The $100 note in your wallet is worth less today than it
was yesterday. Most people think it's just normal inflation, an
unfortunate side effect of a growing economy. But the reality is
every government in the developed world runs a monetary system that
deliberately and intentionally, mathematically and
economically erodes the purchasing power of your
money. I'm Lloyd J. Ross, seven figure investor and entrepreneur, and I've helped thousands of
everyday people get out of debt and build real wealth. And I'm here to
show you in this video exactly why The Australian dollar is
losing value, why the system is designed this way, and what
you can do about it yourself. Firstly, let's dive
into what is fiat currency, where did it come from? So let's go
back to the basics. Because this is where you'll understand why
we have this system, the fiat system, okay? And why
it fails and when it's abused, well, it fails when it's abused, okay? It
doesn't always fail, but when it fails when it's abused, To
date, it's not gone too bad, right? So for most of human history,
money was either a commodity itself, so gold, silver,
or was backed by a commodity. It was a little bit like barter. But
you could take your paper note to the bank and exchange it for a fixed quantity of, let's say,
gold or silver, right? That was the gold standard. You
could exchange a US dollar for a certain ounce
of gold, right? And the idea was pretty simple. The government
can't just print more money than it has gold, yeah? The
gold supply acted as a bit of a natural ceiling on money
creation. Supply of gold dictated the supply of money, right?
But then came Great Depression. Great
Depression was a big factor that shifted that, and then World War II, right?
And the reality is that the gold standard was Effectively, it
kind of constrained growth. It was like a straitjacket on the
economy, and they realized that. It wasn't growing. In fact,
the gold standard was a big cause of the Great Depression. I
don't know if you knew that, but they couldn't release
credit fast enough, and that's what caused a lot of the Great Depression.
And then it couldn't grow beyond World War II. And
so the reason why, in 1971, Richard Nixon took the US
off the gold standard is because they wanted to
grow the economy faster than what they were. So basically, the modern
fiat era began with President Nixon when
they shifted off the gold standard in 1971, right? They call it the Nixon
shock. And it started to remove the anchor that
precious metals enabled on monetary expansion. It's
kind of what happened, right? So fiat money, which basically, fiat
is this Latin word It means let
it be done. that
will be done or by decree, right? So it's money that the government says, it's
money because the government says it's money. So it's an agreement and
a belief, right? Not because it's backed by anything physical, although
you could argue that the US military is what backs the US dollar, and
also oil, the petrodollar, right? Because you have to buy and sell oil
in US dollars. That's the petrodollar. So really, I think that oil
and the military backs the US dollar. That's just what I think. But it
has no real intrinsic value. It's a piece of paper, right? So it's more about the
law and the trust in it that is what makes
it valuable, right? And we all believe in it and trust it, which is by
and large how any currency is formed, to be honest with you. Like even
with gold, it doesn't do anything. It's just a piece of thing out of the earth. We
all believe that that's the currency, that'll be the currency. So it's just really what we trust and
believe to be is how we barter is really what makes a currency, okay?
So what I want to explain to you now is why
inflation is actually a good thing. Right?
And people often think, well, let's go back to the gold standard. And I'll come to that in a second why
that's not a good idea. But here's why inflation is a good
thing and why the fiat currency system does work pretty well when
inflation is low. And 2% inflation is
the target that they go for. And it's genuinely smart
because Whilst the episode is called why fiat currency
is worth us, I want to go into the facts of why it does work as well, right?
Because the concept of design inflation isn't stupid, it's quite elegant
as to how it helps the economy grow and run,
and why deflation is worse. So, I'll explain it.
Let's say, for example, that it's the opposite. So if your money was worth more
tomorrow than it is today, So anti-inflation, called deflation.
If prices fall every year, what do you do? So inflation's where
prices go up each year, and the value of your fair currency
falls against the prices of things growing. That's what we do now.
But imagine it was different. Just for a second, flip it.
What if it was disinflationary? So
if prices fall every year, what would you do? Would
you spend the money? Uh-uh. No, you wouldn't. No, you wouldn't.
