If properties are empty from population decline, they’ll lose value and rent. If this happens, then what’s the timeline?

Richard Vague, the PA Governor-appointed Secretary of Banking and Securities from 2020-2023, joins us.

US and world birth rates keep declining.

As population declines, per capita GDP often increases.

Richard believes that inequality will widen.

Most models show the US population increasing for several decades. A median model is 342M today up to 383M in 2054.

Opposite of what the Fed thinks, Richard believes that lower interest rates can quell today’s persistent inflation.

The US has had 9 instances of high inflation. It’s often spurred by wars, which create shortages.

I tell Richard about GRE’s Inflation Triple Crown and ask his opinion.

Real estate values rise as debt-to-GDP rises.

I point-blank ask Richard if an economic crisis is imminent.

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Complete episode transcript:

Keith Weinhold (00:00:01) - Welcome to GRE! I'm your host, Keith Weinhold. The phenomenon of population decline is spreading throughout the world. Will that come to the US and obliterate real estate then? A bit of a debate on the affliction of inflation and what this all means to real estate today on get rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text GRE to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free. It's called the Don't Quit Your Day dream letter and it wires your mind for wealth.

Keith Weinhold (00:01:18) - Make sure you read it. Text GRE to 66866. Text GRE to 66866.

Corey Coates (00:01:30) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.

Keith Weinhold (00:01:46) - We're going to drive from Lake Winnebago, Wisconsin to Mono Lake, California, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to get Rich education. Real estate is obviously a strong, proven store of value. Now, what's interesting is that most economists agree that money should be three things a medium of exchange, a unit of account, and a store of value. Well, please don't take offense here. This can sound a little crude, but there's one thing to call those that use dollars as a store of value, and that is poor. How is a dollar a store of value when you've had 20% plus cumulative inflation over the last three years alone, the dollar is a poor store of value. We're going to get into inflation with our other esteemed guest and gubernatorial appointee today. He has some opinions on inflation, and you may very well feel that I poke him on this topic today.

Keith Weinhold (00:02:58) - I'll also get his input on our inflation Triple Crown concept, where real estate helps you win with inflation three ways at the same time. But first, he and I are going to discuss the specter of population decline. And well, it's not always a specter to people because some feel that the world is better off with fewer people, environmentalists and others. Japan's native born population is falling at a rate of almost 100 people per hour. Yeah, you heard that right. Well, is that coming to the United States and how bad would that be for real estate? Before we go on with those discussions about population decline and then inflation, here's something cool. Is your first language Spanish, or do you have any Spanish speaking family or friends? If you do, you're in luck! I'm proud to announce that our real estate Pays five ways video course is now available in Spanish and it is free. Yes, all five course videos leverage depreciation, cash flow, ROA, tax benefits and inflation profiting. All broken down by me in Spanish.

Keith Weinhold (00:04:15) - You can see those five videos. And again they're free at get rich education. Comment espanol tell to familia e amigos. That's all right there on the page at get Rich education. Com slash espanol. And hey, if you're a business owner or decision maker and would like to advertise on our platform, well, we'd like to check you out first and look at this slowly. Oftentimes I use the product or service myself. Get rich. Education is ranked in the top one half of 1% of listened to podcasts globally, per lesson notes on air every single week since 2014. Some say that we were the first show to finally, clearly explain how real estate makes ordinary people wealthy. For advertising information and inquiries, visit get Rich education.com/ad let's get rich education compered. Today it's the return of a terrific guest. This week's guest was with us last year. He's an economic futurist, keynote speaker, and popular author. He's the former secretary of banking and securities for the Great Commonwealth of Pennsylvania. Today, he runs a group that predicts financial crises called Tycho's.

Keith Weinhold (00:05:40) - That's really interesting. Joining us from Philadelphia today. Hey, it's great to welcome back Richard Vague.

Richard Vague (00:05:47) - Thank you so much for having me. It's real privilege.

Keith Weinhold (00:05:50) - Vague is spelled vague u e just like it sounds. If you're listening in the audio only. Richard also has a YouTube channel where, among other things, he discusses topics like population decline and inflation. Two things that we'll get into today. But before that, Richard, how exactly do you get tapped by the governor of Pennsylvania to have been appointed his banking secretary? Anyway? How does that really happen?

