Here’s the real reason your purchasing power has dwindled

Research Capital analyst Greg McLeish says that structural monetary expansion, persistent fiscal deficits and balance-sheet “ratchet” dynamics are embedding long-term purchasing power erosion in elastic fiat systems, reinforcing the case for hard assets.

In his Feb. 17 Hard Asset Weekly titled “The Structural Dilution of Fiat Currency,” McLeish contends that modern monetary systems are “elastic by design,” with fiscal deficits financed through sovereign issuance and central bank balance-sheet expansion driving stepwise increases in broad money, particularly M2.

M2, a broad measure of money supply that includes cash, chequing deposits, savings accounts and other near-cash assets, is often used as a gauge of overall liquidity in the financial system.

Since 1970, the U.S. dollar has lost approximately 88% of its purchasing power, reflecting compounding inflation rather than episodic collapse…

The analyst said crisis interventions — notably the Global Financial Crisis and the COVID response — permanently reset the monetary baseline higher. While tightening cycles slow growth, they rarely restore prior levels of liquidity, creating what he describes as a ratchet effect in both central bank assets and broad money.

The report suggests that U.S. M2 surged roughly 25% in a single year during 2020–2021, an unprecedented expansion in postwar data, and that despite subsequent normalization, the absolute level of money supply has remained structurally elevated.

McLeish said that inflation is not linear or immediate, operating instead through the interaction of money growth, real output growth and velocity. While velocity collapsed during the pandemic, delaying CPI effects, he argues that “velocity determines timing; money growth determines direction,” suggesting that sustained divergence between money supply and real output embeds longer-term purchasing power erosion.

He further points to rising debt-to-GDP ratios and interest-rate sensitivity as structural constraints. Elevated sovereign debt narrows policy flexibility, increasing the probability of renewed monetary accommodation during downturns — a dynamic he links to fiscal dominance and recurring liquidity expansion.

Over the long term, the cumulative outcome is visible in purchasing power data. Since 1970, the U.S. dollar has lost approximately 88% of its purchasing power, reflecting compounding inflation rather than episodic collapse .

While distinguishing gradual dilution from hyperinflationary regimes, McLeish said both lie on a continuum differentiated by institutional credibility and velocity behaviour. His central case for advanced economies is continued structural erosion rather than systemic breakdown.

The report reconnects this macro framework to Research Capital’s broader hard-asset thesis, asserting that scarce, supply-constrained assets — including gold and critical resources — operate under fundamentally different constraints than fiat currency and have historically functioned as long-horizon purchasing power anchors within elastic monetary systems.

McLeish said, the case for hard assets is not tactical but structural, grounded in the arithmetic of persistent money growth relative to real output over extended time horizons.

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