The Everything Crash Is Coming
Since 1987, the world economy has been blown into “The Everything Bubble.”
This is because in 1986, the U.S. government changed the rules for investors with the passage of the Tax Reform Act.
Literally, billions of dollars were lost.
The investors who lost the most were speculators who had purchased high-priced real estate. They made their purchases with the assumption that the price of real estate would go up and the government would always give them a tax break for their losses.
In other words, the government was subsidizing the difference between the rental income and the higher rental expenses. After 1986, that all stopped.
After the rules were changed, the stock market crashed, savings-and-loan institutions went broke, and a huge transfer of wealth occurred between 1987 and 1995 as professional investors scooped up the remains of poor investment decisions by those who were high-income earners like doctors, lawyers, engineers, accountants, and architects.
The next major event was the dot-com bubble and subsequent crash from 1999 to 2000.
And the most recent event was the global financial crisis in 2007-08, which was triggered by the subprime mortgage crisis and the collapse of the U.S. housing bubble.
Do you know what bubbles always do? Pop!
So the question is, could we experience another transfer of wealth again?
I believe so. Today, the cost of everything we want is cheap. Television sets, clothes, and toys are cheap. The cost of everything we need is expensive. Education, healthcare, housing, and food are expensive. The stage is set for the biggest crash in world history.
When will it happen? No one knows. Maybe tomorrow, maybe five years from today. Maybe 10 years. It’s tough to say what will trigger it. It could be anything, much like the single snowflake setting off an avalanche. It could be a military war, a trade war, or a small country declaring bankruptcy and defaulting on its debt.
I am concerned that the end is near. The biggest crash in world history and the next great depression may be just one snowflake away.
What Happens When The Bubble Pops?
As I said above when a bubble bursts some money is transferred.
Most of the losers are average investors who drank the Kool-Aid of “invest for the long term.”
Sometimes investing for the long term works and sometimes it doesn’t. When money changes hands from winners to losers, money is not really lost. The loser lost but money did not really disappear. It just changed hands.
Second, when markets crash, people need cash so they’ll sell whatever they have that is liquid—usually gold and silver—and that’s when you see the prices go up.
Gold, Silver, and Bitcoin
Although a crash is my favorite time to buy, the market’s immense pessimism also makes it a tough time to do so. Your family and friends, possibly even your financial advisor, will think you’re absolutely crazy and try to prevent you from “making a big mistake.”
I remember when we bought gold at $275 an ounce in the late 1990s. The so-called experts were eschewing gold in favor of high-tech and dot-com stocks back then. But we knew we were getting an incredible value. Today, with gold about six times that, I’d say we certainly made the right call. Thankfully we trusted our instincts and followed the strategy that has worked for us time and time again.
Like gold and silver, bitcoin is also a direct competitor of the central banks—which is why I buy all of them.
Whenever there is chaos in the world investors get afraid and look to move their money and investments into the safest place. That place is considered gold by many.
Second, gold is outside the Federal Reserve and its heavy-handed manipulations. As the Fed tries to manipulate the dollar, the stock markets, and real estate it causes an infection. An infection of our assets. The safe place from this infection is to invest in the world outside of the Federal Reserve, mainly gold, silver, and Bitcoin.
One of the greatest characteristics of silver is it’s affordable enough for most and it has a huge upside. Silver is more important than ever as it is used in electronics, technology, and as a powerful anti-bacteria, which in the “Corona-Verse” we live in today, is a huge reason to look at silver.
People will also be lined up warning that “investing is risky.”
However, the important detail to note is that not everyone defines “investing” the same way. Many amateur investors bought into the real estate market when it was hot, prices were soaring, and they invested in the hope that home values would keep going up and up. They probably had plans to flip the property and make a quick $50k. Investing for the purpose of capital gains instead of cash flow is the very definition of risky—and not the type of recession-proof real estate investing I’m talking about.
As I mentioned, the people who were hurt most from the 1986 tax law change in the U.S. were the average-joe investors who were following the advice of their accountants. Unfortunately, when it came to investing, they were sloppy Joes.
Generally, crashes aren’t that bad, but the emotional panic that occurs at the times of such financial downturns is. The problem with inexperienced investors is that they have not yet been through a real bear market, so how would they know what a market crash and a bear market feel like, especially if it goes on for years?
As with many things, those with experience are in the position to win.
Rich dad simply said, “It is not possible to predict the markets, but it is important that we be prepared for whichever direction it decides to go.”
He also said, “Bull markets seem to go on forever, which causes people to become sloppy, foolish, and complacent.”
Today, times are pretty good for investors.
Because it will come, and while it’s easy to make money in a bull market, only qualified investors will make money in the next bear market.
Take advantage of this time to invest not only in the markets but also in your financial education. It will pay big dividends when others are losing it all.
Editor, Rich Dad Poor Dad Daily