Richard Vague (00:06:16) - Well, I served under Governor Thomas Wolf, a superb governor here at Pennsylvania. We kind of were both very familiar with each other, and I had already written a number of books on banking crises, including The Next Economic Disaster and A Brief History of Doom. And he had read those, and so much to my surprise, he showed up in my office one day and asked me if I'd consider it.

Keith Weinhold (00:06:40) - Wow, that is really cool.

Keith Weinhold (00:06:42) - All right. You kind of led with your writing in your books for making that happen. Richard, here's a big question that I have for you. At 8.1 billion people today is Earth's overpopulated or underpopulated?

Richard Vague (00:06:58) - Well, there's a lot of very valid points on both sides of that. You know, there are a number of folks who decry the level of population we have because of its destructive impact on the environment. And there's a lot of folks that note that it's population growth that really has made our economic growth so vibrant. So there's a real contention on that issue. We tend not to take a position, but what we do know is as world population growth is slowing, which it clearly is, that is going to make economic growth much more challenging in a whole lot of places around the world, some of which you're actually starting to see population declines, like China.

Keith Weinhold (00:07:46) - I want to get to that slowing growth in a moment. We talk about overpopulation versus under population. Some in the overpopulation camp thinking the world has too many people they're referred to as Malthusian, was named for Thomas Malthus, who in 1798 he said the world would exceed its agricultural carrying capacity and there was going to be mass starvation.

Keith Weinhold (00:08:09) - Malthus was wrong. He didn't consider technological advancements. So I guess my point is the future can be really difficult to predict.

Richard Vague (00:08:18) - Yeah. Without question. You know, the big innovation came in the early 1900s when we figured out how to synthetically manufacture of things like fertilizer, which allowed arable land area to increase dramatically. It kind of took them out of this equation off the table.

Keith Weinhold (00:08:36) - Yes. With the mechanization of harvesting and the engineering of foods, there sure have been a lot of advancements there to help feed more people. And yeah, Richard, you talk about population decline. Of course, the world population overall is still growing, but its rate of growth is declining. So before we talk about the United States, you mentioned China. Why don't we discuss population decline more in global terms, where even nations like India are already struggling to exceed the replacement birth rate of 2.1?

Richard Vague (00:09:10) - Yeah, I mean, it's a phenomenon that, you know, we haven't faced or perhaps even thought of for a couple hundred years because population growth accelerated so dramatically with the Industrial Revolution.

Richard Vague (00:09:22) - We've really not known anything but rapid growth. And frankly, it's easier to grow businesses. And the economy is old. But now we're seeing places like China, Japan, Germany that are facing population declines in places like India, which, as you said, is comparatively a younger country. Nevertheless, facing this prospect as well, then in 1980, the average age in the US was 30. Today it's 38. In Germany I believe it's 48. So the world is getting old in a way that it had not previously in the industrial revolutionary period.

Keith Weinhold (00:10:03) - I think a lot of people are aware that many parts of Europe, Japan, South Korea are in population decline or they're set up for population decline. But yes, some of these other nations that we think of as newer nations or growing nations, including India, are not forecast to. Grow in, Richard. Are we really down? Of course. There are a number of outliers. Are we down mostly to Africa that still have the high birth rates?

Richard Vague (00:10:29) - As the world has become more urban, the need for more kids has declined.

Richard Vague (00:10:35) - It's in an urban environment, become an expense rather than a benefit. So that alone accounts for the deceleration. And then you have folks that are getting married later, having kids later, and you simply can't have as many kids when those two things are true. So it's a combination of events, and there aren't that many places left that have higher birth rates. And even in Africa it's declining or decelerating. So the world's just moving in that direction.

Keith Weinhold (00:11:06) - Yeah. It's really once we see the urbanization trend in a nation, what lags behind that are slowing birth rates, oftentimes birth rates that don't even meet death rates in some places. It kind of goes back to the Thomas Malthus thing again, if you will. When you don't have a family farm, you don't need nine kids to milk the cows and shuck the corn and everything else like that. You might live in a smaller urban apartment.

Richard Vague (00:11:33) - But we're all just has it been thinking about this issue? And it's upon us now, and it's going to change everything from governments to handling debts to infrastructure to growth itself.

