Jason Hartman starts the show illustrating the debt to GDP ratio of the US government and its average citizen by household. He looks at the topic of inflation and gives three types we should know about. In addition, Jason looks at headlines of the continued exodus of people leaving New York. Lastly, he discusses the significance of PIMCO.
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 multimillionaire 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 0:54
Welcome to Episode 1543 1543. Thank you So much for joining me today a little bit different format today. I hope you like it. I am recording this on video as well for the YouTube channel. Now most of you are probably only listening to the audio podcast. But I have a whole bunch of visual aids. And we’re going to try and do this more often where we record the video so you can really see some some good visuals that will help back up your learning and your education. But certainly you can listen to audio only format, whatever is the most convenient. Just know that it’s available for you on video as well. Okay, so let’s dig in. There’s a lot of news today I want to share some stories with you or not today in general, but there’s a lot to talk about as, as is always. So in looking into this. First of all, we are going to talk about PIMCO, the big bond company. We’re going to talk about Fannie Mae, we’re going to talk about inflation. deflation debate, which is, you know, you might ask, Jason, why do you talk about that so much because it is so much of economics are just all about the debate between inflation, deflation or stagnation. All of that really, really matters. But I want to start with this because I’m showing you a graphic if you’re seeing the video here. And basically, let’s just remind yourself, the thing I’ve said for the last 16 years on the show, all real estate is local, all real estate is local, we’ve got to remember that all real estate is local. So you see on the screen, there are 392 essays, or metropolitan statistical areas. Now of course, there are dramatically more neighborhoods than that. dramatically more cities than that, but almost four 100 just mshs in the United States, okay, and then there are 3007 counties. Now our county is bigger than a city that includes 64 parishes, 19 boroughs, 11 census areas, 41 independent cities, and the District of Columbia actually make it a total of 3143 in all 50 states. And according to Obama, there’s actually 57 states. So there might be more, but it doesn’t count Puerto Rico, which is now officially going to be, I’m sure in the not too distant future, the 51st state, so we will see, we will see, but when we talk about all of this stuff today, and always, we must remember, all real estate is local, all real estate is local. So let’s talk about it. Inflation for a moment, because it is going to relate to some of the other stuff we’re going to talk about. When we look at the new stats that are out on the debt. We’re gonna say, Wow, wow, wow, it’s just, I’m believable. But I don’t know if it’s that big of a concern, frankly, and we’ll get to why I think that, okay, we’ll get to that in just a moment. But this is a good graphic from investopedia. That’s a great site, by the way, highly recommend investopedia. You know, it’s mostly focused on kind of the Wall Street stuff, but they’ve got some good resources. There are so a big thanks, and a big shout out to them. But this one shows that inflation represents the rate at which goods the cost of goods and services increase over a period of time.
Jason Hartman 4:48
Now, we’ve taken that as a given that it should just be that way. But why should it necessarily be that way? Why should we necessarily have inflation can’t We just take our money and put it under our mattress or put our cash in a tin coffee can buried in the backyard for 50 years or 100 years and dig it up, and have it be worth the same amount of money it is today. No, of course we can’t we all know that’s never going to happen. And one of the big things that determines whether or not we will have more inflation, and how much it will be or how little it will be in the future is of course, the amount of government debt. Right? Because everything has value. According to me, according to yours truly, based on two things. Now economists would say everything has value based on like one thing I say two things, at least, maybe more. But they would say based on scarcity, something is valuable, if it’s scarce. Now, you know, that’s a reasonable thing to say. If you have scarcity, then that drives value. Diamonds are more scarce than sand. So diamonds are more valuable. Gold is more scarce than silver. So gold is more valuable than silver, even though silver has more of the next thing I’m going to tell you utility. I think the two things that drive value for anything are scarcity and utility, if something is abundant and useful. Now Sam is actually quite useful in making cement and so forth. Right? A lot of uses for Sam, but it’s very abundant. And actually, interestingly, it’s not as abundant as you think. Go online and search sand wars. Yes, sand wars, there are water wars, sand wars, wars over all kinds of things around the world between countries and and such. There are actually sand wars you won’t believe it, but suffice it to say sand is more plentiful than diamonds. Right? So that’s got value. So scarcity and utility, the combination of those now investopedia breaks
