Thinking Big is the Best Plan

Years ago, when I was just starting my real estate investing career, I came across a property with a for-sale sign on it. I called the broker and asked, "What can you tell me about the property, and how much does it cost?"

The broker politely and patiently said, "It's a commercial building with six tenants. There's a chiropractor, a dentist, a hairstylist, an accountant, and a bail bondsman. The price is two million dollars."

Losing Big

I almost choked. "Two million dollars?! That's way too expensive!"

Thirty years ago, $2 million was a lot of money. And instead of looking at the property, I let the price frighten me off. I never looked at the deal, and just assumed that the seller was crazy, greedy, and out of touch with the market.

Today, there's a luxury hotel on the same site. It's spectacular. I estimate the property to be worth at least $150 million, and maybe more.

Cheap Lessons

Not seeing the potential of that deal taught me many lessons. Here are two important ones:

• Sometimes you learn more by being stupid and making mistakes.

• The person with the better plan wins.

In the above example, my plan was just too small. In fact, the only plan I had at the time was to collect the rent money from the tenants, cover my mortgage and expenses, and put a little in my pocket. And 30 years ago, I knew that the rent from six small tenants couldn't possibly pay for a $2 million property.

I later learned that the property's eventual owner bought it for full price -- with terms. He put $50,000 down as an option and asked for 180 days to put the rest of his plan together. During those 180 days, he gathered his investors, a builder, and his tenant, a major hotel chain.

If he hadn't been able to put his plan together, he would've lost his option money. Instead, before the 180 days were up, his investors paid the $2 million in cash, and he spent the next three years getting the project through the city planning commission and finally began construction. He won because he had a better plan.

Mind Expansion

Donald Trump often says to "think big." He definitely does so, but by nature, I don't. My excuse is that I come from a small town in Hawaii. My family wasn't rich, so when it comes to money, I tend to think err on the side of caution. Over time, my thinking has become medium-sized when it comes to spotting opportunities, but I'd still like to think bigger.

One of the reasons I enjoy doing business in New York and having Trump as a partner on different projects is that he makes me do just that -- because if you don't think big in New York, you get kicked out. If I thought small, I wouldn't be on television, cutting book deals with major publishers, or talking in front of tens of thousands of people in arenas like Madison Square Garden.

Currently, I'm working on a real estate project to present to Donald. Consequently, I find myself pushing my thinking, expanding my context, and thinking of luxury, not just price. Even if Donald doesn't like the project and we don't partner on it, just preparing to present the project to him has required me to think bigger and come up with a better plan.

A Blast from the Past

About a year ago, someone called to say that there was a spectacular condominium that had just come up for sale. She wanted to know if I was interested in looking at it. Of course I said, "Yes." I wanted to see what her definition of spectacular was, and trust me -- it was spectacular. She then said, "And the price is only twenty-eight million dollars. But I believe you can pick it up for twenty-four million. At that price, this condo is a steal."

Once again, I heard myself saying what I said so long ago: "That's too expensive." But, as I said, that lesson from 30 years back proved to be priceless: After hearing the think-small person in me comment on the condo price, I took a deep breath and asked myself, "What's my plan?" Then I asked myself, "What's wrong with my plan?"

I didn't buy the condo, but I did come up with a better plan. Over the next few days, I realized that the reason I couldn't afford the condo was because my business was too small. If I wanted to afford such a luxury residence, I needed to come up with a better plan for my business. Today, I'm working harder than ever to improve it -- not because I want the condo, but to be able afford such a condo if I someday decide I want one.

Plan Ahead

In many of my Yahoo! Finance columns, I've written about my concern over the devaluation of the U.S. dollar. As the dollar drops in purchasing power, it often pushes up the prices of real assets -- quality real estate and equities. My fear is that many people may not be able to afford tangible assets and become poorer as the dollar declines. This drop in purchasing power also widens the gap between the rich and everyone else.