Richard Vague (00:11:48) - So we need to start thinking about this issue much more deeply than we have.

Keith Weinhold (00:11:54) - Is there any way that an economy can grow with a declining population, and how bad will it get?

Richard Vague (00:12:02) - An economy will obviously struggle to grow if the population is declining, but the per capita GDP and increase as population declines. And in fact, we might see that early on in a population decline situation. I think that's actually been true in Japan over the last few years. The population is down, but GDP per capita is actually increasing slightly. So I think it's longer term. When you talk about trying to service the debt that we have amassed with the smaller population, that we're really going to have issues.

Keith Weinhold (00:12:41) - Talk to us more about that. The servicing the debt part of a declining population.

Richard Vague (00:12:48) - The debt doesn't shrink on its own, you know, so it tends to grow because, you know, it's accruing interest.

Keith Weinhold (00:12:54) - It always seems to go one direction.

Richard Vague (00:12:56) - It always pretty much only goes in one direction. So it's pretty simple.

Richard Vague (00:13:00) - If you have growing debt and I'm talking about public debt and private debt, and you have a declining base to service that, you have more people in retirement who are not paying as much in the way of taxes. It's going to increase the challenge, and it may in fact, increase it considerably. As we look at a few decades.

Keith Weinhold (00:13:21) - We need productivity to pay down debt that's more difficult to do in the declining population. We talk about technological advancements, some things that we cannot foresee. Did you sort of lead on to the fact that some of this might help us be more productive, even in a declining population, whether that's machine learning or robotics or AI? What are your thoughts there?

Richard Vague (00:13:45) - That's something that's been predicted for quite some time. You know, if we look back not too far ago, economists were wondering what we were going to do with all of our free time, right? Because, you know, automate. And this goes back to the 20s and 30s and 40s what we do with all our free time.

Richard Vague (00:14:01) - So we again have conversations along those lines. You know, it's not inconceivable that we could all be sitting there, you know, sipping our Mai tais, and the machines could be doing all the work for us. And servicing debt might be easy in that scenario, I doubt it. I don't think that's what's going to happen.

Keith Weinhold (00:14:19) - The more technology advances, the more complex society gets. That continues to create jobs in places where we cannot see them. I mean, case in point here, in the year 2024, we're more technologically advanced than we've ever been in human history, obviously. Yet here in the United States, we have more open jobs than we even do people to fill them.

Richard Vague (00:14:39) - Yeah. And I think one of the things that all of this does is increase the march of inequality. You have folks that master the technology become engineers, software engineers and the like that are going to be the huge beneficiaries of these trends. But folks that don't have the skill sets aren't going to benefit from these trends.

Richard Vague (00:15:01) - And even though in aggregate, we may continue to see per capita GDP increase, our track record over the last few decades would suggest that inequality will increase just as markedly as it has in the past, so we'll have some societal issues to face.

Keith Weinhold (00:15:19) - That's concerning as inflation. Continues to exacerbate inequality simultaneously, which we'll talk about later. But population decline is of concern to us as real estate investors because of course, we need rent paying tenants. So this could be pretty concerning to some. You've probably seen a lot of the same models that I have, Richard, let me know. In the United States, population is projected to increase for several decades by every single model that I've seen, maybe even until or after the year 2100.

Richard Vague (00:15:53) - The projection is by 2050, we'll have about 380 something million people, and today we're at 330 million people. So clearly the population is going to continue. It's just kind of the relative portion of those populations. And what I think we're seeing, and you as real estate investors would know this better than I, is a shift towards the type of real estate out there.

Richard Vague (00:16:19) - Right? So instead of new homeowner development, it's retirement development that I think is going to be the higher growth sector with the real estate industry.

Keith Weinhold (00:16:31) - And we're surely going to see fewer offices be built, something that may never come back. And then when we talk about things like birth rates and population growth rates here in the real estate world, I sort of think of there as being a lag effect. It's really not so much about today's births in the United States, because people often rent their first place in their 20s, and then the average age of a first time homebuyer is an all time record high 36. And all those people are going to need housing into old age as well. So to me, it's sort of about, oh, well, how many people were born from the 1940s to the 1990s?