You would wait. You wouldn't
buy a car today because it'll be cheaper next month, right? You
won't invest now and buy equipment for your business because the value of the
equipment next year will be less. So you'll hold cash, which
is the worst thing you can do for an economy, right? Because the velocity of
money stops. An economy runs on the spending and
investment of money, right? So if everyone was
waiting for things to get cheaper, then nothing gets built. Nothing
gets bought, businesses fail, unemployment rises and GDP contracts. That's
what happens when you have deflation. And
it's not a theory, it's actually what happened in history. Let me explain
it. If you go back 200 odd years to the Napoleonic Wars,
when Napoleon was still around with the British, it's
one of the most important economic cases in history. So 1790 to
1815, Britain was, when there's these Napoleonic Wars, Britain was forced off
the gold standard to fund the war effort. So
that's what happened. So history, whatever. They printed money. and
inflation ran hot. Yeah, sound familiar? But
the economy kept moving, right? There was industry, trade, there was
industrial revolution, then the war ended. And
then they established, so they returned back to
the gold standard, the pre-war parity, like the gold to
fiat parity, yeah? And when they returned to the gold standard
in 1819, guess what? It resulted in severe deflation.
The unemployment rate, which had hovered about 5% at the time, grew
to 17%. Monetary contraction contributed
to bankruptcies, there was unemployment in the early 1820s
and it triggered riots, petitions to Parliament, right,
from returning to the gold standard. That's
what happened. So prices fell sharply and the
debt burden in Britain grew because it forced people
to to not want to repay their
debts, right? So the gold standard delivered price
stability long-term, but when it came to the
economic foundations of growth, it just doesn't work. Okay?
So we don't want a deflationary currency, just so you know. When you see people
go, let's go to the gold standard, they don't know what they're talking about. They're flipping,
they're just gold bugs that make you wanna buy gold because if you buy gold, it goes up in
price and you seem wealthier on paper. So let's go
back to the fiat system. There's a feature built into it, which
is called controlled inflation, and it's gentle. It's about 2% a year. But
here's how it works. If wages rise by 2%, and inflation,
which is the cost of things, goes by 2%, the real purchasing power of
workers is preserved. Nothing changes. Capisce?
So the notion of inflation is farce. It's not real. Because
if you're a working person of society, then your
wage or income goes up by 2% a year, and then cost of things goes up by 2% a
year. The result is zero. It's the same. Yeah? Makes
sense? So the real purchasing power is preserved. You earn a
little more in nominal terms, but the things cost a little more in nominal terms
too. So the net effect is zero. But the incentive to spend
still exists because your cash doesn't appreciate sitting under the
mattress. So you decide to use it. You buy goods, services,
investments. You spend on things, right? especially
for people who are productive earning wages. So you earn money and you create
value, you do things, and it works. The inflation model
at 2% works. So your income kind of keeps pace with it, right?
And the economy grows. Living standards rise, but more
steadily, yeah? So the Reserve Bank of Australia and other reserve banks too,
they mandate this 2% to 3% target band for inflation for that reason.
Because they know it means that we're not getting poorer, right?
That's it in theory, and it actually, you know, from say
2009 to 2016, you know,
2020 maybe, it was pretty stable. Very elegant, that's
why you probably were traveling more than, like, things
are pretty good. But it's when governments stop respecting the
limit where the wheels fall off it, okay, so it's where the system
gets abused. And this is where it goes from, you
know, cash is trash, truly, and it does, it's true, right? So this is
how the government breaks the system. 2% model is all good, and
it requires discipline, and then the governments can't resist the temptation to
just pump money into the system, right? So the last 15 years in particular, the
discipline has been absolutely abandoned. Since COVID, really,
it's a joke, right? So let me explain to you the four main ways
where the government, like intentionally eroded the value
of the fiat currency beyond the 2% healthy rate, right? It's been designed.
So firstly, they print more money, it's quantitative easing, been around
since the global financial crisis 2008, right? The US Federal Reserve did a meeting, it's unprecedented,
the bank stuffed up, let's flip and flood the country with money,
right? QE they called it, quantitative easing, QE. And
then COVID happened and then guess what? They did it again. They did it
again. And so it's supplying the world with more
money, right? So the Federal Reserve balance sheet went from a trillion before
2008 to nearly nine trillion at its peak in 2022, nine
X, nine times the pre-crisis level. So
the total Federal Reserve asset purchases during the pandemic was like five trillion.
And Australia did the same, like the RBA ran its own bond buying
program during COVID, purchasing government bonds, which floods the market with
money to keep interest rates at bay, right? What
does this mean for you? It means basically that more money
in the system. So oversupply of money, yeah? So
the bond markets flow with bars, yields falls, interest rates fall, and then all
the money floods into assets effectively. So like property and shares inflate. That's why
you've seen a huge inflation in asset prices like property and shares,
because the QE just floods into those assets, right? Because rates
are lower, artificially lower, yeah? And then
of course, if you got money in the bank, it doesn't work. So the second thing that happened too,
they kept interest rates artificially low for too long, right?
