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#323 - Why THIS Is Worthless · Money Grows on Trees

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The $100 note in your wallet is worth less today than it
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was yesterday. Most people think it's just normal inflation, an
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unfortunate side effect of a growing economy. But the reality is
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every government in the developed world runs a monetary system that
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deliberately and intentionally, mathematically and
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economically erodes the purchasing power of your
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money. I'm Lloyd J. Ross, seven figure investor and entrepreneur, and I've helped thousands of
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everyday people get out of debt and build real wealth. And I'm here to
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show you in this video exactly why The Australian dollar is
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losing value, why the system is designed this way, and what
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you can do about it yourself. Firstly, let's dive
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into what is fiat currency, where did it come from? So let's go
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back to the basics. Because this is where you'll understand why
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we have this system, the fiat system, okay? And why
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it fails and when it's abused, well, it fails when it's abused, okay? It
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doesn't always fail, but when it fails when it's abused, To
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date, it's not gone too bad, right? So for most of human history,
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money was either a commodity itself, so gold, silver,
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or was backed by a commodity. It was a little bit like barter. But
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you could take your paper note to the bank and exchange it for a fixed quantity of, let's say,
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gold or silver, right? That was the gold standard. You
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could exchange a US dollar for a certain ounce
1:15
of gold, right? And the idea was pretty simple. The government
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can't just print more money than it has gold, yeah? The
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gold supply acted as a bit of a natural ceiling on money
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creation. Supply of gold dictated the supply of money, right?
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But then came Great Depression. Great
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Depression was a big factor that shifted that, and then World War II, right?
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And the reality is that the gold standard was Effectively, it
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kind of constrained growth. It was like a straitjacket on the
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economy, and they realized that. It wasn't growing. In fact,
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the gold standard was a big cause of the Great Depression. I
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don't know if you knew that, but they couldn't release
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credit fast enough, and that's what caused a lot of the Great Depression.
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And then it couldn't grow beyond World War II. And
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so the reason why, in 1971, Richard Nixon took the US
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off the gold standard is because they wanted to
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grow the economy faster than what they were. So basically, the modern
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fiat era began with President Nixon when
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they shifted off the gold standard in 1971, right? They call it the Nixon
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shock. And it started to remove the anchor that
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precious metals enabled on monetary expansion. It's
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kind of what happened, right? So fiat money, which basically, fiat
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is this Latin word It means let
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it be done. that
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will be done or by decree, right? So it's money that the government says, it's
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money because the government says it's money. So it's an agreement and
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a belief, right? Not because it's backed by anything physical, although
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you could argue that the US military is what backs the US dollar, and
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also oil, the petrodollar, right? Because you have to buy and sell oil
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in US dollars. That's the petrodollar. So really, I think that oil
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and the military backs the US dollar. That's just what I think. But it
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has no real intrinsic value. It's a piece of paper, right? So it's more about the
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law and the trust in it that is what makes
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it valuable, right? And we all believe in it and trust it, which is by
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and large how any currency is formed, to be honest with you. Like even
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with gold, it doesn't do anything. It's just a piece of thing out of the earth. We
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all believe that that's the currency, that'll be the currency. So it's just really what we trust and
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believe to be is how we barter is really what makes a currency, okay?
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So what I want to explain to you now is why
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inflation is actually a good thing. Right?
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And people often think, well, let's go back to the gold standard. And I'll come to that in a second why
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that's not a good idea. But here's why inflation is a good
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thing and why the fiat currency system does work pretty well when
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inflation is low. And 2% inflation is
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the target that they go for. And it's genuinely smart
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because Whilst the episode is called why fiat currency
3:53
is worth us, I want to go into the facts of why it does work as well, right?
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Because the concept of design inflation isn't stupid, it's quite elegant
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as to how it helps the economy grow and run,
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and why deflation is worse. So, I'll explain it.
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Let's say, for example, that it's the opposite. So if your money was worth more
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tomorrow than it is today, So anti-inflation, called deflation.
