11/13/24 Gold IRAs, Tariffs, and the Crypto Shift: A Dollar Debate with Dr. Richard Gearhart

The Moneywise Radio Show and Podcast Wednesday, November 13th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management instagram: MoneywiseWealthManagement Guest: Dr. Richard Gearhart, Professor of Economics at CSU-Bakersfield website: https://rgearhart1.wixsite.com/csubeconomist

• 0:00Speaker 00

  From the padded radio room off Stockdale Highway, here is Money Wise. Call or text in at 661-396-1000.

• 0:09Speaker 01

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• 0:30Speaker 02

  Securities offered through SEF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SEF Investment Advisors, Inc., SEF Securities, Inc. and Money Wise Wealth Management are independently owned and operated.

• 0:40Speaker 00

  Now, let's start the Money Wise Show.

• 0:42Speaker 03

  Welcome to the Money Wise Show. We are live from the padded radio room off Stockdale Highway on ESPN's Bakersfield, 1230 AM, 101.1 FM, and always streaming at MoneyWiseGuys.com. You can call or text into the show 24 hours a day at 661-396-1000. I'm Sharad Waitin, sitting here with me is...

• 1:02Speaker 04

  Latroy Dinkins.

• 1:03Speaker 03

  Latroy Dinkins, welcome to the show.

• 1:04Speaker 04

  How you doing?

• 1:05Speaker 03

  I'm doing great, how are you?

• 1:06Speaker 04

  Hey, my mouth is feeling a little bit hot right now.

• 1:09Speaker 03

  Yeah, I was gonna say, no sweat.

• 1:10Speaker 04

  Yeah, right. How was the wing challenge, Stevie?

• 1:13Speaker 00

  It wasn't too bad.

• 1:15Speaker 04

  Wasn't too bad, right?

• 1:15Speaker 00

  Wasn't too bad until you get about the eighth or ninth hot sauce.

• 1:19Speaker 04

  The eighth one was the hardest.

• 1:20Speaker 00

  That one was tough.

• 1:21Speaker 03

  We're talking about the wing challenge, that Money Wise had its first annual Hot Ones Wings Challenge in the conference room earlier today. And Steven and Latroy, you guys took it like, no problem.

• 1:33Speaker 04

  I had my shades on, so.

• 1:35Speaker 03

  Yeah.

• 1:35Speaker 00

  Which was awesome.

• 1:36Speaker 03

  But you're still both sitting here. I was starting to, I was worrying there, when we started to get to the upper numbers of those hot sauces, if you guys would still make it, but...

• 1:44Speaker 00

  I started to tear up a little bit, but...

• 1:46Speaker 04

  Yeah, he was tearing up.

• 1:46Speaker 00

  We're all good.

• 1:47Speaker 03

  Yeah, we're super good. Excited for today's show. Here in a little bit, we'll have Dr. Richard Gearhart, Cal State economist, perfect timing. We were gonna have him on last week, just after the election, because we want to break down the new potential economic policies that are coming down the pipeline. How much of, how much of this should we worry about, or, or not? We'll break that down with Dr. Gearhart. Your heart in a minute. But before we do that, I want to get to a couple of messages. 661396100 is the number you can call or text. Send in the messages to that number. Do you have it there, Latroy?

• 2:20Speaker 04

  Yeah, I see here. You sent me the message.

• 2:22Speaker 03

  Yeah, I'll read it. I'll read the first one here. It says, what is, what is a gold IRA? I've heard national commercials talking about them being safer than most IRAs, but didn't sound true. LOL. All right. So, perfect. I want to talk about this.

• 2:38Speaker 04

  Let's talk about it.

• 2:39Speaker 03

  And I want to be a little sensitive because there are advertisements all the time, especially on radio, especially on AM radio, where you hear, it's something that says, the line goes something like, it hasn't lost money in a hundred years, or it can't go down to zero. Or are you tired of losing your money in the stock market? Go to something that can't lose, where you can't lose everything. Basically, something like that.

• 3:04Speaker 04

  That's a predatory statement.

• 3:06Speaker 03

  Yeah, we're not allowed to say those things in our industry, our regulated securities industry that we are a part of. That's because there's, there's, there's risk involved in everything. If somebody tells you it's risk-free, like, just turn around, walk away, is, is our opinion. So what is a gold IRA?

• 3:25Speaker 04

  That's gold. A gold IRA is basically gold, which doesn't have any intrinsic value.

• 3:31Speaker 03

  It's, it's an individual retirement account invested in gold.

• 3:34Speaker 04

  Gold, yeah. In my opinion, you might as well be concentrating on individual stock, if that's the case. If you're gonna just put all your eggs in just one basket, that's basically what you're doing.

• 3:43Speaker 03

  Yeah, you're putting it into a commodity, which, let me give you a reminder of the history of gold. The reason why there's a, and this will lead us to a discussion of cryptocurrency, so buckle up. There's, it's, it's the same conversation, it's the same pitch and commercial that I've heard for 30 years, which is essentially playing on the fears of some apocalyptic economic event that's going to require all of us to completely shift the way that we buy and sell goods and services. Before cryptocurrency, it was gold. Why? Well, you gotta go back in history a little bit. It wasn't until 1971 that gold had a fixed price. So from the early 20th century to 1971,

• 4:29Speaker 03

  the United States government set gold at about $35 an ounce. And this was fixed as a way to bring stability because we had our currency, the dollar, which was sort of pegged to that. Then there came the period of deregulation. So essentially, you had, let's call it 40 years or so, where gold was trading at about $35 an ounce. Fast forward to 1970s to the early 80s, started to have deregulation. The United States abandoned the gold standard, and it started to be traded and the price was floating freely. So of course, what we saw is the surge in price of gold per ounce go from $35 an ounce in 1971,

• 5:12Speaker 03

  and it peaked at about $850 an ounce in 1980. So we saw a big rise in about 10 years of the price of gold. And the annualized returns for the 1970s, you know, exceeded about 30%, but it wasn't sustained. Essentially, gold prices peaked in 1980 and then started to decline. So for about 20 years, gold hovered between $300 and $400 an ounce. So you essentially had almost a no return, a zero return or close to zero

• 5:53Speaker 03

  or slightly negative in real terms for gold after it peaked in 1980. Okay, so now you fast forward to the 2000s. During the 2000s, gold experienced another boom. We had economic instability. There was the financial crisis. And gold rose to, from about $300 an ounce in 2001 to about $1,900 an ounce in 2011. That gives an annualized return during that period of about 15% to 20%. During that during that decade. Now, if you go the last roughly 10 years, gold prices have sort of fluctuated between that 1,800 and $2,000 an ounce,

• 6:34Speaker 03

  bringing an annualized return of about 5%. So if you look at the long-term average of gold going back 100 years, about 4 or 5%.

