Latest / Money Grows on Trees / #255 - Is Australia Entering a Recession!? How To Protect Your Wealth

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#255 - Is Australia Entering a Recession!? How To Protect Your Wealth · Money Grows on Trees

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We're working so hard to avoid a recession. that
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is actually causing more problems and more damage than a recession
0:07
itself. We've actually had seven consecutive quarters of
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negative GDP growth per capita. So we've been in a per capita recession
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for seven consecutive quarters. That's almost two years. If
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everyone worked for the government, you'd have a socialist, communist style economy. And
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this is no productivity because everyone's on the gravy train. Capitalism
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destroys the inefficient and rewards the efficient. And
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if we're in an economy that doesn't do that, then we're doing the opposite. We're rewarding inefficient.
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I'm Lloyd James Ross, seven-figure investor and entrepreneur, and I've helped
0:36
thousands of business owners and professionals turn financial stress into
0:40
success. If you're stuck in old money habits, overwhelmed by investing,
0:44
or unsure where to start, this is for you. I'll give you the mindset
0:48
and strategies to take control, grow your wealth, and achieve
0:51
financial freedom. It's time to make your money work for you. Is
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the Australian economy entering a recession, right?
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Is Australia entering a recession? And how to protect your wealth if
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it is. So if you stick around to the end, I'm going to give you the six ways
1:06
where you can protect your wealth during a recession. But before we
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jump into that, I need to clarify a few things for you. So hit the subscribe button
1:13
and I'll do that right now. I'll wait. Hit
1:17
the subscribe button so you get the next episode when it comes bang, bang, bang, bang, bang,
1:21
and you get notified, all right? So there's some really cool episodes coming up, by the
1:24
way. So buckle up for this one. What is a recession? I need
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to clarify this because people are so frightened of a recession,
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especially politicians, because they don't want to have a recession on
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their report card from when they served in office. So for
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many, many years, in fact, for 22 straight years, Australia
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avoided a recession. It was a long, long, long streak until
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of course COVID forced a recession upon the world and
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it broke that streak. But seemingly this word recession
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just strikes fear into the hearts of
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everyone who hears it. And I think the most important thing in this episode is
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to explain to you what a recession actually is. And it's actually not that
2:03
crazy. People often think it's some depression. They
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think of the 1920s. They think if you hit a recession, everyone's going
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to be starving on the streets and in a bread line. I think that's the
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picture that the public has been painted in terms of what a recession is
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by the media. But it's actually not that. It's very simple. It's
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two technical reductions in GDP over consecutive
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quarters. That sounds very complex, doesn't it? So let me rephrase that.
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It's two consecutive quarters. So obviously the years split
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into four quarters. It's two consecutive quarters of
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negative GDP growth. And GDP is the gross domestic product.
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So how much the economy has grown for
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that particular quarter in terms of how much money it makes, right? And
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so If you get two consecutive quarters, then
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we're in a technical recession. Technically, we're in a recession. And it's
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quite interesting because if you were growing, let's say at 5% GDP,
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which is very robust growth, and it fell
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from 5% down to 4.91 quarter, and then
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4.8 the next quarter, we're in a recession. But a 4.8% GDP
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growth rate is fantastic. It's incredible. So
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just because we're in a recession, we're falling in growth. People freak out. But then
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what happens if it regrows? We're good. So not every recession is
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like a depression. There's a difference between a recession and a depression. And we've had
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some fairly deep recessions. We had a deep recession in Australia in the 90s. The
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recession we had to have, as Paul Keating said. And we've had some recessions. We
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had a recession during COVID. We had a recession during the global financial crisis.
