Dave Ramsey The Financial Charlatan

Dave Ramsey is famous for telling people to get out of debt. Sound advice for most people. Although telling people it’s a good idea to get out of debt, selling books and putting on seminars doesn’t mean you know anything about economics on any level.

For example, the way anyone gets out of debt from an individual to a country is to spend less than you take in and depending on your time frame you will definitely get out of debt. That’s it, that is Ramseys entire claim to fame that he repeatedly tells people this, because sadly most people are to dumb to figure it out on their own.

Now ironically enough this is quite similar to how to lose weight, you burn more calories than you consume. The theory is super easy, in practice it’s more challenging. Now because I put that reality in words does that make me an expert dietician or doctor? No it means I understand the very basic premise of losing weight. Now I could be like Dave Ramsey and market myself as an expert on the subject of weight loss, giving people medical advice etc etc, but I won’t do that, because even though I understand how to lose weight I am not going to market myself as a revolutionary who came up with a super easy concept so that I can make millions selling things to people who clearly have trouble saving money.

I listened to Ramsey probably 8 or so years ago, I was much younger and had yet to form my own opinions on the subject of economics. I vividly remember him downing gold at every opportunity saying that it was a horrible “investment”, and that real estate and mutual funds were the way to go to make money. Now this was around 2003 or 2004, on the cusp of the bubble in real estate was well as the stock market. Gold was around 300 dollars per ounce.

So let’s fast forward 8 years. Housing hasn’t made gains in 8 years and is continuing to slide, the stock market has gone sideways for a decade now, while Gold is up from 300 per ounce to 1500. That is a %500 increase in 10 years.

Now Dave is right, gold is not an investment, people get this wrong. Gold is money. and during a time when the Federal Reserve is printing 10’s of trillions of paper dollars it is the time to be in commodities, anything really that is produced at a slower rate than paper currency will go up vs that currency, it is supply and demand.

Dave’s philosophy is that “cash is king” guess what cash may have been king when it was backed by gold until 1971, but since then it has been in steady freefall. It has lost over 95% of it’s purchasing power in 100 years while gold has maintained it’s purchasing power for thousands. So let’s show you why Dave is wrong on gold.

Dave recommends mutual funds which have made no progress in a decade, which is bad enough, doubly so when you consider Gold has made double digit gains every single year in the last decade. You may say “well the DJIA has gone from 8,000 to 12,000 in only 3 years” but priced in what? Worthless paper dollars, using this metric Zimbabwe in the height of it’s hyper inflation had the best nominally performing stock market in the history of the world, but the people were plunged into poverty. So price the Dow in terms of Gold

As you can see the market continues to plunge in terms of real purchasing power even since 08. The Dow has gone from a high of almost 44:1 with gold to now just 8:1. It’s pathetic. What’s more pathetic is that 100 years ago the ratio was 5:1 so in 100 years it has gone up 62.5% barely half a percent per year. Simply abysmal.

So the stock market in terms of real money has only gone up at an average rate of .6% per year for 100 years, what about housing, the other investment recommendation of Ramsey. Consider a house that would’ve sold for $50,000 10 years ago when gold was $250, it would’ve taken 200 ounces to buy the house. Fast forward 10 years and today the house would probably be $100,000 (at the peak it would’ve been 200k) but today take the same 200 ounces of gold and you can afford a house that is $280,000 dollars. So Gold has handily beat the price of homes which despite Ramseys claims do not whatsoever keep pace with inflation. Had you heeded sound advice 10 years ago you would’ve gone from living in a 50,000 dollar house to a nearly 300,000 house and not had to work a minute extra.

But sadly people continue to listen to Dave Ramsey even though he clearly knows nothing about investing or economics which in an of itself doesn’t bother me, but he shouldn’t act like he is an authority on the subject because his advice is on par with Jim “buy bear stearns” Cramer.