Jason Hartman 7:06
down three types of inflation, which I, you know, we’ve talked about this before, but it’s interesting just to revisit this one kind is demand pull inflation. And this is when the demand for goods or services exceeds the capacity available in the marketplace, right, the capacity to manufacture them more or fulfill the service needs. So this really right here is that sort of classic definition of inflation. And what is that classic definition? Well, a plentiful and abundance of currency units like dollars or yen or whatever, right? Or the Brazilian reality or, or the peso or the Euro, whatever it is, chasing a limited supply of goods and services, obviously, that’s going to push the price up, obviously, obviously But then the other one is the cost push. And this is why the important metric is not just the CPI, the consumer price index, but the PPI, the producer price index, because that influences the cost push inflation, when the cost of producing something increases, the manufacturer has to pass that through to the customer. If they can’t, they’re going to stop making it. And this is so true in real estate, where we see getting to a point when the cost of construction is higher than the market will pay or higher than appraisers will appraise the properties, right if they want to praise the properties of the price, the builder of that property needs to sell it for then there is a defect in the system. So that supply chain from builder to seller to buyer won’t work because it gets interrupted somewhere along the way. So that’s cost push. And then there’s just what they call built in inflation, right. And this is when prices rise, but wages rise to in order to maintain that standard of living that caught that’s what you hear about the cost of living increase. You hear about this all the time? Well, my salary should be indexed to the cost of living, and government salaries are in the government is such a ridiculously huge part of the economy nowadays, which is a bad thing. But it’s the way it is. And those government salaries and government benefits, right, those government entitlement programs, handouts, benefits, welfare, whatever, is also indexed to inflation. So this gives the government a very good reason, a very good reason to artificially tell us that the rate of inflation is lower than it really is they have a huge incentive to do that, obviously. Okay, so let’s look at a couple articles. This is from the Wall Street Journal. And this was just out, I think yesterday, maybe even today. And it talks about how the US debt has reached its highest level, compared to the size of the economy, the GDP. This is the debt to GDP ratio. And I’m going to tell you why I’m not sure this is that much of a problem. I’ve, I’ve alluded to this before, but let’s take a little deeper dive today. So why is this maybe not that big deal? Really? Maybe it’s just not that big a deal. Okay. So the reason it might not be that big a deal is because because if you compare it to a person or a household, the
Jason Hartman 10:52
debt to GDP ratio now well, we’ll look at that moment. Okay. Let’s just look at the history first. Okay. So the The CBO the Congressional Budget Office, right, said that the debt is going to exceed 100% of US GDP. Okay, so fine and dandy, right? It’s definitely higher than it was before. And it is actually the highest point since the post World War Two era. But in post World War Two era, in many ways, we were much better off than we are today. We were much better off then. Now, the question we’ve always got to ask, is the Jason Hartman question and you’ve got that the Jason Hartman question Not me, that did not come from me It came from you listeners and viewers. So the Jason Hartman question is compared to what? Well, our debt to GDP ratio is dramatically better than Japan’s debt to GDP ratio, or Italy’s debt to GDP ratio. Now, if you’re watching on the video, You can see this chart here, but Japan’s at about 230% debt to GDP ratio is projected to go above, above 250%. And we’re projected in