Richard Vague (00:17:10) - Well, there's a very useful tool that's pretty easily available called the Population Pyramid. You can find that on the CIA World Factbook site for every country and including the United States. And it shows exactly what you're talking about, which is the number of folks, you know, between 0 and 10 years old and into 20 years old and so forth.

Richard Vague (00:17:32) - So you can kind of make reasonable projections about the near term based on the data that the CIA World Factbook is kind enough for by I believe the UN has this data as well, so you can make informed judgments about the very thing you're talking about here, which is how many folks are in their 20s to over the next ten years versus the last ten years.

Keith Weinhold (00:17:54) - Yeah, that's reassuring to real estate investors to know that we expect several decades of population growth in the United States. However, it may be slowing growth. So we talked about births, I mentioned deaths. Well, you tell us a bit more about immigration, something else that can be very difficult to project here in the real estate world that we have a popular analyst called John Byrne's research and Consulting. Their data shows that we had 3.8 million Americans added to our population last year, much of it through immigration. That's a jump of more than 1%, an all time record in our 248 year history in one year alone. So can you tell us, at least in the United States, a bit more about immigration in the calculus for population projections? Richard.

Richard Vague (00:18:42) - Immigration is a huge factor in the demographics of every country in the US, from a pure population growth standpoint as benefited by in-migration, including illegal and migration. That is a positive comparison versus a lot of countries that are either more restrictive art is desirable destinations for immigration and the life. So it has benefited us from a pure population standpoint. But what we clearly see is there are cultural ramifications that are difficult for us to deal with. We have the percent of folks that are in the United States that were born in another country. It's the highest it's been, I think, at least in a century or more and perhaps ever, that is really difficult for the general population to absorb. We see this in the headlines every day. We see it the concern, we see it in the political rhetoric. It's a real issue. So you have a very real conflict between the economic benefits of immigration versus the cultural divisions that that immigration creates. And that's not going to be easy to digest or to resolve. I think we probably end up continuing to compromise, but it continues to be a political lightning rod right into the foreseeable future.

Keith Weinhold (00:20:14) - And there are so many factors here. Where's our future immigrant diaspora? Is it in places in Latin America like Guatemala? In Honduras, in Colombia. And are those people going to come from there? So there are a lot of factors, many of which aren't very predictable, to take a look at our future population growth rate in the United States. We're talking with economic futurist, author and Pennsylvania's former secretary of banking and Securities, Richard Moore, and we come back on the affliction of inflation. This is general education. I'm your host, Keith Weintraub. Role under this specific expert with income property, you need Ridge lending Group and MLS 42056 in grey history, from beginners to veterans. They provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com. You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns, or better than a bank savings account, up to 12%.

Keith Weinhold (00:21:44) - Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains and your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.

Speaker 4 (00:22:33) - This is author Jim Rickards. Listen to get Rich education with Keith Reinhold and don't quit your day dream.

Keith Weinhold (00:22:49) - Welcome back to get Rich. So we're talking with economic futurist, author and Pennsylvania's former secretary of banking and securities. His name is Richard Vague. And Richard, before the break we talked about how many more people are there going to be on this earth.

Keith Weinhold (00:23:03) - We know for sure that there's also the growth of the number of dollars in this nation. So we're talking about inflation here. You talk an awful lot about the affliction of inflation and the history of inflation. And I think a lot of people when we talk about the history of inflation, maybe we should begin chronologically. They don't realize that inflation wasn't always with us. Since the birth of this nation.

Richard Vague (00:23:30) - We haven't had that many episodes of inflation. We look at it pretty hard. We see nine what we would consider nine instances of high inflation. Most of those have come with war. So we certainly had that. The Revolutionary War right of 1812 and the Civil War and World War one and World War two. But inflation has been brief, contained and rare in the history of Western developed nations. We had our bout in the 1970s that related to OPEC and the constraint of the oil supply. It normally relates to the decimation or constraint of the supplies and the supply chain. We saw it again with Covid.

Richard Vague (00:24:17) - A lot of folks consider it to be a monetary phenomenon. We just don't see that in the data.

Keith Weinhold (00:24:24) - So we talk about what causes these bouts of inflation. You talked about nine of them. Well, he talked to us more about why wars often create inflation. Of course we're trying to create a lot of supplies during wars, but they tend to be only certain types of supplies.

