In this episode, Ryan and Terry break down PiP61 with Lyn Alden. Macroeconomics is complex and the language can be very opaque. So together they work through the most important concepts Lyn covered in her episode with Terry. Then, they discuss their biggest takehomes and some working principles for investing during periods of transition and stagflation.
What you'll learn
Links and resources
Ryan: Welcome back to the Passive Income Project. Terry, another RIP interview. How was it mate?
Terry: It was pretty beatty. What’d you think?
Ryan: I needed a coffee and a cold shower after that one.
Terry: Yeah. Look, it was, um, Lynn, Lynn is such a deep domain expert. And it was interesting. We kind of debated, we’re like, Oh, should we, should we put this on there? There’s so much in there. Uh, and that’s why we kind of decided to do this episode, wasn’t it? To sort of follow up.
Let’s, let’s break things down a little bit more and then let’s kind of build up the understanding of, of what we took from it.
Ryan: Yeah, no doubt. I think a lot of people would’ve had to listen to that one a second time around just for it to really sink in. And I know I had to, so don’t worry. I’m with you there guys, . and you know, if you haven’t listened to her speak before or dug into any of her work before and then new concepts or, you know, you’re probably hearing her explain things for the first time, the way she articulates it, it does take a couple of repetitions to, uh, for it to, to really kind of, for you to start to digest that. So, um, yeah, keen to break it down and build it back up. I think
Terry: Mm. And like with that episode, I put all of the relevant work of hers, her articles that are relevant, in the show notes. So click on, you know, the show notes, click on that link. And what we are gonna do in this episode is actually just go through the terms, the terminology she was talking about and kind of throwing around , assuming that everybody knows , how that all kind of fits together.
So we’re gonna do our best to kind of, as you said, Ryan, break it down. Go down to first principles for each of. terms and then build it back up and then share what we took from the episode, and how we are using it to think through investing decisions going forward.
Ryan: Yeah. Like we’ve said after, you know, previous interviews, we just always wanna draw from it what are the big lessons we took that we can use to inform our future decisions. So keen to share those with you guys today. so where do you wanna start with this?
Terry: Let’s just talk about Lynn herself and why we thought she would be a good voice to have on the show. you know, she’s a deep domain expert, but also I just made the point in that episode, she’s got a very unique approach in terms of understanding these complex systems, uh, when it comes to that engineering perspective.
But also she’s done a lot, a lot of study around monetary history. so when she talks about those patterns of the past, being able to, see how all those. Components fit together in how these things have been seen before. and also the way she’s just a lot more neutral than most, a lot more objective in the way she makes her arguments.
He’s, uh, somebody I really respect from that point of view. And I’m, I learn a lot from her. Like, and particularly I loved how she actually just broke down that framework. How does she seek the truth through thoughtful disagreement?
Lyn Snippet #1
Lyn: a lot of people when they, when they respond to, uh, economic issues, political issues, ethical dilemmas, it’s always like, you know, you’re starting from scratch almost like you’re just kind of judging things on an issue by issue basis, it’s generally more efficient to have a, a more conscious framework, right?
So to study some degree of philosophy doesn’t mean you have to be a philosophy major, but to study, you know, the different ways of, you know, coming to conclusion. So for example, there’s ends justifying means, and then there’s another framework which is more rules basis, another framework, which is more virtue ethics, right?
So start with with integrity and then, and go from there. And then you get to things like, like hierarchy, right? So, you know, there’s always the, in politics, kind of the biggest question is individual versus collective, right? And so, you know, it helps basically to have a framework for what, what, you know, what, what things are inviable, right?
So I would put something like freedom of express. Freedom of speech in something that there’s almost nothing that would override it other than, you know, the classic example of screaming fire and I shouted, you know, in a theater or giving death threats that are very specific or clearly obvious, intentional, liable, you know, there, But there’s basically freedom of speech would be an example of at the, at the very top of the hierarchy of things that almost anything else is gonna be below that.
So almost no, almost no better how bad speech is. It doesn’t mean you can cross that line, because even if you think that that instance, the world might be better without that speech, you have to then question, when we give the power to censor that speech. What happens in 15 years when someone else is in power and they use it against you?
Right. So whenever you’re thinking about doing something, always imagine the table’s turned. and so I I, so you can go down from there. You build a hierarchy. Okay? What is, what is nearly inva like, uh, inviable and then what is a step below that? What is like, almost always important, but there are exceptions.
And then what does blow that, which is like, say highly flexible? And I think that that allows, that hierarchy allows you to make decisions, uh, in environments like today that are very complex and that there’s a lot of moving parts to be aware of. Not thi not all things can be broken down as simply as many people would like to believe.
And it’s also an environment where, and this, this goes back to my study of history, that you have these periods of rising populism, right? So the 1930s, uh, and then here in the, in the 2020, well, the 2010s, uh, going into the 2020s, and it’s a powder keg right? And so it’s really important to be able to, instead of demonize your opposition or, straw man them.
So basically, you know, make the weakest form of their argument and then, you know, criticize that. Instead, it’s, it’s trying to understand, you know, say, Okay, there are intelligent people on the other side. Why would intelligent people think that thing that I disagree with? And then be able to articulate it, empathise with them, and then be able to explain why you see things differently.
And, and sometimes the key thing is that you might even agree with a lot of what they’re saying, but your hierarchy’s different. Uh, and you can, you can articulate that. And so I think that that’s, it’s just a useful framework for something. And I think we’re in an environment where, You want to be able to communicate and you wanna have moderation between extremes, because this is a, it’s a, it’s a challenging time
Terry: and we just sort of just debated like, Oh, do, do we wanna leave that in there? And I was like, I think that’s really important because the point she made at the end is like, we’re in this period where it’s really important to have good quality dialogue between opposing views because it’s hard to seek the truth without it. Um, what, I don’t know. What did you take from that little framework that she, she, Dr. She sort of talked about?
Ryan: Oh, I think, her neutrality to it is, pretty rare and the extent of even just the comment made around, recognizing that there’s smart people thinking the opposite to her because it’s such a divisive topic. You know, the way that, you know, people are kind of talking about money, talking about Bitcoin, talking about different types of investing even in a political nature. as she kind of spoke about, there’s this rise of populism, which we’ll talk about and break down a little bit more and a little bit.
But, just to ability to see both sides and just to ask that question, why is there smart people on the other side of the argument or why are they thinking different to me? Which is such a valuable thing just to kind of go, Hey, there is something that else to understand here. And it kind of helps you stay neutral.
Terry: I think it lends huge credibility to the actual assertions that she makes. So you don’t assume that she’s just gone down one sort of wormhole and just sort of taken that to the end degree. She’s basically said, Okay, what is the opposite side of this? And we kind of discuss this in our crypto series, like have both sides of debate.
Try to try to seek the truth from both sides, and then go from there. And I really love the way she talked about having like immovable opinions at the top of this kind of framework or this pyramid, and then going down and having, and being a little bit more flexible to seek the truth each way.
