Currency Debasement: Why You Earn More Than Your Parents but Feel Further Behind

What Is Currency Debasement?

Currency debasement is the loss of a currency's purchasing power as more of it is created. When central banks and banking systems expand the money supply faster than the economy grows, each unit buys less, especially of scarce assets such as property, equities and gold. It differs from CPI inflation, which only tracks the price of a basket of consumer goods.

You earn more than your parents did at the same age. You work at least as hard, often harder. And yet, measured by what you own, you are behind where they were. A home they bought on one income now takes two, and a retirement portfolio that once looked achievable keeps moving out of reach. There is a force behind this feeling, and once you see it, you cannot unsee it.

Most people measure their financial progress against official inflation, which has run at around 3% to 4%. That is the right measure for groceries and rent. It is the wrong measure for wealth. The relevant number for wealth is the rate at which the money supply expands, because new money flows into a limited pool of scarce assets and pushes up the price of exactly the things that build wealth: homes, stocks and other quality assets. This is currency debasement, and it explains much of the gap.

“People measure their savings against the price of groceries, but they are competing against the price of assets. Groceries are not what you are trying to afford for retirement. A home and a portfolio are, and those are priced in newly created money.”

Jacob Bakshi, CleaRank Senior Market Strategist

Inflation vs Debasement: Which Yardstick Should You Use?

Use CPI to judge your cost of living, and use money supply growth to judge whether your wealth is keeping up. The two numbers answer different questions, and confusing them is why many savers believe they are ahead when they are falling behind.

The Consumer Price Index tracks the price of a basket of everyday goods and services: food, fuel, rent, clothing and transport. US CPI rose 3.7% in the year to September 2026, and core CPI, which strips out food and energy, rose 2.6%. That is the figure quoted in the news as "inflation", and it is a fair measure of what it costs to live.

Money supply measures something else: how much money exists. US M2, which includes cash, checking and savings deposits and money market funds, grew about 5.4% in the year to July 2026, the fastest pace since mid-2022, to a record of roughly $23.2 trillion. Over the long run, M2 has grown at an average of about 6.6% to 6.8% a year since 1960.

Macro investor Raoul Pal goes a step further. In The Everything Code, the framework he presents with Julien Bittel at Global Macro Investor, Pal estimates that global liquidity grows at close to 8% a year and calls that the real rate of debasement. He argues that any investment returning less than that is losing ground against assets. Some summaries of his work add CPI on top of that figure for a total hurdle of around 11%. To be clear: the 8% figure is Pal's estimate of global liquidity growth, not an official statistic, and the official US M2 number is lower.

The difference matters in practice. Take a savings account paying 4%. Against CPI at 3.7%, it is ahead by about 0.3 points. Against US M2 growth of 5.4%, it is behind by about 1.4 points. Against Pal's 8% estimate, it is behind by about 4 points. Same account, three verdicts, depending on the yardstick.

The mechanism is straightforward. When more money competes for the same limited supply of scarce assets, such as prime property, quality equities and gold, their prices rise. Fixed income is on the other side of that trade: a bond paying a fixed coupon cannot reprice upward when money is created, which is why bonds and cash tend to lose ground in a debasement regime. For a closer look at how intermediate Treasuries behave, see our IEF bond ETF analysis on CleaRank.

Why Are Central Banks Still Adding Liquidity?

Central banks keep adding liquidity because the traditional engines of growth are weaker than they used to be, while the government's debt load keeps growing. Liquidity fills the gap. Of the three classic engines, demographics and debt are under clear pressure; productivity, in the US at least, is not.

Demographics: Fewer Workers Coming

The US recorded 3,606,400 births in 2025, down 1% from the year before, and the general fertility rate fell to 53.1 births per 1,000 women aged 15 to 44, a record low, according to the CDC National Center for Health Statistics report on 2025 US births. A Wall Street Journal calculation puts the total fertility rate at about 1.57, well below the replacement level. The Congressional Budget Office has revised its projection of the working-age population down by 2.4 million people by 2035. Fewer new workers means slower natural growth.

Productivity: A Correction to the Popular Story

A common version of the debasement thesis claims that productivity is falling. For the US, the data does not support that. US nonfarm productivity rose about 2.2% year over year in the second quarter of 2026, and the Fed chair has described productivity running above 2%, partly due to AI and automation. The US weakness is labor supply, not output per hour. Europe and some other economies do show weaker productivity growth, so the claim holds better there, but it should not be applied to the US without that qualification.

Debt: Interest Costs at a Record

Federal interest costs reached a record $1.36 trillion in fiscal 2026. The average rate on interest-bearing federal debt was 3.531% at September 30, 2026, which is below current auction yields, so interest costs keep rising as older, cheaper debt rolls over into new, more expensive debt. The CBO projects net interest reaching $2.1 trillion by 2036.

