Unfair Advantage -The Power of Financial Education (15 page)

My rich dad often said, “If you owe the bank $20,000 and cannot pay your loan,
you have a problem.
If you owe the bank $20,000,000 and you cannot pay your loan,
the bank has a problem.”

Today, banks are very careful when lending millions of dollars. That is why you should take real estate investment classes and learn to become an investor, not a real estate agent. Real estate investors must know how to manage debt and their properties.

No matter how much money you have, start small. Invest in many small deals, practicing to gain experience in managing debt, property, and tenants. Once a banker knows you have experience and a successful track record, they will lend you as much as you can handle.

Final Word

Every day, billions of dollars are being printed. Every day, there are trillions of dollars looking for a home. The reason there is a growing number of poor educated people is because they have never been taught how to access this multi-trillion-dollar pool of money. Most people are standing next to this massive ocean of money, afraid to jump in because they never learned how to swim.

In 1997,
Rich Dad Poor Dad
stated: “Your house is not an asset.” Hate mail poured in from realtors from all over the world.

In 2006 in Phoenix, a rather obnoxious real estate agent ran television commercials encouraging people to buy real estate because prices were going up. Four years later, that same real estate agent ran television commercials encouraging the people who had bought houses from him to let him get rid of their houses that had now gone down in value.

Again, that is the difference between real estate education in the S quadrant and real estate education in the I quadrant.

The really sad thing is that in 2010, interest rates were really low and banks were giving away great real estate. It was a time for the rich to get richer, while, ironically, the poor were getting poorer.

As the Bible states: “My people perish from a lack of knowledge.” Today, millions of people are perishing because they do not know the difference between assets and liabilities. Millions are perishing because they work hard for money while governments are printing trillions of dollars, which means an increase in taxes and inflation. Then these same people try to save money and use bad debt to acquire liabilities, liabilities they think are assets. This is financial insanity.

The unfair advantage is the knowledge to use debt to acquire assets, assets that produce cash flow for an infinite return—and to know not to save money, because money is no longer money. Money is now debt, and that is why savers are losers.

Chapter Four - UNFAIR ADVANTAGE #4: RISK

FAQ

Is real estate a good investment?

Answer

I don’t know. Are you a good real estate investor?

FAQ

Are stocks a good investment?

Answer

I don’t know. Are you a good stock investor?

FAQ

Is a business a good investment?

Answer

I don’t know. Are you a good entrepreneur?

You get my point. Without financial education, you will lose your money, regardless of what you invest in.

Extreme Risk

On a regular basis I hear, “I just hate risk. I’d rather play it safe. I have enough challenges.” In their avoidance of risk, people lead lives of extreme risk.

Oxymoron

The definition of oxymoron is: “Words that contradict each other.” Examples are: jumbo shrimp, government service, painless dentist, honest politician and holy war.

In the world of money, the following are also oxymorons:

1. Job Security

2. Saving Money

3. Safe Investments

4. Fair Share

5. Mutual Fund

6. Diversified Portfolio

7. Debt-Free

People who seek to avoid risk the most use these oxymorons the most. These oxymorons guide them into a life of extreme risk.

Those with financial education know why these words are financial oxymorons. To those without financial education, these oxymorons sound like financial words of wisdom. I will explain:

1. Job Security

When I graduated from high school, many of my classmates did not go on to college. They did not have to because there were many high-paying jobs waiting for high school graduates. Many of the thousands of jobs on the pineapple and sugar plantations were high-paying jobs for heavy equipment operators, cannery workers, and clerical workers. Most were unionized jobs with good pay and great benefits.

Today, most of those plantations are gone. My classmates either work for McDonald’s or became entrepreneurs in “tropical agriculture,” aka marijuana. Many are doing just fine as outlaw farmers. Obviously, they do not pay much in taxes. To the outside world, they look like poor people collecting welfare, yet they drive late-model pickup trucks paid for in cash.

Ironically, due to the current economic crisis and technology, many of my classmates who went on to college are the ones in financial trouble. One of the smartest and prettiest girls in my school, a few years younger than I am, a graduate of an elite small college in New England, is now unemployed and lives in the woods of rural Hawaii, almost a hermit. She is waiting to be old enough to collect Social Security and Medicare.