One method of staying ahead of rising asset prices and the declining dollar is to think bigger and come up with better plans. As important as financial and business planning is a plan for personal development and self-improvement. I'm often asked to invest in people's business plans, and one of the reasons I turn many of them down is because a big plan requires a big person who's spent time on personal development. In a lot of cases, a business plan is far bigger than the person with the plan -- that is, the dream is bigger than the dreamer.

Today, I'm glad I missed out on that $2 million property all those years ago. The best lesson I learned from it is that I can have a better life if I have a better plan -- and a plan to become better person. So what's your plan?

Think Rich to Lower Your Taxes

Tax season always means a deluge of tax advice. Unfortunately, most of it is futile and lightweight.

I say that because most people work for their money rather than have their money work for them. The problem with working for your money is that you pay more in taxes as your income goes up. In fact, if your income passes $65,000 as a W-2 employee, you may find yourself being double-taxed with the Alternative Minimum Tax, or AMT.

Working hard to earn more money and then giving it away in higher taxes isn't financially intelligent, even if you do put some of it into a retirement account. On the other hand, making your money work hard for you means your earnings are taxed less, if at all.

Better Financial Advice

Recently, on a popular morning TV show, a personal finance expert recommended putting half of your tax return into your IRA, which she claimed may yield (for the average person) a whopping $25,000 gain over 40 years.

The problem with this advice is the likely decline in the purchasing power of the dollar -- inflation -- over that 40 years. I estimate that in 40 years, $25,000 will probably have the equivalent purchasing power of $250 today. Try getting excited about living on $250 when you're old.

To me, it's better to inform people about who pays taxes and who (legally) doesn't pay taxes. If you can minimize taxes or avoid paying them altogether (again, legally), you can make a lot more money today instead of having to wait, with your fingers crossed, for 40 years.

Playing by the Rules of the Rich

Years ago, my rich dad told me, "When it comes to taxes, the rich make the rules." He also said, "If you want to be rich, you need to play by the rules of the rich." The rules of money are skewed in favor of the rich, and against the working and middle classes. After all, someone has to pay taxes.

There are many ways that the rich make a lot of money and pay little to no money in taxes, and anyone can use them. As an illustration, here's a real-life situation in which I played by the rules of the rich and minimized my taxes:

• 2004: My wife, Kim, and I put $100,000 down to purchase 10 condominiums in Scottsdale, Ariz. The developer paid us $20,000 a year to use these 10 units as sales models. So we received a 20 percent cash-on-cash return, on which we paid very little in taxes because the income was offset by the depreciation of the building and the furniture used in the models. It looked like we were losing money when we were in fact making money.

• 2005: Since the real estate market was so hot, the 380-unit condo project sold out early. Our 10 models were the last to go. We made approximately $100,000 in capital gains per unit. We put the $1 million into a 1031 tax-deferred exchange. We legally paid no taxes on our million dollars of capital gains.

• 2005: With that money, we purchased a 350-unit apartment house in Tucson, Ariz. The building was poorly managed and filled with bad tenants who had driven out the good tenants. It also needed repairs. We took out a construction loan and shut the building down, which moved the bad tenants out. Once the rehab was complete, we moved good tenants in and raised the rents.

• 2007: With the increased rents, the property was reappraised and we borrowed against our equity, which was about $1.2 million tax-free, because it was a loan -- a loan which our new tenants pay for. Even with the loan, the property still pays us approximately $100,000 a year in positive cash flow.

Kim and I are currently investing the $1.2 million in another 350-unit apartment house in Flagstaff, Ariz., a hot property market.

Move Money, Don't Park It

This is an example of an investment strategy known as the velocity of money. As I've written before, moving your money makes more sense than parking it in cash, bonds, equities, or mutual funds -- the strategy most financial advisors recommend.

Kim and I have several such scenarios active at any one time. We have lots of monthly cash flow, which we reinvest, but we rarely have any liquid cash sitting around to be taxed.

In the above example, we started with $100,000 we earned tax-deferred from another investment. The $100,000 eventually allowed us to borrow over $20 million from banks, tax-free. How long would it take you to save $20 million by parking your money somewhere, as most financial advisors recommend?