So she’s very steadfast in human rights and I think that’s why she’s very pro Bitcoin. And she says that, she’s had a lot of experience with that. So she’s like, I’m very pro this and I’m proud. And I’m, I’ll present that bias, where it’s not sort of immutable for me. I’m willing to actually question those biases and try to figure out, where I might be missing things.
And I think when she talked about monetary history, how other system actually works, how she sees things working out. it lends a lot of credibility to what she says. So you can kind of go, Okay, so she’s, I reckon she’s stress tested this from a bunch of different ways before she’s come to this conclusion. so yeah, I think, yeah, I’m really glad we had her on the show. I was concerned, we’re definitely concerned that we didn’t wanna leave people behind. We don’t, we never wanna make anyone feel dumb. But it’s easy too when you’re talking about monetary policy cuz holy shit, it’s, it’s really complex. you know, that’s why I kind of, I sort of called it out in the introduction. You might feel like there’s, at times I ask one question, she goes on three or four minutes to answer it. And in that three or four minutes, there’s so many big ideas that need to be sort of broken down. And that’s the whole point of this episode, isn’t it?
Ryan: Yeah, absolutely. And I think, you know, a big part of it is just having the terminology to keep up at times with those conversations. sometimes it can be tricky when there’s big words thrown out and there’s so much, sub meaning that exists within those words themselves, let alone the string of the sentence and, and kind of the piecing together of different ideas. And so, yeah, really keen to kind of break down some of the terminology because, there was even just little things like, I remember Lynn referenced the idea of a straw man. I’d actually never heard of before. You had, I think we had this conversation, didn’t we?
Terry: Yeah, look, it sort of does show you too where she’s coming from. They’re all logical fallacies. So when people argue they use all these kind of, , I guess these tricks against each other. Straw man is a classic trick where it’s like, I will create the simplest form of your argument and I’ll, I’ll just attack that form.
I won’t actually attempt to understand all of what you’re saying. I’ll just pick out one thing I think is easy. It’s like, it’s like if you think about, everyone’s argument, there’s like a team of ideas on the argument and you pick the little guy and you go, Oh, look at that little week little guy and you start bullying him
and there’s a bunch of these, right? So people do this all the time without necessarily knowing when they’re trying to seek the truth and they sort of resort to all these tactics. and there’s some really, there’s some really cool resources. Maybe I’ll put something in the show notes around actually understanding what these logical fallacies are and you, once you understand what they are, you can actually have much better disagreements with people cuz you can pass out what’s kind of off the ball play and what’s like playing the ball. and it’s, it is really useful to understand, and I guess unravel people’s logic when they’re argu.
Ryan: Mm mm And you know, even just having that conversation now, makes you realize that when you have the terminology or you can label something, then you can identify it and then you can create the shared understanding around it as well. So understand it better for yourself. Recognize when those things are happening.
Cuz even, you know, as soon as she referenced that and even just having this conversation now, I’m like, Yeah, people come to mind that always seem to go for the weakest form, the argument. And now that I’m like, ah, they’re being a straw man,
Ryan: it’s it’s sticky. And so what’s the first one you’d wanna dig into? What’s the, probably the highest order one to understand highest order term
Terry: So fundamental to all this is that whole term of macroeconomics, and I gave a brief explanation of this in the intro, what is at macroeconomics, but really it’s just a global game of money. And how do currencies and how do economies interact with the price and the movement of money, what’s happening in that big global game? that’s really all it is, isn’t it?
Ryan: Yep. So it’s, to do with, you know, if you think about it in terms of a game, it’s got to do with, the players. It’s got to do with the rules, It’s got to do with the interactions between people. Yep.
Terry: As distinct from microeconomics, which is really what we discuss more of the time. Right. So we, we discuss the microeconomics of your own personal finances. We also can get to the point where we’re discussing the microeconomics. A business and understanding what a stock is and all that sort, that’s microeconomics.
Macroeconomics is really taking into account all these other big variables, and that’s why I think it’s, it’s fuzzy and it’s not clear. It’s not black and white. It’s so much easier to read a balance sheet, so much easier to read a profit and loss statement. It’s so much easier to read your own personal finance sort of statements and go, Yep, there’s a clear answer. Whereas macroeconomics, there isn’t a clear answer because we’re dealing with probabilities and possibilities, and many, many different variables.
Ryan: Yes. And so really macro is the collection of the microeconomics, isn’t it? So I guess when things first started out, it was about, you know, building up of trade and the collaboration of people. Then over time it became the, competition and collaboration between tribes and towns. And then it turned into empires and countries. And so all these different microeconomics in the combustion at a greater level, which is more about, you know, and now, you know, it kind of gets talked about from a globalization
Ryan: Yeah. okay. And so that’s a relatively easy one. Let’s go a little bit harder. What about monetary policy?
Terry: Yeah, . So monetary policy and fiscal policy. She threw those terms out around a lot. and we have touched on these, We definitely did touch on these in the crypto series, but it’s just not normal language for, for most people to be, you know, discussing these. And I think most people mistake one for the other as well. So monetary policy is more coming from the central banking system and they’re controlling the price of money. So they have really two leaves that they pull. We’ve discussed this, they change the rate interest rates, so they make money more expensive or they make money cheaper.
and or they use a quantitative easing to be able to, I guess, reify and make sure that there’s more, more money in the banking system, than, than there was previously. It’s really important to. That quantitative easing side of things. It’s actually putting money in the banking system and it’s not necessarily putting in the real economy, but those are the two things they do. and that’s monetary policy. So you’ll hear about, monetary policy from a guy called Philip Lowe. He’s gonna be in the news a lot. If you just start watching for his name, you’re gonna see him in social media and it’ll always be attached to the RBA Reserve Bank of Australia, Philip Low, the RBA house prices, blah, blah, blah, blah, blah. Philip low rba, that’s monetary policy. So anytime you hear and see from Phillip think monetary policy, ,
Ryan: Love hearing from Philip
Terry: I don’t Phillip’s, the guy who told everyone, you know, we’re not gonna be changing the interest rates and actually inflation’s transitory. I wouldn’t worry about any of this sort of stuff. So,
Ryan: Yeah. Yeah. And then he, And then his big daddy is drone power, Right.
Terry: That’s right. Yeah. So Jerome Powell’s the guy in America, and he is a lawyer, , he’s not a banker, he’s a lawyer. and he’s the guy that basically gets to set the price of money for the whole world because he’s the one who sets the price, uh, or the interest rate for the US dollar, which is the global reserve currency, which just means that’s the unit of account that everybody plays against.
That’s the, the money that everybody sort of comes back to and says that’s the best, or everybody wants that form of money. So we’re all kind of playing in US dollars even though we use Australian dollars. We’re always pricing it against what’s that worth against US dollar in, in, if you go to Iran, what’s the, what’s, what’s their currency worth versus the US dollar? So that’s what the global reserve currency is.
