The One All About Inflation

by | 30, Oct 2021

For today’s episode, we will be driving into inflation!

This week we’re going over how inflation happens and why it personally affects you when the government prints money.

We will talk about these things…and more in another episode of Multifamily Investing Made Simple in under 10 minutes.

The audible version Passive Investing Made Simple: How to Create Wealth and Passive Income through Apartment Syndications coming soon!

Tweetable Quotes:

The government creates money out of nowhere. It ends up in the system and you get more dollars chasing more things, and each dollar is subsequently worth less as they create more of it – Dan Kreuger

“Inflation is the silent killer. It’s a silent expense or a silent tax that doesn’t show up on a spreadsheet unless you’re really looking for it” – Anthony Vicino

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Anthony Vicino and Dan Krueger
Passive Investing Made Simple – Available NOW!

The One All About Inflation

Anthony Vicino: [00:00:14] the Hello and welcome to multifamily investing made simple to podcast, that’s all about taking the complexity out of real estate investing so that you can take action today. I’m your host, Anthony Vecino of Invictus Capital, joined as always by Dan. Pump me up, Kruger.

Dan Krueger: [00:00:30] That is not what anyone has ever called me.

Anthony Vicino: [00:00:32] I’m calling you now and it’s apropos because today we’re going to dive into a pretty complicated topic that a lot of people are unfamiliar with. We’re going to talk about biceps and triceps and trapezius and gluteus.

Dan Krueger: [00:00:49] There we go. Minimus.

Anthony Vicino: [00:00:51] Yes. And then after we’ve done all of that in under 10 minutes, we’re going to dive into inflation.

Dan Krueger: [00:00:57] We’ve already wasted a minute. Well, muscle groups,

Anthony Vicino: [00:01:00] I mean, wasted, I don’t know. I think we’ve laid the groundwork and set some expectations for our listeners. I think they appreciate that. Yeah, the bar is way, way low. Ok, so it’s time to trip over that bar and get over to the other side. So Dan, inflation? Go.

Dan Krueger: [00:01:16] All right. Inflation really convoluted and confusing topic. But basically what it is is the consumer in America getting diluted by the government, right? You can look at this as you’ve got a partnership with your buddy Joe, right? Oh, no, can’t use Joe. We actually do have a partnership with Joe, and he’s going to think we’re talking about him. We’re not talking

Anthony Vicino: [00:01:35] About you, Joe.

Dan Krueger: [00:01:36] He had a partnership with Jim. Sorry, Joe, not talking about you, Jim. You got a partnership with him. Are 50 50 owners in this entity, right? And you both put in one hundred bucks. And so the businesses were two hundred bucks, right? You own 50 percent. Jim owns 50 percent. What if Jim went out and just created a few extra shares and sold him to his buddy? What happens to your shares? Well, maybe he’s got another hundred dollars worth of shares all of a sudden there are three people in there, there are three hundred dollars in the business. You only have a third now. Right. So more shares are getting created. You didn’t get any money. Jim got some money from selling shares, and your shares are not worth a third of the pot instead of half of the pot. That’s effectively what is happening with inflation because what happens is the government creates money out of nowhere. It ends up in the system and you get more dollars chasing more things, and each dollar is subsequently worthless as they create more of it. So slowly but surely, the dollar is losing value over time. And that’s basically what inflation is still convoluted. Still confusing. But we’ve got a few more minutes. So here we clean this up. Yeah, so

Anthony Vicino: [00:02:37] Here’s the problem is a lot of people this is inflation is the silent killer. It’s a silent expense or a silent tax that doesn’t show up on a spreadsheet unless you’re really looking for it and tracking data over an extended period of time, which is not how most people run their personal finances. All right. And so unless you’re looking for it, you will not see it. And the problem for most people is because they don’t see it. They take that to mean it doesn’t exist, and so they don’t do anything proactively to mitigate that downside. Now here’s the problem if I just am putting my money away into a savings account and making my one percent per year while I’m losing value because if inflation is, say, five percent, well, then every year my dollar is becoming five percent less valuable. And yet I’m earning one percent. So there’s a four percent delta there. That’s not any kind of way to generate wealth. You’re just devaluing your worth over time. So this adage that we’ve used before is that the rich invest the middle class saves the poor spends, usually because they don’t have the money coming in versus the money that needs to go out and bills every month is too tightly correlated. Like, I only make one hundred bucks and I have $100 of expenses. Nothing to say after that. Ok, that’s one problem. Put that aside, the middle class, though, they are making enough money. They have a surplus, but they don’t know what to do with that, to invest it. And so they save it thinking that’s what my mom and dad did. That works for them. Maybe sure, but it doesn’t work. And if you want to get to that next level, if you don’t want to die a slow death to inflation, you got to be investing.

Dan Krueger: [00:04:15] Hmm. Yeah, it’s a crummy, crummy situation, mostly because most people don’t realize that it’s happening. And by the time they do realize it’s too late, they realize that all of a sudden everything costs more and they’re either making the same amount of money or they’ve been living off just a fixed lump sum. Like, maybe they’re retired, but that’s really who gets hurt. Most are the people who live paycheck to paycheck and don’t have any kind of cushion. And the people who live on fixed incomes like people who are retired and receiving Social Security like those payments don’t change. They don’t go up with inflation. They get the same amount every single year. And if every year everything is costing five to six to seven to look at gasoline and prices of meat 10 percent more, right? That means every year they get less and less and less for their money. And so it’s really just a sneaky tax as what it is, we’ve settled in previous episodes. There are two ways. There are two ways that the government can get money out of your pocket. One is they can tax you, which is really not going to help their re-election goals. And number two is they can just create more dollars, but those in their pockets, use that to fund their needs, pay their debt, do whatever it is they do with their money, mostly pay interest payments on their debt.