Chipping Away at Taxes

Clearly, one of the reasons the rich get richer is because they earn a lot of money without paying much, if anything, in taxes. They know how to use banks' tax-free money to become richer.

Anyone can do the same. For instance, instead of paying capital gains tax on the sale of our condo units, real estate laws allowed us to defer paying these taxes and invest them into another property instead. The cash that does come from this property goes into our pockets at a lower tax rate because there's no Social Security or self-employment tax to pay, and the tax rate is further reduced by the depreciation of the property.

On the flip side, the poor and middle class toil away for their money, pay more in taxes the more they earn, and then park their earnings in savings and/or retirement accounts. In the meantime, they receive little or no cash flow on which to live while waiting for retirement -- when they'll live on their meager savings.

Doesn't it make more sense to play by the rules of the rich, and earn more while paying less in taxes?

Educate Yourself into Riches

Many of Wall Street's elite firms were being required to pay tens of millions of dollars in fines to investors, according to media reports. The penalties are for alleged bad investment advice, courtesy of New York State Attorney General Eliot Spitzer.

This brings me to one of my favorite quotes from famed investor Warren Buffett goes: "Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway."

I have been highly critical of the standard financial planning advice -- "work hard, save money, get out of debt, invest for the long term, and diversify" -- for a long time. Such guidance is often more a financial advisor's (subway rider's) sales pitch than a solid investment guide.

But while I think it's courageous that Spitzer slaps millions in fines on a few Wall Street firms for their bad investment guidance, I believe the investors who accepted that unsound advice have some responsibility, too. Isn't knowing the difference between good and bad advice part of knowing what you're doing?

The Difference Between Investing and Shopping

The problem is, most investors don't know how bad the standard investment advice is. This mantra of "work hard, save money, get out of debt, invest for the long term, and diversify" is followed by millions of investors -- who lost $7 trillion to $9 trillion between 2000 and 2004. Many are still following this bad advice today.

Not only did millions of investors lose trillions of dollars, many also missed the boom in real estate, oil, gas, and previous metals. Furthermore, despite investors' huge losses, Wall Street paid out some of its biggest bonuses in history.

However, investors should realize it's "buyer beware." Investing is different from shopping. If I go to Sears and don't like the tool or shirt I purchased, I can generally get my money back. When we go shopping, we expect value for our money. But when we invest, we do so in the hopes of making more money -- and knowing that we risk making losses. What would happen to the financial industry if brokers were sued every time a client lost money? The wheels of world commerce would grind to a halt.

My point is: The world is filled with honest people handing out bad advice. An example of honest bad investment advice is the standard one of "work hard, save money, get out of debt, invest for the long term, and diversify".

The world is also filled with biased advice, which is why people say, "Never ask an insurance broker if you need insurance, or a mutual-fund sales person if they recommend mutual funds." Furthermore, there are many crooks and con artists as well, who intentionally promote dishonest ventures.

Spotting the Difference

So while it's imperative that we have the Securities and Exchange Commission and a brave Attorney General such as Spitzer to enforce the rules, we, as individual investors, still need to be vigilant and personally responsible for the advice we receive and what we do with our money.

In my opinion, that means each of us needs to be responsible for our own financial education so we can tell the difference between good advice, biased advice, and crooked advice. If you can educate yourself to know the differences between those three types of advice, getting rich is easy.

Or, if you take investing advice from a subway rider, don't be surprised if you wind up on the subway.

When Good Advice Isn't

In January 1998, I was watching a very popular morning television show. The two very attractive hosts, one male and one female, smiled toothy grins and said, "This morning we have our network's investment expert in the studio to give us her financial advice for the start of the year."

The camera cuts away to an extremely attractive young woman who smiles into the camera and says, "For 1998 my advice is to work hard, save money, get out of debt, invest for the long term, and diversify."

The female host smiles and says, "That is such good advice. I hope everyone follows it."

The male host, frowning a little in an attempt to appear more thoughtful and intelligent, asks, "What do you recommend they invest in?"

The attractive young woman smiles her perfect smile and says she recommends a well-diversified portfolio of mutual funds with an emphasis on the technology sector.

