ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years, and currently owns property in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth show. This is episode number three hundred and fifty-seven, and this is your host, Jason Hartman. Thanks so much for joining me today, and Happy New Year to everybody. I’ve got Steve here with me to talk about some stuff before we get to that Communist bootlicker Noam Chomsky—oh, sorry to say that, that’s just what someone wrote on my Facebook page when I announced that I was interviewing him. But maybe you’ll feel that way after the interview. I don’t know.
STEVE: It’s off the Siberia you go, Jason.
JASON HARTMAN: I know, I know…
STEVE: Don’t speak ill against the Communist bootlicker.
JASON HARTMAN: [LAUGHTER] If you said that to Stalin you’ definitely go to Siberia. If not summarily executed. Or in North Korea, you know, apparently the feed people they don’t like to 120 starving dogs, if that story’s actually true.
STEVE: It’s a very tolerant ideology.
JASON HARTMAN: Yeah, talk about barbaric…it’s mind boggling. But speaking of barbaric, we have a famous economist who recently called Bitcoin barbaric, didn’t we Steve?
STEVE: Yeah, our good friend Paul Krugman, who—
JASON HARTMAN: Oh, yeah, Krugman, he’s a piece of work sometimes.
STEVE: A piece of…oh, work? I was thinking something else, that’s not Podcast friendly.
JASON HARTMAN: [LAUGHTER] This is a family-friendly show, so keep it clean!
STEVE: [LAUGHTER] Well, my wife actually, I don’t know if people have heard on the Podcast, we had our baby a couple weeks ago—
JASON HARTMAN: oh yes, and we have to publicly congratulate you! For having a little terrorist! You’re not getting any sleep!
STEVE: I’m the one who feels like a terrorist. I feel like I’ve been locked away in Guantanamo Bay with all the sleep deprivation.
JASON HARTMAN: Well, there you go.
STEVE: Yeah. So, that was my excuse for my poor behavior on the Podcast. I’m blaming it on lack of sleep.
JASON HARTMAN: Ok, blame it on the poor kid. So tell us about the baby! You have a big kid, huh?
STEVE: Yeah, he was 9 pounds 6 ounces. He’s a tight end.
JASON HARTMAN: Wow! That’s a big kid.
STEVE: Yep, he is. He’s doing great, and everybody’s healthy and happy to have him here.
JASON HARTMAN: Well good, congratulations to you. So back to Krugman…
STEVE: Yeah, the little guy’s being born in the era of Bitcoin, and Krugman thinks it’s barbaric. He thinks that—well, it’s hard to keep track of this guy, because he’s kind of crazy, if you ask me. But he’s saying that Bitcoin has no real uses. And that it’s not tied to anything. And he goes on and on making these arguments, and I’m going, is he talking about Bitcoin or the dollar?! [LAUGHTER] I think you could swap the names out here.
JASON HARTMAN: I don’t know, I appreciate your sarcasm and all, but I gotta tell you—it’s funny because I don’t know if it was either Alan Greenspan or Ben Bernanke—now we have officially a new Fed chair—Janet Yellen is official now—and it was either Bernanke or Greenspan who called gold a barbarous relic. Okay? I don’t know if you remember that quote, and I just can’t remember which of those Fed chairs it was. But if you think about it, both Bitcoin and gold and silver and anything that is not the government-sanctioned currency in the country in which you reside, really is kind of useless. I mean, everybody knows I’m not a gold bug, and I’m not a Bitcoin bug either, although I think Bitcoin—Bitcoin just happens to be the most famous one; there are other crypto or cybercurrencies out there. There’s one called Litecoin. There’s several others, in fact, and we’re going to talk about those at the upcoming Meet the Masters event in Irvine, California. And by the way, if you haven’t purchased your tickets, there are still a few left, so please do so at www.jasonhartman.com in the events section. We’d love to see you. So there are other ones, but I mean, your sarcasm against Krugman and the dollar is dually noted, and I agree with you. However, nothing is more powerful than a really powerful government with endless resources like ours. And the ability at the point of the gun and the threat of imprisonment, to enforce things that they want you to follow, whether it be Obamacare, or using the dollar under the legal tender laws requiring you to accept it for all debts public and private, as it says right on the fiat currency itself. So I just want to kind of make that distinction. You can’t use gold very easily to trade with, and you can’t use Bitcoin very easily to trade with. So, just some equal time there is all I want to mention.
STEVE: Well—
JASON HARTMAN: You can beat up on me after this recording off the air, and say well Jason, that really wasn’t very fair of you to argue with me about that. I’m not, I’m just pointing out some distinctions, that’s all.
STEVE: Jason, you’ve got Noam Chomsky and Bill Ayers coming up. I think equal time is covered.
JASON HARTMAN: I guess. We’re gonna run those back to back. Bill Ayers will be the next episode. He gave a pretty darn good interview; I was impressed that no questions were off limits. And unlike Noam Chomsky, he did not cut our interview ridiculously short when I asked him a tough question. So, props to Bill Ayers, the self-described Communist with a small ‘c,’ not a capital ‘C.’
STEVE: Ah, a small ‘c.’ Not the kind that ships you off to Siberia.
JASON HARTMAN: I guess, I guess it’s a lower-level Communist [LAUGHTER].
STEVE: Jeez. Well…
JASON HARTMAN: Well, let’s finish this Bitcoin conversation, because we’ve got tons of stuff to talk about.
STEVE: I’ll give you just a quick summary from the article. It basically says, why the effort for gold and Bitcoin? And he’s talking about this whole phenomenon of these things happening. For one thing, there’s the unfounded fear of the debasement of government-backed currency, and with Bitcoin, there’s the sense that it’s high-tech and algorithmic, so it must be the way of the future. But really, we just miss the days when money meant stuff you could jingle in your purse. We’re digging our way back to the 17th century.