Dan Krueger: [00:05:21] And then by the time money gets to you, it’s worth significantly less than it was when they used it. So they can either just print money out of nowhere, which steals buying power from you, and that takes money out of your pocket later. Or they can tax you. And so taxing just isn’t popular, right? It’s not going to win your vote. So they usually just do inflation these days. They print more money, they get the money they need, and the outcome is the same as creating a tax. But no one really knows that it happened. And so in my mind, that’s more like stealing. It’s almost like you’re your accountant, right? You pay them to manage your books and turns out every month for the or every year for the past five 10. And let’s be realistic every year for the past 10 or 12 years, they’ve been given five to seven percent every year, and not telling you that’s stealing is unacceptable. That’s what the government does.

Anthony Vicino: [00:06:05] And at the end of the day, it’s again the intentions versus the outcomes when it comes to political decisions. These things are not very closely correlated. We want to do well for the people that we represent, but a lot of the things that we put into action aren’t actually serving them in the long term because the election cycles are so short. Let’s say I only need to get elected in a two-year window, so I’m going to do things that make me more favorable in that time period. So one of those things is, Hey, we’re going to give you money, or we’re going to subsidize and give you a twelve hundred dollar check. And that’s going to be great. That’s going to help you cover your rent right now. But what it doesn’t do is it doesn’t help the rest of your money, which is going to be devalued over a long period of time. And that tax, because nobody sees it and we’re not going to the election polls and voting based off of that, we’re going, Hey, that guy gave me twelve hundred dollars. It was pretty cool.

Dan Krueger: [00:06:56] Yeah, I would argue that. That piece, that stimulus was actually perfect, because then in that situation, the money actually went to the end-user first. That’s great. Twelve hundred dollars created ends up in Billy’s hand or whoever. It can’t figure out any more nails easier. I mean, people know Joe the Plumber will go back to the Joe.

Anthony Vicino: [00:07:14] Yeah, Joe the Plumber now. Ok, hello.

Dan Krueger: [00:07:16] This is a Palin reference from like, Oh gosh, 10 years ago, Joe the Plumber was the average guy in America, right? And that’s the only time where we’ve actually seen that where this money has been created and then actually sent to a consumer, it’s always gone to other institutions first. And so that is actually an effective solution. That’s great. I’m glad they did that. It’s all the other money that gets sloshed around that doesn’t end up in the hands of the people that really need it. And a lot of the stuff they did during the pandemic is, you know, you had to do it. It’s what’s been going on for over 10 years now since 2009. That’s where it’s like, OK, that that wasn’t for a pandemic, right? That was just so there wasn’t any kind of crash in our economy. They’ve just been

Anthony Vicino: [00:07:52] We propped up the system by making propping it

Dan Krueger: [00:07:54] Up for four years, and that’s really the piece that needs to be addressed. Yeah, when there are pandemics, that’s when you pull out the tools and use these things for a short-term thing. But why has it been going on for over 10 years? That’s the main question. Mm-hmm.

Anthony Vicino: [00:08:06] Yeah. In the sense of like the economic stimulus and going direct to consumers, I think it’s it’s more beneficial than when it was going like just sloshing around, as you put it, and the rest of the system and not making its way down to the end consumer because it did allow a lot of people to make their rent and to make it through twenty. And so I’m not pooh-poohing the measures taken there. I’m just merely I think it’s important for everybody to recognize that the effects of that, whether those dollars were going to institutions or to the consumer. Regardless, there are 40 percent more dollars in circulation now, which just leads to currency devaluation and your money is worth less than it was for better or worse. Good intentions are poor intentions, so that’s the reality of the situation that we find ourselves in now. The question is what do we do about it and what do we do about it? We go and we acquire assets, assets that are inflationary hedges. You know, you’re listening to a multifamily podcast, so we don’t need to sell you on that. Like, you get what we do. But there’s a lot of different types of assets that can offer very similar and inflationary hedge. The key just doesn’t hold cash unnecessarily at the moment. Understand that inflation is a very real significant tax.

Dan Krueger: [00:09:15] Yeah. And really, the thing to understand here is that even though the dollar and every fiat currency around the world are having the same thing happen, so there really isn’t another currency that you could get into unless you want to go into the crypto conversation, which would be a different episode. But you know, we could look at that as a separate asset class, and pretty much anything that you can’t produce more of that’s got a satisfactory supply-demand situation going on. So we like multifamily real estate. We just did an episode on the three top reasons why we like that, which I’m sure everybody listens to. But if you haven’t, check it out. But yeah, in addition to that, anything that people need and that there’s a demand for that isn’t being produced in the same quantities as the new dollars should respond well. So, you know, this could be hard assets. This could be luxury goods could be homes or it could be mobile home parks could be landed, could be gold jewelry. Keep listing things. If there’s something out there that’s a commodity or an asset of some kind that at least holds its value and it’s not being produced at that rate, then you should be pretty good. But ideally, you want something that gives you a cash flow and has a bunch of other benefits, which I don’t know multifamily.

Anthony Vicino: [00:10:23] That’s good to consider. Multifamily does it. All right. So that’s going to do it for us. If this was if we succeeded in helping demystify the world of inflation and got any value out of this, do us a favor. Share this with somebody that might get some equal value out of it. Pay it forward. We would really appreciate it, and we’ll see you next week.

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