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So we've had a series of recent recessions historically. And
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we will always continue to have recessions. I promise you that. We will. So
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it's not going to be something we're going to be able to avoid, but it seems like we
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want to avoid recessions like the plague. And
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the hardest part about that is that we're working so hard,
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which I'll explain in this episode, we're working so hard to avoid
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a recession. that it's actually causing more problems and
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more damage than a recession itself and it's very akin
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to the metaphor of a bushfire so
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like when a jungle gets over or jungle or forest or whatever it
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might be the outback gets overgrown it
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can start to strangle itself a little bit and it can start to be not
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as productive in terms of the ecosystem And
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so what happens naturally, naturally, is bushfires
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burn through a forest and they get rid of all the foliage
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and so they get rid of all the dead wood and then it clears the
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forest and then new green shoots come out and the forest
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reinvigorated and regrows. stronger and
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better. And if you look at that in terms of an economy, we've
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got all these like old, failing, non-profitable businesses,
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very unproductive businesses in Australia. We've
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got unproductive policy and regulation. And like a forest,
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we're strangling ourselves because we haven't had a bushfire come
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through and get rid of all these, you know, low productive, deadwood
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businesses, deadwood assets. And
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even the spending and the debt that people carry, we've
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become very anemic in terms of our growth because we
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haven't had this bushfire. And that's why Paul Keating said we had a
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recession we had to have. So we do have to have recessions. Recessions
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are part of a normal growing economy. And
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it's very much like a business. Like if you have a business, And
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if you look at the actual compensation history
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of a business, so if I pulled up our Stripe accounts for one of our businesses, or
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I looked at our compensation plan for our network marketing business, or the
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share portfolio we have, you're gonna find that it's
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like this. It's not a straight line. It's very, you
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know, it goes up for a while and then you have low growth and you grow again. And
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every business goes through a growth phase and maturity and then a decline and
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then it goes again. So the economy is effectively that
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at scale. So if you scaled up your small business, like
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let's say for example, you got a hairdressing salon. Not every
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quarter in your hairdressing salon is just a record quarter. I'm
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sure you go through times where perhaps it's in
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winter, it's cyclical a little bit, or it's seasonal, where you'll have
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a really robust growth quarter and then it'll come off the ball. Maybe you'll have
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two consecutive down quarters in growth. You go through a recession in
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your business. So if we scale that up to a country Why
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would we ever anticipate or expect Australia, or any country for that
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matter, to go through perfect, straight growth?
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The only thing that does that, or has done that, is Bernie Madoff's Ponzi
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scheme. And so if we've got a straight line like this in Australia, we're
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kind of building a Ponzi. Why? You can't have that type of growth.
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The real productivity gains come from when we're down and out, and we recalibrate our
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businesses, and our finances, and our
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regulation, and we then prepare for the next growth phase. And
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we haven't had a recession really in Australia. We're so afraid
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of it that we're pulling all these policy levers to
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prevent it and all it's doing is kicking the can down the road. It's going to make it
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worse. It's already making it worse because as you'll find
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out in this episode, we're actually in a per capita
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recession now and so if you're feeling like you're a little bit poorer and it's harder, it's because
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it is. because we're doing everything we can to avoid the
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bushfire that's gonna come through, but we need that. Every
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capitalist economy will need some sort of recession to
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reset itself, okay? So, that's what a recession is.
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I don't know why we're so afraid of it. I guess it's
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like when you get given something and you get it taken off you, it hurts. So,
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when you give people a ton of money and success for 10 years or whatever it
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might be and then you take it off them, They're gonna be annoyed.
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And politicians for that matter, like they hate it the most because if
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you get a blemish on your record as a prime minister or
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the political party at the time, the other party can just slam you like, hey,
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they took us through our first recession in 20, like it's
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very, you know, politically heated. And
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the mainstream media jumps on it like it's, you know, they're all over it.
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I'm fairly certain that the media themselves don't even know what a recession is. That's just a
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recession. You see it on the papers, right? That's probably why you clicked on this episode. You're
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like, oh, we're going to a recession? I want to see what Lloyd's got to say
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about this. So there you go. So I've got some data here. I'm going to share with you a
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couple of things. The first thing I wanted to just explain is what a recession
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is, OK? And then I'm going to explain briefly what a
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per capita recession is because we're in one. So
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a per capita recession is if you take the
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GDP growth or decline over the two consecutive quarters
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or even a quarter, you'll see that the
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GDP divided by, or the GDP growth
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divided by how many people are in the economy will
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give you a per capita. Per capita just means per person. Recession, so
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it shows you that per
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person, the, We're effectively less
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productive. Our growth is slowing per person. And why that's important is
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because at a citizen level, it affects you personally. So
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that's why you're feeling perhaps you're growing less in your business, you're growing less
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in your assets, in your wealth. It's a little bit harder per person. So
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we're in a recession per capita because I looked at this and I
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was like, wow, I didn't know it was that long. We've actually had seven
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consecutive quarters of negative GDP growth
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per capita. So we've been in a per capita recession for
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seven consecutive quarters. That's almost two years. So
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we've actually been in a recession really for the last two years. And so
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what your greatest fear is, oh we're going to get a recession. We've
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been in one for almost two years. So here we are. So
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our worst fears of Trans Biden come true. And really
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all that happens and you may have felt this is you may have to tighten the
9:45
belt a bit. You know, perhaps you just got to change your spending habits a little or
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it might be a bit more competitive at work or things are a little bit more expensive. Yes,
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I'm sure you've felt that. So we're in one. So as a country, I
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feel like I'm the type of person that addresses my problems
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head-on. So for example, if I'm seeing that our growth in our
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business is going to go through a decline, any of our businesses, I start cutting
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some of the costs, I try to be clever with how much or what we're doing
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to bring more income in, being more productive in the business, so actually
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making difficult decisions. That's really what it boils down to. It's like, well,
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we're going to go through a decline, I've got to make some difficult decisions. Right?