the US to go over 100%. Now, the highlighted part here it says, the last time us debt level exceeded economic output was in 1946, when it stood at 106%, after years of financing military operations to help and World War Two, but World War Two, in a way was a business plan. What we’ve got going now is not a business plan. when reagan increased the debt to GDP ratio, and a lot of people criticized him for it. He had a business plan, and the business plan was to bankrupt the Soviet Union and my god It actually worked. Okay, it worked. So Reagan’s plan was actually successful. I know he has his critics. I get it, I get it, I get it. But let’s ask compared to what not between nations, let’s ask compared to what between our own lives, I want you to ask yourself about your own debt to GDP ratio. And let’s decide if it’s really that bad. So let’s take a person and just for round numbers, we’re going to say not a person but a family, whose gross domestic product because family is the domestic unit, right? their GDP is $100,000 a year versus the US GDP is somewhere around $20 trillion a year right. And they have a mortgage that is $300,000. And they have two cars and they have two cars. loans on those cars. And those car loans are $25,000 each. So they’ve got $50,000 in car loans, and they’ve got $300,000 in mortgage loans, and maybe their house is worth 400,000, but 300 in mortgages. So how much debt to GDP ratio does this family have? Well, they’ve got $350,000 in debt. And remember the debt matures at different times. So that’s one thing, right? The car loans, the 50,000 is going to mature much sooner or be paid off much sooner, then the mortgage that might have 30 years left on it, and then say they’ve got some student loans, and hopefully they have no credit card debt because that’s a ripoff. Hate the student loan debts or rip off too, but whatever. Let’s just go with the student loan debt, but say they have no credit card debt. They just got the car loans. student loan and the mortgage on the house. So they’ve got $400,000 in debt, and their GDP is $100,000 a year. So that would mean they have four times their GDP in debt 400,000 in debt $100,000 in GDP or income every year.
Jason Hartman 15:24
Now, let’s, for the sake of discussion, assume that that’s their after tax GDP, cuz the country doesn’t pay taxes like us poor peasants do us people, right. The hoi polloi has to pay tax, but the government doesn’t pay tax, the government only takes tax. So let’s assume that $100,000 GDP is after tax. So maybe they may get 150,000 a year and or 130,000 a year and they keep 100 of it. So they’re, you know, their debt to GDP ratio is they’ve got four times that amount in debt. They’ve got much more than even Japan.
Jason Hartman 16:03
Now, are they in terrible shape? Well, they’re not in the best shape. But it’s really not that bad. Now, I kind of can’t believe this because being a fiscal conservative, most fiscal conservatives are screaming that the sky is falling with our debt to GDP ratio. It’s the end of the world. But look, we have the reserve currency of the world here and the good old US of A, and we’re actually not in as bad shape as all the doomsayers would have you believe that’s the point I’m making.
Jason Hartman 16:42
I’m not saying it’s great. I’m not saying it shouldn’t be an area of concern. But it’s just not as bad as people say. And as a household, netting $100,000 a year GDP household GDP versus $400,000 a year. That you can’t print your own money. You can’t you’re not the reserve currency. You can’t do all kinds of things that a country can do especially a country in the enviable position of the United States of America. So it’s just really not as bad as people say, I know. I feel really uneasy about saying that idea, because I almost sound like Paul Krugman, and he’s an idiot. He’s clueless. He doesn’t know how economics work yet. He won the Nobel Prize. Maybe I’m the idiot. Okay, Paul. You can bash me if you want. Sorry about that. I’m sure you’re a nice guy. But and by the way, he’s not all wrong. I was listening to an interesting interview with him the other day that I thought he I thought he nailed it pretty well. But mostly I disagree with Krugman,
Jason Hartman 17:53
because I’m more of an Austrian School guy. And even I don’t think this debt is as bad as The hardcore libertarians want to say is all right. We’ve talked a lot about people fleeing cities for good reason they should be fleeing cities. So here’s an article from the not so credible New York Times. I mean, the New York Times, in so many ways should be just totally ashamed of themselves. But hey, this article, you know, they’re okay on this article. It says movers in New York City are so busy, that they are turning people away.
