okay today we are going to talk about  flows of wealth and how people get rich

okay so wealth, what it is, who owns it & how it  flows around the economy is something which  

is almost not taught at all in university economics  courses and for that reason many economists don't  

think about it very much this means that if you  understand it you can have an advantage over most  

economists and you can understand the economy  much more clearly than a lot of economists think  

um it's super important to understand it because  the wealth distribution has changed massively  

in the last 20 years um I think that has really  dominated changes in the economy and understanding  

the way that wealth moves around has basically  enabled me to predict better than economists  

after the 2008 crisis and also  here in the covid19 crisis so  

if you understand this you can understand what's  happening in the economy and what you need to  

do basically to protect your family and your  financial interests so number one you need to  

understand what wealth is, wealth is not income  whenever we talk about wealth on this channel  

we're not talking about your job or your salary  we're talking about the assets that you own

wealth is about physical assets uh in this country  the UK and in most Western countries the largest  

single form of wealth in terms of value is  residential property so I'm talking to you from  

a flat that I own you're probably watching this  from a flat or apartment that you own or you rent  

this country & this world is full of residential  properties they are all owned that's the single  

biggest form of wealth um people are used  to this kind of wealth because most people  

either own a property or aspire to one day own a  property it's a form of wealth that we understand  

it's important to understand that residential  property is not the only form of wealth there  

are other huge forms of wealth and if you want to  understand them just walk down your high street  

and have a look around so I'm talking to you from  Canary Wharf just around the corner there's a ton  

of massive skyscrapers full of offices those are  all owned if you go down the high street you'll see 

supermarkets, shopping centres, bars, restaurants  those are all owned as well if you go out into the  

countryside you'll see farmland that's all owned  if you live in a part of the world that has factories  

you'll see factories full of machinery that's  another big source of wealth natural resources  

such as oil, coal, the windmills that produce our  energy these are all kinds of wealth so the world  

is absolutely full of wealth one other big source  of wealth is debt so if you own your own property  

there's a big chance that you are owning it with  a mortgage somebody owns your mortgage so if you  

own a property worth half a million pounds with  a 400 000 pound mortgage effectively you only  

own 20% of your property and other 80% is owned  by the person who lent you the money there's  

also an enormous amount of government debt in  this country in the UK and many other countries  

all of this debt is owed to somebody is owned by  somebody, debt is another massive form of wealth  

so I want to cover words quickly because I think  sometimes words are used in a way that confuses  

what wealth is, wealth is not income income is your  salary from your work wealth is about ownership  

of assets. Capital/Assets these are all basically  interchangeable - Wealth, Capital, Assets these are  

fixed assets property that you can own that's  wealth. money is not the same as wealth

money is one specific kind of wealth a lot of people  who are who are extremely rich don't have a huge  

amount of money for very rich people money is  generally only a tiny percentage of their wealth 

so that's it wealth is assets wealth is property um I think for most ordinary people  

because they struggle even to own just the home  that they live in they tend not to understand that  

the world is full of wealth commercial wealth in  many cases that they generally don't own much of  

so that moves us on to the next point  which is who owns the wealth and how  

so there are lots of different forms of wealth  and I want to separate residential property from  

commercial wealth and debt because the way  that these are owned are very different now  

in this country the UK and in also the United  States, Europe, Australia, all of the places where  

these these videos are watched we still have  a relatively large property owned middle class  

by which I mean people who are not particularly  rich but they own the property that they live in  

now that makes residential property quite  unusual because it's the only form of wealth  

where a large amount of ordinary people  own a big chunk of the wealth that exists  

when it comes to other wealth like commercial  property or debt; mortgage debt, government debt  

those forms of wealth are overwhelmingly owned by  very rich people now we sometimes get comments on  

the video saying well that's not true because  ordinary people do own commercial wealth for  

example in their pension funds and that is  true if you have a pension your pension will  

basically invest in owning corporations  which will often own commercial property  

or it will own for example government debt if  you have a large amount of cash in the bank  

your bank would essentially be owning forms of  debt for you like government debt but there's a  

big difference in the sense that when it comes to  residential property a huge amount of is owned by  

a normal people whereas when we look at commercial  property even though ordinary people do own some 

through for example their pension fund it is tiny compared to the amount owned by the very rich  

now very rich people what they will tend to have  is they'll have what's called a family office and  

that's basically a small business which will  hire lawyers and accountants which basically  

manages the ownership of assets um they will own  businesses, land, commercial property, huge amounts  

of stocks and shares they will own debt and that  would all be managed for them so there's kind of  

a split where residential property is often owned  by ordinary families although often through large  

amounts of debt whereas all the other forms  of wealth; commercial wealth, corporations, debt  

tend to be overwhelmingly owned by the rich  ok so that's the setup there's a huge amount of  