Once President Nixon opened trade with China, jobs flowed overseas as our dollars helped China build new factories. As China built massive factories for low-wage workers, high-priced laborers in the United States were no longer needed. Middle-management positions for college graduates also began to disappear.

Not only are low-wage jobs flowing overseas, but technology is also eliminating high-paying jobs. Technology is a growing reason for job security to be an oxymoron. In the 1920s, over 2 million Americans worked for the railroads. Today, railroads operate efficiently with fewer than 300,000 workers. Fewer workers mean increased profits for the owners of the railroads, owners like Warren Buffett, who in 2009 paid $34 billion to buy Burlington Northern Santa Fe railroad. Advances in technology eliminated jobs, and the reduced labor costs translated to profits for the owners. Why did Buffett buy a railroad rather than a hot new technology company? The answer is simple: steady cash flow.

Jobs will continue to be lost because American workers are paid 40 times more than the lowest-wage workers in the world. This means jobs are not coming back. Even China, once a low-wage country, is in trouble as Chinese workers want higher wages. As Chinese workers earn more, jobs migrate to even lower-wage countries such as the Philippines, North Korea, Kyrgyzstan, and Indonesia.

With breakthroughs in technology, it is the owners of businesses who win and the employees who lose. Even in Silicon Valley, where much of the new technology is created, manufacturing takes place outside of America. The computer I use to write this book was designed in the United States and manufactured in China. As I am writing this book, I know that in a few months it will be on sale in several different languages in e-book and hard-copy format. After this book is written, my costs drop as income comes in from the asset I created.

My business is expanding worldwide with fewer employees than in years past. Technology is a growing unfair advantage for those in the B quadrant and sometimes a disadvantage for those in the E and S quadrants.

Those with job security will pay more and more in taxes. With growing national debt, governments will be raising taxes. The quadrants with the least wiggle room in minimizing taxes are employees in the E quadrant and specialists like doctors and lawyers in the S quadrant. In 2010, the government increased tax breaks for those in B and I quadrants but increased taxes on those in the E and S quadrants.

Rising unemployment is not just a problem in the United States. It is a problem worldwide, even in China. Prolonged unemployment leads to social unrest, political revolution, and then overthrow of the government. This is why most countries will do almost anything to steal jobs from other countries.

Playing Games with Money

To keep jobs and people employed, countries are playing games with their money. By keeping their money weak, through exchange rates or just printing a lot of it, a country’s exports are cheaper. If a country’s currency strengthens and becomes more expensive, their exports become expensive, exports fall, and jobs are lost.

In 1966 when I first traveled to Japan as a student on board a U.S. cargo ship, the U.S. dollar could buy 360 yen. As a student, I could buy a lot with my dollar. Japan was cheap for an American.

Today, the U.S. dollar buys approximately 90 yen. This means the yen got stronger and the dollar weaker. Today, Japan is expensive for Americans.

If Japan wants to save their economy, they need to weaken the yen, maybe moving it back up to 150 yen to a dollar. American exports will then become expensive, we will export less, and thus lose jobs.

Keeping people employed is one reason that countries play games with their money.

The War of Money

Today, the United States and China are in a ‘war of money.’ The United States wants China to raise the value of their money so we can export more to them and import less. China knows that if the value of their money increases so does China’s unemployment.

In retaliation, the United States keeps devaluing the dollar and China devalues their currency, the yuan. Weaker currency means inflation at home.

This is one reason that the next oxymoron, save money, is ridiculous. Why save money when countries are weakening their money, making money less valuable and shopping at Walmart more expensive?

We have to weaken the dollar if we want to save jobs. Because with a weak dollar, we can export more. This means there will be more demand for manufactured American goods, which means there will be more jobs.

The foregoing are a few reasons why
job security
is an oxymoron.

Fin Ed History

The worst dictators in modern history came to power during times of financial crisis.
Hitler came to power in Germany, Mao came to power in China, Lenin in Russia, and Milosevic in Serbia and Yugoslavia during an economic crisis.