Low interest rates are a tool. Buy any Federal Reserve or RBA bank. They're
like tools. It's the only tool they've got to manage inflation and create
price stability. So in 2012, 2022, most
developed central banks in the world kept rates on or
near historic lows for a long time. Yeah? So it made borrowing
really cheap for a long period of time. And it fueled more of the asset bubble.
So not only did they do QE and flood the market with money, but they kept rates low
so that borrowing was easier. And when you keep rates
low for a flippin' decade, you create a whole generation of financial
behavior calibrated on almost free money. And
now you're seeing on, right, if you go now online,
because they increased rates yesterday, People are
getting shit. It's like taking candy off a baby. They're spitting
the dummy. It's hilarious. They're getting
angry, because you're taking money off them. Because they're just so
used to low rates. It's not real, though, right? So it's a
little bit amusing, actually. So that's what happened. There's two things, yeah? In
the last five years alone, there's been a cumulative inflation rate of 25%, right?
So that means $1,000 in the year 2000 had the purchasing power of about 1800 by
2025. Isn't that insane? Like, it's almost lost
half its value. So if you were on 100 grand in 2020, you'd
have to be on like 180 grand and get the same value. It's mental because
the wages haven't caught up with it, right? Third thing, bureaucracy, bloating
at the government level. Here in Australia specifically, Not
just the bureaucracy of those working in there, but the actual spending of
the government has got out of control. It's not just to build roads or train doctors
or fund scientific research or anything like that. That's a good, that's a very
productive use of money by the government, right? And
the economy, you get something back for that, an ROI. But when the government spends
money on growing itself, which is its work, is its bureaucracy, and
all these people doing dances in Parliament, not really doing what they're doing
there, and they all work from home, and there's no productivity, because I've never met a government employee
that's productive. I'm going to lose some fans
now. But hey, there are, of course, nurses productive.
I mean, there are. But there's a lot in those white-collar
jobs that aren't. But you're creating non-market jobs, right?
Non-market jobs. So you're expanding programs that don't
produce measurable return on investment. So the more money that goes into the
system, you don't get a return for it. Prices just go up, yeah? So
here's some stats for you. The Commonwealth government employees rose
by 5.6% to 385,000 people. It
rose by 5% in one year, from 2024 to 2025, right?
And so that means the wages paid to them surges. It's like $40 billion
in wages for that year, public sector wages, incremental wages. The
role of the federal government, it's not to just blow itself up. It's
there to control things in the free market, right? Anyways,
what's happening is they're increasing the number of non-productive members
of government, so spending without productivity, right, and it's not sustainable. Then,
you know, some examples of what they spend on other things too that's not sustainable is things
like the NDIS. It started out to be, I think it was $10 or
$15 billion maybe initially, now it's grown out to be, what, $30, $40, $50, on
track to be $50 billion I think now, and so You
know, what are we supposed to do? Get it to 125 billion by 20... They're
gonna be 125 billion by 2034. It's crazy. And
that's a non-ROI spend. Because if you're just supporting
those that aren't productive... I'm not against it, I'm
against the extent to which it's been abused. It's just,
if you just spend all this money on
support for non-productive members of society just on that, there's just
no ROI. So if you're going to do that, get an ROI
somewhere else, because we're not getting that, right? You know it's the third,
NDIS is the third largest federal expense program. And,
I shouldn't be laughing, it's wild. The support people aren't 700,000, but
it employs, in some respects, like 700,000 people.
It's a lot. So, it's not good for productivity, yeah?
It needs a revisit, right? I think it's like, I think it's,
the numbers are 10% of all Australian six,
yeah, this is the number, I think it's 10% of all Australian six-year-olds were
on their own NDIS in March 1925. Isn't that
insane? That is insane. Where
were they before? I'm sure that a lot of them didn't need that before. Anyway, I'm
probably treading on some thin ice here, but there's a real problem. And you'd have
to agree, even if you're a recipient at the end of it, you'd also have to agree, right?
There's some shenanigans going on there we need to stop, right? And then
we move on to how this is impacting you, okay? So
we look at these things that cause the currency debasement, which is
what I've just explained there in those five points. That's what's causing
the debasement, right? So we know the root cause of
it. So how do we shift it?
