War of the Financial Worlds

Release date: April 28, 2021
Duration: 51min
Guest(s): Nomi Prins
Nomi Prins
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Nomi Prins On What is Really Going on Behind the Scenes

Today on the Rich Dad Radio Show, we are joined by Nomi Prins, author of “Collusion: How Central Bankers Rigged the World.” Nomi is a financial expert and investigative journalist, and is devoted to empowering and educating women on all matters of finance.

Nomi created “Know Money” salons, designed especially for women in all professions. These salons dive into local, national and global financial current events, and cover topics on the economy, banking, sociopolitical environment, personal finance, business and more. Nomi intends to resurrect the Know Money events in 2022, after shelving the live gatherings due to COVID-19.

Nomi started banking, holding a math degree and a music degree. In her own words, she wanted to move to New York City, and ended up with a job at a bank on Wall Street before she even had her own checking account. She moved through the Chase Manhattan Bank to Lehman Brothers, then to running and creating a research department at Bear Stearns in London. She would then wind up at Goldman Sachs.

What the banks were really doing behind the scenes…

Nomi left banking and Goldman Sachs after 9/11, having seen the changes in the environment of banking, the negativity towards customers and what she was observing behind the scenes. She became an investigative journalist so that she could expose the truth of what she was witnessing, and to educate people about what was going on inside the industry. “There were so few people doing that at the time, and even today, it takes a sort of leap of faith and some courage…”.

Combining journalism and consulting roles, writing books, she gets into the nitty-gritty of central banks. Since the 90’s, Nomi has been ‘boots on the ground’ and visiting central banks. One of the first in China. She marks the changes of central banks from boring background players into being really in the markets, and changing the very nature of finance.

After the Pandemic: the point of no return.

Nomi is working on a new book, tentatively titled “Permanent Distortion”. There is a complete disconnect between how markets behave, in the macroeconomic environment, she says. Where money flows into the financial community and into financial markets, and how real people and the real economy is working for the people, it’s limits in its growth, and how that relates to how well the markets have done.

This was happening before the pandemic, she says, but it’s really increased to a point of no return after the pandemic, because economies are slipping so much further beneath where markets are performing. Central banks have created a role for themselves, where not only are they the market, they have unlimited abilities to continually, artificially, stimulate it. The more they do that, the more the real economy is left behind and it becomes a permanently distorted effect.

Buying Junk for Cash

There’s been a legacy, like a bloodline relationship, between bankers and presidents, and the administration of presidents. It doesn’t matter if they are Democrat or Republican, Nomi shares. The relationship transcends those labels. Where it’s gone really off the rails in this pandemic environment, she says, is that at the start of the pandemic, the Fed came in and basically increased the size of its bond-buying program. It’s called QE, Quantitative Easing. What it really means is buying junk for cash. The Federal Reserve, Nomi says, and other big central banks around the world, artificially or electronically conjures money when they deem it necessary.

That amount of money has doubled from its peak during the financial crisis of 2008 to where it is now, and it’s happened more or less quietly, because the Fed doesn’t talk about it.

“When Federal Reserve Chairman, Jerome Powell gets on Bloomberg, or gets on CNBC, he talks about, "We need to do this. We're helping the economy. We have a poor employment picture. We need to get to full employment, and all of these things that we need to do, i.e., the Fed." What he doesn't talk about is in the backdrop. What we're actually doing on a regular basis is we are providing injections of money directly to the biggest banks, because those are the ones that have the most bonds, or Treasury securities, or mortgages already on their books.”—Nomi Prins

The banks are pumping the money back into themselves, buying back their own stock and they money is not going back into the economy or the average person.

In the very beginning of the pandemic, the Fed suggested or said that the banks could not buy their shares for a few months or over a couple of quarters, but then they said they could. The Fed created the idea that they were sort of in conjunction with the mainstream economy by saying, ‘just for a little while, hold off on buying your own stocks-it’s not a good look.’ Now, they can do so.

In Crime, this is called Money Laundering

The Fed produced nearly $3.8 trillion of money from basically nowhere, Nomi says, to funnel through the banking system. If the crime world, this is called laundering, but they don’t call it that. The idea is the money is going directly to banks and without strings attached, without having it go into the real economy.

The government set up loans such as the PPP; loans that could go to small businesses that were affected by the pandemic. The idea was that some of this money would go through some of these banks, but the banks themselves made money off of that funding from the government. So not all of it actually went to people.

“So that brings up the point of, okay, we've got this economy, we've got all these unemployed people, we've got businesses shutting down right, left and center. We've got people suffering. The economy's in a mess but the stock market's at all time high. There's no reality between the two.”—Kim Kiyosaki

Think of money like a virus in the way it multiplies.

“It likes to find the easiest host and these are all new analogies. We are all in a pandemic era. But it (money) likes to find the sort of host in which it can multiply the fastest. This money was fabricated in many ways by the Federal Reserve and gone out through Wall Street. And the same thing has happened in other large economies for their central banks and banking systems around the world. It’s easiest and quickest for that money to find a host in financial assets. That includes the stock market. That includes the bond market. That includes certain areas of real estate. But the stock market is almost the fastest place for it to replicate itself, for it to basically create returns on itself.
And so banks have a whole ton of extra money announce a 0% interest again, plus they're getting extra money in return for bonds that they don't want any way, that they have sitting around their books. They can also lend that money to hedge funds and they can lend that money to private equity funds or funds that basically take very cheap money from wherever they can get it, and also get involved in multiplying that money-virus effect. And so if they also get behind investing in or speculating in the stock market, there's all this extra, extra money coming in that the sheer force of its presence just by being there has this effect of lifting the markets.”—Nomi Prins

The real economy doesn’t work that way, Nomi says. Restaurants and bar owners, for example, cannot simply bounce back and they don’t have this force beneath them of this sort of money.