Richard Vague (00:24:40) - World War One is a great example. Probably, you know, two thirds of the farms in Europe were decimated. So for a couple of years, there simply weren't the kind of crops that are needed for nutrition being grown in Europe, we Corps and the like. So the US had to, frankly, export something on the order of 20% of its crops to Europe to prevent starvation. Well, it's pretty easy to see that if the US if the supply has been decimated in Europe, we're having to ship, you know, a huge chunk of our crops to Europe, that the price of wheat and corn would go up.

Richard Vague (00:25:21) - And that's exactly what happened. It's also pretty easy to see that as those farms came back on stream and began growing crops, that the price of wheat and corn would drop. And that's exactly what happened. So you have this relatively short lived period of 2 or 3 years where the decimation of supplies caused inflation, and that's fairly typical.

Keith Weinhold (00:25:45) - Supply falls, demand exceeds supply and prices rise much like what happened with those Covid shortages, as you mentioned, what are the other major causes of inflation other than supply shortages that have caused these nine bouts of inflation?

Richard Vague (00:26:03) - Well, let's talk about major developed countries, which I would include Western Europe, the United States predominantly. That's pretty much the only thing that has brought sustained high inflation is supply constraint. We don't see instances of high government debt growth or money supply growth ever causing inflation. Now when you get to smaller countries where they are borrowing in a foreign currency, where they have a trade deficit and where they yield to the temptation of printing too much money, and I don't mean by printing, we use that term in the United States, and it's absolutely a fictitious term.

Richard Vague (00:26:50) - We don't print money in the United States. We have it printed money since the Civil War. So in a third world country, they can actually go to a printing press and start paying with cash for government supply needs. And you can see it very clearly when it happens and it very quickly leads to high inflation. You know, this is in places like Argentina and the like. So that would be the big issue in these countries. It's they borrow at a foreign currency. They have a trade deficit. They yield to the temptation of actually printing currency. It can get out of control pretty fast.

Keith Weinhold (00:27:26) - It feels immoral. As soon as more currency is printed, it dilutes the purchasing power surreptitiously of all those people that are holding that currency. What about Richard? The government printing. And we can put printing in quote marks, say, $1 trillion to fund a new infrastructure program. A technically that is inflation if we. Go back to the root definition of inflation, inflation being an expansion of the money supply.

Keith Weinhold (00:27:54) - But talk to us about how something like that does or does not dilute the purchasing power to fund, for example, a big infrastructure program.

Richard Vague (00:28:03) - Well, it just never happens in Western developed economies. And one of the reasons it doesn't happen is the government issuance of debt does not increase the money supply by a nickel. If the government issues debt, it actually withdraws or shrinks the money supply because folks like you and me would buy the government security that reduces the number of deposits in the system. The government immediately turns around and spends exactly that amount. So the size of the money supply from government debt projects remains exactly the same. It doesn't increase.

Keith Weinhold (00:28:42) - Does that act, however, increase our total absolute amount of national debt, which is currently $35 trillion?

Richard Vague (00:28:51) - Of course it does. Absolutely. But the increase in our debt is money largely played to the households. So what normally happens is when the government's dead increases, household wealth increases by that amount or a greater amount. So take the pandemic. In a three year period, government debt increased by $8 trillion, which means its net worth declined by $1 trillion.

Richard Vague (00:29:18) - Well, households were the beneficiaries of that household net worth in that three year period increased by $30 trillion. So, you know, net net, of course it increases their debt, but it dollar for dollar typically increases household wealth.

Keith Weinhold (00:29:33) - That wealth effect can feel great for consumers and families in the short term. But doesn't increasing their income substantially in a short period of time drive up prices and create this debase purchasing power of the dollar?

Richard Vague (00:29:46) - If we got our little green eyed shades out and went to try to find examples of that, we got a database of 49 countries that constituted 91% of the world's GDP. We just wouldn't find examples of that. And in the US, it's very easy to measure that. The number you're looking for is GDP. And we don't really see big cuts in GDP. You know, a wild swing in GDP would be 3.5% versus 2.5%. That's not a factor in any observable way. And what happens in inflation.

