Elon Musk recently crossed a net worth of 300 billion dollars.
That's more wealth than the entire GDP of countries such as Greece, Portugal, or Finland.
If he spends 1 million dollars a month, he would need 25K years to spend all of that
money.
Even if he would spend 1 million dollars a day, he will need more than 821 years to spend
300 billion dollars.
Imagine how your life would look like if you could spend a million dollars a day.
Elon Musk is 50 years old.
Let's assume he will live for another 50 years.
He will have to spend 6 billion dollars every single year, or 16.5 million dollars every
single day for the rest of his life to be able to spend all of that money within his
lifetime.
Can he do it?
You can ask him on Twitter!
The only problem with this wealth is that.
It's not real!
This wealth only exists on paper!
If he tried to turn it into real money, he might end up losing all of his fortunes.
When the CEO sells off his shares when the company is barely profitable.
That can scare off investors, and an oversupply of Tesla shares can easily drag the stock
price down.
On top of that, He will have to pay a 20 percent capital gain tax, further diminishing his
net worth.
So at the end of the day, he is not as rich as he might appear on the Forbes List.
But that's not a big deal.
When the world's richest man wants cash, he can simply borrow money by putting up some
of his Tesla shares as collateral.
Elon Musk can walk into a bank and say, how about you loan me a 100 million dollars.
In case if I won't be able to pay back, I will give you the authority to sell my Tesla
shares.
Since Tesla is booming, the bank isn't taking any risk, so they will loan him as much money
as he wants at 1 or 2 percent.
Elon Musk, or any billionaire, can access their wealth that exists only on paper without
paying taxes since you don't pay taxes on debt.
In 2012, he bought his first mansion in Bel Air for 17 million dollars.
Back then, Tesla's stock price was 6 dollars.
Ideally, he should have sold 17 million dollars worth of Tesla shares to buy that mansion.
But instead, he put his shares as collateral and took a mortgage.
Since then, Tesla's stock price has grown by 17K percent while he only had to pay a
2 percent mortgage.
If he had sold his shares, he would have paid a 20 percent capital gain tax and would have
missed the opportunity to grow his shares by 17K percent.
Do you realize now why billionaires love debt so much?!
Here is another strategy.
Buy a piece of art for 10 million.
Pay some journalists to create a buzz around it.
Pay some experts to write about what a great piece of art it is and why it worth a 100
million dollars.
Go to a bank, give them your piece of art as collateral, and boom, you can borrow up
to 100 million dollars in cash at a 1 or 2 percent interest rate.
Now you can buy a mansion, a yacht, or throw a huge party.
Just make sure to make the minimum payment when your business generates some cash at
the end of the year without selling any shares and paying millions in taxes.
If you think it ends there, then you have no idea to what extend billionaires love debt.
Soros
It's the 1990s.
The British economy is suffering.
Inflation is high, unemployment is rising, and the government is in chaos.
Britain had to devalue it’s currency to survive, but it was part of the ERM or the
European Exchange Rate Mechanism, which fixed all European currencies against each other
to prevent currency fluctuations to make it easier for businesses to trade across Europe.
The demand for the British pound kept declining as Britain fell into a recession.
Hence, the bank of England had to buy billions of dollars worth of pounds to keep the pound
at the same rate as other European currencies.
While it was bad news for Brits, it was a billion-dollar opportunity for George Soros.
By looking at the numbers, he realized that sooner or later, the bank of England would
have to devalue the pound even if that meant leaving the ERM.
Soros was one step away from a gold mine.
He went to various hedge funds, borrowed billions of pounds at a very low rate, and then sold
them in the forex market in exchange for german marks.
The idea was simple.
When the British pound will collapse.
Soros will buy those pounds cheaper and return them, pocketing the difference.
On September the 16th, the president of the Bundesbank hinted in an interview that it's
possible for some currencies to come under pressure.