JASON HARTMAN: [LAUGHTER] That’s hilarious. And as soon as I posted that on our internal forum that we use, that our team uses to communicate and share articles and videos and ideas and so forth—and a lot of this stuff is actually reposted in our members section, if you happen to be a premium member for the whopping ten bucks a month—but anyway, yeah, that’s interesting. You immediately responded back and commented on that thread and said, Krugman is a barbarous relic. And I thought it was very fitting. So…yeah, it’s just ridiculous, but, nothing is more powerful, unfortunately, than big government with massive resources. And with the world’s reserve currency, the world’s largest brand, the world’s largest economy, and not the least of which, the world’s largest military.
STEVE: That’s exactly right. We can get off on this inflation and the Fed and all that, which is certainly unhealthy. I think it’s the least bad, if that’s not very good English, but—it’s the option that’s the easiest. Because those other options are horrible. That all aside, the United States still is the prettiest girl at the ugly dance.
JASON HARTMAN: Yeah, and let me tell you something. I think we’re going to win the game, okay? And like I’ve said before, I don’t think it’s fair, I don’t think it’s fair that we print all this fake money and ship it around the world and require every country to do international trade in our currency, but guess what? We have the bully pulpit. We have the military to enforce it. And we’ve got the biggest economy and the most weight to throw around. And it’s not fair, but it’s just the way it’s going to be. In fact, it reminds me of a meme. And memes are where, you know, you’ve got these pictures and people put captions on them and trade them around social media. And it’s a picture of Obama pointing his finger, and it says, “When capitalists can’t sell you a product, they work to make it better. When socialists can’t sell you a product, they say quote: “you have to buy it, it’s the law” unquote.” And that’s exactly the way we’re acting.
STEVE: Well that certainly sounds familiar, given that it’s 2014 now and all the new shenanigans that have taken place with the healthcare law…
JASON HARTMAN: Yeah, well. It will be a disaster. Let the disaster begin. And then the people on the left will make a million excuses as to why it failed. Or they will deny that it failed. There are people that still think that Communism in Russia worked.
STEVE: Well, Bush lied, Jason. What more do you need to know?
JASON HARTMAN: Hey, it’s all George Bush’s fault, Steve, you know that.
STEVE: I know that, much of it is. But you’ve gotta take responsibility at some point…
JASON HARTMAN: Some of it really is George Bush’s fault [LAUGHTER], but anyway—so, Dan Amerman, who’s been on the show a couple of times—he really writes some great stuff, and I’m a big fan of his work. And some of our listeners have checked out his work, and if you just Google his reading series, it’s free, and he sent me an interesting article recently, and then I shared it with you, Steve, and it was about how really inflation is such a great thing for us as real estate investors. Philosophically it’s such a bad thing, and most people, it will impoverish them, yet it will make real estate investors, and people who listen to our show and who know how to play the game—it will make them so much wealthier. And it also is a fantastic business plan for governments. Again, philosophically, I hate it. I disagree with it. But from a practical standpoint, it really is the best way out of the hole. And it is a hole. But I think we’re gonna go right on digging the hole, kicking the can down the road, and having a reasonably decent standard of living in America. I think it will decline a bit, but, Dan Amerman did a good job outlining in I believe like 8 points, as to why the government will debase the dollar, right Steve?
STEVE: It’s actually 6 points, and I’d like to ask you about them individually and hear what you have to say.
JASON HARTMAN: Yeah, let’s talk about it.
STEVE: His article is entitled, The Six Reasons Why the Government is Destroying the Dollar. And if you don’t think that they are, you are probably not listening to this Podcast. So I will not address that side of it. But, the first reason he gives, Jason, is that creating money out of thin air on a massive basis is all that stands between the current state of hidden depression and over depression with unemployment levels potentially rivaling those seen in the Great Depression of the 1930s. What do you think?
JASON HARTMAN: Well, I think that, like I said, it kind of ties back into that Phillips curve concept. I would encourage every listener to look up Phillips curve in Wikipedia. There’s a great little piece there that explains how economists, most of them, really like and foster inflation. They called Greenspan the maestro, yet the dollar was massively debased under Alan Greenspan’s tenure, and under Ben Bernanke’s as well, which was quite a big shorter. But it’s just, you can throw money into the economy, create it out of thin air, and what will it do? It will cause new restaurants to open, it will cause new businesses to open, it will put money into peoples’ hands—or I should say, currency, that makes them think they have money—money is real, money is things, money is a portfolio of rental properties. That’s money, because it has intrinsic value. Whereas pieces of paper with green ink on them, they don’t have intrinsic value. They have the military and the police and a set of laws and branding that creates the value, yes. And legal tender laws. But they don’t have legitimate intrinsic value. So if you do this, you can create, at least for the short term—like caffeine—it’s a fix. It creates employment. So again, this is a good business plan for governments. It hides problems.
STEVE: Right. Right, it’s as he says, it’s the only thing that stands between this kind of hidden depression that we have and an over depression.
JASON HARTMAN: Fair enough. And look, if we wanted to do this right, when the financial crisis hit, first of all we would have jailed all of the crooked banksters and all of the Wall Street scum, which of course we didn’t do. Oh and by the way everybody, you must see the movie The Wolf of Wall Street. I saw it. On the show I did with Naresh, on the last episode, we talked about The Wolf of Wall Street. He had seen it but I hadn’t. So I went out to see it the next night. And it was just despicable, disgusting, I mean, these Wall Street people, just scum of the earth, okay? But it’s a really good movie. And you really need to see it, because it just—it’s just really mind blowing.
STEVE: I have read the book, and the sequel, ironically enough, the self-proclaimed Wolf of Wall Street never worked on Wall Street—his office was on Long Island. But, if you want to get even more sick, read the sequel. It’s called Catching the Wolf of Wall Street. And it’s a huge insight into the justice system and the preferential treatment that these clowns get. It follows the multiyear period where Jordan Belfort was a—as he called it, a rat—and was wearing a wire, going around to all these people, trying to get them to incriminate themselves. And even down to when he gets to federal prison and he gets better treatment there, because he has money. It’s insane.
JASON HARTMAN: Good old Club Fed…you know—
STEVE: Yeah, he had a butler, and a masseuse, in Club Fed.
JASON HARTMAN: In prison he had a butler and a masseuse?