• 6:43Speaker 04

  Oh, I know something that's better than that.

• 6:44Speaker 03

  Yeah, like you mentioned, like the stock market, which is averaged about 9 or 10%, but doubled what gold has during that time.

• 6:53Speaker 04

  Yes.

• 6:53Speaker 03

  Now, I know what people are saying. They're going, yeah, but if all hell breaks loose and the economy falls apart, the US is destroyed, and the dollar is no longer good, we're gonna, what else are we gonna have? We're gonna have our gold storages and our gold that we have, that's what we're gonna use to pay for things.

• 7:11Speaker 04

  And that's the biggest catalyst. You know, when when those rumors come out like that, that's why gold is up.

• 7:17Speaker 03

  That's right.

• 7:17Speaker 04

  The gold is up right now.

• 7:19Speaker 03

  But that in there lies enormous, there are, there are challenges with that, that the country, for a society to go back to a gold standard, or where gold becomes then the currency, it's impractical. It doesn't, there's no pathway towards that without it taking, I don't know, generations and many changes. And in the meantime, people are starving because they're trying to trade something to buy toilet paper or water, right? Or whatever it is that they need. And so there are some problems with that. Now, therefore, a gold IRA is very risky.

• 7:59Speaker 04

  Yeah.

• 8:00Speaker 03

  Because you're essentially, I don't know what you're betting on.

• 8:03Speaker 04

  You're concentrating on one thing. That's, number one, you got that risk right there, right? Gold in itself has its own systematic risk.

• 8:12Speaker 03

  Yeah.

• 8:12Speaker 04

  Because once gold, any sort of commodity go down, then they all go down. So.

• 8:16Speaker 03

  Yeah. So you have that, the speculative concentrated risk in one security. You have high fees and costs. There's setup and custodial fees when you're involved, like precious metals, you have shipping, insurance costs, storage fees, you have liquidity and selling. Selling constraints. Sometimes there's limited liquidity and how you sell it. And then not only that, but you have selling challenges and costs with trading and getting rid of some of these real assets that were invested.

• 8:45Speaker 04

  And what are the fundamentals behind it? What are the earnings? What are, you know, some of those type of things, you know? There's none of that behind it. So that tells me that gold is controlled by human sentiment. How people are feeling, a lot of emotions are running high because we think that Armageddon is coming. So we just start buying gold and guess what? Hence it goes up.

• 9:07Speaker 03

  Right.

• 9:08Speaker 04

  Right? And then it comes down. It's cyclical.

• 9:10Speaker 03

  So, and it's just, and it's just based off of sort of emotional perception rather than... Now, gold does have a little bit of intrinsic value because there is some value for filling teeths, teeth cavities, electronics. Like, gold has a use. You can actually do something with it, but it's not $2,000 an ounce worth. It's $2,000 an ounce maybe because in part people are expecting it to continue to grow for some reason. And for some apocalyptic event that might happen. So now let's talk about crypto.

• 9:42Speaker 04

  Yeah.

• 9:42Speaker 03

  Because...

• 9:43Speaker 04

  Even worse. I mean...

• 9:45Speaker 03

  Even worse, right? Because it's, now at least, what intrinsic value does cryptocurrency have?

• 9:51Speaker 04

  Retail.

• 9:52Speaker 03

  Whatever somebody else on the other end of that transaction is willing to pay.

• 9:56Speaker 04

  Still has no big institutional endorsements behind it. There's nobody, you know, you got Bitcoin and Ethereum. They got just a slight, I think probably like 2% of institutional endorsement with it.

• 10:07Speaker 03

  Yeah.

• 10:08Speaker 04

  And I know that Trump is, you know, trying to have it stand out a lot more and attract more institutions.

• 10:14Speaker 03

  Yeah.

• 10:14Speaker 04

  But there's, there's nobody, this is just all sentiment. This is all feeling and emotion.

• 10:19Speaker 03

  It preys on people's emotions. Investors can get preyed on, the biggest motivator for people is their fears.

• 10:26Speaker 04

  Yeah.

• 10:26Speaker 03

  And so if you're presenting something that appears to do away with those fears and give you some guarantees that you think are guarantees, then that's what they're preying on. But it's generally, it's those who are not... literate in investments. And so you can get taken advantage of, which leads me to something I want to talk about with you. It's similar lines and you hear this advertised on radio all the time. Bank on yourself.

• 10:51Speaker 04

  Oh, my God.

• 10:51Speaker 03

  This idea of banking on yourself.

• 10:53Speaker 04

  Is that the index universal life?

• 10:55Speaker 03

  It's usually an index universal life insurance policy or a whole life or a permanent life insurance policy. And this banking on yourself is another thing that just drives me crazy. Because for 99% of the people out there, it's not worth it. It's, it's, uh, it's not appropriate for the average person to invest their, their money in a insurance product as a way to somehow get some tax treat favorable treatment. Where you can borrow against your own assets inside a crappy investment, investment essentially.

• 11:32Speaker 04

  And then you jump through all the hurdles because it's not really used, used for that.

• 11:36Speaker 03

  Right.

• 11:36Speaker 04

  It's not used to be treated like a stock portfolio or anything like that. Or a mutual fund or ETF.

• 11:41Speaker 03

  Exactly. It has, so yeah, you have, I've always compared universal life or, or whole life policies to essentially,

• 11:52Speaker 03

  you're only going to, there's very few people that it's going to benefit. It's, it's neither a really great investment nor a really great insurance product. Because you have, if you separate the two, and now you just have an insurance product that is designed to just pay for life insurance that's needed for your family, for your own personal needs.