According to flat rate moving, the number of moves it has done has increased more than 46% between March 15 and August 15, compared with the same period last year, and by the way, people have been leaving New York and LA and all of California and definitely New York City and all these overpriced cities and left wing government For a long time, they’ve been leaving for a long time, rightfully so, the pandemic has only accelerated that dramatically, dramatically, but good for them. These cities are a disaster. These left wing states are a complete disaster and people should be leaving. I left to California in 2011. And let me tell you, I’m really glad I don’t live there anymore. It’s a nice place to visit. California is a beautiful place but I’m sure glad I don’t live there anymore. All right. So going on the article says the number of those moving outside of New York City is up by 50% five zero, okay up by 50% including nearly 232% increase, a 232% increase to Dutchess County
Jason Hartman 19:56
and 166 116% increase to Ulster County in the Hudson Valley. truly unbelievable What’s going on? truly unbelievable. And by the way, we are going to talk on Sunday on our live stream. Adam and Naresh will be joining me as we talk about forbearance and eviction moratoriums, and we take your questions on anything under the sun. So join us Sunday for our Sunday live stream coffee talk with Jason, as we discuss these and many, many other issues. Last week, our live stream was two hours and 12 minutes long because you guys all just had so many great questions. We kept it going. So join us Sunday every Sunday 8am Pacific 11am Eastern on Facebook and YouTube YouTube’s probably the best place to watch it but we’re also on Facebook at the Jason hartman.com page and several other Facebook pages. Okay, now PIMCO. Phil go is the big bond company right remember Bill Gross PIMCO. You know when he was there you heard about him All the time he was always in the news. So PIMCO is right around the corner from our old office in Newport Beach, California. That’s their main office. And they are very concerned. And they wrote a letter to mark calibre. He’s the director. You’ve heard his name a lot in the news. He’s the director of the F h fa, the Federal Housing Finance Agency, and PIMCO is really, really concerned about the idea of Fannie Mae and Freddie Mac. These government sponsored entities coming out of their conservative booboo. If I can talk right there, conservatorship, and of course they are because their own self interest would not be well served if this happens, but I have said for a long time I’ve countered all the traditional real estate people and I do in so many ways. I have my share of haters. For this But I think the homeownership rate is too high. Yes, I’m like the only person in real estate that says that I understand it’s very lonely being me. And I think that Fannie Mae and Freddie Mac should just be out of the hands of government support, they should be completely private, and they should be much smaller. So there is a real free market in the mortgage system. Now, what would that do? It would likely increase mortgage rates, what else would it do? It would likely put downward pressure on housing prices. But by the way, there’s more. I do have some good news investors, and I’m an investor, I have a lot of properties. I got a lot of renters. And this is not in my self interest immediately. But I think having more sound economy and more sound money, and a more legitimate government is in my self interest in the long term. And I think it’s in your self interest to I think it’s in everybody’s self interest. And you know, there’s, there’s a way you have to operate in life, Win Win or No Deal. And the long game, which is the right game to play, the long game says that we need to stop having government subsidized rates and rates should float to the real market rate, which would almost undoubtedly be higher than they are today. In fact, maybe substantially higher, substantially higher. But what else would that do? It would push the homeownership rate down to where it should be, I say it should be 50 to 55%, not in the 60s. It should be lower, but it would push rents up rents would go higher in this scenario. So the article and by the way, this the housing worrier article, talks about the subtitle mortgage rates will Increase homeownership will likely suffer PIMCO executives say Well, yeah, though, and that’s okay. Nobody should be concerned about that, like the normal people are they should listen to me, because this in the long run is better for everybody. The article goes on to say this means investors would require higher returns to compensate for greater risk. The PIMCO executive said, mortgage rates will increase, homeownership will likely suffer and the National Mortgage rate will no longer exist. Unquote. The executives wrote. Good. Let me guess.
Jason Hartman 24:43
bond investors would get higher yields, rates would go up. Elderly people who have done the right thing and saved money to invest in conservative assets, like bank CD’s or Conservative bonds would not be forced into risky investments because they could get a reasonable yield on their savings. They would be better off.