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If prices fall every year, what do you do? So inflation's where
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prices go up each year, and the value of your fair currency
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falls against the prices of things growing. That's what we do now.
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But imagine it was different. Just for a second, flip it.
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What if it was disinflationary? So
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if prices fall every year, what would you do? Would
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you spend the money? Uh-uh. No, you wouldn't. No, you wouldn't.
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You would wait. You wouldn't
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buy a car today because it'll be cheaper next month, right? You
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won't invest now and buy equipment for your business because the value of the
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equipment next year will be less. So you'll hold cash, which
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is the worst thing you can do for an economy, right? Because the velocity of
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money stops. An economy runs on the spending and
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investment of money, right? So if everyone was
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waiting for things to get cheaper, then nothing gets built. Nothing
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gets bought, businesses fail, unemployment rises and GDP contracts. That's
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what happens when you have deflation. And
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it's not a theory, it's actually what happened in history. Let me explain
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it. If you go back 200 odd years to the Napoleonic Wars,
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when Napoleon was still around with the British, it's
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one of the most important economic cases in history. So 1790 to
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1815, Britain was, when there's these Napoleonic Wars, Britain was forced off
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the gold standard to fund the war effort. So
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that's what happened. So history, whatever. They printed money. and
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inflation ran hot. Yeah, sound familiar? But
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the economy kept moving, right? There was industry, trade, there was
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industrial revolution, then the war ended. And
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then they established, so they returned back to
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the gold standard, the pre-war parity, like the gold to
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fiat parity, yeah? And when they returned to the gold standard
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in 1819, guess what? It resulted in severe deflation.
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The unemployment rate, which had hovered about 5% at the time, grew
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to 17%. Monetary contraction contributed
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to bankruptcies, there was unemployment in the early 1820s
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and it triggered riots, petitions to Parliament, right,
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from returning to the gold standard. That's
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what happened. So prices fell sharply and the
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debt burden in Britain grew because it forced people
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to to not want to repay their
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debts, right? So the gold standard delivered price
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stability long-term, but when it came to the
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economic foundations of growth, it just doesn't work. Okay?
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So we don't want a deflationary currency, just so you know. When you see people
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go, let's go to the gold standard, they don't know what they're talking about. They're flipping,
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they're just gold bugs that make you wanna buy gold because if you buy gold, it goes up in
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price and you seem wealthier on paper. So let's go
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back to the fiat system. There's a feature built into it, which
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is called controlled inflation, and it's gentle. It's about 2% a year. But
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here's how it works. If wages rise by 2%, and inflation,
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which is the cost of things, goes by 2%, the real purchasing power of
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workers is preserved. Nothing changes. Capisce?
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So the notion of inflation is farce. It's not real. Because
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if you're a working person of society, then your
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wage or income goes up by 2% a year, and then cost of things goes up by 2% a
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year. The result is zero. It's the same. Yeah? Makes
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sense? So the real purchasing power is preserved. You earn a
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little more in nominal terms, but the things cost a little more in nominal terms
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too. So the net effect is zero. But the incentive to spend
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still exists because your cash doesn't appreciate sitting under the
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mattress. So you decide to use it. You buy goods, services,
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investments. You spend on things, right? especially
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for people who are productive earning wages. So you earn money and you create
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value, you do things, and it works. The inflation model
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at 2% works. So your income kind of keeps pace with it, right?
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And the economy grows. Living standards rise, but more
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steadily, yeah? So the Reserve Bank of Australia and other reserve banks too,
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they mandate this 2% to 3% target band for inflation for that reason.
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Because they know it means that we're not getting poorer, right?