• 12:14Speaker 04

  Or estate.

• 12:15Speaker 03

  Or estate.

• 12:16Speaker 04

  Taxes.

• 12:17Speaker 03

  Then look at term insurance because it's, it's cheap, it's efficient, it's straightforward. There's very few times where you have to start thinking about permanent insurance that you think you're going to have for the rest of your life. Unless you are in estate tax or gift tax situation. But now we're talking about.

• 12:33Speaker 04

  18 million?

• 12:33Speaker 03

  18 million. Per person, by the way. And if it's a married couple. And so you have very few people where it makes sense where they have an estate or death tax issue. So separate your life insurance, go with the, the inexpensive term and then invest properly. Invest in, in through a diversified portfolio, through your 401k.

• 12:57Speaker 03

  You're gonna have, now you're sort of separating those two things. If you need to borrow money for your, like, you don't need to borrow money from yourself because you got, you should have savings built up.

• 13:09Speaker 04

  Yeah.

• 13:09Speaker 03

  Or you could borrow from your 401k if there is an emergency there. But just this banking on yourself and these kind of commercials.

• 13:16Speaker 04

  Yeah, it's nuts.

• 13:17Speaker 03

  So nuts. Don't get taken advantage. Public can get fleeced so easily.

• 13:22Speaker 04

  We got time for this last question right here, too?

• 13:24Speaker 03

  Yeah, go for it.

• 13:25Speaker 04

  Says what kind, this is what kinds of expenses can I pay before year end to get more tax deductions? And are there any risks with how I time my income and expenses? Thank you, Money Wise. Please pass on our love and prayers to Gero's family.

• 13:38Speaker 03

  Uh, thanks for the love and the shout out and prayers for Gero's family. We just saw Gero a couple nights ago.

• 13:44Speaker 04

  Yeah, Monday night.

• 13:45Speaker 03

  We had Monday Night Football.

• 13:46Speaker 04

  I don't want to talk about Monday, though. Let's get that.

• 13:50Speaker 03

  Yeah, you don't want to talk about it as a Rams fan. But thanks for the shout out for Gero continues his recovery and his therapy. So, thank you for that. In terms of the question, though, Latroy, year end tax deductions. How can somebody, and what are some of the things somebody can consider in their personal life in terms of deductions before the end of the year?

• 14:14Speaker 04

  Uh, you know, like some depreciations. And that's all based on, you know, what, if you're running a business personally.

• 14:25Speaker 03

  Personally, you have, if you, here's the thing, is a lot of people, the standard deduction for your tax return, a lot of people aren't over that limit where you're writing out all of the things that you can deduct.

• 14:37Speaker 04

  Itemizing.

• 14:37Speaker 03

  You're not itemizing them out. But if you are itemizing out your deductions, or you're trying to calculate, okay, how much have I contributed to certain things?

• 14:45Speaker 04

  You got qualified charitable distributions, you know.

• 14:48Speaker 03

  Yeah, contributions to, so if you're contributing to a, if you're giving to a charity, you want to do that before the end of the year?

• 14:55Speaker 04

  Yeah.

• 14:55Speaker 03

  If you are contributing to your retirement account, your employer-sponsored retirement account, you want to, you know, IRAs. IRAs you have until April 15th to be, and certain other retirement accounts, you can wait until you file your taxes, or your taxes are due the following year. But generally, you know, make your contributions to your retirement accounts, max those out. Any charitable contributions that you might make. So, for example, here's something, though, if somebody is... Be aware of where your taxable income is year over year. It could be that, let's say, next year, if your income is going to be much higher than

• 15:36Speaker 03

  it is this year, and you're getting ready to make a charitable contribution, it could benefit you more to do that next year than it is this year. Yeah. So you do, I mean, generally, if you're at that situation, you're working with an accountant, you can have them help you determine, when should I make these, or should I spread it out, make part of the contribution for this tax year and part of the contribution for next year. Sometimes it doesn't make sense for somebody to contribute to a traditional 401K this year. Maybe they should contribute to their Roth 401K because their income is low, maybe they started a job later in the year. So, you know, you go on a, there are some tricks that you can play as an individual

• 16:18Speaker 03

  to make sure you're maximizing whatever deductions you can take. Yes, sir. Here's a message here, and we'll read this just before we go. It's regarding what we were just talking about. It says, "I'm glad you're talking about those commercials because I always wondered how they allow these fake financial experts say that in commercials. It reminds me of the ones that say you can get out of timeshares, which is 100% false. We've reached out to them and they wouldn't even look into our contract." Wow. Great, great message. Yeah, the same thing, timeshare. It's the same scams, sort of repackaged and run over and over in these commercials. But thanks for that, we appreciate it. We're Money Wise. We come back, we're going to be joined by our guest, Dr. Richard Gearhart. We're going to talk economics with him.

• 17:03Speaker 03

  We're Money Wise, don't go anywhere.

• 17:04Speaker 00

  Have you been putting off your finances? Seize the day. Call the Money Wise office at 661-847-1000, or email [email protected] for more information on how our financial advisors can help your financial situation.

• 17:27Speaker 03

  Thanks for tuning in, we're Money Wise. I'm Sherwood Wade here with Latroy Dinkins. We also have with us today, Dr. Richard Gearhart from Cal State Bakersfield, economist.

• 17:38Speaker 03

  Finally, it's hot in here. We could, we could talk real economics.

• 17:42Speaker 04

  Hey, the Clemson fan.

• 17:43Speaker 03

  The Clemson fan.

• 17:45Speaker 05

  That's only a good football team in the country.

• 17:47Speaker 03

  The only one?

• 17:48Speaker 05

  Yeah, it's not like USC. What are they, like, five and four?

• 17:50Speaker 04

  Hey, that's my team.

• 17:51Speaker 03

  Hey, my wife's alma mater. My wife's alma mater is in the top four, undefeated BYU. She won't, she won't claim it. She doesn't, she doesn't walk around.

• 18:01Speaker 04

  Didn't they lose against Utah?

• 18:01Speaker 03

  No, they won, they won.

• 18:02Speaker 05

  They won, like, they shouldn't have won.

