You’re Not Imagining It.
You Are Getting Poorer.

You’re not bad with money. You haven’t been reckless. You’ve done the things you were supposed to do — worked hard, saved a little, maybe bought a home or tried to. And yet there’s this persistent, nagging sense that the ground is slowly shifting beneath your feet. That last year’s salary doesn’t stretch as far as this year’s.

Most people who feel this way assume they’re doing something wrong. The self-help industry agrees — budget better, spend less on coffee, invest in yourself. But the feeling isn’t a personal failure. It’s an accurate read of a structural economic reality that mainstream conversation rarely names clearly.

The economy is creating money faster than it’s creating value. And the newly created money isn’t reaching you first.

This is not a conspiracy. It is not bad luck. It is the predictable output of a monetary and financial system that has specific mechanics — mechanics that most people never encounter in plain language. Understanding them doesn’t immediately fix your financial position, but it does reframe the problem from something you’re doing wrong to something the system is doing to you. That is a meaningful difference.

Since 2015, the US money supply — the technical measure called M2, which includes cash, deposits, and short-term savings — has grown by approximately 91%. If you had a dollar in 2015, there are now almost two dollars chasing the same goods and services you could buy then.

Basic economic theory says more money chasing the same things means prices rise. And they have — by about 34% over that period. So why isn’t the 91% increase showing up as 91% higher prices?

The “missing” inflation — the 57-point gap between how much money was created and how much consumer prices rose — didn’t disappear. It flowed into assets that ordinary people don’t own much of. And then it stayed there.

This dynamic has a name in economic history: the Cantillon Effect, after the 18th-century Irish-French economist Richard Cantillon who first described it. His insight was simple and remains true: whoever receives newly created money first benefits most, because they spend it before prices have adjusted. By the time the money reaches everyone else, the prices have already risen.

In a modern central bank economy, the first recipients are financial institutions. Banks receive reserves directly. Institutional investors receive proceeds from bond purchases. Asset prices rise in anticipation of cheaper credit. By the time the stimulus reaches median wages, the asset appreciation has already compounded through several cycles.

There’s a measurement economists use called money velocity — essentially, how many times a dollar changes hands in a year. A high velocity means money is active, circulating through wages, spending, businesses, wages again. A low velocity means money is pooling somewhere, sitting still.

Velocity has been falling for a decade. Each dollar created today turns over fewer times than a dollar created in 2015. The economy is producing more money, but that money is doing less work — for most people.

“More money in the system doesn’t mean more money reaching you. It means more money existing somewhere. Where it ends up is the whole question.”

The reason velocity keeps falling leads to an uncomfortable but increasingly well-documented conclusion: as wealth concentrates at the top, money circulates less. A person living paycheque to paycheque spends nearly everything they receive almost immediately — high velocity. A billionaire receiving the same dollar parks it in a fund, where it buys an asset, which appreciates, and never returns to the real economy as spending. Low velocity.

The wealthier a society becomes at the top, the slower its money moves at the bottom.

This creates a feedback loop that is genuinely difficult to interrupt. Monetary stimulus is introduced to stimulate the economy. That stimulus enters through the financial system. Asset prices rise. The wealthy, who hold assets, become wealthier in paper terms. Their spending as a proportion of income does not increase proportionally — they were already spending what they wanted. The new wealth pools in assets or is reinvested in more assets. Velocity falls further. The stimulus had a limited multiplier effect on real economic activity — but a large multiplier effect on asset prices.

Here’s the part that makes the feeling make sense. There are effectively two economies operating simultaneously, priced in the same currency, but responding to completely different forces.

When the government creates new money, it enters the financial system first — through bond markets, bank reserves, institutional investors. By the time it reaches wages and consumer spending, the people at the top of the financial system have already positioned themselves to benefit from the resulting asset price increases.

You experience the inflation. They experience the appreciation. Same monetary event. Opposite outcomes.