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I mean, it happens in anything. If you're going through a challenge in your relationship, you're going
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to make some difficult decisions. You're going to have a difficult conversation. It's the same thing
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as a country. If we're going through this process where we're going into
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a recession, we've just got to make some decisions. And unfortunately, we
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don't get to make those decisions for the country. The political party has to make
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them. And unfortunately, the one we've got doesn't make any decisions. They
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haven't... There's no leadership here. Kind
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of makes you want to get into federal politics, doesn't it? But then you get into
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the fold and then you get infected by the fold.
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So it's not as easy as that. Anyway. All right, so
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we're in a per capita recession, seven consecutive quarters. In
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March it fell 0.4%, June in 2024, 0.4% it fell, September
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it fell by 0.3%. So we've got this happening,
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right? Now there's two reasons why this is happening, two
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reasons, okay? The first reason is low productivity, which
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I'll explain why that's coming and how that's happening. And the second thing
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is, More people. So if you have more people coming
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in, you're dividing the denominator in the equation by
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more, you're going to have a lower number. So
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if we're bringing in more people through immigration, we're going
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to have less GDP per capita because this is more people. So
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if the denominator is higher in the equation, we're going to have Effectively,
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it's why it's causing a per capita recession. More people need more jobs.
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More people need more public services. More people need more housing. I'm
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not a big proponent of mass immigration. It destroys the
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citizens who are already there. But I am a believer in immigration. So
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I'm all about growing a country through immigration, through net
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migration, or obviously through natural births. And
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a growing population is great, but not unchecked. immigration
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to then throw them into low productivity jobs, which I'll explain. So I'm
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all for immigration, but we don't have to go crazy with it, right? It's the same sort of
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thing. Like if you're inviting your family out for Christmas, you want
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them to come, but you don't want all of them to come at the same time. Like
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imagine if like 55 of you family go, oh, we've got one house. We've
12:23
got no beds. That's kind of what's happening. Like, yeah, I want people to come, but
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not everyone at once, right? And certain people and for certain reasons and
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so forth. So there's two things, low productivity, the first thing that causes it, and then
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the second thing, more people. So let's look at low productivity, all right? So
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we look at jobs growth here, and we look at where
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the jobs are growing to show what productivity gains we're gonna have with
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jobs growth. Now, what's really interesting about this is recently in the June unemployment rate
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rose to 4.3%, and it just shocked every
12:51
economist like, what? I thought unemployment was going to
12:54
fall. They weren't expecting a rise in unemployment. It's kind of
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surprising actually because you're bringing more people here and you're maxing out the jobs already.
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We're a low productivity country, you're not going to have a lot of people fulfilling roles.
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So you're seeing already that immigration and unemployment
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are connected. So you're bringing more people, not as many jobs, of course unemployment
13:12
goes up. Now, what's interesting about this is the part that is most important
13:16
about productivity is where are the jobs? because
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if you want to have a highly productive country, you put them into growing
13:24
sectors in the economy. Generally, it's through business activity, innovation,
13:28
and effectively non-government jobs. That's where you get a lot of productivity because
13:32
we all know having dealt, if you've ever dealt with a public, with a
13:35
government, Entity of any kind, you know,
13:39
how incredibly ineffective and low Efficiency
13:44
they are, you know, like you go to any deal with the government anything is this
13:47
efficiency is terrible So the same sort of thing happens in jobs.
13:51
It's just not a highly productive space, right?
13:55
so you look here on the in the data the amount of employment and So
14:00
private sector or public sector jobs has come from the ABS. There
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were a total of government funded roles
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such as healthcare, education, public administration. In
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2024, there were 373,100 jobs
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added. In the private sector, so the market sector, so it's a business driven employment,
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where it's the most productive because of capitalism. It's
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approximately 113,900 jobs. So
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77% of all jobs created last year were in the government. In
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this really non-productive, it's not creating
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anymore, it's just facilitating and servicing the people here. And it's
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being paid by the taxpayer. So what happens when
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that happens is that everyone in the economy including
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the public sector, but those private businesses building all this new growth, a
14:54
lot of their tax revenue is getting thrown into the government
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funded jobs. So we're almost robbing Peter to pay
15:01
Paul a little bit. And when that happens, you get low productivity gains.