• 18:04Speaker 03

  They shouldn't have won.

• 18:05Speaker 05

  Yeah.

• 18:05Speaker 03

  Last minute kickoff.

• 18:07Speaker 05

  Like, the AD of Utah went and just blew up the refs in the media. Got fined like 40 grand.

• 18:14Speaker 03

  Yeah, yeah, it was, it was a bad call, basically, that allowed BYU at the last minute to kick a field goal to win it. But there's other things that are going on, too.

• 18:26Speaker 00

  Yeah, the Dolphins won.

• 18:27Speaker 03

  Yeah, the Dolphins.

• 18:29Speaker 04

  I told you, don't bring up Monday.

• 18:31Speaker 05

  No, but it's a big thing. When, like, one out of three wins, that's, that's massive.

• 18:35Speaker 00

  Win's a win, baby.

• 18:37Speaker 04

  Hey, you know what, Steve? I'm gonna get, you guys won on Monday, but I'm gonna tell you this, and you know this for a fact, right? We have a better shot at making it to the postseason than the Dolphins.

• 18:45Speaker 00

  We'll see. I've seen plenty of Disney movies, so I don't, I don't count out anything until it's 000%.

• 18:54Speaker 03

  Well, also, besides sports, there was a presidential election that took place.

• 18:59Speaker 00

  Yeah. When was that?

• 19:00Speaker 03

  Uh, last week.

• 19:02Speaker 00

  Okay.

• 19:03Speaker 03

  And President-elect Donald Trump has charged Tesla CEO Elon Musk and former presidential candidate Vivek Ramaswamy with cutting government spending and making changes to the federal bureaucracy with an eye on efficiency. That's the DOGE, the Department of Government efficiencies. And the, the two between them, Musk and Ramaswamy, have also directly discussed eliminating the Education Department, the FBI, and the IRS. So, this is what I want to ask you about, Dr. Gearhart. How would we do without the IRS?

• 19:48Speaker 03

  In our, in our, uh, what would happen if the IRS was take, I mean, what would you do?

• 19:54Speaker 05

  I guess I'm not paying my taxes next year. I, I like.

• 19:58Speaker 03

  Right. Well, it, it's sort of like the opposite, or not the opposite, but the similar to tariff, the tariff explanation of this tariff is going to solve our inflation problem.

• 20:11Speaker 04

  It's gonna make it come out.

• 20:12Speaker 03

  Yeah. How, how, how could that work?

• 20:15Speaker 05

  Okay.

• 20:15Speaker 03

  How could tariffs help our inflation problem?

• 20:17Speaker 05

  It's not going to. I mean, so, you know, it's a sales tax. That's exactly what it is. A tariff is a sales tax. Businesses don't pay it. Consumers pay it. And just like tariffs are a sales tax. Congratulations, you voted for a 70% sales tax. I hope you like higher prices because inflation could theoretically be 60 to 70% next year.

• 20:40Speaker 03

  Right. Cause it, what President Elect, uh, President Trump is, is saying is, okay, six, he's, so who knows what will happen? And these are things that are said sometimes that you, I honestly don't know when he's serious or not. I can't tell if there's ever anything that, cause like, okay, well, is he, is he, is he just being weird? Or is he just trying to be, I don't know. And so he's saying 60% tariffs on China, 25% tariff on Mexico, like two of our biggest trade partners.

• 21:05Speaker 05

  And 20% on the rest of the world.

• 21:07Speaker 03

  And 20% on everybody else.

• 21:08Speaker 04

  See, that's not even uniform though. Like it's not just, like, why is he charging? I don't know the science behind that.

• 21:14Speaker 05

  There, there is none. There, there is no science behind tariffs. Tariffs are used for two main reasons. The first reason is you're a developing country and you have some industry that you're trying to protect that you think can grow your economy.

• 21:30Speaker 03

  Right.

• 21:30Speaker 05

  That's not making t-shirts, which is what we're tariffing.

• 21:34Speaker 03

  Right.

• 21:35Speaker 05

  So that's an idiotic explanation. And then the second explanation is it's to prevent other countries from what's called dumping, is basically just selling their products at below cost to destroy your domestic industries. Well, no one's trying to put the American t-shirt manufacturing industry out of business.

• 21:55Speaker 03

  Yeah.

• 21:55Speaker 05

  So those are the only two reasons to use tariffs. It's just a regressive tax.

• 22:01Speaker 03

  Yeah.

• 22:01Speaker 05

  That's exactly what it is. It's, I see all the anger and the uproar over the fact that we're seeing a gas tax increase next year because of fuel standards. Well, yeah, you've got that, but you've got that more with the tariffs. It's it's

• 22:16Speaker 03

  Right, right.

• 22:18Speaker 05

  What they do is then countries retaliate by putting their own tariffs, which make our goods more expensive.

• 22:24Speaker 03

  It, you know, understanding what tariffs are and hearing it on the campaign trail, I had to just believe that it must be that a lot of people have a misunderstanding about what a tariff is. And they and and and they're willing to accept somebody saying that this tariff could be the solution to the problem, just because of the not misunderstanding of what a tariff is.

• 22:47Speaker 05

  There are very few things that economists agree on. One is that tariffs are inflationary.

• 22:52Speaker 03

  Yeah.

• 22:52Speaker 05

  And that's pretty much a uniform opinion. There's no economist who goes tariffs are a good idea.

• 22:59Speaker 03

  Yeah.

• 22:59Speaker 05

  No economist would say that tariffs are a good idea. Tariffs are an 1850s mechanism that was used before you could reliably tax income, because most income back then was in assets, the land you own, the structures, so.

• 23:16Speaker 03

  Yeah, so if, let's say in theory, if this happens, Trump gets in, Trump takes office and decides to to raise tariffs, um, he, which he can do, this can happen, right?

• 23:30Speaker 05

  Oh, yeah.

• 23:30Speaker 03

  Then he could also just reverse them. If it, if it turns out, this is what I'm, I keep telling myself, well, it, we would see almost an immediate impact on price of goods and services, right? Right away.