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That's it in theory, and it actually, you know, from say
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2009 to 2016, you know,
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2020 maybe, it was pretty stable. Very elegant, that's
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why you probably were traveling more than, like, things
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are pretty good. But it's when governments stop respecting the
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limit where the wheels fall off it, okay, so it's where the system
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gets abused. And this is where it goes from, you
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know, cash is trash, truly, and it does, it's true, right? So this is
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how the government breaks the system. 2% model is all good, and
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it requires discipline, and then the governments can't resist the temptation to
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just pump money into the system, right? So the last 15 years in particular, the
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discipline has been absolutely abandoned. Since COVID, really,
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it's a joke, right? So let me explain to you the four main ways
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where the government, like intentionally eroded the value
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of the fiat currency beyond the 2% healthy rate, right? It's been designed.
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So firstly, they print more money, it's quantitative easing, been around
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since the global financial crisis 2008, right? The US Federal Reserve did a meeting, it's unprecedented,
9:31
the bank stuffed up, let's flip and flood the country with money,
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right? QE they called it, quantitative easing, QE. And
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then COVID happened and then guess what? They did it again. They did it
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again. And so it's supplying the world with more
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money, right? So the Federal Reserve balance sheet went from a trillion before
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2008 to nearly nine trillion at its peak in 2022, nine
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X, nine times the pre-crisis level. So
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the total Federal Reserve asset purchases during the pandemic was like five trillion.
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And Australia did the same, like the RBA ran its own bond buying
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program during COVID, purchasing government bonds, which floods the market with
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money to keep interest rates at bay, right? What
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does this mean for you? It means basically that more money
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in the system. So oversupply of money, yeah? So
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the bond markets flow with bars, yields falls, interest rates fall, and then all
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the money floods into assets effectively. So like property and shares inflate. That's why
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you've seen a huge inflation in asset prices like property and shares,
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because the QE just floods into those assets, right? Because rates
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are lower, artificially lower, yeah? And then
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of course, if you got money in the bank, it doesn't work. So the second thing that happened too,
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they kept interest rates artificially low for too long, right?
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Low interest rates are a tool. Buy any Federal Reserve or RBA bank. They're
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like tools. It's the only tool they've got to manage inflation and create
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price stability. So in 2012, 2022, most
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developed central banks in the world kept rates on or
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near historic lows for a long time. Yeah? So it made borrowing
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really cheap for a long period of time. And it fueled more of the asset bubble.
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So not only did they do QE and flood the market with money, but they kept rates low
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so that borrowing was easier. And when you keep rates
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low for a flippin' decade, you create a whole generation of financial
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behavior calibrated on almost free money. And
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now you're seeing on, right, if you go now online,
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because they increased rates yesterday, People are
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getting shit. It's like taking candy off a baby. They're spitting
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the dummy. It's hilarious. They're getting
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angry, because you're taking money off them. Because they're just so
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used to low rates. It's not real, though, right? So it's a
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little bit amusing, actually. So that's what happened. There's two things, yeah? In
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the last five years alone, there's been a cumulative inflation rate of 25%, right?
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So that means $1,000 in the year 2000 had the purchasing power of about 1800 by
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2025. Isn't that insane? Like, it's almost lost
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half its value. So if you were on 100 grand in 2020, you'd
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have to be on like 180 grand and get the same value. It's mental because
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the wages haven't caught up with it, right? Third thing, bureaucracy, bloating
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at the government level. Here in Australia specifically, Not
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just the bureaucracy of those working in there, but the actual spending of
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the government has got out of control. It's not just to build roads or train doctors
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or fund scientific research or anything like that. That's a good, that's a very
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productive use of money by the government, right? And
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the economy, you get something back for that, an ROI. But when the government spends
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money on growing itself, which is its work, is its bureaucracy, and
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all these people doing dances in Parliament, not really doing what they're doing
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there, and they all work from home, and there's no productivity, because I've never met a government employee
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that's productive. I'm going to lose some fans
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now. But hey, there are, of course, nurses productive.
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I mean, there are. But there's a lot in those white-collar
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jobs that aren't. But you're creating non-market jobs, right?
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Non-market jobs. So you're expanding programs that don't
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produce measurable return on investment. So the more money that goes into the
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system, you don't get a return for it. Prices just go up, yeah? So
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here's some stats for you. The Commonwealth government employees rose
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by 5.6% to 385,000 people. It
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rose by 5% in one year, from 2024 to 2025, right?