15:05
Okay, this is the way it works. And so for example, if everyone
15:08
worked for the government, you'd have a socialist communist style economy. And
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this is no productivity, because everyone's on the gravy train. It's
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a little bit like having You know, like let's say is a family business and
15:19
only anyone who worked there was in the family. And
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of course, you're going to have family members that are lazy, that trying to
15:26
take advantage. And you think about those who are working in government, they're
15:29
not there to be productive. A lot of people, I'm
15:32
not saying just government, but people in a employment style that
15:36
are unchecked in terms of their review and so forth. They're trying to
15:39
do as little work as possible and make as much as possible. That's the human nature,
15:43
right? That's the incentive structure. government-style roles. I'm not saying all of them.
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So if you're in government, don't freak out like Lloyd hates. The incentive systems in government and
15:49
the checks and balances just make it inefficient. You
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know, they hold people they shouldn't do for too long and because they're
15:56
funded by the government, there's no natural attrition
16:01
in the sector. So, for example, if certain quotas aren't hit, no
16:04
one loses their job because they need certain roles to be filled and so
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forth. So, you do get a very inefficient economy when
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you're piling people into the government sector.
16:14
And you don't really want a full socialist government or communist government. There's a reason why
16:18
when the Berlin Wall, if you're wondering why, if you're someone who's like, well, we
16:22
want more socialism and power to the people instead of
16:25
the rich people and more government jobs and communism yeah
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I don't know where this came from but it seems to be more prevalent today than
16:31
ever in the 50s you get arrested for that type of talk but there
16:36
was a reason why when the Berlin wall fell that
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people from the east fled to the west When
16:44
the Berlin Wall fell, there was no one running from the West to
16:47
the East. Does that make sense? There's no one running from South Korea
16:51
to North Korea. Like, oh, I hope I can go to North Korea. That
16:55
looks like fun. No, it's not how everyone's
16:58
trying to flee. They're trying to get away, right? Just quickly, if
17:01
you're ready to take control of your finances but feel stuck on where to start,
17:05
I have a solution. My book, Money Buys Happiness, simplifies
17:09
investing and wealth building with practical steps to help you achieve financial
17:13
peace. Get your copy via the link in the show notes and let's get your
17:16
money working for you. Now back to the episode. We want
17:19
as many private sector jobs as
17:23
possible. We want as much business market type jobs as
17:26
possible. We certainly don't want 77% of them going into the government
17:29
sector. No way. Not for a productive, healthy economy. And
17:33
the reason why that's happening too, I think, is well
17:37
without doubt if you when you're immigrating a lot more people you're
17:40
going to put pressure on the health care system the infrastructure and public
17:44
works you're going to so for sure you need people to feel roles
17:47
to then service those people coming in but i also think the
17:51
immigration minister and obviously the prime minister and the
17:54
government they all talk and they say well look we don't really want a recession in our books here
17:57
so can we just bring some more people in and can we just give some more jobs to
18:01
the government sector so that we can prop up the employment numbers so
18:04
we can keep the momentum going in employment because no
18:07
political party wants to say well unemployment spiked during my prime ministership right
18:11
so they're kind of in cahoots Let's give more jobs. And
18:14
of course, if you have things like the NDIS program happening, you're
18:18
creating, you're funding this particular sector,
18:22
you're gonna find a lot of people coming into that to fill roles because it's
18:25
a created thing by the government, right? So anyway, the reason
18:28
why that causes a per capita recession is because there's more people coming, right? So the next
18:31
part is the immigration component. And you
18:35
can see they're very, very closely related, okay? If we look at now
18:38
that that unemployment's gone up recently. Now they're threatening
18:42
a cut at the reserve bank because unemployment's
18:46
going up. We can't have that happen at all. I mean, no one wants to lose
18:49
their job, but when you're immigrating people, it's just gonna happen.
18:52
It's a by-product. So here we have the next part of the equation. So low productivity is
18:55
the first thing, and it's the type of jobs being created that create low productivity. So
18:59
we've established that too many government jobs are creating a low productive
19:03
economy. The next part is migration. And so in the year ending
19:06
June, 2024, So the last financial
19:10
year, the net overseas migration into Australia, the
19:13
net, so that's like immigrant arrivals was like 667,000. The departures were 221,000. There's people that
19:17
leave here too, 221,000 left. The
19:22
people that are left over is net migration, and
19:26
it's 446,000 people. Now what's interesting about that is it was down
19:31
by a lot, probably about 20% it looks to be.
