Brief Summary
This video discusses why house prices seem to keep rising despite the increasing cost of living and stagnant wages. PK Gupta argues that the decoupling of currency from the gold standard in the 1970s led to exponential growth in the money supply, causing real inflation to be higher than reported and debasing currency. He suggests that investing in land is the best way to keep up with inflation and currency debasement, as it is a scarce asset. He also touches on the harsh reality that the property market is increasingly dictated by the wealthy, leaving the middle class struggling to keep up.
- Decoupling from the gold standard led to unlimited money supply.
- Real inflation is higher than reported, wages are not keeping pace.
- Currency debasement increases the value of real assets like land.
- The property market is increasingly dictated by the wealthy.
Introduction
PK Gupta introduces the topic of why house prices continue to rise despite the increasing cost of living and stagnant wages. He acknowledges that many people question the sustainability of the property market and whether it's a bubble. He aims to address these concerns with patience and empathy, recognizing that without a substantial property portfolio, these questions are valid. He mentions that he will share charts and data in a future episode to support his points.
A quick history lesson…
PK discusses the decoupling of currencies from the gold standard in the early 1970s. Previously, currencies were pegged to gold, limiting the money supply to the available gold reserves. The decision by central banks to decouple currency from gold allowed for the printing of money independent of any real asset. This shift was driven by the desire to support an increasingly consumerist society, enabling the creation of money that wasn't tied to a tangible commodity like gold.
Real inflation is not what you think
The decoupling from gold led to a significant spike in the money supply, causing inflation. While wages have grown at a rate close to the Consumer Price Index (CPI), the real inflation is different from what the Australian Bureau of Statistics (ABS) reports. The ABS has changed its definition of inflation multiple times, and if the original definition were maintained, the average inflation over the last 20-30 years would be higher than reported.
Exponential growth rate in the economy
PK explains that the amount of money in the world today is exponentially higher than it was in the past. This exponential growth is due to the injection of money into economies to alleviate economic crises. This currency debasement means that the value of real assets increases beyond the rate of inflation. World Bank studies suggest that unless you make a 7-12% return on investment annually, you are merely treading water due to the combined effects of inflation and currency debasement.
Invest in land to keep up with inflation
To keep up with inflation and currency debasement, PK advises investing in assets that fundamentally hold value, such as land. Unlike currency-tied investments or commodities, land is a scarce resource, similar to gold. By investing in something that cannot be created unlimitedly, its value is likely to increase as the global money supply grows exponentially. He uses Zimbabwe as an example of hyperinflation, noting that while Australia's inflation is slower, it is still occurring.
A Harsh reality: property market dictated by the rich
PK addresses the question of how the average person can afford property in expensive cities. He states the harsh reality that there are enough wealthy people whose assets and cash flow are rising exponentially, which dictates the real estate market. He observes that even during economic downturns, luxury events like the Australian Open still see record attendance and expensive tickets. He argues that the fortunes of the real estate market are increasingly determined by the rich, while the middle class is becoming price takers rather than price makers.
Predicting a social calamity
PK concludes that wage growth has no correlation to house price growth due to inflation and currency debasement. He suggests that house prices have not actually risen in real terms when adjusted for these factors. He predicts that this trend will worsen, potentially leading to social unrest as the gap between the rich and the middle class widens.
Conclusion
PK expresses his desire to focus on truth and encourages viewers to share their thoughts and further research the topics discussed. He invites viewers to leave the word "truth" in the comments if they want him to continue discussing these issues, which are often ignored by mainstream media and property pundits. He states that he no longer prioritizes making money and wants to talk more about truth, regardless of whether it benefits his business.
