It is well enough that people of the nation do not understand our banking and monetary system if they did. I believe there would be a revolution before tomorrow morning.Henry Ford
The next economic crisis is coming and if you want to understand the situation and prepare yourself, then this post can be a good start because today I will summarize a book called second chance wrote by Robert Kiyosaki.
Kiyosaki is one of the few people who correctly predicted the 2008 financial crisis. During the crisis wealth is not destroyed, it’s simply transferred from one group to another.
If you study history, then you can predict the future and position yourself correctly. This book is divided into three parts. Past, present, and future.
Part 1: Past
In the upcoming minutes, you’ll see how history repeats itself again and again, and how governments simply refuse to learn their lessons.
Kiyosaki talks about two important terms when he is reviewing the past, first is quantitative easing and second is the gold standard under the Bretton wood agreement.
Let’s start with quantitative easing simply means printing money. You might ask why? Don’t you just call it printing money, then well?
My theory is that governments usually use complex terms so that the average person doesn’t understand what’s going on. If you get into financial trouble and decide to print money in your basement, then you would be arrested for that.
However, the government does a very similar thing, but no one says anything: governments usually print money when they’re an economic crisis or when the money’s needed for critical situations such as war. You might ask well, why is printing money so bad?
The answer is every time money is printed, the poor and middle class get even poorer and the rich get even richer. Printing money kills the value of money and increases inflation and taxes. Regular people’s wealth is stolen via inflation.
Inflation is certainly bad for the average person it means the money they’ve worked hard to earn is suddenly less valuable. Now, printing money is not a new trick. It’s been used by governments for many centuries and the scary part is that it always ended with disaster.
There’s no single evidence in history showing that money printing brought prosperity in the long run. It leads to poor people and a bigger government.
That’s ruled by political forces rather than true economic laws. Kiyosaki gives examples from the 20th century, but I’ll go back even further in history and start with the roman empire because the further you look back in history, the further you can see into the future.
When the roman empire was faced with war, they started debasing the currency, which also means printing money. Since silver and gold coins were used as money, they started to melt them and add other metals inside to increase the money supply.
They also tried another version of money, printing called coin clipping, which means when the tax money was collected, they would clip the edges of the coin and then melt all the small pieces in order to create new money.
David used revaluation of currency. That’S when the government took a one coin and then pasted a zero next to the one and suddenly you have 10 coins, but unfortunately, all these eventually led to hyperinflation increased taxes and economic chaos.
After the world war, in Germany, the Weimar republic also started to print money in order to pay high war reparations which led to hyperinflation and eventually brought Hitler to power. If you were a millionaire in Germany in 1918, then by the end of 1923, you were completely broke.
Let me give you an example to understand what german hyperinflation looked like after printing money. Imagine it’s summer and you go out with your friends to drink beer, but instead of ordering one beer finish it and then order the second one.
You order two beers at once. You know that the beer will get quite hot, but you still buy two beers at once, because you also know by the time you finish the first beer, the money in your pocket will lose its value and you won’t be able to afford it the second, this is hyperinflation. This is the disastrous result of printing money.
The Romans did it, the Chinese did it, the English did it. The Germans did it. Zimbabwe did it and it always ended badly and now America is doing it. Governments never seem to learn from monetary history.
Einstein once said insanity is to do the same thing over and over and expect a different result now that we understand what printing money means.
Let’s talk about the end of the gold standard in 1971 under the Bretton wood agreement. This was the event that speeded up the money printing even more.
According to the Bretton wood agreement, the whole world was operating under the gold standard, which means other currencies were tied to the dollar, and the dollar was tied to gold all with a fixed interest rate.
For every dollar in circulation there had to be an equal amount of gold stored in the reserve, so that in case some bank or country wanted gold, they could bring dollars and exchange it with gold and vice versa.