"Great advice," say the male and female hosts in unison. Once again, they smile to the camera and thank the financial expert for her advice and for appearing on the program. And they cut to a commercial. A commercial for a mutual fund company.

Over the next few years, all the way through 2005, this same TV program invited the same financial expert on the program and each time the advice was exactly the same: "Work hard, save money, get out of debt, invest for the long term, and diversify." The only thing that changed was the year and the clothes worn by the three people. If they had simply rerun the January 1998 show, the effect would have been largely the same -- same advice, same smiles ... but horrible results.

Between 1995 and 2005 the millions of people who followed that advice lost an estimated $7-9 trillion. And much worse than losing $7-9 trillion, the people who followed that advice missed out on what the Economist magazine called the biggest financial boom in history. So not only did those investors lose money from the 2000-2003 stock market crash, they failed to make a lot of money in the financial boom in real estate and commodities. That is the price of bad advice.

In upcoming columns, I'll explain in detail why the standard financial advice of "work hard, save money, get out of debt, invest for the long term, and diversify" is bad financial advice because it's obsolete. The world has changed. The advice hasn't.

Rich Dad's Advice

In 1997 my wife Kim, our partner Sharon Lechter, and I self-published a little book titled "Rich Dad Poor Dad." It is a true story of my two dads -- one a highly-educated teacher and the head of education for the State of Hawaii and the other a man who dropped out of school at the age of 13. The superintendent of education is my real dad, the man I call my poor dad. My rich dad is my best friend's father.

The reason the book was self-published was because the major publishing houses rejected it. No one thought it would sell. Today "Rich Dad Poor Dad" has been on The New York Times bestseller list almost five years, a feat accomplished by only three other books in the history of The New York Times. The book has been published in over 44 languages and has sold nearly 23 million copies.

One of the reasons for the book's popularity is because it explains why the rich are getting richer and why millions of others are following risky and obsolete financial advice -- advice such as save money, invest for the long term, and diversify. Another reason for the book's popularity is because many of those who followed my rich dad's advice became very rich during the same period of time when millions of people were losing trillions of dollars in the stock market.

So, I am honored to have been asked by Yahoo! Finance to write this column. For those of you who are familiar with my work, thank you and welcome. For those of you who are not, I think you'll find this column different, a divergence from the standard financial car wash.

If you're looking for new ideas about the world of money, business, and investing then I believe this column will provide it. The information may not be comforting or popular, but it will be factual and come from real life experience. Also, this column is not about advice. What I invest in, while not risky for me, may be too risky for most people. Also, I have no investments to sell you. Although I have founded gold, oil, silver, publishing, manufacturing, and real estate companies, I am not writing to sell you shares in any of them. If I have anything to sell, it would be financial education products -- products that are created to support your financial education.

The reason I write is to enlighten, to open eyes, to entertain, and, most importantly, to educate those who are looking for new ideas about money -- even if unpopular. There are more opportunities to become rich today than ever before, but you may not get rich if you follow the obsolete advice of "work hard, save money, get out of debt, invest for the long term, and diversify." In fact, following that advice may make you poorer.

Investments That Pay Today -- and Tomorrow

Words have the power to make you rich -- or keep you poor. For example, you have to know the difference between an "asset" and a "liability." An asset is something that puts money in your pocket, and a liability takes money from it.

Take your house, for example.

"Our house is an asset," my poor dad would say.

But, my rich dad saw things differently. "Your house is not an asset, but a liability," he said.

You see, even though my poor dad thought of his house as an asset, the fact is that every month it took money from his pocket via mortgage payments, utilities, and upkeep.

Now my rich dad owned several houses. But instead of depleting his wallet, those homes were rented out. They generated enough income to cover his expenses -- with money left over. That's a true asset.

Now or Later?

In addition to "asset" and "liability," there are two other very important concepts you need to understand: "Cash flow" and "capital gains."