What happens? Because if we don't, we get inflation growing,
growing, growing. And all of a sudden, we're going to take a wheelbarrow down to the shop to buy bread and milk. That's
what happens when there's hyperinflation. The
dollar has lost 95% of its purchasing power since 1960. And
a lot of that's happened in the last five years. But what they don't realize is
it's not the purchasing power, it's also the fact that income's also gone
up. So when people say that, it's lost this, it looks like it
lost it all, but the reality is incomes have gone up. So it's not a
net result as bad as what it sounds, okay? If you're a productive worker
with rising inflation 2%, it means you're being compensated for
it. But if you are retired or you have a fixed
income, then every year you buy less and you do get poorer. And
the reason why you feel poorer after the last five years is because wage inflation's not
gone up. Has somewhat, but not as much as what inflation's
gone up. And that's why there's been this disparity. And that's why
GDP per capita has gone down for eight consecutive quarters
in Australia. Does that make sense? So if you feel
like you are poor, it's because you are, because wage inflation hasn't kept up
with actual inflation, and we're not being productive as a
society. We're just not. Because we're spending all our money
on non-productive projects. Make sense? That's
what's happening. And we're a recipient of that. So there's no such thing
as a free lunch. So next time you see, oh, we're doing this, oh, free transport,
free, there's no free. It's from taxpayers, from productive workers.
And if you're one of them, that's your money. And if you
don't rein in the government voting for the right people that understand that, you're just
making your own bed to lay in it. And you can't complain. There's no crying in the casino. If
you have caused this because of your shitty way that you vote for the people
in power, because you're too stupid to figure out what their policies are, then
you deserve all the poorness that's coming to you, because that's what's causing
it. It's how we vote as a nation. It's who we put in power, because
they create policies that do this. They put the policy in
place. They are the ones that lose control of it. They're the ones that stuff our
energy for net zero. All these policies have a big impact on
your wallet. And it's what causes a
lot of the inflation problems. It's what causes
debasement in the currency. So it's not just the fiat
currency's fault. It's designed pretty well. It has
worked fairly well for a long period of time. It's when you get shitty leaders
at the top that make dumb decisions like Albanese that you
start to get a huge debasement. And I'd say most of
it, and he's not the, He's just the figurehead of
the party. But the policies of the party are
just brutal for deep basement. Like, yeah,
they just, it's almost like Jim Chalmers has never been to
an economics class. I just doubt he even has. And or had
a real job or like he, it's
really, it's disturbing when you think about someone can be
in power and do the policies that he does and have no real world
experience. I mean, flip a neck. Yeah, it's
a problem. So would I expect that
debasement of the currency to continue? Yes. Beyond
the 2% that it should be, yes, which is why gold
has gone up so much because people often buy gold as a hedge against inflation.
I prefer to buy businesses and run small
businesses that can hedge inflation through price rises. I prefer to do it that
way, because businesses are more productive than gold. And you don't know when to sell gold
and get out. It's just too difficult. So I just avoid it. But that's why gold's
gone up so much, and silver. Now oil. Now oil's following it,
right? Do I think it's going to continue under the
current government? Yes. If you vote Labor again,
if you vote Labor again, and the same policies that have happened
for the last, God, however many, five years, you
will see the same. So if you'd like to see your Maxibon
ice creams at the shop go from $6 to $12, go and vote Labor again. If
you want to be poorer, vote Labor again. I'm not joking. I didn't
give a shit. I'm not aligned to any party. I'm aligned to the party of
common sense who makes smart decisions. If that's One Nation, great. If that's Liberal,
great. If that's Labor, great. If Labor was real, I'd vote. But you've
got to look at the facts. Some of these policies, and I'm not even, I think
Liberal did the same thing. I think both parties are
equally to blame. And so please,
this is not a political podcast, but God damn, next
time you can vote, read the policies and go, are
these aligned with productive uses of our capital? That's
so important because it will make us wealthier and better, right?
And not poorer and poorer and poorer. Let's be honest, we want
to live good lives, we don't want to live, I mean in Australia we should have, we've got a thousand
years worth of natural resources, none of us should be even paying tax for goodness sake. So
who is in charge of steering this country matters. And the
problem is not in the design of the fiat, the problem is in the execution of
it. And the government is responsible for
that and they have a completely absolve the
responsibility. They are like children in a candy shop. And
the currency is not the problem. The system is not the problem. It's how it's wielded. And
the only way we can stop that is to shift the leadership. So if you want to
stop debasement of currency, change who's in charge, because what they're
doing is wrecking it. Does that make sense? Know the difference and plan accordingly.
So if that makes sense to you, you think I'm on the right track here, leave me a comment below. If you think I'm
way off track, and I don't know what I'm talking about, and I'm gonna flog, and he's
just here to sell books, and I'm like, that's you? Comment below too, and I'll fight you in the comments. But
leave a genuine comment if you want to, ask me questions, I'm happy to have a debate
about it. But yeah, I like some of the comments, they're quite
funny. But I'll see you in the next episode. Thanks for listening to
Money Grows on Trees. If you enjoyed the episode, leave a five-star review
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