Ryan: Beautiful. So monetary policy, really largely to do with the amount of money that’s going around based off how much money’s being created or how much people are willing to borrow based off the interest rates, essentially dictated by the cash rate.
Terry: willing and or able as well, because the banks actually have to decide. They have to decide to lend that out. So in 2008, they reified the banks, but it didn’t necessarily mean they were lending straightaway. and the central banks can’t command the commercial banking systems do that. They can only, I guess, change the conditions under which they’re willing to lend. So that’s a really important thing to note. Central banks can print money and give it to the commercial banks, but that doesn’t necessarily mean that money’s getting out into the real economy.
Ryan: Yep. Yep. You said Refy. Dig into it?
Terry: So reify, it just means like, okay, the banks have run out of reserves. Everybody’s holding onto dollars, everybody’s saving. Nobody’s, nobody’s, It’s not moving around as much. And so we need to put more money into the game to make things move around because the velocity of money slowed down and all of a sudden the cogs of the economy have started to kind of.
Terry: they talk about, you know, kickstarting things, stimulating economies. It Jeff Booth gave the example of like, Oh, let’s just like kick a bit more into the system so that keep people can keep, keep playing. That’s essentially what, what it means.
Ryan: And to go one step further on that, because a metric of progress is gdp, which is productivity, and that’s what ultimately is being sought. when money is moving, then there’s trade. There’s goods and services that are bought and sold, which results in gdp, results in productivity. And so if that’s a marker, then there needs to be velocity of money moving around in the economy for the sake of driving productivity.
Terry: currency needs to move for things to work.
Ryan: Yep. Yep. Okay. Monetary policy, fiscal policy next.
Terry: Yeah, so fiscal policy is when governments are actually the ones that are, putting money into supply and trying to stimulate things through their spending. so this is different. This is a different mechanism. So instead of the central bank printing money and then putting into the commercial banking system, what’s happening is the governments are issuing bonds and the central bank is buying them, printing money and buying them.
And then the government is deciding where that money goes in the economy. So what’s interesting, I think, is the way these two things interact. and I kind of like to think of it like a shitty car. . You’ve got like this kind of ordinary car and the central banker is they control how far, how fast the car’s going.
So they’ve got the accelerator, they can put their foot on the accelerator by lowering interest rates or printing money and they can also put their foot on the brake, which they’re doing right now, by raising interest rates and slowing things down, trying to do what’s called demand destruction.
We’ll get to that later. but they don’t really control. Where the money goes. So it’s a pretty, blunt mechanism, right? it’s not very effective fiscal policy, which is where governments decide where money gets spent. They choose where the money goes. And what’s interesting is they are always going to lean towards inflation, , they’re always going to lean towards printing more money and and taxing people covertly rather than overtly, because it’s easier to basically say to someone, I’m giving you more money over here, when actually we are devaluing the whole currency to be able to pay for that. so it’s interesting, like I, I kind of have this analogy in my head of like a car where we are right now in terms of the whole sort of setup.
You’ve got central bankers who are controlling, the speed of the car and they’ve gotta stay on the road and the road’s getting narrower. And the interesting thing about this road is on the right side of the road is inflation, where prices just rise and go out, get outta control.
and the left side of the road, if they break too much and they, they, they take too much liquidity outta the economy, then you’ve got deflation and that’s when the whole debt thing unwinds Nobody lends to anyone anymore. Money stops moving and all of a sudden economy’s grinding to a halt.
And this road that they’re on, it’s getting narrower and narrow with the passing of time. But the problem is they’ve got, governments sitting in the, the passenger seat, yanking the steering wheel on this car to the right towards inflation most of the time. and so you’ve kind of got this tug of war between the two and those two things, they’re supposed to act in unison, but sometimes they’re actually acting in opposite opposition to each other. So this is happening right now in the states, right? They’re trying to raise interest rates and then they’re doing huge stimulus like forgiving, college loans and things like that. That’s stimulatory. That’s like more money being spent in the economy because less money’s being paid down in loans.
And so, it’s kind of interesting because the, you know, they’re supposed to work together, but they don’t always, and you know, Lynn was talking about this, but basically saying in, in these periods in history, what happens is monetary policy runs outta gas. They lower things as far as they possibly can.
They really, they run out of, I guess, levers to pull. And this has definitely happened. and then they say, Well, we got nothing left. It needs to be fiscal policy. Now that does any stimulating and hopefully, hopefully if they get it right, which they never do, they spend money in a way that creates huge productivity.
Cuz it’s not necessarily bad to spend money, It’s just that if you’re spending money and you’re giving it to just the everyday Joe Blow and they buy another TV with it, it doesn’t create productivity and we don’t get out of our. and so what happens is in these periods, and she talked about the long term debt cycle, monetary policy runs outta gas because everybody’s so indebted now, we can’t, we can’t lower rates any further. and so then what happens is fiscal policy takes over and then you end up in this kind of situation where governments are more indebted. People are more indebted. You can’t raise rates very high. And if you do, everything collapses. And that’s literally where we sit right now.
Ryan: Okay. So, Central Banks. Using monetary policy, they either speed up the supply of money or credit that’s in this system, or they slow it down. and what tends to happen is when they speed it up, correct me if I’m wrong, but when they speed that up, there’s more going out. But there’s no fiscal policy, which is the directing of it. From a government perspective, it tends to mean that whoever’s closest to the printer or whoever’s the most credit worthy ultimately, They tend to be rewarded more so, which means that there creates this division between who has and who doesn’t. The haves and the haves not. And so the fiscal policy is around kind of trying to direct that in a way that closes the equity gap as opposed to just the accelerator that expands it.
Terry: It’s almost placate you. It’s like if you’re getting hammered by the system, you’re the one that’s gonna be yelling loudest. And so I’m gonna just give you a little bit of money. Duplicate you. So nevermind. You don’t have to pay your college loan anymore. You think that’s great. But the thing is, you got priced out of a house 10 years ago,
Terry: you know? And. In these sort of periods in history, what, what, what Lynn’s saying is the discontent grows wider and wider because those gaps get bigger cuz wealth concentrates as a result of monetary policy. and that’s just, I mean this is an, this is a hundred year experiment and it’s always gone the same way. That wealth concentration happens, That means power centralizes. Those people with the power tend to start to make the rules. They make the rules to suit themselves. And then at a certain point, all the plebs, everybody else says, What the this is shit, we don’t wanna play this game anymore.
And so that’s when fiscal policy has to rear its head. that becomes inflationary. And then governments get more indebted. As governments will get more indebted. They actually have to figure out how they’re gonna pay back their debts that they take out to fund that spending. And generally that’s going to be de basing the currency to make it happen.
Ryan: Hmm. Yeah. It’s either increase the taxes and then everyone screams or increase the supply of money to devalue it. Okay. Moving on from policies, another big one, uh, which is very misunderstood and at times, you know, I’ve had to go back and just search it for, just for the sake of is disinflation, uh, which is different from
Ryan: Um, but we should probably go back a step and start with inflation.