• 23:42Speaker 05

  By the day one, once a tariff's instituted, again, it's just like a sales tax. What a sales tax is, is let's say I'm buying $20 worth of gas. We don't directly pay, we as customers don't directly pay the sales tax. Businesses send the money of the sales tax receipts to the government.

• 24:01Speaker 03

  Right.

• 24:01Speaker 05

  Well, what the business says is, no, we're not absorbing these costs. We're saying, oh, you have to pay the $20 plus 5% sales tax fee.

• 24:10Speaker 03

  Right.

• 24:10Speaker 05

  That's exactly what they're gonna do. So as soon as they see this price increase, they're gonna pass it along to consumers and be like, our hands are tied.

• 24:18Speaker 03

  So I can't imagine how there would be such enormous public outcry like we saw during COVID when prices started to go up. We, I mean, we peaked at 9.6% inflation rate, I think, at, in 2022. And this is, some economists are saying, you know, it's double-digit sort of inflation if we actually go forward with the tariffs. It just didn't seem like there would be a support in, there would be so much public outcry. How could any politician sustain that?

• 24:48Speaker 05

  Well, people were, I mean, I have been certainly telling all of my right-leaning friends that if, you know, if you want to replace taxation with another system, tariffs is not it.

• 25:02Speaker 03

  What would be it? Like, what, yeah, because, okay, so there is, therein lies, I guess, part of the argument is they're saying, yeah, but we're going to, what, they're saying there's just going to be reduction in taxes?

• 25:13Speaker 05

  They, well-

• 25:13Speaker 03

  They're going to replace the tax system with it?

• 25:15Speaker 05

  Again, who knows if it's true or not? But one of the ideas is, the reason why they're talking about eliminating the IRS is they're going to get rid of income taxation.

• 25:26Speaker 03

  Okay, okay, so now, now-

• 25:28Speaker 05

  But the CBO has estimated that you would need a 70% national sales tax rate to get the same money as an income tax. Seventy percent.

• 25:40Speaker 03

  Seventy percent, so we're going to limit, if we eliminated all income taxes, you just make sales tax 70%?

• 25:45Speaker 05

  Seventy percent, and that's assuming that people buy the same amount of stuff, that there's no change in their behavior.

• 25:50Speaker 03

  Oh, wow.

• 25:51Speaker 05

  It's probably closer to 100%. So prices would double. But, hey!

• 25:56Speaker 03

  Take it, take, okay, again, we're joined by Dr. Gearhart, a true economist at Cal State, Bakersfield, talking about the tariffs, potential tariffs. Is there a scenario where you could have, if we eliminated all of the taxes, okay, so countries that rely on, that don't have an income tax, that, that, or very little income tax, that solely rely on, I guess it would be a VAT, a value-added tax, or a sales tax? Is there, is there, what kind of economies are there? Are those, and how do they compare to our free market?

• 26:34Speaker 05

  Those tend to be, lean more towards the big S-word, that no one likes saying socialist countries. You know, the European countries that have used the value-added taxes.

• 26:46Speaker 03

  So we're just gonna, instead of taxing more on people, individuals, we'll do it through whatever transactions are happening.

• 26:52Speaker 05

  Yeah, we'll do it through transactions, but even Europe has income taxes.

• 26:58Speaker 03

  Yeah.

• 26:59Speaker 05

  And there's no major developed country that doesn't have an income tax because sales taxes, VAT taxes, value-added taxes, tariffs, they're all highly regressive, and that just means that the poorer you are, the more you pay.

• 27:15Speaker 03

  The bigger burden it is, right? Because a poor person has to, for that loaf of bread, it's a bigger percentage of their income versus somebody who has in the higher income.

• 27:23Speaker 05

  Yeah.

• 27:23Speaker 03

  And yet, you're charging everybody the same amount Yes. on that loaf of bread. So that's what you're saying by regressive.

• 27:29Speaker 05

  And the average American would end up paying about $7,000 more in taxes.

• 27:35Speaker 03

  Right, right. Yeah, yeah. You call it a tariff or a tax, you're gonna be paying more.

• 27:40Speaker 05

  More.

• 27:40Speaker 03

  And so, and I was thinking of, maybe just think of Latin American countries or more undeveloped countries that you don't have an income tax. You have, you know, they do rely just on sales tax or some sort of corporate sales tax.

• 27:54Speaker 05

  Yeah, it tends to be more of the developing countries. The reason why is those places, it's easier to hide income. There's more opportunities for corruption or just kind of fudging the numbers. Here in a highly developed economy where you have, you know, everything's digitized, it's pretty easy for the IRS to audit someone and say, "No, listen, you're, you know, fudging your numbers."

• 28:18Speaker 03

  Is there, is there anything that would be dramatic that could overhaul our financial system that would actually make a difference? Where, you know, like, have we seen any proposals, not necessarily this election cycle, where somebody go, "Okay, yeah, we just, we need to dramatically..."

• 28:34Speaker 05

  You know, there have been, there have been proposals. There's like an X tax and a flat tax, but those are pretty hard to explain to laypeople. And once you start getting into the weeds, people just honestly prefer the tax system that we have that we maintain because it's

• 28:55Speaker 03

  Right. Or, or, or they prefer the idea of some fantasy tax system that involves tariffs, that involves taxing other countries, the idea of taxing other, that's what they're sold on. That's what I think they're thinking is, we're going to tax these other countries, and we're going to make China pay our taxes. And, and that, that, and then we'll be all, and then we won't have to pay taxes. I think that's what it seems to be a dumb down.

• 29:19Speaker 05

  That might, that might be it. But yeah, just like Mexico didn't pay for the wall. Yeah. Other, other countries don't just sit there and go, yes, please. I would love to pay America more in taxes.

• 29:31Speaker 03

  Is there any chance that this could happen? Do you see that this could happen economically?

• 29:36Speaker 05

  I, I mean,

• 29:39Speaker 05

  you, you, I, 10 days ago, I would have said, no, there, there's no chance Americans are this economically illiterate. And apparently, maybe.

• 29:50Speaker 03

  Maybe we are, or a majority of us are, to where there could, Congress could get behind something like this. And I just still think it'd be political suicide because of what economists say would happen.

• 30:04Speaker 05

  Well, ask any farmer about the 2017 tariffs that Trump put into place that Biden maintained. They hate it.