STEVE: Read the book. You’ll see what I’m talking about. It’s very entertaining.
JASON HARTMAN: Life could actually be better in jail than it is in real life, in free society. That’s unbelievable!
STEVE: I know, it’s crazy. He talks about how there were actually, the wives and relatives of various inmates—it’s minimum security, it’s on an honor system. You could walk out and leave and nobody would know for a while. Then they’d of course send the marshals after you. But people would leave care packages out in the field at night and the prisoners would just walk out there at night and get their care package. And if you wanna get—you’ve talked multiple times, Jason, on a Podcast, about the corruption of the prison system in the United States—
JASON HARTMAN: Right, because it’s a business. They’re—putting people in prison is now a business, and we’ve got the highest incarceration rate in the “civilized or industrialized world,” if not the entire world. I think our incarceration rate may actually be higher than really sketchy countries that Michael Moore loves, like Cuba, or North Korea that Dennis Rodman and people like that love. I’m not sure on that note. But I know it’s the highest in the industrialized world, and it’s just ridiculous. But you know Steve, lest we get off on a tangent, I just want to finish making that point there when I brought up The Wolf of Wall Street, and that is that what we could have done right when we were entering into the financial crisis—certainly we could have done a lot of things right to avoid it—but we could have taken the hard medicine, not done the bailouts, we could have let all of the scumbag corporate socialist companies on Wall Street fail, there would have been a lot of devastation, it would have been painful, just like taking your hard medicine when you’re sick. It doesn’t taste very good. Castor oil, that they used to give you in the olden days, before my time fortunately, but supposedly it made you better—and take our hard medicine, and you know what? We would have come out of this quickly, and we would have come out of it much, much stronger. But all we’ve done as we—I argue we will always do, until someone like Ron Paul or Rand Paul is president—and there’s a bunch of those types of people in Congress, which will probably never happen. We will continue to kick the can down the road, spend more than we receive, print fake fiat money out of thin air, have a somewhat sustainable inflation rate, and by that I mean real inflation of under 25-30%, and of course official inflation will probably never be reported over 15%, maybe not over 10 or 12%, but the reality will be much higher, and that will just slowly boil the frog. You know? You put the frog in warm water and they feel like it’s a Jacuzzi, and then you turn up the heat underneath, and the frog just sits there like the average citizen who’s not taking action to manage their investments and their financial life for this reality that is coming, and they will just boil to death, because they become complacent in the warm Jacuzzi, right? And so that’s what I think our business plan will be. I don’t ever think there will be a shock economy. A lot of people are predicting that. If you type in ‘collapse,’ you’ll find all of the Gerald Celente and Peter Schiff videos, and all of those doom and gloomers, but I say they’re just not going to let it happen. Now, if we didn’t have the reserve currency, and we didn’t have the biggest military, and we didn’t have the biggest brand name, and we didn’t have the largest economy, then we would be subject to the laws of physics, the rules of gravity, and the rules of math. But, we are exempt from those in the good old US of A.
STEVE: We are, and it will not change until—you notice, we are on two foreign 6-year election cycles, and the fix that you have advocated goes beyond that. And politicians are only capable of seeing until the next election.
JASON HARTMAN: Yeah, no question about that. So, that’s my prediction. More of the same, but a little worse [LAUGHTER].
STEVE: Well, like you said, we’re still the prettiest girl at the ugly dance, but it is just classic corruption. You know I’ve never been one to advocate the government running much, but prisons, I gotta think otherwise.
JASON HARTMAN: Yeah…
STEVE: You’ll see why when you read that book. But we should probably hit number 2 here.
JASON HARTMAN: Okay, go for it.
STEVE: So anyway, going back to Dan Amerman’s article, Six Reasons Why the Government is Destroying the Dollar. Number 2: it’s the most effective way to not just pay down current crushing debt levels using devalued dollars, but also to deal with the rapidly approaching massive generation crisis of paying for boomer retirement promises.
JASON HARTMAN: Absolutely. They’re just going to print their way out of that one too. Look, nobody really knows this for sure, but, they say we’ve got the—I started calling it the $60 trillion time bomb, which is the unfunded entitlements coming over the next 15-20 years. And they’re just massive! So first of all, we must raise the retirement age. I don’t mean retirement age, but social security entitlement age. We’ve gotta set that back a good 10 years. What is it, 62? Or 65? I think it’s 62 actually. I’m not sure.
STEVE: I don’t plan on getting it, so I don’t…
JASON HARTMAN: I don’t plan on getting it either, so I don’t think much about that. But it’s gotta go back about 10 years. So you’ve gotta be 75 before you collect it, first of all, okay? And the nice thing is nowadays, most people you can work longer. Your health span is longer. And we’ve done shows on this subject, and I’m actually launching a new show entitled The Longevity Show, because I think this longevity thing, while it holds great benefits for individuals to live longer and healthier lives, it has huge, huge economic and social implications, and so we’re going to explore those in a lot more depth on the longevity show.
STEVE: You can sit on a folding chair at the front of Wal-Mart all the way into your 80s now.
JASON HARTMAN: Yeah, well, even longer! So, yeah. I think Amerman is right, he’s right. Okay, next point?
STEVE: Okay. I love this one. Reasons why the government’s destroying the dollar, it creates a lucratively profitable $500 billion a year hidden tax, for the benefit of the US government. A tax which is not understood by voters or debated in elections.
JASON HARTMAN: And that’s the inflation tax, right?
STEVE: Yep.