Keith Weinhold (00:30:19) - Richard, the term that I think about with what's happened the past few years in this Covid wave of inflation is the word noticeable.

Keith Weinhold (00:30:27) - People don't really talk about it. Consumers, families, they don't talk about inflation much when it's near its fed 2% target until it becomes noticeable. And now it's so obvious with what you see at the grocery store. So it's really infiltrated the American psyche in a way that it didn't five years ago.

Richard Vague (00:30:45) - Inflation, even moderate inflation, is a highly consequential thing to the average American consumer. And two things happened to increase our inflation. Covid supply chains decimated supplies and kicked up prices. And then a second thing happened that was even more consequential. And that is Russia invaded Ukraine. And you had two countries that were, if you add them together among the largest providers or suppliers of oil and wheat, and almost instantly the price of oil and wheat and other goods skyrocketed. It was those two things, Covid, plus the invasion of Ukraine that drove our inflation up to 9% in June of 2022. Now, in July, it dropped to 3% and it stayed at 3% ever since. But we had already driven prices up in the prior year or two.

Richard Vague (00:31:49) - And those prices even though the increases have moderated, those prices haven't come down right.

Keith Weinhold (00:31:55) - Nor will.

Richard Vague (00:31:55) - They. Now we have, you know, the threat of war again. So, you know, the price of oil just touch $90. Again, I would argue that, you know, it's going to be hard to see inflation come down. Much for like that 3 to 4 range because of the geopolitical situation. And one other thing that I would suggest is holding up inflation. And that's the Federal Reserve's interest rate. You know, if inflation is a measure of how expensive things are, high interest rates make things more expensive, right?

Keith Weinhold (00:32:27) - It's an irony.

Richard Vague (00:32:28) - It's almost exactly the opposite of what the orthodoxy at the Federal Reserve studies or believed. For whatever reason, if you're at an in an apartment in the apartment owner has leveraged their purchase of the apartments by 50 or 70 or 90% and their interest bill goes up, guess what? They have to. Charge you higher rate. I think some meaningful component of the stubbornness of inflation relates directly to the Federal Reserve's persistent interest rates.

Richard Vague (00:33:00) - I think the best thing they could do would be to pull interest rates down 1 or 200 basis points.

Keith Weinhold (00:33:07) - Well, that's interesting because the fed funds rate is pretty close to their long term average, and we still got inflation higher than their target. So tell us more about what you think is the best way out of this somewhat higher inflationary environment that we're still in Richard.

Richard Vague (00:33:22) - Well two things. I think the geopolitical impact on oil prices is you. And I think the interest rate impact, particularly on real estate prices, is huge. Those are the two things holding up inflation. So if you wanted to improve inflation, you'd lower interest rates and then you'd run around the world trying to calm down these hot spots. And you'd have 2% inflation.

Keith Weinhold (00:33:47) - Coming from some people's point of view, including the Fed's. If you lower interest rates you would feel inflationary pressures. So then go ahead and debunk this because the conventional wisdom is when you lower interest rates. Oh well now for consumers, you don't incentivize them to save as much because they wouldn't be earning much interest.

Keith Weinhold (00:34:06) - And if rates to borrow become lower, then you're incentivizing more people to borrow and spend and run up prices in fuel the economy. So what's wrong with that model?

Richard Vague (00:34:16) - Well, there's no empirical support for it. In 1986, when inflation dropped to 2%, interest rates were in the highest interest rates had been coming down by, you know, almost a thousand basis points over the prior 3 or 4 years. Money supply growth was 9%. So the two things the fed says are most the biggest contributors to rising inflation were both amply present when inflation dropped to 2%. So I just can't find any data to support the Fed's theory. And by the way, that data is not esoteric. That data is really readily available. You and I can go look at it. It's not a complicated equation. But over the last 40 years, in what at the age I call the great debt explosion, aggregate debt and the economy in 1981 was 125% of GDP. Today it's 260% of GDP and almost that entire 40 something year span.

Richard Vague (00:35:21) - Inflation and interest rates went down. Somebody, somewhere is going to have to show me the evidence for me to believe what the fed is canonical, which is almost a sacred balloon.