The Fed's balance sheet is part of this picture. Reserve management purchases began in December 2025 at roughly $40 billion a month of Treasury bills, were cut to about $25 billion in April and to about $10 billion by May. In total, the Fed's SOMA portfolio has bought nearly $250 billion of bills since early January 2026, about $160 billion as reserve management and about $90 billion as reinvestment. The latest pace is covered in Bloomberg Law's report on the Fed maintaining reserve management purchases at $10 billion. At the same time, the Fed raised rates in September 2026 to a range of 3.75% to 4.00%. Liquidity and policy rates can move in different directions at once.

“The market misreads central bank purchases as either QE or not QE. What matters for asset prices is the direction of total liquidity. With interest costs above $1.3 trillion, the direction over a full cycle is not hard to guess, even if the monthly pace swings.”

Jacob Bakshi, CleaRank Senior Market Strategist

Do Stock Prices Really Follow Liquidity?

Liquidity is a major driver of stock valuations, but it is not the only one. The debasement thesis gives it the leading role; the evidence supports a strong supporting role, with earnings and timing still mattering.

Pal's argument is that asset prices track global liquidity more closely than they track earnings, and that because government debt maturity schedules are known in advance, the refinancing needs, and therefore the liquidity required to meet them, can be anticipated. In that view, investors who watch the liquidity cycle can see the direction of asset prices before the earnings data confirms it.

The balanced reading is more cautious. Liquidity clearly influences valuation multiples and drives the most speculative assets hardest. But earnings still matter for individual stocks, and not every so-called debasement hedge moves together. Over the year to late October 2026, the S&P 500 ETF rose about 13% while gold fell about 2.4%. Our SPY ETF analysis on CleaRank tracks the broad market, and the gold vs SPY comparison on CleaRank shows how differently the two assets have behaved. Timing and asset selection matter even when the macro direction is right.

How Could the Debasement Cycle End?

The thesis sees two stages: first, a period in which the government caps interest rates to manage its debt, and later, a technology-driven productivity surge that restores real growth. The first stage has historical precedent. The second is a scenario, not a schedule.

Stage 1: Capping Rates, the 1942 to 1951 Playbook (Yield Curve Control)

The US has done this before. From 1942, to finance war debt, the Fed pegged Treasury bill yields at 0.375% and capped long-term government bond yields at 2.5%. The arrangement ended with the Treasury-Fed Accord in March 1951, after inflation had surged, at one point running at an annualized rate above 20% according to the St. Louis Fed. The history is set out in Federal Reserve History's essay on the Treasury-Fed Accord, and the mechanics in the St. Louis Fed's explainer on yield curve control.

In a regime like that, cash and bonds earn less than inflation by design. Economists call this financial repression: savers are quietly taxed through negative real returns, while the government's debt burden shrinks relative to the economy. The caveat is important. A return to yield curve control is the thesis's expected path, not announced policy, and the Fed was raising rates as recently as September 2026.

Stage 2: AI, Robotics and Cheap Energy

The longer-term vision is a technology exit. AI and robotics replace scarce labor. Solar paired with nuclear provides always-on power at falling cost. Blockchain supports automated, secure machine-to-machine commerce. Cheap energy feeding robots drives down the cost of goods and services, and a resulting productivity surge restores natural growth and ends the dependence on debt.

The direction is plausible; the timing is highly uncertain. Expectations of this arriving toward the end of the decade look optimistic given the pace of grid build-out and nuclear permitting. Deflationary technology can also coexist with monetary expansion for years, so falling prices for goods would not automatically mean an end to rising asset prices.

What Should Investors Do With This?

The practical lessons are about measurement and discipline rather than any single asset. This section is educational and is not investment advice.

Ignore the daily noise. Liquidity cycles unfold over years, not days, so look at the big picture and focus on quality long-term assets.

Know your hurdle rate. Compare returns against money supply growth, not only against CPI, so you know whether you are actually keeping up.

Understand where the exposure sits. Cash and long-term bonds are the most exposed assets in a rate-cap regime, because their returns are capped while inflation is not.

Diversify across asset types. So-called hedges do not move together: over the past year, gold fell while the S&P 500 rose.

Avoid leverage when chasing liquidity. Borrowing to ride the liquidity cycle magnifies losses when policy tightens, as it did in 2022.

“The practical lesson is not to buy any single asset. It is to stop measuring yourself with the wrong ruler. Once the hurdle is clear, the decision about cash, bonds and quality assets becomes much easier, and much less emotional.”

Jacob Bakshi, CleaRank Senior Market Strategist

Debasement Scenarios: Bear, Base and Bull

The table below sets out three scenarios for how the debasement thesis could develop. These are illustrative scenarios, not forecasts.

Bear (for the thesis). If inflation forces the Fed to keep tightening, liquidity shrinks and real yields turn positive. In that world cash finally pays a real return, valuation multiples compress, and quality companies tend to hold up better than speculative assets.