• 30:11Speaker 03

  Yep.

• 30:11Speaker 05

  All, it crushed farmers.

• 30:13Speaker 03

  Yep. Right.

• 30:14Speaker 05

  Like, crushed farmers. It didn't lead to any changes in employment. It didn't re-home manufacturing.

• 30:22Speaker 03

  Right.

• 30:22Speaker 05

  It, it just, it just led to higher prices, which we, I, what, what's the word for higher prices that we saw just recently? Starts with an I, inflation? Oh.

• 30:33Speaker 03

  Yeah. It's just inflation, which we, we're going to take a break, but we just got our inflation numbers today. I think the new, the new CPI number came out today. So we'll talk about that and where the economy is going. We'll continue to go. We're money. We'll be back after this short break.

• 30:46Speaker 00

  If you're a business owner who provides a retirement plan for your employees, contact Money Wise Wealth Management to see if you're maximizing your options and minimizing your liabilities. Money Wise 401k plans are customized to you and your company's needs. 661-847-1000. That's 661-847-1000.

• 31:13Speaker 03

  Thanks for tuning in. We're Money Wise. Your hosts today, myself, Sharad Waite, along with Latroy Dinkins. Our guest is Richard Gearhart, Dr. Gearhart from Cal State Bakersfield. He's the economist. We're talking about what's going on with the economy, what could happen under the new presidency. Here's a message. Says, "I have a few questions, so I understand. If you don't have time to get both of them, but do tariffs improve terms of trade? Also, at my age, 61 years young, are there any advantages to this new super catch-up contribution? And is there any way to find out if my retirement plan even includes it?" So let's, let's address the first part of, well, just address the second question,

• 31:57Speaker 03

  which is about catch-up contributions and whether or not your employer will allow it. So what you're talking about is if, well, previously, if you were over the age of 50, you could contribute to, more to your 401k or your IRA. You could do another extra $1,000 to your IRA, and you can do an extra $7,500 to your 401k. Now, starting next year, there is going to be a, an additional catch-up provision for anybody who is working age 60

• 32:35Speaker 03

  to 63. You can save even more. So instead of that $7,500, you can save an additional, you can save up to an additional $11,250.

• 32:48Speaker 00

  Oh, wow.

• 32:48Speaker 03

  So you have your normal $23,500 deferral limit plus the 11

• 32:54Speaker 03

  1,250. That means these workers that are over the age of 60 or between the age of 60 and 63 can defer $34,750 next year. So about 14% higher than they can this year. And that is thanks to that new catch-up provision. My understanding is that this is a... I think that because it is a federal IRS rule, this is something that all 401k contributions can go to. Your plan should allow it next year. You should be able to go right in and change your contribution limits so that you can you can do that extra $11,250.

• 33:35Speaker 03

  Almost an extra $1,000 a month that people over the age 60 can contribute versus those who are not. It's almost $2,000 a month now that, under the age of 50, somebody can contribute to a 401k. So now we're getting up there. Getting up there, right? Getting up there, a pretty substantial amount of money that somebody can save on an annual basis. To defer, yeah. Just to defer those taxes. Or not, or just get the tax-deferred treatment. Maybe you're doing a Roth in your 401k. But either way, it's a great idea to set up your retirement through your retirement through your employer plan. Now, the first part of the question is asking about, do tariffs improve terms of trade?

• 34:20Speaker 03

  So, Dr. Gearhart, do they?

• 34:23Speaker 05

  No.

• 34:25Speaker 05

  So, a couple of reasons. You know, other countries aren't just going to take our responses on the chin.

• 34:33Speaker 05

  You know, we're not the only country in the world that China can sell its products to. And so, they'll find new markets. And so, or they'll put retaliatory tariffs, which crushed almonds and pistachios during the beginning of COVID. And so, there's an idea in economics, it's called the theory of the first best. If you want to attack a problem, attack the problem, not just do secondary things that might address it. So if you're worried about China or any other of our trade partners not respecting us or not, you know, doing good economic terms, then write that into contracts with them. Or, you know, create laws that allow that.

• 35:19Speaker 05

  Don't... Do tariffs which are a revenue generation mechanism.

• 35:23Speaker 03

  Right, that just charges the consumer, that just makes the consumer pay for the penalty of not being able to come to an agreement, not to governments not being able to agree on some sort of trade, still, okay, fine, then we're gonna show you.

• 35:37Speaker 05

  Yeah, and you know, I would think everyone would argue that, you know, the American economy is the highlight of the world. And what we're doing, what we're seeing is we're seeing the success of a developed country that is a consumer service oriented economy. We don't need to make t-shirts or all these other like low cost, low value goods.

• 36:03Speaker 03

  Yeah.

• 36:03Speaker 05

  Here within our borders.

• 36:05Speaker 03

  Right, if somebody can make the shirt so much cheaper and better than we can, why would we invest in, in the technology to create a shirt factory that can do it like they can in China?

• 36:16Speaker 05

  Yeah, if you look at the high value added sectors in the economy that are really going to create the comparative advantage, it's computer chips, it's technology, it's IT, it's all of those things.

• 36:29Speaker 03

  Yeah.

• 36:30Speaker 05

  I mean, yeah, manufacturing is great, but, I mean, honestly, who cares if we make shoes here? I mean, you know, I don't want to deprive the five-year-old and never.

• 36:44Speaker 03

  Yeah, right, yeah, that's, I mean, there's, there's economic reasons, and that's maybe an argument for some of the tariffs is you're saying, well, okay, you're not listening to us, so, you know, we're tired of five-year-olds making our shoes, so we're gonna charge a 20% tariff on any shoe that you try to sell us, you know, because we don't like that you got a five-year-old in there working, you know, working in the factories.

• 37:07Speaker 04

  One of the questions that I have, okay, with, with all these tariffs, with some of the absorption, absorption of some of the subsidies, like with, you know, the federal school grants and things of that nature that's going on, where's all this cash flow? Going like where's it gonna go?

• 37:27Speaker 05

  That's what confuses me is first of all, it's funny that the government or the Department of Government Efficiency had to hire two people instead of one. It's you know, the definition of efficiency right there. But I'm not really sure because if you look at all of Trump's proposals, he adds 7.3 trillion dollars to the national debt. Um, that's a lot of money.