Keith Weinhold (00:35:33) - Well, that's a good look at history. In fact, something I say on the show often is let's look at history. And what really happens over having a hunch on how we think that things should proceed. You mentioned some inflation figures there. Why don't we wrap up inflation? Richard was talking about today's inflation measures. We've got the producer price index, the PPI, the widely cited CPI, which I recognize what you were stating earlier. And then of course there's the Fed's preferred measure, the core PCE, the core personal consumption expenditures. Richard, it's also funny to me when any measure is called core, it's core when they remove the food and energy inputs because those things are said to be too volatile. And of course, not only is food and energy essential, but what's more core than that? So perhaps the core rate should be called the peripheral rate.

Keith Weinhold (00:36:22) - But in any case, do you have any comments on the measures of inflation that are used today?

Richard Vague (00:36:28) - It's like you say, it's everything you just mentioned and more, because they're not just core inflation. There's something called super core, which I think is probably even more peripheral. Right. And I like your terminology better than the Fed's, but there's a lot of things to look at right now. They're all kind of coalescing around this at a low to mid 3% range. We got a new number coming out. It'll probably, you know here in the next few days. And it'll probably be a little bit higher than the last number, but we're talking about the difference to a 3.3% and 3.5%. And to me there's no difference between those two numbers. We were at 9%, as we just said, in June of 2022. And we're at a moderate level of inflation now after having suffered a rise in prices. It's not going to disappear. It's not fun, it's not comfortable, but it's moderate rabble.

Richard Vague (00:37:22) - It's not a big drought.

Keith Weinhold (00:37:24) - What's the right level of inflation in your opinion?

Richard Vague (00:37:28) - Okay. Anything fundamentally wrong with the the 2% number that the fed saw I think, you know, at 3 to 4% were probably on the high end of, of what might be considered acceptable. But again, it's not the fact that it's 3% that's the problem. It's the fact that it was 6 to 9% for a couple of years. Yeah, that's the problem. It'll get take a while for everything to adjust to that. In the meantime, you know, with all bets are all that you know, there's if these wars get further out of control and we see 90, $200 oil prices again, we're only about we're 50% more efficient users of oil today than were were in the 1970s. We're still a little bit over dependent.

Keith Weinhold (00:38:11) - Here at gray. I espouse how in everyday investor they can do more than merely hedge themselves against inflation, much like a homeowner with no mortgage would merely hedge themselves. But you can actually profit from inflation with a term that I've trademarked as the Inflation Triple Crown.

Keith Weinhold (00:38:27) - I'd like to know what you think about it. The inflation Triple Crown means that you win with inflation three ways at the same time, and all that you need to do in order to make that happen is get a fixed rate mortgage on an income property. The asset price increase is the inflation hedge. The debt debasement on your mortgage loan, that's an inflation profiting center. Is inflation debases that down while the tenant makes the payment. And then thirdly, now rents might only track inflation, but your cash flow is actually a profit center over time too because it outpaces inflation. Since as the investor your biggest monthly expense that principal and interest stays fixed and inflation cannot touch that. That's the inflation triple Crown. It's available to almost anyone. You don't need any degree, your certification or real estate license. What are your thoughts on that? Profiting from inflation the way we do here I think you're absolutely correct.

Richard Vague (00:39:22) - And I think you put it very, very well. And that's not just a trend at the individual property level.

Richard Vague (00:39:28) - We studied macroeconomics and we look at aggregate real estate values. And frankly, real estate values rise as debt to GDP rises. The more money there is, the more my dollars are chasing real estate and the higher real estate prices will go. So it's absolutely been the gin to put it into numbers in 1980 household. Well, this a percent of GDP was about 350%. Today it's almost 600% most household wealth that in the form of just two things real estate and stocks in somewhat equal measure, that's 80 or 90% of also. Well, so if you wanted to make money over the last 40 years and presumably over the next 40 real estate, one of the two places you could go.

Keith Weinhold (00:40:24) - Well, Richard, as we wind down here, you run a group that predicts financial crises. So I'd be remiss to let you go without asking you about it. We've had a prolonged inverted yield curve, and that's been a terrific track record as a recession predictor. Is a financial crisis imminent? Tell us your thoughts.