That night when Europe was asleep, Soros began calling all the major banks or, in fact, any
bank to borrow as many pounds as possible.
By morning, Soros borrowed and sold over 10 billion dollars worth of pounds.
The bank of England was in absolute disarray.
The British pound was collapsing.
The bank of England purchased 27 billion dollars worth of pounds, raised interest rates to
15 percent.
But it was already too late since the entire market began to sell their pounds after Soros's
move.
Before the day ended, England left the ERM and devalued the pound, and Soros profited
over a billion dollars.
Without spending a single penny out of his pocket, he borrowed billions of pounds, broke
the bank of England, and pocketed a billion dollars.
Can you really say debt is bad after that?!
Michael burry
It's 2005.
Michael burry is going through mortgage-backed securities, and he is suspicious.
Something unusual comes up.
He can't believe his eyes.
So he starts digging further and further, but the more he digs, the more he is shocked.
Every mortgage-backed security is filled with multiple junk loans.
In fact, these loans are given on the basis that the borrower doesn't have a deadline
to pay the principal.
They can even skip the interest on the interest.
Which meant that even a high school dropout with no job or savings could buy a house.
Ideally, the rating agencies would give these loans a C rating, but investment banks piled
them with good loans, and boom, now they are rated as AAA loans.
If a small minority of these borrowers will default on their loans, it will drag down
the entire market.
In 2007 alone, 500 billion dollars worth of these loans were sold.
That's when Michael Burry shorted mortgaged-backed securities exactly like Soros shorted the
pound.
He borrowed as many mortgage-backed securities as possible and immediately sold them in the
open market, hoping that when the market crashes, he would be able to buy these securities at
a much lower price and return them back.
Everyone thought he was crazy betting against the housing market.
But this is what happened on September the 16th (video of housing crash).
Micheal Burry walked away with a personal profit of 100 million dollars.
All of that was done with DEBT!
But not everything is sunshine and rainbows.
Its April 2020, Melvin Capital, Citadel, and a few other hedge funds decided to make a
few billion dollars by bankrupting another barely surviving company called Gamestop.
By that time, the hedge funds had already shorted 140 percent of the total stocks.
More shares were shorted than actual shares in circulation.
It was a matter of time before the stock collapses, and hedge funds would close the deal with
a few billion dollars for their investors.
But something went wrong.
A Reddit user realized that the only way these hedge funds can get out of this deal is by
purchasing back all the existing shares.
If he purchases Gamestop shares and holds them long enough.
These hedge funds will pay whatever price you want to buy back these shares because
if they don't, they will keep paying interest since these shares have been borrowed.
The Reddit post went viral and everyone began buying game stop shares to the point where
the stock price soared.
Hedge funds purchased the stocks at 5 to 10 dollars but now had to buy them back at 300
to 400 dollars to give them back.
The news broke the internet.
Wall Street was in absolute chaos.
For the first time, retail investors beat wall street at their own game.
At this point, the hedge funds knew that if they won’t stop this rebellion, they might
go bankrupt.
First, they pushed Robinhood to stop selling GameStop shares on their platform.
Soon other brokers followed.
Even though they stopped the rebellion, Hedge funds ended up losing almost 13 billion dollars
in the process.
Debt is a powerful tool, but it's not for everyone.
It can be your best friend or your worst enemy.
Even if you have hundreds of millions of dollars stashed in your bank account.
Not a single, smart businessman will use that money to grow the business.
Instead, let the banks know that you or your company actually have the money and borrow
an equivalent amount of money to finance your operations.
At the end of the year, when it's time to pay taxes, you can claim that you didn't make
any profit on paper since you owe the bank so much money.
Suddenly instead of paying a 21% percent corporate tax, you pay nothing.
And in case you need money to finance your lavish lifestyle, use the company's funds
to pay for your private jet, expensive restaurants, and luxurious hotels and write them off as
a business expense at the end of the year.
That's what almost every company does in the US or in fact, anywhere else in the world.
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