JASON HARTMAN: So, the inflation tax—inflation is a pickpocket, a very, very smooth pickpocket artist. Because the vast majority of people, you don’t notice the air—or hopefully, unless you live in Mexico City or Cairo, or one of those really, or many cities in China—hopefully you don’t notice the air, because you don’t see it. It is the context within which you live, and the same is true about inflation. It’s subtle enough that people don’t notice it. And they don’t understand it. And they don’t understand how government spending creates inflation. So, this hidden tax—the tax code does not adjust for inflation. The IRS doesn’t adjust for it properly. And most people are getting completely destroyed, because they’re playing the exact wrong end of the game. They’ll keep their money tied up in home equity. They’ll keep their money tied up in a bank account. They’ll put it in the stock market. Or they’ll buy bonds, God forbid. Well, God forbid any of those things, but bonds, I just don’t even see how you could consider that one, okay. But then inflation will just eat away, or tax, their wealth. It’s a hidden tax. And you’ll pay taxes on the gross, before inflation, not the net, so for example, if you have a bank account, and let’s say it actually earned 1%, which it won’t nowadays, but I’ve gotta pick a number to give the example. So, you’ll pay taxes on the interest from the account, and then you’ll have inflation tax it again! And that tax comes after the IRS took their cut. Because the money becomes—
STEVE: Yeah, it’s a parasite, it’s—
JASON HARTMAN: Yeah, it’s a tapeworm, it’s a parasite, that’s a very good metaphor for it. And it just taxes you, and constantly people become poorer and poorer, and they don’t even know it’s happening. So, you don’t see many—you see a lot of groups out there, Steve, political groups, political action committees, that are against taxation. But very few of them that are against inflation. People just can’t wrap their heads around it. It sounds simple. And look, if you’re a regular listener to the show, certainly you understand it, and I’m not saying anything new that is a revelation to you. But the average Joe on the street doesn’t really get it. The average liberal on the left side of the political aisle doesn’t get it either. They just sit there and say, hey I want the government to pay for this, I want the government to do that, and they don’t realize that that has to be paid somewhere. So it’s either paid in direct taxation, or in hidden taxation called inflation. And you’re gonna pay either way. And wealthy, sophisticated, smart people—and you don’t have to be wealthy, you could just be sophisticated or smart—those are or, or, or, they don’t have to be and, and, and—they might be all together. Hopefully you’re all three of them. But if you’re at least one of those people, you’re going to know how to play the game to win through inflation. So just keep listening to the show. That’s where we’ll teach you how to win.
STEVE: Yeah, your Obama phone isn’t free.
JASON HARTMAN: No, it’s definitely not free.
STEVE: Alright, we’ll go to number 4 here: reasons why the government’s destroying the dollar, drum roll, number 4: it creates a second and quite different form of hidden taxation via the way of generating artificial market highs, which while non-existent in inflation-adjusted term, do create artificial investment profits that are fully taxable and highly profitable for the US government.
JASON HARTMAN: I love this one. This is an excellent point.
STEVE: Nailed it.
JASON HARTMAN: Because all of the middle class, unaware—the unaware middle class who has their money in the stock market, who is at the bar and walks by the TV and sees, oh, the Dow is up today, yay, great, good for me, right? They don’t realize that all of that is fake. It’s an illusion. When the Dow hit its high several episodes ago, we talked about it, you know, when it hit its first new breakout high, and it was like at 14,000 something. And I did a quick calculation showing it would have to be at 15,800 just to break even above its prior peak. And that was like, I don’t know, 11 years prior, or something like that. So this is a complete illusion. Yet if you sell the stock, you’ve gotta pay tax on the gain, and you’ve really become poorer, yet the government got their cut twice! Through inflation, and taxation. You idiots! I mean, please wake up! Tell your friends they are getting screwed and they don’t even realize it! It’s awful. God. Just crazy. And if you listen to your ridiculous financial planner, the salesman in the suit that works at Merrill Lynch or Ameriprise or any of these companies out there, it’s just, they don’t even have a clue half the time. And if they did, they’re not gonna tell you anyway. It’s not in their interest.
STEVE: No, watch The Wolf of Wall Street. That’s what their priority is. Generate trades, make commissions, in a market where assets are being pumped up due to inflation, it’s all the better for these guys who are in the little crony club with the government because it’s more trades, it’s more commissions. Meanwhile the poor institutional client, or the individual person, is stuck with that whopping 2% gain, or whatever it is they made for the year, or much more, even, if it were 10% but inflation took a huge bite out of that. And what happens when it pops? What happens when it has to correct?
JASON HARTMAN: Show me one person who has really created any real wealth in the stock market over time, and I will be amazed. And please don’t say Warren Buffet, because Warren Buffet is an insider. Show me a real person.
STEVE: Jordan Belfort.
JASON HARTMAN: Right?
STEVE: Just striking out here Jason.
JASON HARTMAN: The insiders tend to do pretty well, but where are all the clients?
STEVE: Well, exactly. Okay, number 5, reasons why the government is destroying the dollar: it is the weapon of choice we use to wage currency war and reboot US economic growth.
JASON HARTMAN: Yeah, I think what he’s referring to there, although I’m not sure—currency wars commonly refer to the export and import, the trade balance. And so, what they’re doing is, it actually improves exports of a country when the country devalues its currency. So, if the US dollar—the US is pretty lousy as an exporter, okay, we just like to consume stuff, we don’t really like to produce it too much, unfortunately. I’m not saying we don’t like to, but the situation in which we find ourselves, through unfair free trade agreements, thank you Bill Clinton, and other globalists who want to sell the US down the river—but that was a way of hiding real inflation. Look, if you can get low-wage workers that work for 50 cents or a dollar an hour, in other countries, to build stuff, versus an American, a unionized American who is like $40 an hour with pensions and so forth? You’re importing deflation. Which hides true inflation here. And that’s what you do. So, if you wanna increase American exports, what little we have in comparison, then just devalue our currency, and that makes all of our goods cheaper overseas. So that China might actually buy something from us for a change. And your net account balance would be more favorable, and people in America will think hey, I’m making my widgets here, and they’re buying them in China, or in Europe, or wherever, and that’s good! Hey, Obama has improved things for me, right?
STEVE: Well Jason, China buys a ton of our bond widgets.
JASON HARTMAN: Well they do because we essentially hold a gun to their head and force them to.
STEVE: I see, yes.
JASON HARTMAN: They wouldn’t do that, that wouldn’t be rational behavior…
STEVE: Yes. Well, (unintelligible) government intervention. Now, this last one, reasons why the government’s destroying the dollar, I think it ties everything together, and it’s the main reason: it’s an essential component of political survival and enhanced power for incumbent politicians.