19:34
It was down by 20% from June financial year. So from June 2023, it was 536,000. June
19:38
2024, it was 446,000. So you see it did drop, which is, what
19:47
you really want. If you're a citizen in a country and you have
19:50
all the wonderful natural resources that we have, you should be happy not
19:54
to have a lot of migration, truly. There
19:57
are countries in the world that don't have a lot of net migration and they have wonderful lives. It's
20:01
not the be all and end all. I think that the lobbyists and
20:04
certain people in certain sectors like the property sector, they lobby
20:07
hard for more people because they know it's gonna pump up prices and
20:11
that's what they want, right? It's just the greed factor that causes it. That was that year. Now,
20:14
what's interesting about that is since then, it's gone, it's gone back.
20:17
Well, it's certainly not gone back, but it's risen a little bit. So it's
20:21
like 447,000, 448,000 are coming in in the last year or
20:25
this year specifically. So we're seeing a lot of migration
20:28
come in. And everybody knows, I've done episodes on this before. If you haven't seen some of the episodes, go
20:32
back and have a watch of them as to why this is a problem. in
20:35
our country. But of course, if you bring more people in, then especially
20:40
if you're giving away 70% of jobs to the government, you're
20:44
going to have a lot of people coming in and joining the government. It's like just join
20:47
the gravy train. And they're not providing any efficiency
20:52
to the economy. Not in sectors that grow our GDP, right? It
20:55
just sucks. It just takes more tax revenue from every single person
20:59
to facilitate their employment. And it's what's causing this
21:03
per capita recession. Now, what will happen over time
21:06
if we don't fix this is we're going to go through actual recession. There's
21:10
two things that the government can do. There's two big levers that
21:13
they can pull to prevent a recession. The
21:17
first and biggest lever they pull is the interest rate lever.
21:21
It's, or any what's called monetary. So the two levers are monetary policy
21:25
and the other lever is fiscal policy. Monetary policy, that
21:29
lever is effectively where they can move interest
21:33
rates to, so monetary policy is where if you pull the lever, you
21:36
flood or restrict the economy with money. That's called
21:40
a monetary lever policy, right? And some examples of
21:43
that are, if you move interest rates down, it makes debt cheaper, it
21:47
makes savings accounts less effective, and people spend more money.
21:50
So when they drop rates, they stoke the economic fire
21:54
a bit, and they release money through the low interest rates into the economy.
21:57
Because anytime someone borrows money from the bank, money's created. Or,
22:01
with the monetary policy, they pull the lever, and the government spends
22:05
more money. So when there's government spending, that's a monetary policy tool.
22:09
And then the third one is they're also buying bonds. Okay, so
22:13
quantitative easing is when they're doing that. So if the government's buying bonds, they're quantitatively
22:16
easing the economy, they're releasing more money into the marketplace. So there's three
22:20
things they do. It's interest rate. It's government spending,
22:24
and then it's quantitative easing, okay, quantitative easing. So
22:27
those three tools they pull are monetary policies. And
22:31
they pull them if they wanna invigorate the economy and
22:34
grow it. So recently, if you see in the news,
22:38
oh, the cash rate or the interest rate, the Reserve Bank, the
22:42
RBA, the Reserve Bank of Australia, it's the Fed in America. Every
22:46
country has like a central bank. You'll see in
22:49
the news, interest rates are 3.85%. That doesn't mean your
22:52
interest rate in your bank is 3.85%. 3.85%, the
22:56
RBA rate is the rate at which banks borrow
23:01
and lend with each other. It's the overnight rate. How
23:05
that affects you is it dictates the retail rates that the
23:08
bank sets. So if the bank can borrow from other banks or institutions at
23:12
3.85%, it can then lend out to you at 5.8% and take
23:16
a 2% margin. It's called the net interest margin. And it's how banks make
23:20
money. So a bank will borrow at 3.8%. It'll re-lend
23:24
at 5.8 and it takes a 2% net interest margin and
23:28
that's effectively how banks like CBA and Westpac and so that's how
23:31
they make money, okay? So what will happen is if you see in the news, oh, interest rates
23:35
are gonna fall That's because the government's pulling
23:38
the monetary policy lever to flood the economy with
23:42
a bit more money. Got it? They are also spending
23:45
a lot of money, too much money. You can tell
23:49
this, if you get your tax return for the year, this is a fun exercise, and
23:52
you hold it up, On the back of your tax return, you turn
23:55
it over and you'll see exactly, they break it down where
23:59
they're spending your money. Let's say for example you
24:02
got a $25,000 tax bill. You'll see $10,000 in health. You'll see $4,000 in military. The biggest one is,
24:05
you'll probably see $5,000 in health. 3,000 or
24:14
4,000 meals a day and you'll see 10,000. Like where the hell has that gone? Welfare
24:18
systems. That's the government just giving the money, right? It's
24:22
social security, it's all those things. And it's old
24:25
age pension care. So a lot of your money is going there, but what
24:29
happens is the government, if they're spending money, your
24:33
taxes will go up. There's
24:36
no such thing as free. They go, oh, everyone's going to have free
24:40
health. Nothing's free. We all pay for it through our tax.