wealth in the world; residential property,  commercial property, natural resources, land  

but ordinary families are only really owning  the residential property the rest of the assets  

a tiny bit is owned by ordinary families  through their pensions and the rest is  

owned largely by the rich I want to talk about  the cash flows that this creates in society  

so every single time you use an asset you use a  piece of wealth that you don't own you have to pay  

some money to the owner of the asset the owner of  that wealth the most obvious example of this is if  

you rent the property that you live in every month  you have to pay rent to the owner of that property  

if you own the property that you live in  but with a mortgage every month you have  

to pay the mortgage interest to the owner of the  mortgage but it goes beyond just property right  

say you go to the hairdressers for your haircut  the money that you pay doesn't all go to the  

guy that cut your hair some of it will go to the  person who owns the building that the hairdresser  

is in some of it will go to the person who lent a  business loan so that hairdresser to get started  

if you go to the supermarket and you buy food in  the supermarket most of the money that you pay to  

buy that food will not go to the workers in the  supermarket some of it will go to the owners of  

the land where that food was grown some of it  will go to the owners of the physical building  

that the supermarket is in some of it will go  to the shareholders of the company the owners  

of the supermarket company itself and this  extends to every single purchase that you make  

when you go take a flight to go on holiday that  doesn't mainly go to the workers of the airline  

it goes to the owners of the planes it goes to  the owners of the airports so every single time  

you spend money you are giving a bit of money to  the owners of the wealth the owners of the assets  

even when you pay your taxes a big chunk  of that is going to pay debt interest to the  

people who lent money to the government so  even then a big chunk of the money that you're  

paying is going to the owners of the wealth  now the reason this is important is because  

in many cases the wealth that you're accessing  is wealth that you literally need to live it's  

access to a property it's food it's electricity  energy basic transport so what this means is  

in many cases your whole salary or a massive chunk of it can go towards accessing the wealth  

that you need to live so if you have a salary of £30-40,000 a year very easily £20-30,000 of it 

can end up going to the owners of the assets  that you need to live your life so this creates  

a massive cash flow every single year you are  paying a big chunk of your salary to the owners of  

the wealth on the flip side of it the people who  own the wealth are receiving a massive cash flow  

from you every year so if we consider for example  Rishi Sunak who's worth estimated £700 million  

he will receive about £2,000,000-£3,000,000 a year in pure cash flows from the wealth that he owns

that means assets that he owns and when you use them you have to pay him to use them  

so we have this massive cash flow going on from  people who don't own wealth to people who own  

huge amounts of wealth, what does that mean and  what does that create in terms of flows of wealth  

itself? well again let's use our favourite man of the moment Rishi Sunak he's receiving 

£3 million a year every single year because of the wealth that he owns from you from other ordinary  

families now what will Rishi Sunak do with that  money now very wealthy people they don't generally  

like to accumulate money when their pile of money  grows they like to diversify that into owning more  

forms of wealth now in a strong economy with lots  of growth opportunities this isn't necessarily a  

bad thing because they can use that money to make  new investments and create new forms of wealth  

but when we have a weak economy with a weak  consumer companies aren't willing to grow and  

that means wealthy people tend to use this very  large income to buy more of the existing wealth

so you can see this creates a troubling dynamic  right every year ordinary families go to work  

they get their salary they give most of their  salary to the rich and the rich use that money  

to buy the existing assets from ordinary families  that means that next year ordinary families have  

less assets, rich families have more assets, which  means ordinary families give a larger amount of  

cash to the rich which means they can use that  to buy even more assets from ordinary families  

this can create a dangerous spiral where money  gets sucked away from ordinary families and  

rich families accumulate money. the way that these  ordinary families tend to lose that world is that  

the older generation sells the property to pay for  their retirement and the younger generation never  

gets property now if you consider these ordinary  families from a generational perspective you can  

see they're going from being property owning to not property owning but the  

older generation sees we got a property and now we're selling it to pay for our retirement

and the younger generation simply sees we can't afford to to get a property  

it's important to ask you know where are  those properties going and in many cases  

this is the manifestation of those flows of  cash from the ordinary families to the rich  

the rich accumulate money they give that money to  their kids and then their kids buy the property  

that your kids then cannot afford or in other  cases they lend the money which your kids then  

have to borrow so what you see is this increase  in wealth inequality which is balancing those  

flows of cash from ordinary families to the rich  is manifesting in two main ways which is number  

1. a smaller percentage of ordinary families  being able to own properties and number   