This is why homeownership feels increasingly out of reach even as the economy is described as “strong.” The strength is real — it’s just concentrated in the asset-holding class. House prices aren’t high because houses got better. They’re high because the money that was created found its way into property, bidding up the very thing you’re trying to buy with income rather than capital.

In New Zealand, the average house-price-to-income ratio reached approximately 9:1 at its 2021 peak — meaning it would take nine years of an average pre-tax income, saved in its entirety, to buy the average house. In 1990, that ratio was closer to 3:1. The house didn’t become three times more valuable in real terms. The money that would buy it became structurally harder to accumulate from wages alone.

The situation doesn’t correct itself, partly because the people it benefits have every resource needed to ensure it continues. This isn’t a conspiracy — it’s just the rational operation of incentives at scale.

Wealthy individuals have access to a parallel financial infrastructure: accountants who find legal structures that reduce effective tax rates far below headline rates, wealth managers who allocate into instruments unavailable to retail investors, lawyers who protect assets across generations through trusts and estate structures, and political influence that shapes the regulatory environment those instruments operate in.

Every policy intervention — higher taxes, tighter regulations, monetary tightening — arrives after the people it’s intended to affect have already been advised of its implications and repositioned accordingly. The rules are written in English but effectively operate in a language only available to those who can pay for translation.

The asymmetry compounds over time. A 7% annual return on a $1 million asset portfolio doubles to $2 million in roughly ten years without any labour input. A worker earning $70,000 annually who saves 10% of their income accumulates $7,000 per year — which, if invested at the same 7%, builds much more slowly in absolute terms. The percentage return is identical. The absolute outcome diverges continuously.

This is not an argument against investment — quite the opposite. But it illustrates why the advice to “invest your savings” addresses a symptom without touching the underlying structural condition. Getting onto the asset side of the divide matters enormously. But the mechanism that keeps most people off it operates continuously and requires more than personal initiative to counteract.

The Consumer Price Index — the official inflation measure — tracks a basket of goods: groceries, petrol, clothing, healthcare, rent. It does not track the price of buying a house. It tracks the equivalent rent you’d pay to live in one. It does not track stock prices, fine art, or private equity returns.

This means the official inflation figure systematically underweights the things that determine whether you’re building wealth or just treading water. Your rent might be rising at 3% per year while house prices in your city rise at 12%. CPI registers the former. Your financial reality includes the latter.

“Asset inflation is real inflation. It just affects people differently depending on which side of the ownership line they’re on.”

You feel poorer not because the official numbers are wrong — they’re measuring what they measure accurately. You feel poorer because the official numbers aren’t measuring the part of the economy that determines long-term financial security. Asset inflation is real inflation. It just affects people differently depending on which side of the ownership line they’re on.

A measure that captured asset price inflation alongside consumer price inflation would show a very different picture. Some economists argue for a “true cost of living” index that includes the imputed cost of shelter at replacement cost rather than rental equivalent — an approach that would have shown dramatically higher effective inflation rates during the 2010s and early 2020s in New Zealand and Australia. The political appetite for such a measure is limited, for reasons that should now be clear.

There is a longer-term trend underneath all of the above. Over roughly four decades, the share of national income going to labour (wages) has declined relative to the share going to capital (profits, rents, returns on investment) in most developed economies. The shift is not dramatic year to year — it’s a slow drift of a few percentage points per decade — but compounded over forty years it represents a substantial structural change in how economic growth is distributed.

The drivers are debated: technology and automation reducing the bargaining power of labour, globalisation increasing the effective global labour supply, declining union membership, changes in corporate governance that prioritise shareholder returns, and tax policy shifts that have generally reduced burdens on capital income relative to labour income.

The practical implication is simple: economic growth generates less wage growth per unit than it did in the mid-20th century. If you rely primarily on labour income, you are participating in an economy where the rules have structurally shifted against your primary asset. Understanding that is uncomfortable. It is also more useful than being told you need to make better coffee choices.

Frequently Asked Questions