Terry: Yeah. . You love, Don’t you love these words? Like, I just wanna know who is the person. It’s like there’s some sort of weird religious sect in, They believe that whoever uses the most syllables in a sentence is closer to God. So all the words have to be like dis inflation y, divers, y, collateralization, yon, you know, like, it’s just so many of these syllables. It’s just overwhelming. These words. They sound, they sound really complicated, but really they’re not like those three terms. You say them in a sentence and you kind of go, Oh, that’s a lot of, some big ideas there, . But let, let’s break it down. So what do you wanna start? Do you wanna go with inflation first?
Ryan: Yeah, I’m about to break inflation down. Firstly, I just loved that you added about three extra syllables to some of those words. Diversity, ,
Terry: You gotta make my point.
Ryan: Yeah. okay, so inflation,
Lyn: So we go through these structural periods of undersupply, then oversupply and undersupply and oversupply, that that is a huge fact, uh, impact on things like inflation.
Uh, and then when you combine those two, when you ha when you hit the end of like a 40 year disinflationary cycle, Then you kind of chop along and then you run into a CapEx undersupply energy commodity cycle. So more inflationary. Uh, and then you also get to the end of kinda a globalization trend, which is, you know, that was aary force.
It becomes inflationary. It’s like, uh, you can ignore macro, but macro’s not gonna ignore you.
Ryan: really that’s just about the prices rising. Yeah. That balloon expanding, blowing air into a balloon and that balloon expanding. there is a couple of different types of inflation though, so we should probably dig into what they are. So, you know, it’s about the price of things going up. Monetary inflation is about the expansion in the money supply, which means that the purchasing power of the money that you have. Remember we talked about the stock to flow ratio when we dug into the crypto series.
We’ve got an existing stock of money. Let’s say there’s a million units. If you create another million units, the value of your existing money goes down. So that’s mon monetary inflation. Which leads to asset inflation. So it’s kind of the next reaction in the chain, which is, uh, the price of assets start to go up.
So if you’ve got more money chasing the same amount of assets, then the price of those assets go up. And, you know, if you think about Covid is a, a prime example, uh, real estate during that time, and right around the world realistically, uh, the price of real estate went right up because of what happened with the money supply, which came via covid stimulus payments.
And then we’ve got consumer price inflation, which is the cost of the things, the goods and services, the stuff that we buy on a more ritual basis. And so, you know, if you think about the price of lettuce, everything in the, in the grocery basket, even just the household costs, it’s those things being pushed up And that can be influenced obviously by, you know, the monetary inflation, but also by, you know, things like the cost of energy, for example, is a really roots cause of a lot of the issues that we’re experiencing right now with inflation and what’s happening, you know, from a, from a war standpoint.
Um, but it’s the, the variables or the inputs that go into the cost of manufacturing, the cost of production, the cost of logistics, when those costs go up, then the costs of our goods and services go up. And obviously what we can buy with our monthly wallet, gets, you know, gets tighter.
And consumer price inflation tends to be the one that gets echoed the most. It’s the one you read about in the newspaper, you know, it’s the one that everyone seems to be talking about. Because it impacts us on such a daily basis, whereas the asset inflation usually comes at those bigger moves when we’re going to buy a house or we’re going to, you know, we’re gonna make a big investment or we’re looking to retire, whatever that might be. It’s, uh, more impacting then. Whereas cpi, the consumer price inflation is more that, daily impact.
Terry: And those Look, I think it’s interesting like the consumer price inflation’s referred to a lot because it is where it hits people in the hip pocket. And it’s interesting like central banks and governments actually love I. they just don’t like it getting our hand this much.
I mean they want to keep it within this ban of 2% , and slowly, slowly just skim our savings, . So we don’t know. and they like to say it’s all about, you know, we wanna keep the money moving, we wanna keep you guys doing stuff. but actually it’s just a slow erosion of your wealth.
and I usually like to say, central banks and governments like inflation, the way they like sex workers. They’re real big fans when things are kept under wraps, but soon as things are out in the open, they like to distance themselves as much as possible. and that’s essentially what’s happening now.
They’re like, Oh, we’re gonna get on top of inflation. And forever they’ve been chasing inflation. Just look back over the last 10 years. They’re like, We need to get inflation up. We need to get inflation up. And so they just want to keep it at a certain level where it’s just harder to, to detect on a day to day basis.
But when it going this fast, it’s much easier to detect. You’re like, Wow, I was not paying that much for fuel last week and now I am. That wasn’t paying that for fuel last year. I wasn’t paying that. from my house, I wasn’t paying that for my rent. All those things sort of happen and if that happens too much too soon, then people start to lose trust in the currency.
So that’s why they were like, Well, we wanna get on top of this. but there’s two parts, there’s two parts that actually cause it, There’s cost push inflation, and that’s when the price of those inputs goes up. So we are dealing with this right now because all the energy supply we’ve under invested in energy supply and then there’s now energy insecurity around the world because of what’s happening with the war.
A lot of energy comes from Russia. So a lot of countries rely on that. That means all their costs are going up because there’s less energy, which means it’s more expensive. That’s a cost push. Inflation and energy is an input for absolutely everything. So if energy gets more expensive, everything’s more expensive.
And then you’ve got demand pull inflation, and you’ve kind of touched on that before and that’s when the expansion of the money supply happens so much, so soon that actually it’s more money chasing fewer goods and services. And so the price of those things has to rise. Now what we are dealing with is both, we’ve got cost push and we’ve got demand pool.
Our policy makers have done an absolute bang up job , and they’ve put us, they’ve put us in this, this kind of state, and um, and then they want us to believe that they’re gonna be the ones to fix it. So, um, that’s why they’re raising rates. so yeah, so that’s our consumer price inflation.
Ryan: yeah. So people got given more money. Now they’re all competing for more expensive goods, basically because of the issues with the, the supply issues. Yeah. which was leading me into disinflation, well, deflation first, Let’s go to deflation first.
Lyn: So if I’m arguing for inflation, I’m like, Okay, let’s, let’s listen to the, you know, the biggest experts on deflation. and then let’s also try to articulate, you know, what is the case for deflation? Here it is. And then why, Why do I disagree?
Ryan: So inflation price of things going up. Deflation the other way, the price of things going down and that can happen from a monetary standpoint, rarely does. Because the whole point of it is to pull levers to make sure there is positive inflation. There’s somewhere between two and 3% I believe there’s talk of potentially increasing that band just cause they’re having trouble keeping it within it. Uh, so they might
Terry: Oh man. That’ll keep,
Ryan: might just. Might move the goal post. Yeah. Um, so we’ll keep an eye on that. But, deflation, essentially the price of things coming down the, that can happen at a, um, monetary standpoint, but it can also happen from a technology standpoint, which we covered nicely with Jeff Booth, which is the price of things actually coming down, which is that cost push deflation.
