The monetary system sounds complicated. The consequences are not.
Talk about the Federal Reserve.
Talk about Nixon closing the gold window in 1971.
Talk about fiat currencies, monetary expansion and US$353 trillion of global debt.
It can all sound like something that belongs in an economics textbook.
But there is a much simpler question:
What does all of this actually mean for the ordinary person trying to pay the bills?
The answer is surprisingly simple.
It means that the dollars in your bank account are not standing still in value.
It means that your wages have to run faster just to keep up.
It means that saving cash for decades can become increasingly difficult.
It means that housing becomes harder to afford.
It means that governments become increasingly dependent on debt.
And ultimately, it means that people are forced to think about how they can protect their purchasing power.
This is where the monetary story becomes a personal story.
Your $100 is not the same $100
This is perhaps the easiest way to understand inflation.
Imagine two people.
One receives $100 today.
The other received $100 many years ago.
The numbers are identical.
The purchasing power is not.
The Reserve Bank of Australia explains that inflation reduces the purchasing power of money because rising prices mean that the same amount of money buys fewer goods and services.
That sounds obvious.
But the long-term effect is enormous.
Australian Bureau of Statistics data show that consumer prices increased by 1,009% between 1973 and 2023.
That means a basket of goods costing $100 in 1973 would have cost approximately $1,109 in 2023.
The important point is that your money does not need to disappear for you to become poorer.
It simply needs to buy less.
The wage trap
This creates a problem for the average worker.
Suppose your salary increases by 3%.
That sounds good.
But what if your cost of living increases by 4%?
You received more dollars.
But you lost purchasing power.
And this is where the headline inflation number can sometimes be misleading.
Inflation is measured year after year.
Prices do not normally fall back to where they were before.
If groceries rise 10%, and inflation subsequently falls from 6% to 3%, the supermarket does not normally reverse the previous 10% increase.
The rate of increase has slowed.
The higher prices remain.
That distinction is crucial.
Lower inflation does not mean lower prices.
It simply means prices are rising more slowly.
Housing shows the problem perfectly
For many Australians, housing is where the monetary system becomes impossible to ignore.
Housing is both an asset and a debt market.
When credit is cheap and plentiful, people can borrow more.
When people can borrow more, they can bid more for property.
When millions of people have access to larger mortgages, the price of property can rise.
And once property prices rise, the next generation needs to borrow even more to enter the market.
The cycle feeds itself.
The Reserve Bank’s own data show just how important household debt has become.
In 2026, the RBA reported that household credit growth had accelerated and that housing credit growth remained well above its post-GFC average.
This is the other side of cheap money.
Cheap money can make borrowing easier.
But it can also push up the price of the things people borrow money to buy.
Then comes the interest bill
Eventually, the bill arrives.
A household might have a $700,000 mortgage.
If interest rates rise, the household doesn’t simply experience an economic statistic.
It experiences a larger direct debit from its bank account.
The RBA reported that scheduled mortgage and consumer-credit payments were around 11% of household disposable income in the March quarter of 2026.
Earlier RBA data showed scheduled mortgage payments alone had been close to 10% of household disposable income.
And the impact isn’t evenly distributed.
A person with no mortgage and substantial savings experiences rising rates very differently from a young family with a large mortgage.
A renter experiences it differently again.
The RBA has specifically noted that lower-income households, many of whom are renters, are more likely to experience financial stress because essential expenses represent a larger share of their disposable income and they tend to have smaller savings buffers.
So when economists talk about “monetary policy transmission”, the man in the street experiences it as:
Mortgage payment.
Rent increase.
Credit-card interest.
Car-loan repayment.
Business costs.
The business owner gets hit too
There is another part of the chain that is often forgotten.
Businesses borrow money.
They pay wages.
They pay electricity.
They pay rent.
They pay insurance.
They buy equipment.
They transport goods.
And many of these costs are influenced by interest rates, inflation and the purchasing power of the currency.
When the cost of running a business increases, the business has three choices:
Absorb the cost.
Reduce its costs.
Or increase its prices.
If it increases prices, the consumer pays.
And suddenly the monetary system is sitting inside your grocery bill.
What happens to your savings?
This is perhaps the most unfair part of inflation.
Imagine you spend your working life doing exactly what governments and financial advisers tell you to do.
You work hard.
You don’t spend everything.
You save.
You build a cash reserve.
You put money aside for retirement.
The number in your account goes up.
But if prices rise faster than the return on your savings, your real wealth is falling.
Suppose you have $100,000 earning 2%.
Your account grows to $102,000.
But if the cost of living rises by 5%, your purchasing power has fallen.