One of the reasons I was able to retire at age 47, and my wife, Kim, at 37, was simply because we had enough cash flow coming in (primarily from our real estate investments). It wasn't much -- about $10,000 a month -- but we only had about $3,000 in monthly expenses. That left us with $7,000 a month to do with as we pleased.

On the other hand, capital gains are when you buy a stock for a dollar, and it goes up to $10 so you make $9 a share. Or, you buy a house for $100,000, and it appreciates to $150,000. You sell it and make $50,000.

One of the reasons people do not become financially free is because most of them are focusing on capital gains rather than cash flow. Chasing capital gains alone is gambling -- not investing. Want proof? You don't have to go back very far to find it: Between 2000 and 2003, millions of investors lost trillions of dollars in the stock market.

"When you invest for cash flow," my rich dad said, "you're investing in a money-back guarantee. If you invest for capital gains, you invest in hope. The biggest thief of all is hope."

Most retirement plans are based on hope and promises stretched over many years. That makes very little sense to me, yet it seems to make a lot of sense to the millions of investors who are hoping the money they expect will be there at age 65.

There's nothing wrong with capital gains. I would like my properties and stocks to go up in value, but I don't play this game that much. My primary focus, like that of most successful investors, is cash flow -- not capital gains.

Powerful Combo

The key to financial intelligence is how to use both cash flow and capital gains to grow wealthy. So many people are not successful, because they're generally focusing on only one of the two. The majority is focusing on capital gains.

In my opinion, one of the primary reasons people invest in tomorrow, rather than today, is simply because they think they cannot find or afford an investment that pays them today. As a result, they often become believers in tomorrow. These are the people who often fall prey to financial predators selling dreams of the future.

As my rich dad said, "An investment needs to make money today and tomorrow."

Putting Debt to Work for You

I attended my first real estate investment class in 1974. The two-day program cost me $385, which was a fortune at the time since my salary was less than $1,000 a month.

After months of searching for my first investment property, I found a tiny, one-bedroom, one-bath condo in Lahaina, Maui, the world famous beach resort. The condo was priced at $18,000. Not having any money, I used my credit card to finance the 10 percent down payment of $1,800.

In other words, I used 100 percent debt to buy the property.

Even though I was leveraged 100 percent, which I do not recommend even though I did it, I was netting approximately $20 a month positive cash flow after all expenses and debt were paid. At the age of 27, I owned a condo in Waikiki, in which I lived, and a condo in Lahaina, which I rented. My real estate investing career was launched -- and I was in debt up to my eyeballs.

The 'Credit Card Tycoon'

Being single at the time, several friends and I would get together regularly at a popular downtown Honolulu watering hole on Friday afternoon to have a few drinks and, if we were lucky, meet some of the pretty women who worked in downtown Honolulu. The Friday after closing on my Maui condo, I told my friends about my investment.

"Are you crazy?" asked one friend, a young attorney fresh out of law school.

"You're nuts," said another friend. "You purchased a condo with a credit card? Do you know how risky and foolish that is?"

"Yeah, but it's a great deal," I replied defensively.

My friends just continued to laugh at me, calling me the "Credit Card Tycoon." The more I defended myself, the more they ribbed me and the more they laughed. I finally gave up and went to talk to a group of pretty women.

About a year later, we were all together again at that same watering hole where we met almost every Friday.

"Well, how is the Credit Card Tycoon doing today?" asked a friend who was a young attorney. "Buy any more property with your credit cards?"

"No." I replied with a grin. "I sold one for $48,000. I made about a $30,000 profit in a year."

Although it was good to have the ribbing stop and to win my point, the most important lesson was that I had learned how to use debt to get richer.

From $25 a Month to $29,000 a Month

My wife had a similar experience. She bought her first property in 1988. It was a small two-bedroom, one-bath home in a great neighborhood in Portland, Oregon. The purchase price was $45,000. She put $5,000 down and earned approximately $25 a month after expenses and debt service.

Some of her girlfriends made the same comments my friends did. They thought $25 a month was not worth the risk of borrowing money. What her girlfriends failed to understand is that it wasn't the money that was important at that point. It was the experience.

