Your Money Is Losing Value | DO THIS NOW

What's up you guys? It's Graham here. So today we gotta have the talk. I understand this might be a bit uncomfortable for somebody to listen to, and it's not easy for me to talk so openly about this, but everyone needs to learn about this at some point because it's something we're all going to experience at one point in our lives.

So with that said, I have to explain where inflation comes from, because recently the Federal Reserve has come on record by saying that they're about to ramp up inflation as an effort to keep our economy out of a deep recession. That will absolutely have a direct impact on the value of your money and how much you pay for everyday items, because soon things might start to get just a little bit more expensive.

Now we don't want you to freak out over this and be like, "That's it! I'm just investing in gold and crypto. I've had enough!" because that might not be the right answer. But it is really important to understand how this works, what's going on, how this impacts you, what this means for your money, and how you could use this information not to lose money. Or alternatively, you could use this information to make you money. Well, I guess if you're not losing money, maybe you could say you're making money. I don't know. Whatever you want to do with this information, this information is good for your money.

But before we get into it, really quick, if you wouldn't mind just inflating the like button for the YouTube algorithm, it greatly helps me out a lot. You could print as many like buttons as you want just by making it turn blue once. So thank you so much for doing that. It means a lot! Make sure to subscribe as well, and with that said, here's the video.

Now what initially caught my attention was this headline right here: "The Fed is expected to make a major commitment to ramping up inflation soon." I have a feeling when people read headlines like this, they're left scratching their head, wondering why on earth would the Fed want more inflation?

See, for anyone who's not aware, what inflation is: that's when the price of goods and services ends up going up, while the value of your money stays exactly the same. That means it's going to cost you more to buy things in the future than it's going to cost you today. So given that, why is this a good thing? And why would the Federal Reserve want this to happen?

Well, all of this really comes down to a term known as deflation, which, as you would expect it to be, it's the opposite of inflation. This is what happens when the price of everything around us goes down, and all of a sudden the longer we wait to buy something, the cheaper it becomes because our money has more purchasing power in the future.

Now you would think that this would be a good thing for all of us, right? Like, after all, who wouldn't want to buy that $75,000 robot dog for like $50,000 in the future, right? That would be cool! Well, I hate to be the bearer of bad news, but I'll tell you who doesn't want that to happen: Jerome Powell and also pretty much every economist out there. Because deflation is not a good thing to happen, and if it does happen, it could mean disaster for pretty much all of us watching this video.

That's assuming I'm watching this video, which I guess I'm watching it because I'm making the video.

But let me explain: it's not a good thing. In a deflationary economy, the prices of goods and services are going down, so every single month, things become cheaper to buy, and you feel good knowing that the longer you hold on to your money, the more valuable it becomes. But what actually ends up happening is that people just stop spending money because they know their money is going up in value.

So they hold off from buying anything, which causes demand for those goods and services to go down, which causes prices to go down alongside with it. To incentivize people to spend money, which further means people are not going to spend money because they see the price just continuing to go down, which then causes businesses to scale back because they aren't making as much money, which then causes them to reduce their employees, which causes people to lose their jobs.

This causes people to have less money to spend, and that just starts a vicious cycle of endless deflation that will send us into a much deeper recession. Think of deflation kind of like a first domino getting pushed over that continues to push down everything else in its path. Once the dominoes begin falling, it becomes really difficult to stop the chain reaction unless you take immediate response to pull out the stops ahead of it and end it as it is.

Which is kind of like where we are right now. We're at a point in our economy where deflation is a very real and serious concern. As it's reported right now, our inflation rate is only 0.6% from the year prior, meaning for every $100 you've kept in cash, you've only lost 60 cents of value over the last year relative to what you could buy with it.

That's approaching a very dangerously low level, especially considering just how much money has been injected into the economy. And even then, we still haven't reported much inflation at all, which is a bit worrisome. But the reason for that right now is that people are not spending money, and because of that, there's no upward pressure for prices to increase and for inflation to occur.

It's kind of like trying to fill up a bucket all the way to the top full of water, but there's a whole bunch of holes in the bucket right now that are leaking water. That's a bit like our economy right now; each hole represents someone who's not spending money, and right now we got a lot of holes.

Now, in a normal economy, the Fed would print more money and that bucket would overflow with inflation. But right now, there's so many holes in that bucket and so much of that money water is just being stashed away. So the Fed could basically pour as much money into the bucket but still not cause it to overflow.

But by now, of course, you're probably wondering: "But Graham, why does the Fed even need inflation? Why can't their money just be worth exactly the same every single year?" Well, that's a great question that I just implied you asked me, but in reality, I just asked myself as a way to segue into this next part. So I hope you enjoyed that transition. We'll call it that, and this is why the answer might surprise you.