JASON HARTMAN: Well of course, no question about it.
STEVE: Yeah.
JASON HARTMAN: Yeah, look, everything we just talked about equals more votes for the incumbent, and that’s why we have in presidential elections and in any election, the power of the incumbency. The devil you know is always better than the devil you don’t know, as the old saying goes. So if you can make things look good for your short tenure by using these monetary practices and fiscal practices that we talked about, you’re going to win the next election. Obama’s business plan is essentially, as I see it on the economic side, is get in bed with a big large corporate interest, and the unions, on one side of the spectrum. And then give a lot of payola and a lot of freebies and Obama phones and food stamps to the other end of the spectrum, and you basically made the low end of the spectrum and the very high wealthy end of the spectrum dependent on you, and they will keep you in power. And unfortunately the middle class doesn’t have much to offer Obama’s administration. And so, subsequently the middle class is getting burned. And mostly the middle and upper middle class is listening to this show. And I hope you tell your friends about it, and get them to listen to it to, because we want to teach you and help you play the same game they’re playing at the Federal Reserve, on a personal level, to your benefit. And the same game they’re playing on the governmental level. What Dan Amerman just talked about in these 6 points, we can apply those as real estate investors and really benefit from them. It’s an excellent opportunity.
STEVE: Yeah, if you’re playing football and you’re not successful, look down. You might be playing on a hockey rink. You need to put some skates on and play the same game these guys are playing.
JASON HARTMAN: Yeah, these guys know what they’re doing, they’re not stupid, and you just want to play what they play on a personal level.
STEVE: Yeah.
JASON HARTMAN: So that’s the thing to do. Okay Steve, we’re running out of time here. Let’s talk about a property really quick.
STEVE: We’ve got a property in the Atlanta, Georgia area.
JASON HARTMAN: Love Atlanta, was just there.
STEVE: Yeah, and our team in Atlanta is very solid, too. Been doing business with these guys for a long time. Remember, we’ve really just hit this point a lot lately, that a well functioning team that knows how to run a business is probably more important than the market itself.
JASON HARTMAN: You give me a mediocre market with a great team, and I’ll take that over a great market with a mediocre team any day of the week.
STEVE: That’s right.
JASON HARTMAN: And Atlanta’s not a mediocre market—Atlanta’s an awesome market.
STEVE: Exactly, that’s why this is even better. They say that in the business world that A+ execution of a C+ idea beats C+ execution of an A+ idea, every time.
JASON HARTMAN: This is what’s so funny about people that come to me and want me to invest in their business. Oh, I’ve got this great idea…sign a non-disclosure agreement, and they’re waving it in my face, and I’m like, I’m not going to sign your non-disclosure agreement, because you know what? Someone else has probably already presented the same idea to me [LAUGHTER]. And the world is full of ideas, but very few people actually execute them. And that’s why our slogan is the complete solution for real estate investors. Because we actually go through end to end execution. This is not just where you go and you pay 10, 20, 30, 40, or 50,000 dollars for a coaching program and then—run by a telemarketer, by the way, who probably has never even owned the property—and just tells you to go out and do it yourself. We actually have a whole network of support people, over 100 contractors throughout the country, to help make all of this stuff happen for you. So, team is critical, it really is.
STEVE: And the team behind this property is solid. I like the numbers on the property. Keep in mind the figures, many of the figures I’m about to give you are projections, like the rental amount and the return. There are some hard figures I’ll give you like square footage and stuff, obviously that is what it is. But, this is a property built in 1985 in Jonesboro, Georgia—
JASON HARTMAN: And it’s a pretty good looking house, not that that matters—
STEVE: Yeah, I’ve seen a lot worse, that’s for sure.
JASON HARTMAN: There’s curb appeal on this one. It’s got one of those big wraparound porches, and I like that—
STEVE: Like in the south.
JASON HARTMAN: That’s the southern deal.
STEVE: So, it’s 1600 square feet. Purchase price is $99,000. And what I like about that, that’ a cost per square foot of 62 bucks.
JASON HARTMAN: $62 a square foot? Building costs in this market I would estimate for new construction is about $80-$90 a square foot.
STEVE: That’s not even including your land.
JASON HARTMAN: Yeah, and this is a big piece of land. That’s pretty good.
STEVE: Yeah, exactly. And the projected rent is $950 a month. So what that does for you, is it gives you a cash on cash projected return of 8% and a total projected return of 32%. On this kind of property right now, because I have my finger on this pulse, especially with what Wall Street has been doing to prices of homes built 1980 and newer—this is a good deal. Getting 8% in the Atlanta metro, that cost per square foot, I don’t see that very much these days. That’s pretty rare. Because usually the hedge funds and all those guys are at the auction and they’re on the MLS bidding everything up through the ceiling, and so the returns available to you, our client, they go down because our local market specialists are forced to pay more to acquire these properties. So, this is a good little exception, if you’ve been looking for something a little bit newer in Atlanta with a decent cash on cash return, I’m skeptical that you would see anything better than this for quite a while here.
JASON HARTMAN: That’s a pretty nice deal. So, basically, subject to qualifying for the financing, you would put about $31,000 into this property total, and then your cash flow would be projected at about 2500 and change per year, and that’s a cash on cash return of 8%. If the property goes down in value and you maintain that income expense ratio, you’ve still got 8% return on investment every year, and 32—that’s cash on cash—and then overall return on investment, again, you’re projected at 32%. So even if it only goes half as well, you’re at 16% annually. You can’t beat that, that’s pretty awesome. Okay, good. Well, let’s get to Noam Chomsky. Did you have anything else we needed to cover?
STEVE: Let’s get to Chomsky the Commy here, and see what he has to say.