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And so that means the wages paid to them surges. It's like $40 billion
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in wages for that year, public sector wages, incremental wages. The
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role of the federal government, it's not to just blow itself up. It's
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there to control things in the free market, right? Anyways,
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what's happening is they're increasing the number of non-productive members
13:47
of government, so spending without productivity, right, and it's not sustainable. Then,
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you know, some examples of what they spend on other things too that's not sustainable is things
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like the NDIS. It started out to be, I think it was $10 or
13:58
$15 billion maybe initially, now it's grown out to be, what, $30, $40, $50, on
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track to be $50 billion I think now, and so You
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know, what are we supposed to do? Get it to 125 billion by 20... They're
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gonna be 125 billion by 2034. It's crazy. And
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that's a non-ROI spend. Because if you're just supporting
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those that aren't productive... I'm not against it, I'm
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against the extent to which it's been abused. It's just,
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if you just spend all this money on
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support for non-productive members of society just on that, there's just
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no ROI. So if you're going to do that, get an ROI
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somewhere else, because we're not getting that, right? You know it's the third,
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NDIS is the third largest federal expense program. And,
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I shouldn't be laughing, it's wild. The support people aren't 700,000, but
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it employs, in some respects, like 700,000 people.
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It's a lot. So, it's not good for productivity, yeah?
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It needs a revisit, right? I think it's like, I think it's,
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the numbers are 10% of all Australian six,
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yeah, this is the number, I think it's 10% of all Australian six-year-olds were
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on their own NDIS in March 1925. Isn't that
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insane? That is insane. Where
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were they before? I'm sure that a lot of them didn't need that before. Anyway, I'm
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probably treading on some thin ice here, but there's a real problem. And you'd have
15:20
to agree, even if you're a recipient at the end of it, you'd also have to agree, right?
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There's some shenanigans going on there we need to stop, right? And then
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we move on to how this is impacting you, okay? So
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we look at these things that cause the currency debasement, which is
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what I've just explained there in those five points. That's what's causing
15:37
the debasement, right? So we know the root cause of
15:40
it. So how do we shift it?
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What happens? Because if we don't, we get inflation growing,
15:48
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
15:52
what happens when there's hyperinflation. The
15:55
dollar has lost 95% of its purchasing power since 1960. And
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a lot of that's happened in the last five years. But what they don't realize is
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it's not the purchasing power, it's also the fact that income's also gone
16:06
up. So when people say that, it's lost this, it looks like it
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lost it all, but the reality is incomes have gone up. So it's not a
16:13
net result as bad as what it sounds, okay? If you're a productive worker
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with rising inflation 2%, it means you're being compensated for
16:20
it. But if you are retired or you have a fixed
16:24
income, then every year you buy less and you do get poorer. And
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the reason why you feel poorer after the last five years is because wage inflation's not
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gone up. Has somewhat, but not as much as what inflation's
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gone up. And that's why there's been this disparity. And that's why
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GDP per capita has gone down for eight consecutive quarters
16:42
in Australia. Does that make sense? So if you feel
16:45
like you are poor, it's because you are, because wage inflation hasn't kept up
16:48
with actual inflation, and we're not being productive as a
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society. We're just not. Because we're spending all our money
16:55
on non-productive projects. Make sense? That's
16:58
what's happening. And we're a recipient of that. So there's no such thing
17:01
as a free lunch. So next time you see, oh, we're doing this, oh, free transport,
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free, there's no free. It's from taxpayers, from productive workers.