Now, inflation on a small, controlled scale is a really good thing. If people know their money is going to be worth just slightly less in the future, it's going to incentivize them to spend it now. Because otherwise, if they wait too long, they're going to be able to afford less of whatever they want to buy.

It's good for the economy, it's good for business, and it's good for wages because employers can afford to pay just a little bit more each and every year as their revenue increases alongside with it. Inflation also reduces the cost of debt. So anytime someone takes out an auto loan or a mortgage, or a $26 trillion worth of national debt, you know that you're taking on an obligation today that's going to be worth less in the future as inflation eats away at it.

That promotes more borrowing and more spending, and that in turn keeps our economy growing. Even with our national debt, if inflation is 2% and the interest rate is 1%, we could reduce our effective national debt by 1% each and every year that we don't pay it off thanks to inflation. It's kind of like magic!

It's also important to understand that it's a good idea to constantly introduce more money into circulation as the population grows. More people hold on to money, some people spend it, and allowing more money in circulation allows people more access to capital. All of this really just centers around the idea that spending money is good.

I know that goes against the philosophy of my channel, but hear this out: the more money people spend, the better it is for the economy. The more money flows back to us hypothetically, and if we have an inflation rate that's steady and predictable, we can continue growing at a relatively normal pace without any concern.

Consider inflation a little bit like being on a treadmill that moves at two miles an hour. If the treadmill didn't move, we would just stand there and get fat. But when the treadmill moves just a little bit, it's a nice push to keep us moving forward.

In fact, throughout history, we've always experienced inflation, and there's only been a few times in the last 30 years where we've experienced deflation, which usually happens around recessions. Like if we see this graph right here, inflation stuck around 1% in the 1960s. It spiked in the 1970s as we got off the gold standard. It spiked even higher in the 1980s to over 13% as a result of the oil crisis and government overspending, and then it's seen a slow and steady decline throughout today.

But where this gets interesting is that when you line up the inflation rate with the federal funds rate, which is the interest rate that the Federal Reserve sets, you could see that as inflation moves lower, so do their interest rates. That gets people spending enough to make inflation reach a reasonable level. Then as inflation rises too much, the interest rates go back up so that people spend less and our economy doesn't lose too much value.

These two are very well connected, and overall the Fed tries to aim for an average of a 2% inflation rate each and every year. So now, the Fed is trying to take some action for there to be inflation because otherwise, if there's not, it could be a bit disastrous.

And here's what they said: the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation. To achieve that goal, officials would pledge not to raise interest rates until both the inflation and employment targets are hit. Or in other words, the Federal Reserve wants there to be more money introduced into the economy.

It wants people to spend more, and them openly talking about inflation and wanting more inflation means that assets like stocks, real estate, and precious metals might continue to climb in value. Even Goldman Sachs just recently reported that the stock market rally may not have been optimism of growth, but rather optimism on inflation. Or in other words, investors are not putting their money in the stock market right now because they believe it's undervalued, but instead, they're worried that inflation might eventually get out of control with all the government spending.

So they're buying into safe assets like stocks and real estate, hoping that the value of those are going to rise over time alongside inflation. But once inflation begins increasing past 2% a year, the Federal Reserve may then increase interest rates to try to put the brakes on things.

That means even though prices might begin to slow down at that time, everyone who was able to lock in a low-interest rate loan would be patting themselves on the back because they were able to essentially get a free loan and ride up the markets at no cost to them.

Now, as far as what inflation or deflation means for you and I and what we could do about it, the answer isn't exactly easy to come up with. In the short term, deflation could very well happen because businesses are shut down, people are not spending money, and no matter how much money the Fed injects into the economy, there needs to be a viable way for people to spend it.

Otherwise, there's not going to be inflation or, if you have nowhere to spend it, so you just invest the money instead, then all of a sudden the investments rise in value.

However, the expectation is that long term, once the economy begins opening back up, people are going to begin spending money again. With so much money loaded into the economy, that might cause inflation to rise too quickly, too soon. Many people also theorize that inflation is happening right now before our very eyes, just not in the way that you think.

Even though core inflation was only 1.2% recently and food prices have increased 4.5%, assets like stocks, real estate, and precious metals have seen an incredible surge between March and today. That leads people to think that maybe inflation is happening right now, but the inflation we're seeing isn't in goods and services; it's in investments.

For example, we have the same amount of money to invest with, but all of a sudden, $100 today buys you 40% less than it did back in March. Flat out, things cost more to invest in today. That leads me to believe that the best thing you could do right now in the short term is to make sure you have 6 to 9 months' worth of your expenses saved up in cash, preferably in a high-interest savings account somewhere.