2. those who do get properties having to borrow much  more money from the rich to get it what this means  

is that the Next Generation has to spend more  time renting and pay a large amount of interest  

but both Generations if they look at themselves  in isolation they see themselves getting richer  

over time but if they were to compare themselves  with their kids and their parents what you see is  

ordinary families getting poorer generation after  generation after generation so this brings us to  

the question of how do people get rich now I  think ordinary families and ordinary people  

tend to think the best way to get rich is through  working and I am somebody who who did get rich  

through working but the reality of the situation  is its almost impossible to get as rich through  

working as you can ever get by simply compounding  wealth and getting more and more wealth over time  

so if you are as rich as Rishi Sunak (700 million pounds) you'll make every single year 3 to  

4 million pounds something like that just for  getting out of bed that will then grow and you  

will have more wealth the next year and it will  compound up I think it was Albert Einstein that  

said compound interest is the greatest force  in the world or it's often attributed to him  

but this is the way that it works rich people get  a huge amount of money from you for being rich  

and then they use that money to then buy your  assets which means they get more money from you  

which they can then use to buy from all of your  assets and over time you see wealth get sucked  

out of the middle class bit by bit  in the forms of losing their homes  

not being able to accumulate pensions and having  much larger amounts of debt now this was the  

dynamic which I kind of recognised back in 2011  which enabled me to predict that basically our  

economy would never recover because you could see  that ordinary families were losing more and more  

and more wealth that means that they will not  be able to spend money that means that ordinary  

businesses will fail that means that ordinary  people's wages will fall over time so I think once  

you understand the flows of wealth you can see  that our middle class will shrink living standards  

will shrink and the economy will continue to fail  and this is the realisation I had back in 2011  

um and it was also the realisation I had in 2020 when Covid happened because you could see  

that the wealthy were going to get massively  more rich if you know the way that the rich  

behave you will know they will use that money to  buy assets from middle class that would increase  

inequality more and that will lead this spiral to  accelerate so when you look at the whole picture  

what you can see is that that the situation  is basically phenomenally bleak because if  

in the absence of any action being taken it has  become inevitable that ordinary families and the  

existing middle class will over time lose all of  their assets and that will happen generationally  

so it'll be difficult for you to see it as an  individual but if you compare yourself to your  

parents and your kids and your grandkids you will  see each generation getting poorer over time and  

that will lead inevitably to more and more falling  living standards um and we can see it we can see  

happening now as inequality increases the rich get  richer ordinary families lose their assets and the  

middle class becomes poorer that hits the economy  so I think if you look at the flows of wealth  

you can understand really clearly that  things will inevitably get worse and worse  

it's important to understand that most economists  do not look at this because it's simply not  

included in economics degrees economists tend not  to look at the wealth distribution or understand who  

has wealth which different groups have wealth  um and that means that they will probably not  

understand this is going to happen before it's too  late um that is a very bleak message um but it's  

important that you understand that is what's going  to happen um the rich will get richer because of  

the large amounts of wealth flowing to them and the middle class will disappear um  

the reason it's important that you understand is  because number one you can try to protect yourself  

um what can you do as individuals well the main  thing you can do is try and reduce your spending  

as much as possible I understand that in many  cases that is not possible most people are already  

at bare minimum and other cases that means giving  up you know the few luxuries you have in life um  

that's not a message I want to send um but there  is an alternative you know we can try to prevent  

this massive flow of wealth we can try and reverse  it I think it's important to understand if we  

don't reverse that flow of wealth it is inevitable  that living standards will decline aggressively  

in this country and in other countries around  the world so really we've got a choice either  

start wealth flowing back from the rich  to ordinary families which would involve  

get rid of tax loopholes, greater taxation of wealth  rather than income, focus taxation on the rich or  

we have to accept basically the middle... the  middle class will disappear and a collapse into  

broad poverty in this country the UK in Western  Europe in the US that is that is inevitable  

um you know I'm a betting man I'm a trading man  I bet every year on what will happen um if you  

understand the flows of wealth I think you know  basically with certainty there will be a collapse  

into poverty um but at the same time the rich  will get massively richer so asset prices will  

become very expensive that's been monetisable I  bet every year on on big increases in asset prices  

um but but it will be a disaster basically so um  really I would encourage you to help us try and  

stop this from happening because um I make money  betting on this year after year but um I probably  

prefer if the disaster didn't happen because it  would be terrible for our society and for our kids  

um and the only way to stop that is to um  basically force governments to raise tax on  

the rich because if we don't do that things will  get worse and worse in many cases the government's  

are controlled or in this case we have a prime  minister who directly is some of the richest  

people in the world they're not going to do  our unless we make them do it so um we're  

going to keep trying to push for a reduction in  inequality if we don't do that there will be  

disastrous collapse in living standards  we don't want it to happen we don't think  

you want that to happen either so  um yeah support us help grow the  

channel and um yeah let's try and stop the  disaster before it gets any worse thank you

money currently is flowing from  the government to the rich leaving  

government with big piles of debt and  the rich with big piles of money

theres 1 other thing they can do with that massive  amount of income; they can buy your mom's house