Using that experience, my wife bought a piece of commercial property 16 years later for $7 million. Since the property was such a great investment, a banker gave her most of the money -- yes, as debt. Every month, after paying all expenses, the net income into her bank account is approximately $29,000. That's more than many people earn in a year.

In her talks, she often asks people, "How long would it take you to save $7 million?"

Most people admit that it would take a while to save that much money, if they could do it. She then points out that to save $7 million would require earning nearly $14 million before taxes to net $7 million in savings. The thought of earning $14 million is beyond what most people can do in a lifetime. She tells her listeners that it took her two weeks to find the $7 million as debt financing, which is tax-free money.

She closes by asking, "Will your banker loan you $7 million to invest in mutual funds?"

Debt Is Not the Problem

"My banker is my best partner," my rich dad used to say. "He loans me 90 percent of the money and I control 100 percent of the property, 100 percent of the profits, and 100 percent of the tax breaks. All I have to do is find great investments he wants to be a partner in."

There are many financial experts who say "get out of debt," "pay off your credit card bills," or "pay off your mortgage." Many of them seem to think all debt is evil.

"Debt is not the problem," my rich dad said. "It's what you buy with debt that can cause you problems."

Between 1995 and 2005, savers -- people who saved money in bank accounts or in mutual funds -- were the big losers. They lost because the stock market crashed. Between 1995 and 2005, many of the debtors who took advantage of low interest rates to invest in real estate made fortunes in the biggest real estate boom in the history of the world.

Understanding how to use debt to increase their fortunes is another reason the rich get richer.

Work Hard, Earn Less?

American workers have been getting the short end of the stick since 1943.

That's when the United States Congress, in response to the costs of World War II, passed the Current Tax Payment Act. The act requires employers to withhold taxes from their employees' paychecks, overturning the previous system in which workers were paid first and settled their tab with the government later.

The Current Tax Payment Act is why so many people look at their paychecks and wonder where all their money has gone.

My poor dad -- who also happened to be my real dad -- often said to me, "Go to school, get good grades, so you can find a good, secure job with benefits." My rich dad, on the other hand, had a different point of view.

Instead of advising me to work hard for money, my rich dad said, "If you want to earn more and pay less in taxes, you need to have people and your money work hard for you." In other words, my rich dad encouraged me to be an entrepreneur and investor.

Today, workers who save money and invest in a 401(k) plan are the highest taxed people in America. Now, I can hear some of you asking, "Isn't saving money and investing in a 401(k) having your money work for you?"

No -- at least not according to the IRS. A worker's pay is taxed at the highest tax rate possible. So are your savings and income from your 401(k). In most cases, money goes into a 401(k) tax-deferred but comes out as highly taxed ordinary income.

One of the reasons the rich are getting richer is because they have more control over our number one expense: Taxes.

For example, my passive income from real estate can be the lowest taxed income of all. On one of our commercial properties, my wife and I receive approximately $30,000 a month in income -- almost tax-free. When we sell the property, we can legally take the capital gains without paying capital gains tax, which in our state would be 20 percent. Try doing that with stocks, bonds, mutual funds, or real estate investment trusts (REITS). In fact, mutual funds can be a tax trap if you do not understand the rules.

Another example, when we invest in oil and gas projects, we receive approximately a 70% tax deduction and a depletion allowance -- another tax break -- for income from oil and gas revenues. That means if I invest $10,000 in oil and gas, I can deduct approximately $7,000 from my income as well as receive a tax break for income from the sale of the oil and gas.

Obviously, I'm not a tax professional and you should not make any tax or investment decisions based on this brief article. My point is this: If I had followed my poor dad's advice and got a job with a 401(k), there would be almost nothing an accountant could do to protect me from higher taxes. The 1943 Current Tax Payment Act saw to that. Today, employees with a 401(k) work hard and earn less.

The federal government provides the biggest tax breaks for business owners and investors in oil and gas and real estate. Why? Business owners provide jobs and jobs mean employees who pay higher taxes. The economy needs oil and gas so anyone who explores for oil and gas are given big tax breaks. And people who invest in real estate are given big tax breaks because the government needs investors to provide housing. If investors didn't provide housing, the government would have to.