Base. Liquidity keeps growing near its long-run pace, with periodic slowdowns. Cash and bonds deliver a slightly negative real return after tax, while earnings growth plus liquidity support gains in quality assets, with volatility along the way.

Bull (for the thesis). If rate caps or heavy balance sheet growth return, cash and bonds lose purchasing power by design, and scarce and productive assets reprice higher. This is the scenario the debasement thesis expects, but it is not the only possible path.

What Could Go Wrong With This Thesis?

The numbers. The 8% figure is an estimate by one investor, not an official statistic. US M2 grew about 5.4% in the year to July 2026, below its long-run average of about 6.6% to 6.8%, so the official data does not show the faster pace the thesis assumes. A thesis built on a precise debasement rate should be held loosely.

Inflation can reverse the playbook. When consumer inflation rises too far, central banks tighten rather than ease, as they did in 2022 and again with the September 2026 rate hike. In those periods liquidity-driven assets can fall sharply, and cash becomes the better-performing asset for a time.

The technology stage may arrive late or unevenly. AI, robotics and cheap energy may take longer to lift growth than the thesis assumes, and the benefits may be unevenly shared. Meanwhile, a rate-cap regime would hurt savers, retirees and pension funds that depend on fixed income, which creates political pressure that could change the path.

Measure Yourself Against the Right Ruler

The feeling that you earn more but fall further behind is not a personal failure, and it is not imagined. It comes from measuring progress against the price of everyday goods while the things that build wealth are priced against something else.

That something else is the expansion of money relative to scarce assets. When the money supply grows faster than the economy, new money bids up homes, equities and other quality assets, and anyone holding mostly cash or fixed income falls behind even as their pay rises. The thesis sees two possible exits: a rate-cap stage with clear historical precedent from 1942 to 1951, and a technology stage that remains a bet on AI, robotics and cheap energy arriving on time.

The conclusion is a simple one. Do not get excited by daily noise. Look at the big picture, know the hurdle your money has to clear, and focus on quality assets for the long term. This article is not investment advice.

Frequently Asked Questions

What is currency debasement?

Currency debasement is the loss of a currency's purchasing power as more of it is created. When the money supply grows faster than the economy, each unit buys less, especially of scarce assets such as property, equities and gold.

What is the difference between inflation and debasement?

Inflation, as measured by CPI, tracks the price of a basket of consumer goods and services. It was 3.7% in the US in September 2026. Debasement refers to the growth of the money supply itself, which shows up most clearly in the prices of scarce assets rather than groceries. US M2 grew about 5.4% in the year to July 2026.

Is the 8% debasement rate an official number?

No. The 8% figure is macro investor Raoul Pal's estimate of global liquidity growth, presented in The Everything Code. The official US M2 money supply grew about 5.4% in the year to July 2026, and its long-run average since 1960 is about 6.6% to 6.8% a year.

Why do I earn more than my parents but have less wealth?

Because the assets that build wealth, such as homes and stocks, have risen faster than wages and faster than CPI inflation. If you measure progress against CPI, you may look ahead. Measured against the price of assets, which is driven by money supply growth, many people are behind. It is largely a question of using the wrong yardstick.

What is yield curve control?

Yield curve control is a policy in which a central bank caps government bond yields by committing to buy as many bonds as needed at a set price. The US did this from 1942 to 1951, capping long-term yields at 2.5%, until the Treasury-Fed Accord ended it. Japan has used a version of it more recently.

Is cash a bad investment during debasement?

Cash loses ground against assets when real interest rates are negative, because its value does not rise as money is created. It is still useful for liquidity, emergencies and safety. In September 2026 the Fed policy rate was 3.75% to 4.00% against CPI of 3.7%, so cash was roughly keeping pace with consumer prices, though not with money supply growth.

Where can I read more on CleaRank?

For the broad US stock market, see the SPDR S&P 500 ETF (SPY) analysis on CleaRank. For intermediate Treasury bonds, see the iShares 7-10 Year Treasury Bond ETF (IEF) analysis on CleaRank. To compare a classic debasement hedge with equities, read the gold vs SPY comparison on CleaRank.

Disclaimer: This analysis of currency debasement, money supply and asset prices is for informational purposes only and does not constitute financial, tax or investment advice. Economic figures cited, including CPI, M2 money supply, productivity, federal interest costs and Federal Reserve balance sheet data, are estimates and subject to revision. The 8% debasement figure is a third-party estimate by Raoul Pal of global liquidity growth, not an official statistic. The scenarios described are illustrative, not forecasts. Past policy regimes, including yield curve control from 1942 to 1951, may not repeat. All assets, including gold, equities and crypto, can fall sharply, and investors can lose money. CleaRank and its analysts may hold positions in assets mentioned in this article. Past performance is not indicative of future results. Always consult with a licensed financial advisor before making investment decisions.