be provisioned by government and what should be provisioned by the private sector. Rather than having arguments about whether or not the government’s run out of its own money? I think it’s really important to anybody interested in wanting to make change, to be able to answer the how are you going to pay for it question in a substantial way? And that substantial answer is modern monetary theory.
Jason Hartman 21:59
All right. That interesting stuff. Adam, that was quite fascinating. You’re right. We need some listener feedback on this. This is one that definitely we need some feedback. Go to Jason Hartman comm slash ask if you’re watching this on our YouTube channel as we remake some of the podcasts and put them on YouTube and then do special things for our YouTube channel specifically, you can comment on the video there, of course, but otherwise, just go to Jason Hartman comm slash ask and tell us what you think about this. This is it’s kind of like one of these things that’s just sort of fascinating to toy with the ideas as a thought experiment of nothing else. And so the reasons
the main reason I wanted to do this today was that as we enter 2020 and as we enter the election year mmt isn’t as I mentioned, a conservative or a liberal thing. It’s important to know how the money system works, so that you can look at what each of these politicians wants. And ask, is that feasible? Don’t worry, you know, not, don’t worry. But we don’t have to worry so much about the question of how are you going to pay for it? Because you don’t have to pay for $1 for dollar. But looking to see what the way it works, art, will Trump’s ideas work? Will Elizabeth Warren’s ideas work? Will Bernie Sanders or whoever gets the Democratic nomination?
Jason Hartman 23:20
Well, I can answer those questions I know easily. I know you don’t
have an answer for that. I’m just saying it’s important to know these things. So that whenever you hear people saying, oh, inflation is gonna fly away, or why hasn’t inflation come with this? And the answer is simply, the government hasn’t started competing for these goods. And so even though they’ve added more money, you know, it hasn’t hurt. And that’s why, in my opinion, when the bailouts happened, more money should have gone to the individuals, because when money goes to the individuals that can cycle through the economy, they can, you know, get paid in and work its way through the businesses and the founder of me Empty. Warren Moser thinks that all you know, essentially you should cut payroll taxes, you should cut all of these taxes. So the the main founder of nmt is actually a libertarian Jason. And so he thinks he should cut the taxes and give everybody more money in their pocket. Very interesting. Very interesting. Okay, so I’ll be at meet the masters and you can all come talk me about it then.
Jason Hartman 24:20
Right, right. You can all either throw tomatoes at Adam at our upcoming meet the Masters conference date to be announced soon. Don’t worry. It’s coming, folks. Stop asking will announce it soon. It’s coming. Hey, we’ve been doing it for 22 this will be like our 22nd anniversary right? So don’t worry, you’ll you’ll have your meet the Masters real soon. It’s coming. But Adam tie in the Trump tax cut as to hell. That’s an empty you. You alluded to that just now but
absolutely. So the government tax cut essentially just means they’re not going to take more money away from you. So that’s increasing the deficit because they’re not taking money out there leaving money in the economy. So that’s the two ways you can increase your deficit are tax cuts, or government spending. Those are the two ways. So when Trump did the tax cut, it was what one and a half trillion, I think, essentially injecting one and a half trillion dollars into the economy. And that’s something that mmt ears will say, you know, that is definitely a way that you can do it. And if, if done the right way, if given to the right people, it will improve your economy.
Jason Hartman 25:34
Yeah, very interesting. Very interesting. Okay, Adam, let’s talk about some property. As the wealth effect hits. Most people, sadly, not everybody, but you got to buy more properties. You might outlive your money. And we don’t want that to happen. We want you to live a long life, but you certainly need to plan for that. So this property is what are you going to talk about today? Right outside Atlanta,
right outside of Atlanta, Union City is a rural area. It’s a huge Metro and it’s a good one. Yes, we’re getting a lot of pre construction and the construction might have started on some of them. And it’s a whole whole big area that’s going on. So we’ve got a four bed, two bath townhome that’s going on, you can look at it on the website. It’s a nice, nice little strip of townhomes here. At Jason Hartman calm in the Properties section, it’s up for sale at $177,900. They’re expecting it to rent at $1,450. So folks, relax, this is new construction, brand new construction. So you’re not gonna you’re not going to see the kind of numbers you’re going to see on those inexpensive resale, rehab renovated properties. And if you were watching the George gammon video, and you just heard about the RV ratio that he and Jason talked about, it’s not going to hit the 1% on new construction. Most of the time.
Jason Hartman 26:58
Yeah, right. Absolutely. Not, but still the projection here is what $215 per million dollars cash
flow after they can see management and maintenance. And the cash on cash is lower than most of our resale ones and its revenue. But Jason, I don’t know about you, but the 5% even without tax breaks and all that other stuff. I’d be happy if I stock portfolio did 5% Well,
Jason Hartman 27:26
hey, listen, last year if you just bought an index fund, it did beat that yet. But remember, when you sell those stocks, you’re going to pay capital gains tax. There’s no trading them on a 1031 tax deferred exchange and of course, income property, the multi dimensional asset class, because of all those dimensions is dramatically better than just the cash on cash return. Adam, tell us the projected return on investment overall, the overall return on investment, the overall return on investment It’s 29%. So that’s projected it almost 30%. When you put in the appreciation, the tax benefits, the leverage all of these beautiful, multiple dimensions of a property, just nothing short of phenomenal.
And then we can play the Jason Hartman game of even if it only does half as well. Yep, it’s still looking at 15%. You’re you’re still
Jason Hartman 28:25
looking at 14.5% annually in that projection, and this is brand new construction. So that’s really, really good. And the other thing not counted on the performance, of course, is inflation induced debt destruction, which makes your return even better. So Adam, thanks for sharing that. We got to wrap it up. Everybody, go check out the properties at Jason hartman.com. Or better yet, just reach out to one of our investment counselors so they can help you a hand pick a property and they can help you with a free portfolio makeover and help you design a portfolio that’s going to help you win the game. And that’s what we want for all of you. We’ve been doing this for many, many years and have helped thousands of clients, and we can help you to Jason Hartman calm for more. Or you can actually call us because we have a phone. unlike so many other companies nowadays, we actually have good old fashioned telephones, one 800 Hartmann, one 800 h AR t ma n. Thanks for joining us, Adam. Thanks for bringing up the stuff you did today on mmt. That was quite fascinating. And until tomorrow, happy investing.
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