So the costs and the, you know, technology, uh, the costs going into based off, you know, the ability of technology to create more, you know, replicate goods and things like that, to bring down prices, means that the price of things can come down. And that can be a really positive thing if it’s technology based, if it’s, you know, from better, cost effective inputs as opposed to, just the money, you know, competing.
Terry: Yeah, you think about what we’re doing right now and distribution, right? In order for us to get this message out to you, wherever you are listening to this, think about the amount of energy, the amount of money that would’ve had to be spent to reach you.
You know, we would’ve had to travel, we would’ve had to use a whole bunch of resources to make that happen. And because of technology now, it’s collapsed, all that stuff. It’s made it a lot more productive and it’s absolutely decreased the price of that to a very high degree, which has made us way more efficient. That’s productive deflation. That is absolutely something that we want. destructive deflation, that’s another story. That’s when this whole credit based system starts to unwind, isn’t it?
Ryan: Yeah. And you know, if you think about that world, what if your income did not need to. Because the cost of everything else was going down. We wouldn’t be worrying about waging greases, we’d just be enjoying the benefits of, uh, you know, technology and productivity in robots. Essentially, the price things going down. so that’s deflation, which then led us into disinflation,
Lyn: much of the developed world, the past 40 years have been a structurally distanced place in your environment with industry rates that started at a very high level and then just gradually went down and down and down and down. And so you pretty much had things going one direction.
Ryan: This is more about the rate of change of inflation. so if the cost of things is going up by 5% or 6%, or 7%, this is rising inflation. Whereas disinflation is about the reversal of that as still inflation, but it might be going from 7% down to 6%, down to 5%, down to 4%.
So periods of disinflation. That doesn’t mean they’re, they’re good. Doesn’t mean it’s, uh, , you know? Cause it could be going from 12% to 11% and that period of disinflation might absolutely suck. but you know, at least it means that the price changes, the rate of change is slowing down, It’s coming back the other way. And usually it means it’s coming back towards that band from being higher than it.
Terry: Yeah, the balloon’s still blowing up. It’s just not blowing up as fast. And the important thing about this inflation too is that like inflation’s compounding, it still compounds. And so people will use this as a word to say, Oh, things are going well. it’s absolutely not . It doesn’t mean things are going well um, it’s just things means things are going less bad than they were.
Ryan: yeah, that’s it. So that’s this inflation just purely around the slowing of the pace of inflation. Uh, but you are, you are still blowing it. what’s next? Populism them?
Lyn: it goes back to that rising populism. They don’t know if you don’t have any idea of what’s happening or, or you just kind of wanna ignore macro. It’s gonna seem like a random set of surprises. You know, people will say this, this is unprecedented. And it’s like, well, it’s not unprecedented. If you studied monetary history of the forties, for example, and,
Terry: Yeah. So I think there’s two things to cover here. Like we talked about monetary policy, fiscal policy, and then we talked about the gap between the haves and the haves nots. Populism is what results. And we discussed this. We talked about how everybody’s got a cause now and everybody’s annoyed and outraged about something, and we’re just looking for some reason to be outraged. You can just drive a little bit too slow for someone these days and they will treat
Terry: And they were,
Ryan: the weather. It’s fucking gray outside right now.
Where’s the sun going?
Terry: this is an outrage. I’m offended . I can’t believe you said that. so, if you’re really close to these causes, you can probably think it’s all about that. But if you do go back through history, you’ll do, you do see that when wealth concentrates to the degree that it has right now, and the game becomes this unfair, people get their shits about everything and that populism, what happens it attracts the kind of leader.
That presents to be the strong person, the person who’s gonna take control. This is happening right now in Italy. there’s a strong leader emerging in Italy being very direct about what she wants and where she wants the country to go and, and actually calling out, interestingly enough central bankers and financial speculators, which is really interesting.
So in these periods in history that populism starts to rise. Strong people emerge. And this is where, you know, Hitler comes to power. This is where Donald Trump comes to power, and you’re just gonna see more and more of this type of leader, gather and gain support from people, because of the way they present, right?
They’re gonna call out someone, they’re gonna demonize someone, they’re gonna say them, I’m gonna protect you from them. What did, Donald Trump say, I’m gonna drain the swamp. I’m gonna drain the swamp of all these people. It’s these people’s fault. You know, I’m gonna make America great again. These people have ruined it.
Blah, blah, blah, blah, blah. So, populism is really just that cultural phenomenon that happens as a result of, the manipulation of money, to an extent where the game becomes unfair.
Ryan: Yeah. Yeah. You start to realize the importance of you know, getting the fabric of the financial system right, to make sure that it doesn’t, plant the seeds of these extremists that can obviously sit at far ends of spectrums, basically. and then gather support. Cause there’s enough people near the edge of that spectrum as well,
Terry: A hundred percent. I mean, Jeff Booth talked about this in, in his episode. He said that money’s information, right? And so if you manipulate information, you manipulate people’s language. Cuz when I buy something from you, I’m communicating that I actually care more about the thing you are doing than the money in my pocket.
But if I mess with the value of money, then that signal gets distorted and people can’t figure out what matters and what doesn’t matter. and then all of a sudden it’s easy to, I guess it’s easy to manipulate people. It kind of changes the way people think, the way people feel.
and it, and it does, it sort of creates a bit of a, almost like a mass psychosis. have a look what’s happening right now in France with fuel. Just Google it and have a look at what’s going on , and you can see very normal people doing crazy shit around fuel. so yeah, it’s just, it’s a, it’s a bloody interesting phenomenon.
So it’s almost like this is why people in Bitcoin say, Fix the money, fix the world. Because money is like a base layer of language and if you mess with that, it actually determines how people think and feel.
Ryan: Yeah. Yeah.
Ryan: been digging into some of the work of Dr. Hoberman recently, Homan lab. And, uh, you know, he thinks about it from a neuroscience perspective and thinks about it from a biology perspective. And if, I’d love to know what the cortisol count of most people is right now, that stress hormone , because of just the pressures that exist.
We’ve all got these issues with regulation and dopamine. Um, you know, just because of the way that we kind of leverage Yeah. Social media and stuff these days. But, um, there’s also this added layer of uncertainty based off all these issues that we’ve been talking about. So no doubt there’s a, there’s a chemical, reaction that is causing a lot of this populism as well. okay. So that’s populism. You mentioned demand destruction before. you wanna dig into that?
Terry: Yeah. So that’s just the cause of deflation. So when people are less willing to spend on things, then those things have to compete harder and harder for the money. So the prices fall and it’s the opposite of stimulating economy. So everything they’ve been trying to do now they’re saying, Oh, we did a bit too much of that.
Let’s do more of the other thing. The problem is that getting people that indebted and then making money more expensive, you create a really dangerous situation. Because if people are really indebted, and you’re raising the interest rates, and this is not just people but governments as well.