Jason Hartman 25:12
Everybody would be better off. This is what you call a rational normal market without government interference. And that’s what should happen. Pim COEs warnings come in response to the FHFA. Request for comments on the proposed capital rule that Fannie Mae and Freddie Mac be required to hold about 200 and $40 billion in capital combined, based on their September 2019 assets. Fine. Hold a good amount of capital. So you don’t expect the government bailout the next time there’s a crisis. And the next time there’s a recession and of course, there will always be a looming crisis every 10 years or so, just plan on it, folks. On a side note, look at this story. A Seattle patrol cop was paid $414,000 last year. You know, when I lived in Newport Beach. I remember there was an article about a Newport Beach lifeguard that was paid like, I don’t know, $230,000 or some ridiculous amount of money like that for a lifeguard. So this cop, and I like cops. I like law and order. I don’t want to defend the cops. I think those people are a bunch of nutjobs say that. I think they should be defunded. But this is ridiculous. Right. City Council President in Seattle, which is an absolute disaster. Seattle’s a total disaster. We all know that. All of these left wing areas are disaster. Seattle council president says department has totally failed to clamp down on overtime. Well, that’s for sure. Look at this article. The 58 year old potential Officer made $414,543 last year more than any other city employee the say Seattle Times reports. According to police department data, Willis worked an average of 80 hours a week, including seven straight weeks in the summer, where he worked between 90 and 123 hours a week.
Jason Hartman 27:25
First off, that should be illegal. You know, they make pilots and truck drivers and people responsible for public safety. They make them take time off, and they make them take breaks so they will sleep. How can this guy be an effective cop? If he’s worn out, burnt out and groggy from lack of sleep all the time? Imagine if he had to unholster his weapon and shoot someone he missed because he was suffering from lack of sleep. But in Seattle, They probably don’t shoot anybody. Unfortunately, it’s probably a lot of people who should be shot. Oh, I’m gonna get some hate mail for that one. Folks. We have to understand there are actual criminals out there who you know the police need to deal with. So they don’t shoot you. What our NAR President say not in our NRA not the National Association of Realtors the National Rifle Association. How do you stop a bad guy with a gun? A good guy with a gun. All right. The city goes on to say we do a budget every year. But the budget this year, we totally blew through the budget. Well, US was one of 374 Seattle Police Department employees who made more than $200,000 last year. That’s insane. Okay, Hey, good news. As I announced yesterday, the recordings for our meet the masters are available now. And they are on sale until Sunday at midnight. So grab your copy. These are video and audio recordings available at Jason hartman.com slash recordings. A lot of you have been waiting for that. And we had some buyers yesterday as I asked right after I announced it on the podcast so get your copy the recordings at Jason hartman.com slash recordings. Robin Hood, Robin Hood has been in the news that’s the trading app where you can speculate on stocks and make really dumb decisions and invest in bankrupt companies like hertz. Well, guess what? Now Robin Hood is fading pasting a probe from the scoundrels encouragement Commission, the SEC or the Securities and Exchange Commission, because they did not disclose deals with high speed trading firms where they are being accused of allegedly getting money. From these high speed trading firms in payment for their stock trades, yes, yes, yes. Wall Street is the modern version of organized crime. don’t invest in that. They say Robin Hood markets Inc faces a civil Fraud Investigation over its early failure to fully disclose its practice of selling clients orders to high speed trading firms. And I love how these articles do these quotes. People familiar with the matter said, Is that considered journalism? I mean, you should cite your source Now you don’t have to because that’s what’s known as the reporters shield law and I get it that’s protected in the First Amendment. That’s great. But when something like this doesn’t matter, you could easily disclose your source right Who said that? Did the SEC say it? did an expert say it a market watcher say it wedding disclose the source. I hate when they do that. It’s predicted Once the investigation is at an advanced stage, and the company could have to pay a fine exceeding $10 million if it agrees to settle with the SEC in this probe, so we’ll see. All right, if you need us reach out one 800 Hartman or Jason Hartman calm. And I want to just say thank you for joining me today I know the format was a little different. I hope the sound quality wasn’t too bad. In fact, I don’t think it was great. So thank you for bearing with our sound quality today. And we will be back tomorrow with another episode Sunday with our live stream coffee talk 8am Pacific 11am. Eastern on YouTube and Facebook. will look forward to seeing you there and then next week, back with a whole bunch of great episodes for you. And until tomorrow, happy investing.
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