• 37:51Speaker 03

  Yeah, and it's in the form of tax reduction.

• 37:54Speaker 05

  It's a tax reduction, but spending increases. And so I think a lot of the money is probably going to go to military. But I'm not really sure where else this money is kind of going to end up. My worry is that it becomes a slush fund, much like the California gas tax revenues, where you can kind of use it for everything else and it just kind of, you know, greases the palms of.

• 38:19Speaker 04

  Maybe going to crypto?

• 38:20Speaker 03

  Yeah, you bring up crypto. Bitcoin has briefly topped over $93,000 today and President Trump has talked about appointing a crypto presidential advisory council, saying he's going to fire SEC Chair Gary Gensler and create a strategic national Bitcoin stockpile.

• 38:41Speaker 05

  Is it the whole idea of cryptocurrency that you don't have government involvement?

• 38:46Speaker 03

  Yes, exactly. Completely unregulated.

• 38:51Speaker 05

  So we're going to, yeah, it's the whole purpose of it is that there is no government intervention. You don't have to worry about the government enacting monetary policy to increase the supply of it and artificially depreciating the value of your asset. It's, I, I, I just don't get it.

• 39:11Speaker 03

  There's so many, so.

• 39:13Speaker 05

  I'm going to hoard acorns. Acorn, that's how I'm going to pay off the government debt is we're changing dollars to acorns. So China's getting 100 million acorns.

• 39:23Speaker 03

  At least you can grind up those acorns and make something out of them, you know, but you can't do anything with a cryptocurrency. And you have the total value of all cryptocurrency globally, about 2 trillion. 2 trillion, that's our annual budget, federal budget deficit. Like, we're overspending each year as a federal government, 2 trillion dollars. We have over 30 trillion in debt. Even if Elon Musk or this presidentially appointed advisory council could create a national Bitcoin stockpile, even if they could stockpile every single cryptocurrency, not just Bitcoin, but everything, Doge, Ethereum.

• 40:01Speaker 04

  Still not enough.

• 40:01Speaker 03

  You could only have 2 trillion. You have to own it all, and then it just doesn't...

• 40:06Speaker 04

  You're not playing with nobody. Like, in the markets, you have institutions.

• 40:10Speaker 03

  They can buy it from you. If the government owned all of the crypto, who's gonna buy it?

• 40:16Speaker 05

  Yeah, they're gonna go to it, they're gonna create something else.

• 40:18Speaker 03

  Right.

• 40:20Speaker 05

  Yeah, the value in Bitcoin is that it's largely untraceable.

• 40:24Speaker 03

  Yeah.

• 40:24Speaker 05

  And...

• 40:25Speaker 03

  And it's decentralized, unregulated.

• 40:27Speaker 05

  It has no government in it. That's the whole purpose. That's why the US government has been very hesitant to even play in the crypto market, because they know that then people are gonna flee to all the other corners of the internet and create all these other things. So, it's, by definition, it's meant to be hard to regulate, but yeah, sure, creating another government department is the solution.

• 40:51Speaker 04

  I'm just tripping on just the acronym that Elon Musk being the Doge. Kind of like he was all like with this Dogecoin thing. And then the name is D-O-G-E.

• 41:01Speaker 03

  Right.

• 41:01Speaker 04

  It's like...

• 41:02Speaker 03

  Like it's pumping, is it a pump and dump, a pump and dump scheme on the highest level?

• 41:07Speaker 05

  It's like crypto, it's crypto dad jokes. It's just really bad. It's like, some of the jokes I tell at dinner, where like, everyone just stares at me, he just has a broader audience to tell bad jokes to.

• 41:18Speaker 03

  This plays into Perfect, again, sort of the, some of the illiteracy in the financial markets, understanding the scope of financial markets and the context or economic principles, and using that as a way to make... People feel like there actually is a solution. There is a way through some what seems very confusing and confounding. The the the global economic forces, you know, they're very, they are very hard to understand. And when you talk about billions and then trillions, people just don't know the difference. And so it's like, well, yeah, this seems believable. It seems believable that we could all convert, you know, to crypto crypto.

• 41:59Speaker 03

  But I I it's too fuzzy for me to figure out how we would actually, how would that transition look? What would that look like if we were to actually make a transition away from the dollar to a crypto? Wouldn't, wouldn't it take a while?

• 42:15Speaker 05

  I, I, yes, and at a certain point, then it just becomes a new dollar. It's just, it's this, it's all the problems with the dollar just get transferred over to whatever the new currency is.

• 42:26Speaker 03

  Right.

• 42:26Speaker 05

  And then you have the same new currency where, oh, the government's back in charge of the currency.

• 42:32Speaker 03

  Right, because they're the ones that they're backing it up, right? They're the ones that are forcing it, and so we're just.

• 42:37Speaker 05

  I mean, it's just like all this is, it's like, well, first of all, you know, the, the person who has become the welfare queen of corporate America, Elon Musk, how many billions in subsidies? How many billions of dollars does he get in federal subsidies every year? Couple of tens of billions of dollars, but he, so that welfare queen's gonna be in charge of dismantling the government? It's just, people go in the government not to dismantle their power. People go in the government because it's used to grow their power.

• 43:09Speaker 03

  Right.

• 43:10Speaker 05

  I, I mean, you know, if you're in the government, you're not in the government because you like us.

• 43:13Speaker 03

  Right.

• 43:14Speaker 05

  There, there are very few, very, there are very few national public servants who I would say, you know what, you actually care about the people you represent.

• 43:22Speaker 03

  You've got to be a narcissist if you're gonna get to that level, uh, you know, any, that level of politician. Who, who is that person that is willing to just take that job?

• 43:32Speaker 05

  I'm gonna, you know what, I, I, I've spent 30 years reaching the pinnacle of my career. I'm gonna give it all up.

• 43:39Speaker 03

  Yeah, right.

• 43:40Speaker 05

  Okay, sure.

• 43:41Speaker 03

  Do it for the people.

• 43:41Speaker 05

  I know, I would, I, I. I wouldn't do it.