JASON HARTMAN: So, here’s the thing I want to say about this interview. I was really intrigued by—I saw an interview on YouTube with Noam Chomsky and Julian Assange, and I’ve become rather interested in WikiLeaks and Assange and following the Edward Snowden, and the Bradley Manning story and all that. And what Noam Chomsky said that really intrigued me, and why I wanted to get him on the show, is he said this. He said that capitalism and free market economies were not linked together throughout history. He said that that concept was a marketing ploy of the United States to use as propaganda against the former Soviet Union during the Cold War. And those aren’t necessarily linked. You can have capitalism without free markets, and—I couldn’t understand that, I was just wrestling with that, the way he just flippantly made that remark, I was like, I gotta ask this guy what he means by that. Well, as you’ll hear on the interview that Noam Chomsky cut very short on me, and I’m suspicious that he did it because I started asking him some hard questions, or he was saying, well, we should just do more stimulating, stimulating. And I think I brought up—and I recorded this interview a little while ago, so I forget, I can’t remember exactly what I said. But, he was saying something, more government stimulus, it’s all worked, and I said, well Noam, why don’t we just give every American a million dollars, and they’ll go out and spend that money in the economy and that would be a great stimulus. People would feel richer, we could just print the money, create it out of thin air, just overnight, the government could magically put it in everybody’s bank account, and then suddenly you could just write more checks, use your debit card and your credit card more, and pay for everything! But of course, in reality we know that what happens is just monopoly money. And then very shortly thereafter, we’ll have massive inflation, like Argentina, Hungary, Zimbabwe, the Weimar Republic, all those great examples throughout history. And you know, of course it doesn’t work. But it seemed like Chomsky was saying to me, no, that would be too much, as if some guy like him in an ivory tower needs to decide exactly the right amount of stimulus. You can never expand their idea or their argument to its logical conclusion, because then they all say, oh no that’s not what I meant. But it either has to be true, or it’s not true. I don’t know. Call me an extremist.
STEVE: Well yeah, that would imply that there is a logical conclusion.
JASON HARTMAN: Yeah, there isn’t. The conclusion will be inflation. And it’ll be a disaster, and it’ll ultimately make people a lot poorer.
STEVE: But if you gave everybody a million dollars, what’s the over under, Jason, on how long it would take everybody to end up right back where they were previous to it?
JASON HARTMAN: I don’t know. Because there’s so many other factors involved. But yeah, we would just have massive, massive inflation, and everybody would think they’re rich for I don’t know, several months or a year, and then the market would adjust because the classic definition of inflation is, too many dollars chasing a limited supply of goods and services. And so instantly everybody would say hey, I’ve got all this business, I’m going to raise my prices! You know? I know our vendors would. They would make every house more expensive. Every smartphone would become more expensive. Every piece of furniture. Every meal at a restaurant, or food at the grocery store would become more expensive. Because everybody’d just be buying everything without even thinking. They’d just become stupid consumers. It’d be like people with no financial education who win the lottery and are broke two years later.
STEVE: We’d better get on that Bitcoin train.
JASON HARTMAN: Yeah, right, I’ll jump right on that one. [LAUGHTER] I have never owned a Bitcoin, but now I’m kind of kicking myself, because when I learned about Bitcoin it was $42. But I have a feeling I’m not gonna be kicking myself when this thing all ends. So we’ll see. I don’t know, we’ll see how it goes, I could be wrong. But you notice I’m not jumping in on that train.
STEVE: Yeah, that story is far from over.
JASON HARTMAN: Yeah, I like real things. Actual things that have universal need—everybody in the world needs a place to live, and I just want them to rent it from me. And that’s what I suggest you do too, listener. Okay? So hey, let’s get to Noam Chomsky. We’ll see what you guys think. And sign up for Meet the Masters and join us. It’s just less than two weeks away. So we hope to see you there in Irvine, California. You can get your tickets at www.jasonhartman.com, we’ve got only a few left—this room has a hard limit on attendees, because it’s a conference center with big leather chairs, and the built in desks, and stadium seating so no one’s head is in front of you—
STEVE: And if you were on the fence, I’ll be there. I don’t know if that helps.
JASON HARTMAN: Steve will be there, of course. Steve will actually be one of our speakers. We’ve got a lot of great speaker lined up. I just went over the schedule with Brittany yesterday, and this is going to be an awesome Meet the Masters. So, I’m really looking forward to it. Okay, get your tickets if you haven’t done so already, www.jasonhartman.com, and we’ll be back with Noam Chomsky in just a moment.
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JASON HARTMAN: Hey, I’m here with Caeli Ridge, and I was wondering, Caeli, what are some of the things that an investor needs to be prepared for when applying for mortgage on an income property?
CAELI RIDGE: Good question! Lots of different variables, but the top three things they want to be concerned with are their credit score, their debt to income ratio, and their asset allowance.
JASON HARTMAN: Where can they find you?
CAELI RIDGE: www.ridgelendinggroup.com.
JASON HARTMAN: Fanstastic. And if you don’t remember that, you can always contact your investment counselor through www.jasonhartman.com and get the information.
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JASON HARTMAN: It’s my pleasure to welcome Noam Chomsky to the show. You’ve probably heard his name. He’s an American linguist, philosopher, cognitive scientist, political commentator, and activist. He has worked at MIT for most of his life, where he currently serves as a professor emeritus, and he has authored over 100 books on various subjects. So, he’s got a huge body of work, and it’s a pleasure to have him on the show today. Noam, welcome, how are you?
NOAM CHOMSKY: Pretty good.
JASON HARTMAN: Well good, thank you for joining us today. Your body of work is so large, and there is just so much to talk about, but tell us about what you’re working on lately.
NOAM CHOMSKY: Well, I guess the next, just mainly keeping up with a sequence of talks and preparing articles and books on other things. One of the, I guess the last article that came out a couple days ago was based on a comment by a Chinese commentator who was writing about the kind of absurd farce going on in Washington, and pointed out that if the United States cannot learn to behave as a responsible member of international society, the world will simply have to become de-Americanized, and that statement received a certain amount of publicity here, and also a degree of international applause, even from the international financial institutions.
JASON HARTMAN: Well, I saw that article, and it’s really interesting. There are so many ways in which America is not acting as a decent player, and certainly we throw our weight around. Was that comment made from a monetary perspective? Because certainly the Chinese have, in my opinion, a lot to worry about in terms of the value of their treasury bonds.