Then there’s a real chance you cause default and if default happens and it happens systemically, all credit is linked and it happens very, very fast. And so demand destruction, what they’re trying to do, they call it a soft landing. So you’ll hear that all the time. We’re gonna do a soft landing . and when they say demand destruction, it’s just a nice euphemism for we’re gonna make you feel poor so that you spend less money and that prices go down because that’s all we can do right now cuz we wanna maintain our credibility. Want you to think that the currency’s trustworthy and we won’t keep fucking with it the way we have been
Terry: So they’ve got a lot of euphemisms like that. Demand destruction stimulation. stimulation is mini printing money. , um, demand destruction is making you feel poor, costing you your job. They actually want, they’ve got stated targets for people going out of their jobs over the next year in America. They want people to lose their jobs.
Ryan: Yep. Yep. And Soft Landing is a slow rate of change. Ultimately, like it’s avoiding going from the, the headlines, the articles, those triggering headlines being, uh, going from rate hikes to collapse. Essentially the market is collapsing. Yeah. and so yeah, obviously a big one that we experience is, you know, the cost of debt, the cost of the mortgage, so people taking out bigger mortgages and then the cost of those mortgages going up and people not being able to support that. And then, you know, if there’s default on a property becomes a, um, and then a series of defaults, that domino effect
Ryan: a little bit scary.
Terry: So you can see this happening right now in the Australian real estate market. It’s happening not because there’s a lot of people defaulting, but because there’s no one selling. And the reason they’re less willing to sell is cuz there’s a lot less buyers. People are really worried that, ah, I can’t service that debt. They can’t actually loan enough to, to, to buy the house they want. And so that means that people are just not selling their houses. and houses are just staying on the market for a long, long time. And that’s why housing is cooling off. They’re gonna use the words cooling off a lot. and then now they’re predicting like, Oh, it’s gonna go down by like 20% and all that sort of stuff. So
Ryan: That’s experience also in people’s purchasing power based off how much they can borrow. So people’s borrowing capacity is going down, and we’re going through the process at the moment with, organizing the finance for the build of our house. And, uh, you know, every time the rate goes up by 0.5% our borrowing capacity. Reduces by something like $70,000. And so people’s purchasing power, is coming down every time there’s an increase in the, in the rates. And so if you’ve got less competition at certain price ranges, obviously the price of those things tend to fall a little bit as well.
Terry: It’s, it’s not so much purchasing power of the money. It’s actually how much money you can get though, isn’t it? Cause
Ryan: yeah, as in like from an individual standpoint, like how much someone can pay based off how much credit they can get their hands on. Yeah. so yeah, diminish structure’s an interesting one. It’s uh, no doubt there’s, you know, a little bit of that going on at the moment. And then there’s this celebration of disinflation going on as a result of it. Okay, so that’s guess that’s demand destruction. Uh, what’s the next one?
Terry: the next one? Yeah. So the next one’s that we talked about, I think we did sort of touch on this and, and go back to it a little bit. We talked about monetizing debt
Lyn: the forties were a very inflationary decade because over time what we did was we put that private debt onto the sovereign debt, right? So we built up all the sovereign debt, many countries, Ran massive fiscal deficits that were then monetized by the central bank.
Central banks held in straights below the inflation rate. So you, you devalued a lot of currency, you had a lot of money, supply growth.
Terry: that’s that sort of mechanism where central banks will print the money to buy government bonds and it creates debt on behalf of the government that they need to pay back.
And so this is what creates the mathematical limit to how far interest rates can rise right now. So, Jim has been talking a lot about this in Australia. If rates keep rising the way they are, then actually the cost of servicing our debt starts to exceed things like public health. and so we, we cannot afford for it to go too much higher.
And if it goes too high, then the only way, the absolute only way they can finance it is by printing more money again. So you become, you get into this debt cycle and it’s like a snake eating its tail. It’s, it’s just a slow , It’s a slow destruction of the whole thing. And so we’re in a pretty precarious position.
Of that, how much monetary expansion happened, the impacts of that, how indebted people have become, and now the fact that they’re trying to raise rates cuz they wanna restore their credibility and trust in the currency. If they push it too hard, they can, they can actually accelerate the big, big problem.
Ryan: yep. there’s something within that that I wanna pull out. So, uh, there was a reference of base money and just want to touch on what that is specifically as another form of terminology. And so base money is the money within the banking system and then there’s this other form of money, which is called broad money. And so that’s, that’s one category of money, which is money that just stays within the banking system. But then there’s this other, category of money as well, which is called broad money. And that is to do with the money that gets out of the banking system, into the real economy. And a good way to think about this is, think about one of those movies. I think The Simpsons, It, There was definitely a Jim Carey one, What was it called? There was a dome that he lived in. He
Ryan: you know what it’s called?
Terry: I don’t know. Yeah, yeah, yeah.
Ryan: you know where I’m going with it anyway. And so picture within this dome, you’ve got the, uh, bankers, you’ve got the banking system and everything that just exists in inside this dome. The money that’s inside there, that’s considered base money. And then outside of this dome, there is all of us, there’s all of the population, you know, the general public essentially. And so it’s when money goes from inside that dome, inside that banking system outside into the general population, that it becomes broad money.
And so like you were saying right at the start, there can be this increase in the supply of money, but that might actually stay inside of that dome. It might stay inside the banking system as a form of creating liquidation so that there’s enough reserves within those banks.
but when that money gets out of the banking system, which it will always does, gets outside of the banking system, then it starts to impact inflation. You know, it becomes a lending thing. People can borrow more asset inflation goes up. People just end up with more money in their pockets, so they end up spending more on goods and services. You get consumer price inflation. And so yeah, it’s just kind of referencing that there’s money that happens inside, and there’s money that happens then outside, and they impact the economy in different ways. they are interconnected in a lot of ways.
Terry: And it, this is not, it’s not a hundred percent true, but monetary policy more so impacts base money, fiscal policy more so impacts broad money.
Terry: policy is like money going straight from the government into the, into the real economy, into people’s hands. Whereas when monetary policy happens, it can just stay as based money if that commercial banking system wants it to. They need to be incentivized to get it out and get it into, the real economy
Ryan: Yeah, so if you think about a bailout in the global financial crisis, perfect example where big banks in the US bailed out big companies and made sure that they didn’t go under, so that it didn’t have that ripple effect, which it ended up having anyway. but that was a form of base money being pushed into the, the, the banking system. Whereas broad money is like the covid stimulus perfect example where, you know, we just get a payment, comes in direct debit, bang, let’s go to the shops. Yeah. okay. Any other big terms you wanna touch on?
Terry: I think they’re the main ones we need to cover, so sort of slung around a fair bit, in that conversation. So, let us know if you missed any and you want more on, on that. If you’re in the community, definitely comment under this post and just tell us, like, tell us, explain more about this and happy to do that there if we can.
Ryan: Yeah, definitely throw those up. and then we said we’d share what we took home from this. So what are the big lessons that we pulled away from, uh, that conversation with Lynn?