You have more dollars.
You have less purchasing power.
This is the silent tax of inflation.
And unlike an income-tax bill, you don’t receive a statement telling you how much purchasing power you lost.
The pension problem
The same issue becomes particularly serious for retirees.
Someone retiring today might have accumulated $1 million.
That sounds like a fortune.
But the real question is:
How much will $1 million buy 20 years from now?
This is why retirement planning is not simply about accumulating a dollar amount.
It is about preserving purchasing power.
If inflation averages 3% for 20 years, $1 million would have the purchasing power of roughly $554,000 in today’s dollars.
At 4% inflation, it would be roughly $456,000.
That is the danger.
You can save diligently and still discover that your money does not buy what you expected it to buy.
And then there is the government
The average person doesn’t normally think about government debt when paying for groceries.
But government debt eventually affects everybody.
Governments borrow money to finance spending.
They issue bonds.
Investors buy those bonds.
Interest must be paid.
And ultimately government finances come from the economy.
That means taxpayers, businesses and consumers are all connected to the debt system.
The scale is now extraordinary.
The Institute of International Finance estimated that global debt reached almost US$353 trillion by the end of March 2026, equivalent to approximately 305% of global GDP.
That number is almost impossible for an individual to comprehend.
So make it simple.
Imagine earning $100,000 a year while owing $305,000.
That does not mean the situation is directly comparable to a household mortgage — governments are fundamentally different from households.
But it illustrates the scale.
The world has accumulated debt several times larger than the annual economic output supporting it.
Someone owns that debt
This is another important point.
Debt is somebody else’s asset.
When governments borrow, somebody lends them the money.
Banks.
Superannuation funds.
Insurance companies.
Investment funds.
Foreign governments.
Private investors.
Ordinary Australians through their superannuation.
So when governments issue enormous amounts of debt, they are not borrowing from some mysterious entity called “the economy”.
They are creating obligations to creditors.
And those creditors expect to be repaid.
The inflation dilemma
This creates a difficult problem.
Governments with large debts need manageable interest costs.
But central banks also need to control inflation.
Higher interest rates can help suppress inflation.
But higher interest rates make government borrowing more expensive.
They also make mortgages more expensive.
They can slow businesses.
They can reduce investment.
They can hurt asset prices.
And they can put households under pressure.
The RBA has documented exactly this transmission mechanism: higher interest rates increase household debt repayments and reduce available cash flow, which in turn weighs on consumption.
So policymakers are constantly trying to balance two competing dangers.
Too much inflation destroys purchasing power.
Too much interest-rate pressure can damage a debt-heavy economy.
That is the monetary tightrope.
Why governments like economic growth
There is another way out.
Growth.
If your income grows faster than your debt, your financial position improves.
The same applies to governments.
If the economy grows rapidly enough, debt can become smaller relative to the size of the economy.
But there is a problem.
You cannot simply grow forever at high rates.
Populations age.
Productivity has limits.
Resources are finite.
And governments continue making promises.
That is why debt can become a structural problem rather than simply a temporary one.
The ordinary person gets squeezed from both directions
This is the part that matters most.
The average household can be squeezed from both sides.
Side one: the cost of living
Food.
Energy.
Rent.
Insurance.
Transport.
Healthcare.
Education.
Rates.
Side two: the cost of money
Mortgage interest.
Credit cards.
Personal loans.
Business loans.
Car finance.
Higher required savings.
And then there is taxation.
As nominal wages rise because of inflation, people can potentially move into higher tax brackets even though their real purchasing power has not increased by the same amount.
This is sometimes called bracket creep.
So inflation can produce a strange situation:
You earn more.
You pay more tax.
You pay more for everything.
And yet you may not actually be better off.
Why the asset owner often survives better
This is one of the most important differences between inflationary environments.
Consider two people.
Person A
Has $200,000 sitting in cash.
Person B
Has $200,000 worth of productive or scarce assets.
If the currency loses purchasing power, Person A’s cash balance remains $200,000.
But its purchasing power declines.
Person B’s assets may rise in nominal value as the currency loses purchasing power.
This is not guaranteed.
Assets can fall.
Markets can crash.
Property can decline.
Shares can fall.
Gold can fall.
There are no guarantees.
But historically, scarce assets have played an important role in protecting wealth against currency debasement.
This is why wealthy investors generally don’t hold all of their wealth in cash.
And this is where gold enters the story
Gold is fundamentally different from fiat currency.
A government cannot decide to create another 100 million tonnes of gold overnight.
A central bank cannot press a button and manufacture physical gold.
A bank cannot create gold simply by making a loan.
Gold has to be mined.
It is scarce.