After 1943, people who worked for money lost most of their tax breaks. Now, entrepreneurs and investors get the big tax breaks -- and that's another reason the rich get richer.

Why Savers Are Losers

My poor dad believed in saving money. "A dollar saved is a dollar earned," he often said.

The problem was he didn't pay attention to changes in monetary policy. All his life he saved, not realizing that after 1971 his dollar was no longer money.

You see, in 1971 President Richard Nixon changed the rules of money. That year, the U.S. dollar ceased being money and became a currency. This was one of the most important changes in modern history, but few people understand why.

Prior to 1971, the U.S. dollar was real money linked to gold and silver, which is why the U.S. dollar was known as a silver certificate. After 1971, the U.S. dollar became a Federal Reserve Note -- an IOU from the U.S. government. Instead of our dollar being an asset, it was turned into a liability. Today, the U.S. is the largest debtor nation in history due in part to this change.

Taking a brief look back at the history of modern money, it's easy to understand why the 1971 change was so important.

After World War I, Germany's monetary system collapsed. While there were many reasons for this, one was because the German government was allowed to print money at will. The flood of money that resulted caused uncontrolled inflation. There were more marks, but they bought less and less. In 1913, a pair of shoes cost 13 marks. By 1923, that same pair of shoes was 32 trillion marks!

As inflation increased, the savings of the middle class was wiped out. With their savings gone, the middle class demanded new leadership. Adolf Hitler was elected Chancellor of Germany in 1933 and, as we know, World War II and the murder of millions of Jews followed.

A New System of Money

In the closing days of World War II, the Bretton Woods System was put in place to stabilize the world's currencies. This was a quasi-gold standard, which meant currencies were backed by gold. The system worked fine until the 1960s when the U.S. began importing Volkswagens from Germany and Toyotas from Japan. Suddenly the U.S. was importing more than it was exporting and gold was leaving our country.

In order to stop the loss of gold, President Nixon ended the Bretton Woods System in 1971 and the U.S. dollar replaced gold as the world's currency. Never in the history of the world had one nation's fiat currency been the world's money.

To better understand this, my rich dad had me look up the following definitions in the dictionary.

"Fiat money: money (as paper money) not convertible into coin or specie of equivalent value."

The words "not convertible into coin" bothered me. So my rich dad had me look up the word: "fiat."

"Fiat: a command or act of will that creates something without or as if without further effort."

Looking up at my rich dad I asked, "Does this mean money can be created out of thin air?"

Nodding his head, my rich dad said, "Germany did it and now we are doing it."

"That's why savers are losers," he added. "I fought in France during World War II. That's why I never forget that it was after the middle class lost their savings that Hitler came to power. People do irrational things when they lose their money."

Most economists would disagree with my rich dad's correlation between the loss of savings and Hitler. It may not be an accurate lesson, but it's one I never forgot.

Between 2000 and 2005 housing prices went through the roof. Oil went from $10 a barrel in 1997 to over $60 a barrel in 2005. Gold went from $275 an ounce in 1996 to over $475 an ounce in 2005.

In spite of all these increases in prices, the federal government's economists say, "Inflation is low. It's under control." They are allowed to say that because the government is charged with only monitoring inflation in consumer prices -- not asset prices. The consumer price index (CPI) is the pressure gauge the government watches because they want to make sure the consumer is happy finding bargains at Wal-Mart, which is easy because China is forcing consumer prices down.

The problem is our dollars return to the U.S. to buy our assets. In simple terms, we send cash overseas to buy goods, and overseas investors take our cash and use it to buy our assets. That's why the Wal-Mart shopper finds bargains in the store but can't afford to buy a house, gas, gold, or stocks. Those same "consumers" also worry about their jobs going overseas.

In summary, investors shop for asset bargains, and consumers shop for consumer bargains and try hard to save money that is not really money. That is another reason why the rich are getting richer.

For more on this subject I recommend reading "The Dollar Crisis"by Richard Duncan.

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