Richard Vague (00:40:41) - No, it's not. The predictor of financial crises is a rapid rise in private sector debt in ratio to GDP. We saw it skyrocket in the mid 2000 and we got a crisis in zero eight. We saw it skyrocket in the 1980s and we got the crisis in 87. We saw it skyrocket in Japan in the late 1980s. And you got the crisis of the 90s. We saw it skyrocketed in the 1920s and we got the Great Depression. That is the predictor. You know, we've studied that across major economies over 200 years. There really are exceptions to that as it relates to financial crises. Our numbers right now on the private debt side have been very flat, and they've really been very flat since 2008. They actually got a little bit better in that period, and they've been very flat over the last few years. We're not looking at a financial crisis in the United States. Other parts can't say that China is looking at a they're well into a massive real estate crisis there. We see companies there crumbling, declaring bankruptcy.

Richard Vague (00:41:53) - That's because they've had runaway private sector debt in China for the last ten years. And there's a few other countries that are facing that as well.

Keith Weinhold (00:42:02) - A lot of Chinese overbuilding there during that run up to, well, if you, the follower, are into using history over hunches to help you predict the future, Richard Baig really is a terrific resource for that, as you can tell. So, Richard, why don't you let our audience know how they can follow you and learn more?

Richard Vague (00:42:22) - You're so kind to say those words. We hope we provide something of value. You can get our weekly video if you go to join Dot Tycho's group.org and Tycho's is spelled E, ICOs, ICOs group. Or we send out a weekly five minute video because if you're like me, you have a short attention span and brevity is the soul of wit. I also have a book that came out recently called The Paradox of Debt. Yeah. Which, you know, covers a lot of the themes we've talked about here. You know, it'd be an honor to have anyone to pick up either.

Keith Weinhold (00:42:58) - Well, Richard, it's been a terrific discussion on both population decline and inflation. It's been great having you back on the show.

Richard Vague (00:43:05) - You have a great show. It's a privilege to be part of it. Thank you very much.

Keith Weinhold (00:43:15) - Yeah, big thanks to Richard Vague. Today he hits things from a different angle. With population decline perhaps not taking place in the US until the year 2100. Of course, we need to add years to that. Real estate investors might not have falling population growth in that crucial household formation demographic age. Then until the year 2125, well, that would be 100 more years of growth from this point. And yeah, I pushed him on our inflation chart somewhat. Richard isn't the first person, though I have heard others maintain that lower interest rates also lower inflation, where most tend to believe that the opposite is true, including the fed. In any case, wars drive inflation because they create supply shortages. That was true over 100 years ago when World War one and today with Russia, Ukraine.

Keith Weinhold (00:44:17) - I mean, is there any one factor that drives price increases more than supply shortages? The short supply of real estate itself is what keeps driving prices. And Richard asks us to look where some don't. That is that real estate values rise as debt to GDP rises. In his opinion, there is no financial crisis imminent. We need to see a rapid rise in private sector debt in proportion to GDP first. And you know what's remarkable about this economic slowdown or recession that still hasn't come, but it's been erroneously predicted by so many. It's the fact that recessions are often self-fulfilling prophecies. People have called on a recession for the last year or two. And that mere forecast alone that tends to make real estate investors think, well, then I won't buy the property because my tenant might lose their job in a recession. And businesses don't hire when everyone says a recession is coming. That's exactly how a recession becomes self-fulfilling. And despite two years of that, it still hasn't happened. That's what's remarkable. Anyone sitting on the sideline keeps losing out again.

Keith Weinhold (00:45:37) - You can follow Richard. Big Tycho's is spelled Tycho's. Follow a joint Tycho's group.org. Richard and I talked some more outside of our interview here, and he had a lot of compliments about the show. In fact, more compliments than any guest has given in a while. He had not heard of our show before last year. I'm in Philadelphia somewhat regularly and I might hit him up the next time I'm there. We'll get lunch or something. Check out Gray in Spanish at Get Rich education comma. Espanyol. Thank you for tuning in today where our episode was Bigger Picture education. Next week's show will be substantially more hands on real estate. I'm Keith Wayne a little bit. Don't quit your day dream.

Speaker 5 (00:46:24) - Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.

Keith Weinhold (00:46:52) - The preceding program was brought to you by your home for wealth building. Get rich education.com.

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