Theoretically, in the gold standard, the government should not simply print money without increasing its gold reserves. However, in reality, America did print money even in the gold standard, and it came to a point that there was a lot of printed money that was not backed by any gold.
So, if people started to demand gold in return for their dollars, America wouldn’t be able to give them their gold. So the next logical step from America’s perspective was to end the gold standard, which eventually happened in 1971.
American president Nixon cut the last ties between gold and the dollar, which meant America could now easily print money as much as it wanted.
Money became a tool in the hands of the government and politicians. Since 1971, america has done three quantitative easings and each time the situation gets worse and worse, printing money is like building a house on sand.
You know that it will collapse eventually, but instead of stopping the construction and finding a solid foundation, you keep building it and when the problem happens, you simply find some way to prevent the house from falling apart once you start printing, it’s very hard to stop it because stopping it means tearing down the house and starting all over again, which is something most politicians don’t want to do during their service and be remembered badly.
So everyone is pushing the problem to the next administration and the show keeps going on. If you want to see the effects of bunny printing, then look at the following factors:
Number one: from 1913 until 2018, the dollar has lost 95 percent of its purchasing power. This makes life difficult for those who work for their money.
Number two: the amount of people on food stamps has reached a very high level. If you don’t know a food stamp is government support for people who can’t earn enough money for living number.
Number three: the middle class is shrinking, but the gap between the rich and the poor is growing.
Number four: the sizes and weight of products in the market is getting smaller, they keep the price the same, but the weight or number of packs inside gets reduced. This is very similar to the coin clipping that we discussed above, but this time it’s happening on products.
Number five: When the economy is in a bubble, stock prices and real estate prices go up and everything looks good on the outside, except the average person is getting poorer.
Number six: look at the interest rates on savings it’s around one to two percent. There is so much printed money in circulation that banks don’t even want your money.
Now you might look at this and say that it’s in America it doesn’t apply to all of us. Well, I think that’s kind of naive.
The world economy is tied together more strongly than ever. Kiyosaki says that around 70 of the world’s currencies are held as US dollars, so the US dollar is the reserve currency of the world. You don’t have to be an economics professor, to understand that if the US goes down, the world goes down with it.
Another dangerous thing is that almost all the world currencies are fiat currencies which means they’re just paper, there’s no gold or really anything else, backing them up and history shows that all fiat currencies eventually return to their original value, which is zero.
There’s not one single bit of evidence showing that the same thing will not happen to the dollar. The dollar has already lost 95 percent of its value. How long do you think it will take to lose the remaining 5?
According to Kiyosaki What we’re experiencing currently is not a financial crisis, it’s an educational crisis, people don’t understand, what’s happening and that’s how governments can get away with printing money and it’s not just the US government, other governments print money as well.
The fact that we don’t learn anything about money in school is not a mistake or an accident. It’s part of the plan in the past. They didn’t allow slaves to read and write, because they were afraid that the slaves would start demanding their rights through education.
The government points us in a certain direction and then that direction is not designed to benefit the average person. It’s designed to benefit wall street and the ultra-rich.
Most of us are being advised to work hard, save money and invest for the long term in the stock market.
Kiyosaki says you don’t have to trust me, but simply think for a moment and compare this advice with the facts we discussed above, and then ask yourself: does it make sense to work hard for money when working hard leads to paying for more taxes and the money you earn loses its value, plus the prices of products go up?
Does it make sense to save money when the government is printing money? Does it make sense to invest long-term in the stock market when the stock market is being manipulated and companies taking a huge portion of the profits via fees?
Kiyosaki says that if you simply start questioning and researching all the things you’ve been told, you’ll soon realize that none of them work in your favor.
Part 2: Present
When crisis happens, the people who suffer the most are the ones on the left side of the cash flow, quadrant employees and self-employed, because these are the people who work for money and they will be the first ones to lose it true.
Wealth is on the right side of the cash flow quadrant people on this side, don’t work for money, they work for assets such as land, real estate, and businesses.