• 43:44Speaker 03

  Oh, my gosh.

• 43:44Speaker 04

  You said Vivek Ramaswamy is doing what now?

• 43:47Speaker 03

  He's part, he's part, well, President Trump is saying him and Elon Musk will be the, the, the team behind the Department of Government efficiencies, the DOGE.

• 43:59Speaker 05

  What does Vivek, what did he do? What does he do?

• 44:02Speaker 03

  He was a presidential candidate.

• 44:04Speaker 05

  Yeah, but like, other than that, like.

• 44:06Speaker 03

  He was a business, he ran pharmaceuticals. He made his money in pharmaceuticals.

• 44:09Speaker 05

  Oh, so big pharma that everyone hates. Ah, okay. Cool. Yeah. Oh, you mean the one that uses patents, which is a government provided monopoly?

• 44:20Speaker 03

  Right.

• 44:21Speaker 05

  He's going to be anti-government now. Okay.

• 44:22Speaker 03

  It's, there's a lot of conflicts here going on. I'm not getting a lot of hope, but maybe after this final break, we have a few more minutes. Dr. Gearhart from Cal State Bakersfield. Maybe we can see where there's some, where's the silver linings in the future of our economy? Don't want to miss it. We're Money Wise. We'll be right back.

• 44:39Speaker 00

  Don't forget, Money Wise is more than a radio show. We're an independently owned, local wealth management firm with 60-plus years of collective experience. Our financial advisors are here to help you, Kern County. Together, let's be smart, be safe, be money wise.

• 45:00Speaker 03

  Thanks for tuning in. We're Money Wise. Final segment of the day. LaTroy Dinkins, myself, Sharad Waite, we're joined by Dr. Richard Gearhart, economist from Cal State Bakersfield. We've been talking about all of the terrible potential policies that are being discussed. Again, these are all just discussions. I, I, I still have hope in the fact that we have checks and balances in our country. We have, we have separation of powers and that I don't want any, I don't care even if the person is in office is my, my person, the person I voted for and I'm crazy about, they're not an economist. If they're not an economist, they don't understand these principles and start saying these kinds of things. It's just, you should be against it. We should, we have enough data to, to, to, to give us a pathway forward

• 45:45Speaker 03

  into the future that doesn't need to rely on, on fantasy or, or, or, or, or what would you?

• 45:53Speaker 03

  You call the tariffs bizarre lies.

• 45:55Speaker 05

  Yeah.

• 45:57Speaker 03

  Don't have to depend on lies, but maybe there is something, Dr. Gearhart. Is there anything that you feel like maybe things will? What gives you some hope for the economy over the next four years?

• 46:13Speaker 05

  We're going to get a four-year crash course of proof of concept of financial literacy.

• 46:21Speaker 03

  Yes, we will. We will learn.

• 46:23Speaker 05

  I mean, other than that, you know, like regardless of how you felt, Biden's economy is in a pretty good place right now, so we're not starting off in a world of hurt.

• 46:35Speaker 03

  Yeah.

• 46:36Speaker 05

  You know, as Elon Musk said, a recession is going to come during the Trump term.

• 46:44Speaker 05

  So I guess we're going to have, I guess, right now it's good.

• 46:50Speaker 03

  Yeah.

• 46:50Speaker 05

  So, yeah, we're riding the wave right now. We're the, we are the envy of the world.

• 46:56Speaker 03

  Isn't that interesting that you can, if you, you couldn't say it just over eight days ago, that the economy was good and where everybody would believe you, or most people would believe you. But you just fast forward one week later, not a whole lot of different economic data that we're receiving. And all of a sudden, you see people go, huh, the economy's pretty good, isn't it? Look at the stock market, all-time highs.

• 47:21Speaker 04

  It's always been, it's been good for, for a minute now.

• 47:24Speaker 03

  We've been getting all-time highs in the stock market all year long, but now people are noticing it and they're attributing it to last week's results. So it's like, all of a sudden, the economy is great.

• 47:34Speaker 04

  See, and that's the thing I want to say. I don't want to take too much time, but you know, at the end of the day, each company in the world has to face their problems with revenues and profits. Just because Trump is in office once again, doesn't mean that he's just going to push a button. There's still economical factors.

• 47:52Speaker 03

  Yeah.

• 47:52Speaker 04

  We have a monetary and fiscal policy and there could be intervention with that, but. You know, just be safe, just stay sane.

• 48:01Speaker 03

  Well, the stock market is smarter than people realize. It can be volatile and it goes up and down, but it's so smart that trying to beat it is foolish. And most people will lose if they try to beat the market. When I say try to beat the market, you try to beat the benchmark. You're trying to beat the average returns and you're trying to do that consistently over time. Good luck. Very few people do it.

• 48:22Speaker 04

  Yeah.

• 48:22Speaker 03

  And so-

• 48:23Speaker 04

  Jim Simons, he's the only one that can.

• 48:25Speaker 03

  No, even then, even then, it's like you don't, the markets are incredibly smart because what you said, Latroy. At the end of the day, the corporate mandate to increase shareholder value. So you're selling your widgets or your services for more of a profit than the next person and the next company. And as long as they're doing that, you can own a piece of that.

• 48:47Speaker 04

  And terrorists might have wrote some of the bottom lines, but okay.

• 48:49Speaker 03

  Yeah, yeah. So good stuff. Thank you so much, Richard Gearhart. Thanks for coming on the show.

• 48:54Speaker 05

  Thank you for letting me vent. It would have been worse a week ago.

• 48:57Speaker 03

  This is why I love having you on because we can actually vent with a little bit of credibility here, you know, talk about the economics behind some of the madness. So really appreciate you taking the time and coming on the show. Latroy Dinkins, thank you so much for helping out here and want to thank all of our listeners for tuning in. If you missed any of our past programs, subscribe to the Money Wise Guys Podcast, commercial free on all podcast formats like iTunes, Apple Podcasts, or even Spotify. As we leave, remember these three things, be smart, be safe, and always be money wise.

• 49:32Speaker 02

  Securities offered through SCF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SCF Investment Advisors, Inc. SCF Securities, Inc. and Money Wise Wealth Management are independently owned and operated.