Terry: Yeah, the big thing for me is that assuming that the way things have happened is the way that will hap will happen is probably naive and probably risky at this point in time because the role that debt and demographics are playing in changing the way the world works is very pronounced right now in this period, in this cycle, because of Lynn talked about that long term debt cycle coming to an end.
and Ray Dalio does a lot of work on this too, around, you know, he’s got a great book called The Changing World Order, and he talks about these mega macro cycles as well. And all this stuff’s kind of happening at once. And so the analogy we talked about in that episode was like literally the game boards being changed underneath our feet.
The rules are changing and who wins and how they win is likely to be different in this little period. in the long, long. Everything holds right? Humans, human endeavor, all that kind of stuff goes in the right direction. But in these periods in history, economies don’t expand. They contract. And when economies contract, people fight over the pie. And when people fight over the pie, things get more volatile.
Ryan: Mm mm Yeah. It’s this, this discomfort with change ultimately. And you know, a big example is likely to be that, you know, you mentioned that the US dollar being the global currency reserve earlier, that this is potentially gonna change, you know, it might move away from globalization, maybe be more relying on, you know, uh, kind of at a, at a country level. But it’s more likely to be that, you know, it might be a shift towards China, for example, and their, their currency being the global reserve. Would you say
Terry: That’s what Ray kind of alludes to. I, I would hate to disagree with Ray , um, but. When I look at what China does, I’ve got this Central bank digital currency. It’s like the extreme, extreme kind of authoritarian sort of measures. I think the worst of the world’s gonna find that really hard, very unpalatable. Ray has a very different relationship to China than everybody else. And so Ray’s gotta be, I think he’s gotta be careful of his own bias there cuz of his experience. I mean, I’m more hopeful that we can actually move to a global reserve currency where nobody runs it. Cuz I feel like we’ve done this experiment and actually when somebody gets to set the rules, they always fucking cheat. So , so how, how about we do something different? You know, that’s, that’s, that’s the hope that I hold.
Ryan: yeah. And obviously that’s, you know, where a lot of people have the hopes for, for Bitcoin, obviously. Uh, but the main thing there is that, unit of measurement that we all use to, to assess values of of things, is likely to change. And it’s gonna change a bit and could change more permanently. And that’s gonna change the way we all do business, the way that we kind of interact and collaborate with money, um, hopefully for the better. I think that’s definitely gonna be the case. I’ll back human endeavor as well.
Terry: So do I I think long term we, we’ll get it right, but in the short term we might have to make a few mistakes to get there. but I mean, the, the analogy here is, okay, the token that everybody’s been competing for in this game board, it’s going to change in how me, in how much of the token there is available.
And it could even change what token we’re all looking for. and so just assuming that the world’s gonna operate off that same token and that game-based system there. That’s where you gotta be really careful at these stages because the US is very indebted and if they keep pushing rates to that point, they will get into a debt spiral and their actual spending on servicing their debt exceeds their defense.
And so, they have to be super, super careful. And the moves I’ve already made so far, they really haven’t engendered trust in that currency at all. Because if they turn off foreign US dollar reserves on Russia, then every other country that’s allied with Russia starts to think, I better get rid of my US dollars.
I better get rid of my treasuries and anything that I’ve got that’s related to the US dollar because they can just switch it off whenever they want, I actually don’t own the money. you know, people are talking about pricing energy now in different currencies. and the only reason the US dollar’s got a whole lot of demand is cuz oil is priced in the US dollar. And so if that changes, then everything changes.
Ryan: Mm mm mm. It’s gonna be interesting. So that’s debt. You mentioned demographics.
Terry: Yeah. So we talked about this, fantastic book. The fourth turning. I think you’ve read most of this. I’ve read a bit of it. and it’s really just talking about how you can sort of expand on this, but it’s about how four generations removed the institutions that exist right now weren’t built by us, and they definitely are not serving us. And whenever that happens to the degree that wealth becomes concentrated as much as it is, then it’s highly likely that the fourth generation removed actually tears those institutions down and rebuilds new ones that are fit for the world that we live in right now. Because the current institutions were built for an industrial society, not an information society.
Terry: there anything you wanna expand on that?
Ryan: No, I’d just expand on the fact that yeah, the poor turnings kind, this exploration of cycles over the last thousand years. And it, you know, you referenced institutions, you know, before that was, you know, empires and, tribes and, and just basically just looking at the cycles of generations, like you said.
And, you know, it’s one around who it’s built for, but it’s also how values change and I guess what it takes to build something up. And then, you know, I guess the type of people that reach that fourth generation, maybe there’s a sense of privilege and whatever it might be. But then also just, you know, different dynamic in the way in which they wanna work and interact. And so there’s kind of this breaking down, like you said. Okay, and so what do you think all this means?
Terry: I guess the, the big thing for me, like really understanding Lynn’s perspective, and same thing with Ray Dalio, and all these types that have done that history and really looked at these cycles and the patterns. we can expect more fiscal policy because monetary policy runs outta gas. It’ll continue to run outta gas, so we can expect more spending into the real economy, which means that prices of things continue over time to go.
That’s why it’s a million dollars for the same home that cost our parents $90,000 in the nineties. so that’s, that’s indicative, expect that to continue. So if you think a million dollars is expensive now for a house, imagine paying three for the same house in another 10 years, that’s a real possibility.
So expect that because monetary policy runs outta gas, and then expect that because of that, the monetary expansion happens, the currency devalues even further, creates more volatility and change happens at a faster and faster pace. that’s kind of what to expect kind of in this period, where the rules are being reset. Basically, the big rules of the game are being reset.
Ryan: And I kind of picture the central bank, causing a lot . Of that volatility with changes, trying to pull those levers and that, you know, I picture them, you know, blindfolded with a pinata, with a baseball bat, just taking a swing , swing swinging from every angle, uh, hoping that something hits and, uh, there’s some candy that falls out of it. Okay, good. So we’re kind of expecting that.
And so, you know, I think that there’s a couple of really big takeaways that, you know, we, we’ve been discussing since that episode isn’t there. And, um, you know, I think it’s kind of just essential and pulling out some of these principles and how it influences our thinking. you know, the most important one, I think, is that you gotta prioritize and own things that are scarce, meaning that they’re hard to create or they’re hard to.
You know, and this isn’t gonna be a new idea, you know, we talked about a lot with Bitcoin in particular and why that kind of stands out in terms of a form of money. but you know, it’s, it’s also thinking about the allocation of your money. You know, the things that you’re investing in. Is it hard to create? Is it easy for there to be more of it generated over time and to, for that to happen quickly at the same time? So if you think about it from a real real estate perspective, you know, you wanna be probably prioritizing, buying land in an area with good infrastructure and facilities where it’s unlikely for there to be more released in that area, close to a beach, something like that.
