The Illusion of Wealth & How to Beat Inflation: A 100-Year Perspective
We tested 30 ideas about how to beat inflation against 100 years of US money supply data, from gold and housing to savings, the S&P 500 and Bitcoin.
Topic
Macro: Money Supply, Recessions and Asset Prices
Our macro research starts from one series, the US M2 money supply, and asks what its growth did to everything else.
Read more
Across 100 years it grew 522-fold, and when we lined it up against the economy, every major recession came with a slowdown in M2 growth and every recovery with a pick-up.
We would not claim that one causes the other in every case, but the pattern held across the whole century, and it has only got sharper recently.
During the COVID response in 2020 and 2021 the US created roughly $4.8 trillion and M2 grew at an annualised rate of about 19%, nearly three times its long-run average, which is the backdrop to the tech and Bitcoin gains we look at in Part V. The overview and Part I cover the longer history, from the end of the gold standard in 1971 to today.
- 522x US M2 growth since 1926 From $43.7 billion to $22.8 trillion, as set out in the series overview.
- $4.8tn COVID money printing M2 grew at an annualised 19% during 2020 and 2021.
- 17.6x Gold, 1959 to 1980 Against 5.3x for M2, the one period gold clearly won.
Articles on Macro
3 articles from our research on this topic.
Crypto vs Stocks: Bitcoin & Tech in the Digital Era
We measure Bitcoin, Nvidia, Apple and the Nasdaq against money supply growth to settle crypto vs stocks, and to see how much faster tech built real wealth.
Gold vs Real Estate Returns & Which Asset Beat Inflation? The 100-Year Performance
Gold rose 168x and US house prices 83x after 1926, while the money supply grew 503x. We compare gold vs real estate returns to see which kept its value.
Plain-English definitions
Key terms for macro
- M2 money supply
- The Federal Reserve’s measure of cash, current accounts and easily accessible savings in the US. We use it to see how quickly new money is being created.
- Quantitative easing
- Central bank buying of bonds with newly created money, used heavily after 2008 and again in 2020. It adds directly to the money supply.
- Monetary dilution
- The loss in each dollar’s share of the total money pool as new money is created, whatever happens to shop prices.
- Nominal vs real
- Nominal figures are the dollar amounts you see. Real figures adjust them for something else, which in this research is the growth in M2.
FAQ
Questions about macro
Answers drawn from the figures in our research. Educational only, not financial advice.
How does money supply growth affect asset prices?
In our data it lifts nearly all of them in dollar terms, which is why we keep insisting on measuring against M2. When we indexed assets to January 2019, M2 grew 1.52x, the S&P 500 2.6x and the Nasdaq 3.1x, so a good part of those gains was the tide of new money. The assets that pulled clearly away from it, Nvidia at 44.5x and Bitcoin at 16.9x, are the ones we think had something more than liquidity behind them.
What happened to the money supply after 1971?
The US ended the gold standard in 1971, and in the 1960s and 1970s period we studied in Part V, M2 grew 5.3x while gold rose 17.6x, the one stretch where gold was the clear winner. M2 then grew 3.1x from 1980 to 2000 and 4.7x from 2000 to 2026. In extreme decades like the 1940s and 1970s, the Part III data shows money printing running close to 10% a year, which was very hard on anyone holding cash or bonds.
Sources