It is durable.
It has no issuer.
And it has no promise to pay attached to it.
That is an important distinction.
A bank deposit is a claim on the banking system.
A government bond is a claim on the government.
A corporate bond is a claim on a corporation.
Fiat currency is ultimately part of a monetary system controlled by governments and central banks.
Physical gold is not somebody else’s promise to pay you.
That is why it has survived thousands of years of monetary experimentation.
Gold doesn’t need to “beat” inflation every year
This is another misconception.
Gold does not need to rise every month.
It doesn’t even need to rise every year.
The purpose of holding an asset like gold can be different.
It can act as a long-term store of purchasing power and a diversification asset against monetary and financial risks.
Think about insurance.
You don’t buy home insurance because you expect your house to burn down tomorrow.
You buy it because you don’t want to be financially destroyed if something goes wrong.
Gold can be viewed in a similar way.
It is monetary insurance.
The FirstGold approach
This is also why FirstGold believes the conversation should not be about trying to predict the next gold price.
It should be about understanding what is happening to the money in which we measure our wealth.
If global debt continues to grow…
If governments continue to run deficits…
If central banks remain responsible for managing increasingly complex debt-based economies…
And if currencies continue to lose purchasing power over long periods…
then owning an asset that cannot be printed becomes increasingly relevant.
That does not mean putting everything into gold.
It does not mean abandoning cash.
It does not mean abandoning property, shares, superannuation or other investments.
It means understanding what each asset is designed to do.
Cash provides liquidity.
Shares provide ownership of businesses.
Property provides ownership of real assets.
Bonds provide a claim on a borrower.
And gold provides something different:
A physical asset with no issuer and no debt attached to it.
The real cost of fiat money
The average person doesn’t wake up every morning thinking about Nixon’s 1971 announcement.
They wake up thinking about whether they can afford the mortgage.
Whether the electricity bill has gone up.
Whether groceries have become more expensive.
Whether they can afford to fill the car.
Whether their rent will increase.
Whether their children will ever afford a home.
Whether their retirement savings will be enough.
Whether their salary will keep up.
And that is precisely why monetary policy matters.
Because the monetary system isn’t somewhere else.
It is already in your wallet.
It is in your mortgage.
It is in your superannuation.
It is in the price of your house.
It is in the price of your groceries.
It is in the interest you pay.
It is in the purchasing power of your savings.
And it is in the amount of work required to maintain the same standard of living.
The road to the bottom isn’t necessarily a collapse
When we talk about “the road to the bottom”, we don’t necessarily mean that the Australian dollar or US dollar will suddenly become worthless.
That is not the most likely scenario.
The more realistic concern is much slower.
A gradual erosion of purchasing power.
A continual expansion of debt.
Asset prices that rise partly because the currency is worth less.
Wages that have to chase prices.
Governments that become increasingly dependent on borrowing.
And households that need to invest simply to avoid going backwards.
That is a very different kind of monetary decline.
There may be no dramatic crash.
No burning banknotes.
No overnight collapse.
Just the slow realisation that the money you saved for 20 or 30 years doesn’t buy nearly as much as you thought it would.
The question every saver should ask
So perhaps the question shouldn’t be:
“How much money do I have?”
It should be:
“How much purchasing power do I have?”
There is a profound difference.
You can have $500,000 in the bank.
But if the cost of everything around you doubles, your $500,000 has not provided the same financial security it once did.
The number hasn’t changed.
The value has.
And that is the hidden consequence of a fiat monetary system.
The FirstGold takeaway
The man in the street does not need to understand every mechanism of central banking.
He simply needs to understand one principle:
Money is not wealth. Purchasing power is wealth.
Since the end of the gold-convertibility system in 1971, the world has experienced an extraordinary expansion of credit and debt.
Global debt has now reached almost US$353 trillion.
Australia’s households have experienced enormous growth in housing values and household debt, while interest-rate changes can have a direct impact on household cash flow.
And despite the easing of some pressures, the RBA continues to identify cost-of-living and interest-rate pressures as important issues for Australian households.
The question isn’t whether fiat money will suddenly disappear.
The question is whether the purchasing power of fiat money will continue to decline over the decades ahead.
Nobody knows exactly what the future holds.
But history tells us one thing very clearly:
Currencies change. Governments change. Monetary systems change. Debt can grow enormously.
Gold has survived all of them.
And that is why, for the ordinary saver, owning some physical bullion may not be about getting rich.
It may simply be about making sure that all your wealth isn’t dependent on the value of someone else’s currency.
FirstGold
Accumulate physical bullion. Protect your purchasing power. Think beyond the next dollar.