Then, once you did that, just consistently invest back into the markets, whether it be stocks, real estate, or anything else that should rise in value alongside inflation. Some people might also suggest to invest in precious metals like gold or silver, but I am personally not a fan of investing in precious metals long term because I am the type of person who likes to invest for 20 or 30 years at a time, and I never want to have to worry about an asset class like precious metals underperforming in the long run.

If things continue to get worse over the next few months or next few years, we could very well see deflation in the short term, and interest rates have also been the lowest they have ever been in history for anyone who wants to go out and lock in a long-term loan or go and buy real estate.

But given how committed the Federal Reserve is from keeping us away from deflation, which wouldn't be a good thing for us, it bodes well that investing over the long run is going to continue to rise in value. But remember, in the short term, anything is possible. At this point, the stock market may as well be just as likely to continue going up as it is going down.

I have no idea—I’m not psychic—and trying to time the market like this is a bad idea. But given the last 100 years of investing data available to us, investing over a 20-year time period has never once produced a negative result, and that's probably the best choice of action for most of us if you believe we're going to start seeing more inflation once the economy starts reopening.

And there you have it: that's what's going on right now, that's why the Fed actually wants inflation, and that's what you and I could do about it.

By the way, I filmed this next clip about a week ago, but I didn't have a chance to put it in a video yet. I figured I would just put this here for you to enjoy. I had a caller on my second channel, The Graham Stephan Show, and that guy coordinated with my colleague Jack to send me a gift that he said he just wanted me to unbox on camera. So this is that unboxing, and, uh, yeah, it's quite the shock. Enjoy!

All I know about this package is he says I'm really gonna like it, and I need to open it up on camera. This is intense. It's not heavy, though. Vitamin and amino acid supplements.

Then we've got a Starbucks gift card here. I don't know how much is Starbucks—wait a second, this is for coffee!

Alright, okay, so let me read it out loud: "Please accept this gift as a token of my appreciation for having me on your channel and giving me goals to hit and come back for future videos. I had 13 rentals with a few deals in the works; this was in February. Now I have 31 units, 100% rented—wow!—with 8 under construction and the land to build 170 more. Thanks again, Graham! I made the unboxing a little more fun, and do not forget to check the back of what's inside the box. Yes, my fiancé is jealous of your gift. She told me to tell you hers is used, and she never gets this much thought put into a surprise."

There's more—what's in a McDonald's bag?

It's a very own brand for you; is it—what? It's a Rolex box?! I'm nervous. That's—scared to touch it, seriously. Holy [ __ ]!

I know what to say. You know what it says in the back? What?

Oh, this is 2 million subscribers! Yeah, he's here now!

I'm not tearing up! What the—Graham, the man who can talk and talk into completely speechless! I don't even know. I don't even know what to say! I don't even know if I could accept something like this! This is—wow! Thank you!

So funny thing—Graham had been talking about getting himself a Rolex for his 30th birthday. Yeah, I did. You got here and you didn't want to spend that on the watch.

That's true, so this is something. Yeah, so this is something—I thought about getting myself a Rolex for my 30th as like some celebratory thing, but then when it came down, it was like I'm not going to spend the money. It's too much money to get a Rolex; it's—it's—wow, on your 30th and—yeah, 2 million subscribers for like what—days apart?

Yeah, it's true!

So, jeez, okay! So, you know what, I'll get some close-up shots here. But it's it's got—it's a stainless steel with a blue dial. The blue dial's nice!

So I'm just editing this right now, and I gotta say just, seriously, a huge thank you for something like that. I mean, I've never—as you could tell—I had never received a gift like that before. I'm truly, seriously speechless.

But anyway, rocking the watch! So thank you so unbelievably much! You guys are going to see me wearing this watch a lot more often now.

So I really hope you guys enjoyed that, and Grant, thank you again for doing that. Like seriously, that's something I would—I would never really do for myself, so I mean that's something I'm going to keep forever.

I mean that—that now is going to be a keepsake for me. So I'm still—I'm still at a loss for words on what to say about that. But seriously, thank you so much.

And still—still at a loss for words on what to say about it. But thank you seriously. Thank you so much!

And of course, with that said, you guys, thank you so much for watching! I really appreciate it! As always, make sure to hit the like button, subscribe button, and notification bell.

Also, feel free to add me on Instagram; I post pretty much daily, so if you want to be a part of it there, feel free to add me there. As on my second channel, The Graham Stephan Show, I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that.

And lastly, if you guys want two free stocks, use the link down below in the description, and Webull is going to be giving you two free stocks when you deposit $100 on the platform, with one of the stocks potentially worth all the way up to $1,400!

So if you want those two free stocks, use the link down below. Let me know which two free stocks you get! Thank you so much for watching, and until next time!