NOAM CHOMSKY: Well, I presume that was—I doubt that’s what he was concerned about, because there’s no threat to the value of those. He was talking about the inability—the self-destructive actions that are being taken in Washington, which are just severely harming the United States and its ability to act in the world. And I presume he had in the back of his mind, though he didn’t say so, aggressive actions that do outrage a great deal of world opinion. But I think he was mainly talking about the dysfunction illustrated in Washington with the shut down of the government and the inability to meet the, to continue with the standard approach of allowing next year’s budget to continue. Which is coming up again in a couple weeks, it’s not over.
JASON HARTMAN: Right, it’s one thing to another, it’s like this comedy of errors that we just watch on the news, it’s beyond—you couldn’t write fiction like this, I wouldn’t think. But you said something kind of interesting there, you said that you didn’t think there was a threat to the value of the Chinese payment for our imports. Do you not think that inflation is a threat?
NOAM CHOMSKY: The problem is closer to deflation. The deficit scolds, as it’s been called, keep climbing. We’re on the way to inflation. They’ve been saying this for years. That’s the argument that they give for focusing on the deficit, which is a non-problem, instead of focusing on jobs, which is a real problem. They sell well, if we don’t deal with this deficit, we’re going to have inflation. There isn’t a sign of it! The markets don’t believe it. Nobody believes it. That’s why—interest rates remain very low, US treasury bonds are being bought up at the normal rate, the only thing that’s harming the sense of credibility of the US institutions is that Congress might not permit the United States government to pay its bills. That worries people. The Chinese are worried, naturally, that Congress will not permit the US government to pay its bills. Which means the interest on the bonds which they already have. They’re not concerned about inflation, because there isn’t a sign of it. There maybe some time in the indefinite future.
JASON HARTMAN: That just seems so—help me think about this please, because that seems so crazy, that we’re paying our bills with money created out of thin air, aren’t we?
NOAM CHOMSKY: No. Our bills are paid out of money created by the increasing productivity of the society. That’s the way you grow your way, grow to the point where you pay your bills. It’s the same if you’re running a business, let’s say. We don’t want to compare it to a business because it’s quite different since you can’t produce your own money supply. But to a limited extent it’s the same. Suppose you borrow money to start a business. You’ve gotta pay back your debts. How do you do it? Well, you do it by growing your business.
JASON HARTMAN: Of course.
NOAM CHOMSKY: Okay, well, suppose you have a national economy. You borrow money, and often print the money yourself, and you pay off the debts by economic growth.
JASON HARTMAN: Well, that’s—I agree with you, I certainly agree that that’s the ideal way to do it—
NOAM CHOMSKY: No, it’s the actual way. Not ideal. Not an ideal way. We’ve been doing it forever.
JASON HARTMAN: Okay, but is it happening now? We’ve got this anemic growth, we’ve got deficits—
NOAM CHOMSKY: But that’s the problem. We have anemic growth because there is a lack of demand in the economy. People don’t have the money to buy. They’re in debt. Businesses, corporations—corporations, corporate profits are going through the ceiling.
JASON HARTMAN: Oh, sure.
NOAM CHOMSKY: But they’re not spending it. So, demand is not being created by investment, it’s not being created by a sufficient consumer demand. That leaves one source: government stimulus. And government stimulus is the way to create demand to put another, to put tens of millions of people back to work, to develop a productive economy, to overcome the loss that we’re administering to ourselves by refusing to get the economy moving. Actually, read this morning’s New York Times. There’s a column by Paul Krugman reporting a major international study which included representatives of the Federal Reserve, which estimated that the United States is losing about a trillion dollars a year, by virtue of its failure to stimulate the economy. This deficit hawk absurdity is causing, is striking us a blow of a trillion dollars a year. Even for a rich country like us, that’s a big amount.
JASON HARTMAN: So, with that rationale then, we should just stimulate indefinitely, right? I mean, if we handed every—
NOAM CHOMSKY: Not indefinitely. We should stimulate until the economy becomes self-sustaining. As was done after the Second World War. There was a huge debt after the Second World War. Enormous. The way it was paid off was by a rapid period of growth. The 50s and the 60s were the most rapid period of economic growth in US, probably world history.
JASON HARTMAN: Well, we all want growth, no one will disagree with that, however, the question is, how do we get it—
NOAM CHOMSKY: It’s easy how to do it. Drive around—I don’t know where you are, but take any city you like, and you can see a thousand things that ought to be done to improve the city.
JASON HARTMAN: Sure.
NOAM CHOMSKY: Fix the roads, build more schools, repair the bridges, weatherize the houses—
JASON HARTMAN: Mass transit—
NOAM CHOMSKY: We could go on and on.
JASON HARTMAN: Right.
NOAM CHOMSKY: Okay? There’s plenty of things to be done. There are tens of millions of people who want to do the work. There are huge financial resources available sitting in the pockets of corporations, but the system is so rotten that it cannot put together huge resources, plenty of idle hands, and plenty of work to be done. Well, there’s one way out of this impasse. Namely, a government stimulus of the economy until it becomes self-sustaining. And that is blocked by illusions about inflation, about deficits, none of which mean anything.
JASON HARTMAN: That’s just fascinating to me that you say that. It’s very tough honestly for me to wrap my head around it. If we printed enough money to hand everybody in America a million dollars, they would go spend it, they would go do a lot of the things you just mentioned in every city, and there’d be a lot more money circulating around, but that money, it would just be created out of nothing! It’s fiat!
NOAM CHOMSKY: Well first of all, that’s not the best way to do it. The best way to do it would be what I said before. Look at the things that have to be done, of which there are innumerable numbers. And use the government—the printing of money that you’re talking about, to pay people to do those things. That creates an economy that will function at a much higher and more productive level, and will produce more, and will yield growth, and will pay back the debts. That’s the way to do it. That’s the way it’s always been done. Incidentally, this is not my idea. This is a standard economic—this is economics 101. You can read it all the time.
