Currency debasement can make people feel poorer even while their nominal income rises, according to Lyn Alden. In a March 2026 conversation with Peter McCormack, she connects rising living costs with expansion of the money supply and the advantage enjoyed by people who already own appreciating assets. Her argument is that this dynamic can widen the gap between asset owners and wage earners, turning inflation and monetary expansion into a slow redistribution of purchasing power.
At its core, the issue lies in how modern currency systems are designed. They are built on a foundation that requires constant growth. "Every currency system in the world has to grow or die, at least the way they're currently designed," explains one analyst. This inherent need for expansion, coupled with the way money is created and managed, leads to a gradual but persistent devaluation of currency.
This devaluation, or debasement, is felt not only through direct taxes but also through the diminishing purchasing power of wages and savings. "People feel it not just through taxes, but then through their wages getting debased uh and their savings if if they're holding currency and bonds getting debased," the analyst notes. The system, over time, can begin to "resemble theft" as value is systematically siphoned away.
Understanding the System's Mechanics
- The Ledger SystemMoney operates on a two-tier ledger system, managed by central banks and commercial banks, where currency is created through lending.
- Fractional Reserve BankingCommercial banks lend out more currency than they hold in base money, a practice that expands the money supply significantly.
- Monetizing DebtGovernments often create new money to buy their own bonds, a process that injects currency into the system and contributes to devaluation.
- The "Shorting" AdvantageEntities that can borrow cheaply and own scarce assets benefit from currency debasement, as the value of their assets outpaces the currency's decline.
The Architecture of Money
To understand this process, it's helpful to view the financial system as a giant ledger. At the base is the central bank's ledger, with commercial banks building a second tier on top. Through fractional reserve banking, these commercial banks lend out currency, creating more outstanding money than is backed by the base money.
"They have something like five times more currency outstanding that's backed by like a smaller amount of base money," according to the analysis.
The challenge arises because all debt builds upon this ledger. Trust in the central bank and government to manage it properly is paramount. However, governments often spend more than they tax, creating deficits that are "monetized" – meaning new money is created to buy government bonds. This process injects more currency into the system, contributing to its devaluation.
This system, while functional for a time, has evolved significantly. For thousands of years, money was tied to scarce, tangible assets like gold and silver. However, since the early 1970s, the global financial system has largely operated without this precious metal backing. Instead, it relies on a "computer system," a list of ones and zeros, managed by central authorities. This shift removed a natural constraint on money creation, allowing for more rapid expansion and debasement.
Who Wins in a Debasing World?
The current financial architecture creates a fundamental dynamic: some entities are actively "shorting" the currency, while others are holding it. Corporations, governments, and wealthy individuals can borrow money at low interest rates, effectively shorting the currency, and then invest in assets like real estate or equities that tend to hold value or appreciate.
"The winners are those that are able to short the currency for the lowest rates for the longest amounts of time while owning scarcer things, real estate, business equity, that kind of thing," the analysis points out.
This strategy leverages the fact that the money supply grows, typically around 7% per year in developed economies, while the cost of borrowing might be significantly lower. For instance, a company might borrow at 2-3% while the currency it repays with is losing value at a faster rate. This arbitrage allows them to acquire more valuable assets or buy back their own stock, further increasing their wealth.
This creates a self-reinforcing cycle. Those who can access credit and own assets benefit from the system's expansion and debasement, while those who cannot are left behind. The system, in essence, is "based on having people hold the currency in the bonds while other people are literally shorting it."
Falling Behind in a Growing System
Conversely, those at the lower end of the income spectrum are the least able to participate in this "shorting" strategy. They typically lack the assets or creditworthiness to borrow cheaply and invest. As a result, they bear the brunt of currency debasement. "The least able to short it are, ironically, those at the bottom of the income stack. So, they're kind of getting the full damage of the inflation," the analysis states.
Their wages, which may grow more slowly than the money supply, lose purchasing power. Even if wages increase, they often fail to keep pace with the rate of inflation, meaning individuals are earning a smaller share of the overall money supply over time. This leads to the common feeling that "everything's more expensive" and money "just doesn't feel like it goes as far."
This dynamic contributes to rising populism and a sense of unfairness. The system, while appearing stable on paper, is increasingly leaving a significant portion of the population feeling like they are falling behind, unable to keep up with the pace of economic change and value erosion.
A System Designed to Expand
The fractional reserve banking system, by its very nature, requires constant growth. "The system must grow. It must grow that at least the current the the fractional reserve banking system... is designed so that it must always grow or it dies." This imperative means that if lending slows, interest rates are lowered to encourage more borrowing, thereby expanding the money supply.
This cycle of growth and debt accumulation has led to massive levels of debt on sovereign ledgers. When private sector debt bubbles pop, governments often step in, creating more money to buy their own bonds and effectively transferring that debt onto the public balance sheet. This process, known as quantitative easing (QE), partially deleverages the private sector but consolidates the debt at the sovereign level.
When debt levels become extremely high on the public ledger, governments, which can print their own currency, often "default" not by failing to pay, but by devaluing the currency itself through excessive printing. This leads to inflation and a loss of purchasing power, effectively socializing the losses onto the populace. "Defaulting... it's failure to pay back the value that you borrowed," one expert explains.
Navigating a Debasing World
- The Growing DivideThe system inherently favors asset holders who can "short" currency over those who hold currency and bonds, leading to wealth disparity.
- The Growth ImperativeThe fractional reserve system requires constant expansion to survive, leading to an endless cycle of debt and devaluation.
- Historical CyclesThe shift from gold-backed currency to fiat has removed natural constraints, enabling more aggressive money supply growth and debasement.
- The Illusion of StabilityFiat systems can appear stable but systematically erode purchasing power, often masked by productivity gains or hidden inflation.
The Cycle of Debasement and Disparity
This cycle of debt and debasement appears to be an inherent feature of the current monetary system. The system is designed such that it must constantly grow, leading to an ever-widening wealth disparity. The choice often seems to be between this continued rich-get-richer scenario or a systemic collapse.
While some countries, like Japan, have managed to mitigate extreme wealth concentration through specific fiscal policies and high savings, the general trend in many developed nations is towards increasing disparity. This is exacerbated by the fact that politicians often operate on short-term cycles, making decisions whose negative consequences (like massive debt and debasement) don't fully manifest for decades, long after they've left office.
The system's design makes it difficult to escape this loop. While technological advancements and productivity gains can temporarily mask the effects of money supply growth, they don't fundamentally alter the underlying mechanics. Ultimately, the system incentivizes short-term decision-making that kicks the can down the road, perpetuating a cycle of debt and devaluation.
Beyond the Ledger
Given the inherent flaws and cyclical nature of the current fiat currency system, the question of alternatives arises. While the system can persist for decades, often through financial repression (artificially keeping interest rates below money supply growth) it systematically siphons value. This has led some to explore assets that are not subject to central control or debasement.
Bitcoin, for example, is presented as a digital asset with a fixed supply, offering resistance to debasement. Unlike fiat currencies that can be increased at will by central banks, Bitcoin's supply growth is predetermined and limited. This scarcity, combined with its decentralized ledger system, provides an alternative for those seeking to preserve purchasing power, though it comes with its own volatility.
Ultimately, understanding money (its scarcity, its creation, and its inherent value (or lack thereof)) is crucial. The current system, while complex and seemingly entrenched, is an experiment that has led to significant wealth disparity. Recognizing these mechanics is the first step towards navigating a world where value is systematically eroded.