24:43
So you'll see when the government's spending through monetary policy lever, you'll
24:47
see it come up in your tax, right? And they love to spend money because there's
24:51
no checks and balances. There's no one holding them accountable. You say they're
24:55
held accountable when you go and vote, but the reality is this is not
24:58
the way it is. they're going to pull that lever. And also, if
25:02
they want to do quantitative easing, which is what they did during COVID, they'll also
25:05
do that to flood more money into the market by buying bonds, okay? When they buy a bond,
25:08
they put money into the bondholder's hands, and that's how they do that, right? And
25:12
so, Well, they'll be pulling one of those levers.
25:15
And when they do that, they stoke the economy. So at
25:18
the moment, if you see them going to drop rates, then they're
25:22
trying to restoke the economy to avoid a recession. The issue
25:25
with that is any of those monetary policies or levers they pull,
25:29
they stoke inflation. And so yes, you
25:32
can have 3.65% interest if
25:35
you want, by the way, if they take 3.85% and
25:39
they drop it to 3.65%, your savings on
25:42
a million dollar loan mortgage is $200 a month. It
25:47
helps, I know, it's 50 bucks a week. You're
25:50
going to find you're going to pay $8 for a coffee then. So it's robbing
25:54
Peter to pay Paul. You're going to find if they do that too much, inflation
25:58
rises, it's going to hit you anyway. It's a pernicious tax. So you think
26:01
you're saving money because the rates are lower. But then you get hit with cost
26:05
of living. You go to the supermarket and lettuce costs you so much money because
26:08
of that. So you've got to be careful what you wish for. People are
26:12
jumping up and down. I saw someone the other day jump up and down when someone cut
26:15
the interest. They were doing dances when they cut interest rates. What the hell? Yeah,
26:19
so yeah, you can have lower rates, but you're gonna get $8 coffees. So
26:23
I don't think that those particular monetary tools are effective. The other
26:26
side of the fiscal policy lever that they can pull is how they manage
26:29
the tax. So if they shift tax regulation,
26:34
they can also stoke the economy. And I really feel personally, that
26:38
would be the lever that I would pull if I was in power, because
26:42
it incentivizes businesses. And
26:45
businesses are the bedrock of an economy, in
26:48
my opinion. Big ones and small ones and medium-sized businesses. So if you pull
26:51
that lever, like for example, Melly in Argentina, he's
26:55
got this wonderful tax lever that he pulled. Check this out.
26:59
Anyone who's in business, they don't pay tax
27:03
up to $75,000 of their first amount of money. That's an amazing incentive
27:07
for businesses. So he's pulling the tax lever. Also, if they
27:11
reduce taxes, across the board, they're also able
27:14
to release money into the economy through incentivizing business
27:18
activity to do it rather than just flooding the economy with a monetary policy
27:22
over here. So instead of just giving cash like that, or
27:25
alleviating opening it up, they can actually incentivize businesses
27:29
to produce more by reducing the tax revenue, but they don't want
27:32
that because we want more tax. They're just trying to get so much tax, but
27:35
if they pulled the right fiscal tool, I think they would fix the efficiency of
27:38
the economy. So anyway, I don't know how I got into that, but it's important that
27:42
you know these things. So to avoid... The
27:45
recession, they pull a monetary tool, a lever, they pull a fiscal
27:49
lever, or they flood people into the
27:53
economy to prop up the population growth. And that props up
27:56
things like rents and it inflates the economy effectively,
28:00
which does do certain things to reduce the chances
28:04
of a recession. But if you've got, especially if you've got unemployment going
28:08
up and the RBA goes, let's drop rates, you're going to avoid a
28:11
recession. So it seems to me like the
28:14
objective of the government right now and has been for the last few years
28:18
is no matter what we do, let's avoid a recession
28:22
because we can't have it on our car. And so what's happening is we're getting
28:25
all this inflation, rent's out of control, housing's out of control, lettuce
28:29
is out of control, coffees are getting out of control. And
28:32
it's not good for the citizens. I'm a big proponent and
28:35
as they should have left rates at 4.1% and
28:39
letting unemployment go up a little bit and some people to default because people
28:43
are in poor financial condition because they've made poor financial decisions. And,
28:48
you know, unfortunately you gotta, you got to pay
28:52
for those bad decisions that you made that weren't effective like if
28:55
you went out and borrowed to the hill to buy multiple properties and
28:58
you're struggling that's a stupid thing you'd like why did you do that what did you
29:01
think was gonna what did you expect to rub down in a shiatsu like That's
29:06
what happens when you make dumb financial decisions. And even businesses that
29:09
unfortunately are being propped up by this anemic economy, this
29:14
fake growth, they probably shouldn't be in business anymore.