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And if you're one of them, that's your money. And if you
17:12
don't rein in the government voting for the right people that understand that, you're just
17:15
making your own bed to lay in it. And you can't complain. There's no crying in the casino. If
17:19
you have caused this because of your shitty way that you vote for the people
17:23
in power, because you're too stupid to figure out what their policies are, then
17:26
you deserve all the poorness that's coming to you, because that's what's causing
17:30
it. It's how we vote as a nation. It's who we put in power, because
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they create policies that do this. They put the policy in
17:37
place. They are the ones that lose control of it. They're the ones that stuff our
17:41
energy for net zero. All these policies have a big impact on
17:44
your wallet. And it's what causes a
17:47
lot of the inflation problems. It's what causes
17:51
debasement in the currency. So it's not just the fiat
17:54
currency's fault. It's designed pretty well. It has
17:58
worked fairly well for a long period of time. It's when you get shitty leaders
18:01
at the top that make dumb decisions like Albanese that you
18:05
start to get a huge debasement. And I'd say most of
18:08
it, and he's not the, He's just the figurehead of
18:11
the party. But the policies of the party are
18:14
just brutal for deep basement. Like, yeah,
18:18
they just, it's almost like Jim Chalmers has never been to
18:22
an economics class. I just doubt he even has. And or had
18:25
a real job or like he, it's
18:29
really, it's disturbing when you think about someone can be
18:32
in power and do the policies that he does and have no real world
18:37
experience. I mean, flip a neck. Yeah, it's
18:41
a problem. So would I expect that
18:44
debasement of the currency to continue? Yes. Beyond
18:49
the 2% that it should be, yes, which is why gold
18:53
has gone up so much because people often buy gold as a hedge against inflation.
18:58
I prefer to buy businesses and run small
19:01
businesses that can hedge inflation through price rises. I prefer to do it that
19:04
way, because businesses are more productive than gold. And you don't know when to sell gold
19:07
and get out. It's just too difficult. So I just avoid it. But that's why gold's
19:11
gone up so much, and silver. Now oil. Now oil's following it,
19:14
right? Do I think it's going to continue under the
19:17
current government? Yes. If you vote Labor again,
19:21
if you vote Labor again, and the same policies that have happened
19:24
for the last, God, however many, five years, you
19:29
will see the same. So if you'd like to see your Maxibon
19:33
ice creams at the shop go from $6 to $12, go and vote Labor again. If
19:37
you want to be poorer, vote Labor again. I'm not joking. I didn't
19:41
give a shit. I'm not aligned to any party. I'm aligned to the party of
19:44
common sense who makes smart decisions. If that's One Nation, great. If that's Liberal,
19:47
great. If that's Labor, great. If Labor was real, I'd vote. But you've
19:51
got to look at the facts. Some of these policies, and I'm not even, I think
19:55
Liberal did the same thing. I think both parties are
19:58
equally to blame. And so please,
20:03
this is not a political podcast, but God damn, next
20:07
time you can vote, read the policies and go, are
20:11
these aligned with productive uses of our capital? That's
20:15
so important because it will make us wealthier and better, right?
20:19
And not poorer and poorer and poorer. Let's be honest, we want
20:22
to live good lives, we don't want to live, I mean in Australia we should have, we've got a thousand
20:25
years worth of natural resources, none of us should be even paying tax for goodness sake. So
20:29
who is in charge of steering this country matters. And the
20:32
problem is not in the design of the fiat, the problem is in the execution of
20:36
it. And the government is responsible for
20:40
that and they have a completely absolve the
20:43
responsibility. They are like children in a candy shop. And
20:47
the currency is not the problem. The system is not the problem. It's how it's wielded. And
20:50
the only way we can stop that is to shift the leadership. So if you want to
20:53
stop debasement of currency, change who's in charge, because what they're
20:57
doing is wrecking it. Does that make sense? Know the difference and plan accordingly.
21:00
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
21:04
way off track, and I don't know what I'm talking about, and I'm gonna flog, and he's
21:07
just here to sell books, and I'm like, that's you? Comment below too, and I'll fight you in the comments. But
21:12
leave a genuine comment if you want to, ask me questions, I'm happy to have a debate
21:15
about it. But yeah, I like some of the comments, they're quite
21:18
funny. But I'll see you in the next episode. Thanks for listening to
21:22
Money Grows on Trees. If you enjoyed the episode, leave a five-star review
21:25
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21:32
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