The author recommends transitioning from the left side of the cash flow quadrant to the right side, where true wealth exists, and in order to do that, he recommends choosing one of the four asset classes.
In case you don’t know, the four asset classes are businesses’ real estate commodities and paper assets such as stocks and bonds.
Businesses are the hardest asset class to acquire, but also the most profitable. On the other end, paper, assets are the easiest to acquire, but the least profitable and pretty risky. In the most recent interviews that I’ve seen the author does not recommend investing in paper assets.
He thinks the stock market has become this big casino, where the winners are only the owners. The author’s personal favorite asset type is real estate, but he thinks it would be best if you chose something that you have a passion for.
Part 3: Future
Just to recap what we’ve discussed in previous parts in the first part, we learned that the government prints money and how badly it affects people who work for money and save money.
In the second part, we learned that true wealth is on the right side of the cash flow quadrant.
The number one best way to learn something is by actually doing it, and the second-best way is through simulation, which is what the cash flow game is all about.
We usually only remember about 10 percent of the information through reading or listening, but by adding simulation. That number goes up to 90 percent so play the game over and over, so that everything sinks in and then start playing it in real life.
The author says that there are many cash flow clubs all around the world and people are educating one another. However, some of these clubs are using the game to attract people for their own business and then maybe sell you something at the end, so do your own research, if you plan to join a club.
The author’s second bit of advice is to become an entrepreneur. An employee and an entrepreneur are completely two different people, their approaches and mindset differ a lot.
We usually hear study well and get a good job in a big company, but we rarely hear study hard and become an entrepreneur. That’s why people don’t realize that there’s another option. They don’t even consider it as an option.
We’re trained enough to ask for a fish but not trained enough to catch it. A fish in communism. Government must build houses and provide jobs, but in capitalism, individuals build the economy.
Unfortunately, most people live in a communist mindset and expect the government to take care of everything. The author strongly advises becoming an entrepreneur because taxes and law are written in favor of entrepreneurs.
The entrepreneurs are the ones who are building the economy, they’re, creating the new jobs developing real estate and investing the government needs entrepreneurs. Otherwise there would be no jobs and the government couldn’t collect taxes.
Many people think that becoming an entrepreneur is risky, so they want a secure job in a company, but there’s really no such thing as a secure job anymore I mean most of the jobs are moving to india, the philippines or other cheap countries.
Having a job is actually riskier than becoming an entrepreneur, because when you have a job, you only have one client, that’s your employer. If he fires, you then you’re in deep trouble, but if you’re an entrepreneur who could have many clients.
The third bit of advice is don’t live below your means, expand your means! If you go to a financial, planner, he’ll, look at your expenses and advise you to cut the expenses and quit drinking latte Kiyosaki says well.
Why don’t we look at the other side of the equation and find ways to expand our means so that the price of a latte becomes nothing? Cutting expenses can be a passion, killer, don’t kill your passion instead find ways to feed your passion always ask? How can I afford it?
Advice number four learn how to use debt and taxes to acquire more assets. Since 1971, money has become debt when people tell you to get out of debt, they’re telling you to get out of money.
Well, of course, I’m talking about good debt, which is debt used to purchase assets that put money in your pockets, not the kind of debt that’s used to buy liabilities such as a tv, a car or a nice vacation.
The last nugget of advice, I’m going to leave with you is: don’t be afraid of making mistakes and failing it’s just part of the process, I mean just think about it. How many times did you have to fall before you learned how to ride a bike successfully?
Now, as a disclaimer, I want to inform you, that I'm not a financial expert, and I strongly recommend that you do your own research. What's right for the author or for me can be completely wrong for you becoming an entrepreneur is a tough job, and maybe you don't want to work hard, be under stress all the time and take full responsibility. Maybe you don't care about assets and you're, happy to be in debt and drive around with a Mercedes. It's your life and it's not my business or anyone else's business to tell you what to do with it.