29:17
We need to have defaults. We need to have businesses being
29:21
wound up. That's capitalism. It destroys, capitalism destroys
29:25
the inefficient and rewards the efficient. And
29:29
if we're in an economy that doesn't do that, then we're doing the opposite. We're rewarding inefficient.
29:33
It's a little bit like you've got kids at home and the one that behaves well,
29:37
you take off them and the one that doesn't behave well, you encourage them. That's
29:40
effectively what is happening. I don't think it's good for the economy. So
29:44
how do you avoid or what do you do? How do you navigate? What are the six steps
29:47
that I mentioned that you can do to navigate this per capita recession or
29:51
navigate the next recession that is gonna come, which it may well do.
29:54
Because if they pull this monetary lever and drop interest rates, and they drop
29:57
more and more and more and growth doesn't come, then we hit
30:01
a period called stagflation. This is what happened in the 1970s. You
30:04
get rising inflation, no productivity growth and no GDP growth,
30:08
and all of a sudden you have no more levers to pull. And you get stuck
30:12
in an anemic growth pattern. for the foreseeable future where
30:15
it really sucks. And Japan has been stuck in there for like 30 years.
30:20
And what's interesting about that is for that 30 year period, Japan has
30:23
had no housing growth. It's been a real, they've called it lost decade, but
30:26
effectively it's the lost three decades. And they've really paid for
30:30
that. And so we don't wanna fall into a period of stagflation, which
30:33
will happen, right? I think, hopefully it's not
30:36
going to happen with us, but we have a lot of resources here that per
30:40
capita that we can get out of it. So best way to navigate it. One,
30:44
build a cash buffer. So three to six month worth of expenses will
30:48
allow you to have some liquidity if things get a little bit challenging. So if
30:51
you've got that boat, that second car, that
30:54
second property investment that's losing money through negative gearing, and
30:58
you're waiting for capital growth to offset it, which it won't from here going
31:01
forward, in my opinion. Then the answer is go
31:05
sell some stuff and build up this cash buffer. When companies get into trouble,
31:08
they liquidate some assets. That's how they get back ahead. So build three
31:12
to six months of expenses for emergency. That's the first step. Second step, slash
31:16
your high interest debt. So if you've got credit
31:19
card debt that's not producing any income and it's like 17 or 18 percent
31:24
then perhaps sell some of those things to pay that off because it'll
31:27
give you more free cash flow at the end of the month okay third thing i
31:30
would say diversification is important so the third step is to diversify
31:34
but i would say not diversify necessarily just
31:38
assets. You know, people talk about going to bonds and so forth. I think just
31:41
having a cash buffer is a fine diversification. Diversify your income
31:45
would be the area in diversification that I would go
31:49
with. So like, for example, if you're anticipating a flood, the
31:52
idea is to build an ark based on the biblical story
31:56
of Noah before it floods. That
32:00
would make sense. In the story of Noah, I'm
32:04
pretty sure he started building the ark like 70 years before the
32:07
flood. So God's telling Noah, build the ark, build the ark. He's building this ark. And everyone's like, you're
32:10
a crazy person. What are you doing that for? It's not even raining. And
32:13
this is how people approach their finances. They wait for the storm and the
32:17
rain to pour. And it's like, oh. Oh, it's
32:21
raining. Oh, there's a flood. Oh, maybe I should build a boat. Well,
32:24
if you try to build a boat in the water, it's very hard. I
32:28
don't know if you have, but it's not an ideal place to build a
32:31
boat. Where do they build boats? On the land when it's dry and then they put them in the water. Diversifying
32:35
your income now would be akin to building an arc before
32:39
it rains. So if you're anticipating or shivers, what happens if
32:42
these monetary policy decisions they make aren't going to work for us, and
32:46
we're getting more people, it's more competitive, what do I do? Go get a
32:49
second income. Develop a second income. Work
32:52
evenings, weekends, now's the time. Now, now, now. Build
32:56
the arc before it rains, not after. Fourth step, lock
33:00
in an effective strategy. So this is part of the strategy. So it's like
33:03
locking in these are the steps I'm gonna take, yes? But then
33:07
voice it with your spouse, have a plan, say, hey, I just watched Lloyd's thing
33:10
on YouTube episode about maybe we're gonna hit a recession. Honey,
33:14
things might get a little bit trickier. Why don't we implement this strategy and
33:18
stick with it, right? So lock it in and execute that strategy. This
33:21
is an interesting one too. We put this up, put some notes before this. It's like stay vigilant and
33:24
informed. But basically stay informed on what's
33:28
happening so you can make decisions. Because how you make financial decisions is
33:32
you get data, And then you based on the data, you
33:35
make a decision. And I think what happens to people's finances, they make kind of reactive
33:38
emotional decisions with no data. It's like, if you're not looking at your bank
33:42
statements every month, you're not looking at the economic
33:45
data that's happening, you're not looking at your private business, you're not looking at your real estate, you're
33:49
not looking at things, you're gonna not be able to make effective financial decisions.