Emerge from the Emergency: What you can do to take charge and gain control of your own financial life.

Nomi Prins wrote an article called War of the Financial Worlds. She says the Fed is basically distorting the value the real economy compared to financial assets. The more those Fed assets grow relative to real assets, the greater the inequality gap.

Nomi offers an example. If you have two blackjack tables at a casino, table 1 and table 2. Table 1 has a bunch of people around it, and all of the money they are betting on every single hand is NOT THIERS. It’s fake money. Money NOT coming from their pockets, their job, their savings. Every time they lose a hand, they get more money to play with. At some point, they are going to hit a winning streak and the money is going to multiply in that game. No matter what happens on that table, win or lose, the players get more money to keep the game going.

Then, you look at table 2. This table is people playing with their own money, money earned, money that would be used for living expenses and money that is at risk. If those players lose a hand, or too many hands, the players stop playing. They lose too much and they stop playing because you can’t bet money you don’t have.

The fake money in table 1 creates a bigger gap between the haves and have nots. Table 1, full of fake money is loud and cheery. Table 2 is quiet, because they don’t have fake money to risk. This visual is what has been happening in the markets relative to the real economy.

The real economy got hammered…

Businesses closed, restrictions were placed, and many people’s livelihoods were levied. A bar owner must close, for example, if they don’t serve food. But there’s a lot of people that are affected by that; their wine distributors, stockers, staff, etc. It’s a major impact on real people through multiple levels of the economy. None of them are getting the fake money. Even the help of the governments PPP loans can only help for so long, before a small business dips too far into the red. They don’t have the kind of lift that the reserves money has for the banking system and the stock market.

Nomi explains in depth; “so that's definitely been a pattern change that we're looking at, obviously people who have realized they can work from home. They can find homes that are bigger outside of urban areas. They don't necessarily have to come into those offices all the time, and they're going into other places. The other effect that's happening it is that some of these private funds and hedge funds and equity funds and sort of program funds are kind of aggregating money together and buying some of this property and sort of bidding up prices as well without even setting foot in those houses. So there's a lot of different elements to that market. And so what I tend to do is look at the financial markets as well, for example, the stock market, and look at some of the behavior patterns that have changed there.

So one of the things that we're talking about is that a lot of money flow has gone into the markets through really big players that have had now access to all this cheap money and all the fed support directly. And that's elevated a lot of different companies to weigh more than they should potentially be worth. It's also created a scenario where a lot of people who were at home, looking at this happening, wondering how, wait a minute, my economy looks nothing like what's going on on CNBC and the NASDAQ right now. How do I play? And one of the things that that created is this emerging group. You use the term emerging, that's great. This emerging group that actually had been there for a while, but grew of retail investors, finding different places to get involved in this market, because it seems to be the only place where money can potentially accumulate.

And that happened through Reddit basically, with groups called WallStreetBets. And there are a lot of stories out there about GameStop and different companies being bid up by or elevated by interest for retail and then slammed down by short selling from large investors, and all sorts of back and forth play across the board. But there've also been some opportunities where people have been able to get, because of seeing that hype into some electronic platforms where they can basically monitor their own money. And even if they don't have a lot of it, they have been starting to look at ways to take control of it individually.

And one of those ways has been through, for example, the small cap market, which is the part of the stock market that isn't Apple, that isn't Google, that aren't these companies that are basically off-shore, all of their jobs and all of their profits and don't really pay taxes no matter what the corporate tax rate is. And channeling that into some of the smaller companies. Still companies that are operating and buyable that have been able to sort of survive through this period, but their share prices aren't hugely expensive. Their market values aren't so high that there's no upside. And so what I've been looking at just from that standpoint is finding areas to be involved in the market in a way that the upside actually is related to the business plan of the smaller business owner and the employees involved in that.”

How do you get people to take action?

“The thing about money, as I was talking about in the earlier segment, is that money will multiply if it is consistently involved in whether it's a market or one small cap name or a real estate investment or whatever it might be, or merely interest in your savings account, which is tiny right now and insignificant. But the process, the behavior that overrides the fear, especially when you have been knocked down and you're saying, "You know what? I don't have money for extra groceries this week. You're telling me to buy a stock. Are you insane?" And it's like, no. What I'm saying and what I think is a really important behavior pattern to adapt, especially after all that we have been through, is to start. As we're talking about tiny, start with $10 a week and find an app, and there's many of them, that'll just take it out of your bank account, and that you can divert it into a slice of a share, a slice of a real estate endeavor or whatever it might be.” - Nomi Prins

Rapid Growth Opportunities

Nomi has a new product, developed with her team, called Rapid Growth Opportunities. The idea is to look at the small cap environment. There are trends where the economy has been jolted or the markets have been jolted, where there are smaller companies that can survive. They have cashflow, good management, and can outperform not just other small cap stocks, but also the broader market. This product helps define and recommend those companies, and using education and research, help highlight an area that could be strong for someone look to invest. Visit https://paradigm.press/publications/prg/ for more information.

Nomi Prins Books are available at nomiprins.com.