JASON HARTMAN: It’s Keynesian economics 101.
NOAM CHOMSKY: It’s Keynesian economics 101, which we have every reason to believe.
JASON HARTMAN: Well, how is it fair then that the US is in such a unique position that when we—since we have the reserve currency, we can print indefinitely, and other countries can’t? I mean, you look at what’s happened to Argentina, Zimbabwe, Hungary, Weimar, everywhere else it just hasn’t worked for them! It can work for us because we’re the reserve currency—
NOAM CHOMSKY: On the contrary, it’s worked for everyone.
JASON HARTMAN: Really?
NOAM CHOMSKY: That’s the way economic growth has taken place. How do you think the United States became a rich country in the first place? It wasn’t by a market. The United States always has had large-scale state intervention in the economy. It takes a mass production. 19th century, US innovations in the mass production industry just astonished the world, led to the modern Industrial Revolution. Where’d that come from? Mainly government armories. It started in government armories where they developed the techniques of quality control, interchangeable parts, so on and so forth, which after they were developed in the state sector were taken over by private enterprise. And in fact, Andrew Carnegie built the first billion dollar corporation, US Steel, largely on the basis of government subsidy. He was building ships for the Navy. That’s government subsidy. (Unintelligible) is one of the major techniques by which state intervention stimulates the economy. Let’s go up to the modern period: the IT Revolution—information technology. That’s a big change in the modern economy in the last 10 or 15 years. Where’d that come from? Well, it came from decades of work, primarily in the state sector, in the 50s and 60s. For example, in the place where I’m sitting now, MIT, in fact, physically the same place, where there was work developing the basic nature of computers and the Internet, microelectronics, satellites, and so on, almost entirely funded by the government. That’s the way economic development has taken place. Suppose you go to the doctor and he prescribes a drug? Well, technically it’s produced by some pharmaceutical corporation. But if you trace that back a little, you’ll find that a lot, probably the majority of the fundamental research and development, is in the state sector. There are innumerable ways in which state intervention maintains the economy and keeps it moving.
JASON HARTMAN: I don’t deny that there are times when the state should be involved, and the state can move things along faster. I agree with you, and I see those examples throughout history. However, it just doesn’t—then you get into the business of where the state get to pick who the beneficiary of this money is, and you look at the scandals like Solyndra, for example. And it’s always a crony capitalist issue that comes up. It just invariably happens—
NOAM CHOMSKY: Well, first of all, when you say for a period, that’s kind of misleading. Because for the United States, the period is from 1783 to the present. It’s never stopped. It goes back to the very beginning.
JASON HARTMAN: Well, there are varying degrees—
NOAM CHOMSKY: There are varying degrees, but it’s never stopped. And in fact, when it declines, that’s when we start moving into economic problems, like right now. But, yes Solyndra—first of all, Solyndra was not a scandal. It was not a scandal. It was an error. An error based on a mis-assessment of the level at which solar panel prices would decline. Okay? That’s not a scandal. What’s a scandal is Enron, WorldCom, JPMorgan Chase, AIG—
JASON HARTMAN: —Agreed, agreed, agreed—
NOAM CHOMSKY: —those are scandals. But not Solyndra. That’s propaganda.
JASON HARTMAN: Well what about Tesla, then? Tesla has received a lot of help from the government, and Fisker didn’t. And Fisker went out of business. I guess they got a little bit, but then they didn’t get their next round.
NOAM CHOMSKY: That’s right. And take a look at any corporation: it’s going to make investments. Some of them will work, some won’t work. That’s not scandalous. What’s scandalous is—
JASON HARTMAN: But it just doesn’t seem fair that the big companies get it and not the small businesses though.
NOAM CHOMSKY: Well, the small business and the big business both do it. The big businesses tend to be bailed out by the government. Like for example, the US automobile industry. Major industry. In the 1980s—70s and 80s—the US management was so incompetent and backward that the US auto market was being undermined by superior Japanese production techniques. Well, the government had to step in. Ronald Reagan—who was an arch protectionist, incidentally, and a great believer in massive state intervention in the economy—no free markets for him—
JASON HARTMAN: Certainly in the defense world he was.
NOAM CHOMSKY: What?
JASON HARTMAN: In the world of defense he certainly was.
NOAM CHOMSKY: I’m not talking about defense. I’m talking about the automobile industry. Reagan stepped in and introduced very high what amounted to protective tariffs. They called them “voluntary restraint agreements.” But voluntary when it’s imposed by the United States means, you better do it or else. It’s like when the Mafia don says, you have a voluntary payment. So that amounted to a very high tariff, which temporarily rescued the backward American auto industry. No, they don’t do that for small businesses, you’re right. But that’s the power of private capital.
JASON HARTMAN: What do you think of this—I love the title of this book, and I had the professor, forgive me, I can’t remember his name, but he wrote a book entitled The Winner-Take-All Society.
NOAM CHOMSKY: Yes, that’s a very good book.
JASON HARTMAN: Yeah. I love the title, I didn’t follow all of his ideas—maybe you can do a better job promoting them than he did. But, we’re in this world where we have these—the distribution of wealth is just becoming so lopsided that, the corporatocracy—really the plutocracy—that’s not a free market, is it? That’s just, they’re all the insiders, right?
NOAM CHOMSKY: Well, this book you’re talking about, by Hacker and Pierson, is a very good book, and what it’s describing, is the, I think, crime committed against the society by concentrated capital, escalated sharply under the Reagan years, that has increased since. He described—the two of them describe in detail how this took place. I’m sorry I don’t have time to talk about it now; my higher authority has stepped in. Maybe some other time.
JASON HARTMAN: Well, very interesting talking with you. I know you have to run, Professor Chomsky, but thank you for joining us today.
NOAM CHOMSKY: Glad to be with you.
[MUSIC]
ANNOUNCER: This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.HartmanMedia.com, or email [email protected]. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, or business professional for any individualized advice. Opinions of guests are their own, and the host is acting on behalf of Empowered Investor, LLC. exclusively. (Image: Flickr | cloud2013)
Transcribed by David
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