33:53
Like you'll be making emotional ones, right? That's why
33:56
it's important to have a plan. Step number six is to, if you haven't done so, educate
33:59
yourself. in the realms of finance and money so that
34:03
you can understand what to do when either there's a
34:06
recession, there's opportunities, or what to do if there's a recession and you find
34:09
yourself in a bit of a bind. Either which way you go, you have
34:13
to understand the basics around money and
34:16
financial literacy to make better decisions, which is why
34:20
you're here listening to this channel, which is amazing. So well done for jumping
34:23
in here and listening to this all the way to the end. in terms of how to,
34:27
what a recession is, how to navigate it
34:30
and educate yourself because it will help. A small little bit of
34:34
information and you educating yourself and leveling up will
34:37
make such a massive difference to your financial future as you go along
34:41
but also to your kids and it's just so, it's such a good use of
34:44
your time. So if you haven't done so yet, hit the subscribe button,
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34:51
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34:54
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hitting the subscribe button. We're growing in subscribers. It's so much
35:01
fun to see. But I love the comments and if you haven't seen yet on our show, I
35:05
go in and reply to almost every... every comment and
35:08
there's some really funny ones. If you go to the comments and check it out and if you're someone who
35:11
wants to leave a funny one or a savage one,
35:15
be my guest. I do come and reply even to the savage ones. There's a guy the other day left
35:18
a comment just absolutely just roasted me. I was like, oh he's probably a good
35:22
person. Hey, you want to go for a coffee? I left my mobile number there. So and
35:25
I'm I don't care. I'm a very transparent dude. So, if you
35:29
want to leave a savage comment, I'm probably just going to leave my mobile number and say, hey, let's go for coffee. Because,
35:33
you know, you're not a bad person. It's just, we have different opinions and
35:36
I think it's important that we can talk about those opinions. So, if you
35:39
don't agree with me, please leave a comment. And the savager, just... Go
35:44
for it and I'll come back and I'll reply. And I
35:48
don't hold back either. So if you want to fight me, go to the comments and fight me. But
35:51
if you want to leave a fun, encouraging comment and you agree with
35:54
me on these things, also leave a comment. So I thank you for those who
35:58
have done that. There's a guy the other day that bought our book, our new book, Become Time
36:01
Rich. And he actually bought the book and he read it and he left a comment and
36:04
he goes, You know, you hear the people that
36:07
do channels and you buy their book and it's full of blah, blah, blah. And he said,
36:11
I actually read the book. He was just really good. So I said to him, well,
36:15
you know, if you send me details on Instagram, I can shoot you a
36:18
signed copy. So there you go. Bit of an incentive for
36:21
you if you want to buy the book. So there you go. So I hope that makes sense. Leave
36:24
us a comment below, hit the subscribe button again, and go and check out
36:28
the previous episodes I've done around the Australian
36:31
economy. But this, the stuff I'm talking about applies to most other Western economies
36:35
as well. So if you're in the States or in the UK, the same sort of democratic capitalist
36:39
countries, we have the same tools, we're playing the same game.
36:44
So it does apply to those countries as well. And got
36:47
some really cool, episodes coming up, right? So make
36:50
sure you go forward and check out the next ones if you've
36:53
enjoyed this. So thanks again for tuning in to the Money Grows on Trees podcast. I'll
36:56
see you in the next episode. Thanks for listening to Money Grows on Trees. If you
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