Versus buying it off the plan unit. Something in a high rise, somewhere in the, you know, in a suburb, something like that. You know, it’s a box of air. Whereas land is the scarce resource. It’s not the dwelling on top of it, it’s the land itself. Um, you know, cryptos mentioned Bitcoin versus NFTs. Yeah. NFTs. It anyone can create one of those, whereas Bitcoin, there’s a fixed supply of it. any other examples you’d have?
Terry: Yeah. I think like we talked about commodities as well. Like gold. Nobody issues gold. Nobody issues silver. They definitely explore and find it. so there are harder forms of commodities. Energy itself. Food is a commodity now that’s gonna be in short supply. And Jeff Food said it right? When the money’s abundant, things are scarce. When the money’s scarce, things are abundant. We’re expecting a world where money becomes more and more abundant, because that’s kind of where we’re at in the cycle. So buy things that are scarce to protect your purchasing power, basically. And the second point that I’d make, you know, we’re talking about buy things that are scarce. It’s just so much more important to be well diversified. And Lyn says it herself right
Lyn: the nineties was a less macro heavy environment, that was more buy equities and chill, right? whereas, this environment, post global financial crisis and especially, you know, the late 2010s going into here, the 2020s, it’s a very macro heavy environment of currencies and commodities and, and crazy yields
Terry: And what she’s saying is basically, look, the time where things are really predictable and it’s going one way, interest rates are slowly, slowly falling over that 40 year period that’s gone. It’s gonna be up, it’s gonna be down, it’s gonna be sideways.
So you need to make sure that you are not too concentrated in one thing. From our perspective, we would love the world where you could just buy a hundred percent equities and be diversified through that and be diversified through business. But. Yeah, that’s gonna be more risky than it was 10 years ago, because of where we’re going. So you need to make sure, yes, equities, yes, real estate, even commodities, and even yourself, like think about your own, revenue streams, diversify revenue streams as much as possible. Get a side hustle, get things going.
and if you are sort of listening to this and you’re like, Oh, this is great, but you know, we don’t actually have that much money anyway, then I would actually use all your money to invest in yourself and make yourself as productive as possible. All your, forget investing. Invest in yourself as much as possible. Make yourself super, super valuable. build skills, build rare and valuable skills that are hard to come by and, you know, heads up, they’re not gonna be found at university. These are the skills that aren’t taught at university yet. specialized knowledge that, you know, it’s at the bleeding edge of something.
So, you know, we’re just talking about email copywriting, right? it’s a very specific skill. the people that know how to do that, the people that do that really well are in very high demand. So you can teach yourself that over a 3, 4, 5 month time timeframe and get mentored by the very best people and then start selling that as a skill That’s way more valuable than sort of going, I’ve got 10 grand, I’m gonna put it against like, you know, six different assets. I would actually just go all into myself. Well do, do you agree or do you have a different view?
Ryan: Yeah, no, I do. I agree. I agree. Yeah, I think you still want, um, gradual progress on the money machine that you’re building. But yeah, the highest return, as we’ve always said, is you’ll get the greatest return from, investing in yourself first. And you know what you can potentially earn. And, you know, if you’re gonna invest a hundred grand and earn a $5,000 income from it, what if you spent 10 grand on a course or a program, or you know, on a mentor and you earn 10 grand in that first year, Yeah, it’s, it’s a much greater return. At the final point I’d make around this, is, we wanna be using debt, but we wanna be doing it thoughtfully. debt.
Ryan: Uh, you know, we have, a lot of us have different associations to what debt is and, you know, it is an obligation to somebody else, but it’s also a tool that allows us to, combat inflation in different ways.
And so, you know, if you think about, when you take out debt, you’re basically taking from future u you’re saying there’s a future version of me that will have to pay that back. What’s important to recognize is, the saving that your future self is doing, won’t buy as much as what your current self is. And so if the price of assets, there’s asset inflation, if you know, consumer price inflation, all those things. if you can draw some of your purchasing power from the future into, into the now, but do that in a very, cautious way, then that is a mechanism that helps you kind of be on the right side of inflation to not be, not be always kind of, uh, going the other way if you like.
Terry: Let, let’s make this really concrete for people. Cause I think it’s easy to, to be thinking. We’re saying you should, everyone should go get debt, but it’s really specific about how you’re using the debt. So let’s give this example, right? Let’s say you’ve got $50,000, okay? And you can put that $50,000 in what you think is gonna be the next hot tech stock, or you can go and put that down as a deposit on a house and secure this house in a very, very highly designed area by young families that are in the right places with a lot of. you are securing a hard asset that you otherwise could not have afforded by yourself, and you were putting $50,000 down.
But as the currency continues to expand, then you actually get to multiply your savings much faster, than anything else because it’s a harder thing. And I guess like in these periods in history, the good ideas, the sexy ideas, they’re not that sexy. People are just really interested in what’s giving me value right now.
And so, yes, I want a roof over my head. I’m gonna pay whatever I need to pay to keep that roof over my head. So if you’re putting a family in it, you’re gonna have a much more reliable income stream than a tech stock. And so in that scenario, right, debt is a much better decision. Is that what kind, what you’re saying?
Ryan: Yeah, yeah, I’d agree with that. Even just if you were just zoning in on, uh, and zooming in on just, you know, investing in shares, for example, there’s a big difference between a tech stock, something that might earn in the future and valued based off attraction of investment versus buying something that’s proven and has an established income stream.
And so, you know, one, it’s about the scare, scarcity, the assets. So being able to store value and knowing that it’s gonna be worth the same or more in the future. The second thing is buying something that has an established income stream, because what people are willing to pay for, you know, buying an income stream is more certain.
If there’s no income stream from whatever that asset is, then people are less certain in terms of purchasing it. Where if I know that I can spend a hundred and earn five year on year versus I can spend a hundred and it might go up in value, maybe, uh, that’s a very different consideration for a purchaser. And so that that actually impacts the store of value in itself as well. so yeah, use debt thoughtfully,
Terry: And also consider how well you can serve as it, how reliable your own income stream is.
Ryan: Yep, absolutely. Absolutely. Yep. so they’re probably the big takeaways for me. any final ones for you?
Terry: No, that’s pretty much it for me, mate. I thought, you know, it was great to be able to have Lynn on and, you know, go into some of the depths of that stuff and have her just, I guess, kind of channel. but to be able to break it down, I think, you know, I feel like it’s important to really understand. And what are we saying?
We’re saying expect more change, expect more volatility. expect that debt and demographic’s gonna be running the world for the next little bit. and the world’s changing the way it plays the game. The rules are gonna change and so you’ve gotta make sure that your own things that are scarce be very well diversified. Use debt thoughtfully with really good, hard assets.
Ryan: Beautiful. Well mate, good to chat again and, um, love it. If guys could rate the podcast, subscribe, maybe drop a comment there around what you might have taken from this episode or even just how you’re kind of using all this knowledge, all these ideas and information to orient yourself, how you’re kind of using it to position yourself going forward. Would love to hear that feedback and um, yeah, look forward to your chatting in the next one. Text,
Terry: Good stuff.