Hitler and U.S. President Franklin Delano Roosevelt (FDR) came to power in the same year, 1933. FDR, while greatly loved, created many of the financial institutions that caused many of the financial challenges the United States faces today. Some of his creations are Social Security, Federal Deposit Insurance Corporation (FDIC), and the Federal Housing Administration (FHA). He also took the United States off the gold standard in 1933.

Many people believe it was World War II that brought us out of the Depression. While the war did increase U.S. productivity and its balance of payments, it was the Bretton Woods Agreement of 1944 that restored the gold standard and increased the power of the U.S. dollar and the United States in the world. In 1971, Nixon broke the Bretton Woods Agreement with the world and today we are in a crisis again, facing a possible new depression.

The collapse of the gold agreement is known as the “Nixon shock.” After 1971, prosperity was created in America through debt and inflation rather than manufacturing goods that the world wanted to buy.

Without the discipline of gold, the Federal Reserve Bank embarked upon a process known as systematic inflation. The United States enjoyed good years because the economy was based upon ever-larger quantities of counterfeit money. America’s national debt is a Ponzi scheme of debt and fiat currency, paying off debt with taxpayer dollars that are worth less and less.

This system survives as long as the rest of the world goes along with the cash heist. If the world wakes up to the fantasy that you can buy things with phony money, the fantasy is over. If the U.S. dollar goes, the United States will go with it.

This is where we are, as I write in 2011: Americans are in debt for generations to come.

2. Saving Money

Why save money when our governments are weakening the purchasing power of our money?

As you know, after 1971, money stopped being money and became debt.

Prior to 1971, the United States was required to have gold backing the dollar. But when the United States was importing more than we were exporting, gold was flowing out of the United States. When France demanded payment in gold, Nixon took the dollar off the gold standard.

After 1971, if the United States needed money, they just printed money. Today, they do not need a printing press. Today money is digital, just an electronic blip on a screen.

To create money, the U.S. Treasury issues a T-bond, T-bill, or T-note, which is simply an IOU from the taxpayers of the United States.

Let’s say the U.S. Treasury issues a $10 million T-bill.

Private investors, banks, and countries such as China, Japan, and England buy this T-bill, which is debt, an IOU. Many people like U.S. debt because our debt is considered the safest of all debt, especially since we can print money to pay off our debt.

The problem is that if the world suddenly does not want our debt, the Fed will print even more counterfeit money. This will lead to inflation and possibly hyperinflation.

Quantitative Easing

If no one shows up to buy U.S. Treasury debt, then the Federal Reserve Bank steps in, writes a check (even if there is nothing in its account) and buys the bond. When the Fed writes a check, it is creating money out of thin air, which is the reason they call it
quantitative easing
. The reason they changed the name from
printing money
to
quantitative easing
is because it sounds more intelligent, even though it is financial suicide.

If you or I wrote a check without money in the bank account, we would go to jail.

This is why
saving money
is an oxymoron.

Fin Ed Definitions

T-bills, T-notes, and T-bonds
are debt issued by the U.S. Treasury. The difference between the three is the length of maturity.

• T-bills are issued for terms less than a year.
  

• T-notes are issued for terms of 2, 3, 5, and 10 years.
  

• T-bonds are issued for terms of 10 years or more.
  

Fin Ed Definitions

Inflation vs. hyperinflation:
Inflation simply means there is more money chasing fewer goods and services.

Hyperinflation has little to do with money supply, as many people believe. Hyperinflation can be an excess of money or a shortage of money. The issue with hyperinflation is simply that no one wants the money, regardless of how much or how little there is. In hyperinflation, money is as valuable as used toilet paper. No one wants it. It becomes a joke.

To pay for the Revolutionary War, the Continental Congress created the Continental Dollar. The problem was that the war lasted a long time and they kept printing Continentals to pay soldiers and buy war supplies. When the Continental’s value went to zero, soldiers and suppliers were left with nothing, hence the saying, “Not worth a Continental.”

When the Civil War broke out, the Confederate States printed the Confederate Dollar with the same results.

Germany did the same thing after World War I, and the German people began using the Reichsmark for wallpaper, to start fires, and probably for toilet paper. When the German economy collapsed, Adolf Hitler came to power in 1933, the same year President Franklin Delano Roosevelt took the dollar off the gold standard.