At first glance, this seems puzzling. Economic growth in developed economies has been modest. Productivity trends have been lackluster. Corporate earnings have grown, but not at a pace that intuitively matches the rise in equity indices. What, then, explains the surge?

A shrinking measuring stick

The uncomfortable truth is that a large portion of these nominal gains is a monetary illusion — a reflection not of growing wealth, but of a shrinking yardstick. We are not witnessing an explosion in the intrinsic value of companies; rather, we are witnessing the rapid debasement of the currencies used to measure them. When we say that equities have "gone up," we are measuring their price in currencies — dollars, euros, pounds — that have themselves been systematically debased. The yardstick has changed. And when the yardstick shrinks, everything measured in it appears to grow.

Consider a simple, tangible example. In France and Germany in the late 1990s, before the euro's introduction, a café au lait at a Paris or Frankfurt coffee shop cost roughly 6–8 French francs or 2–3 Deutsche marks — equivalent to about €0.90 to €1.20. Today, that same cup of coffee routinely costs €3.50 to €5.00, and considerably more in central Paris or Munich. The coffee has not improved, it has not become three times “better”. What has changed is the purchasing power of the currency you hand over the counter. It has lost its value.

The same is true in the United States. In 2000, a standard diner coffee cost around $1.00. Today, it costs $3 to $5. Movie tickets have more than doubled. A median house in America cost about $165,000 in 2000; it now exceeds $400,000. These are not signs of abundance — they are signs of monetary erosion.

So when investors celebrate that equity markets have "risen" by several hundred percent since 2000 (with most of the gains having occurred over the past 12 years), they should ask: risen relative to what? Relative to a fiat currency that has lost more than half its purchasing power over that same period. Much of what investors call gains are, in real terms, the market simply treading water against the rising tide of monetary expansion. The better framing is not that stock prices have gone up — it is that the dollar and the euro have gone down. Reframing the conversation in such a way is important. Saying that equity markets have increased dramatically since 2000 suggests spectacular wealth creation. Saying that the dollar or the euro have lost a significant portion of their purchasing power suggests a defensive repricing of stocks in the face of ongoing monetary expansion.

When the supply of money increases faster than the supply of goods and services, the price of those goods and services must rise to compensate. Stocks—representing ownership in productive, real-world companies—are simply the first to "reprice" to the new monetary reality.

The Engine Behind the Illusion

Some argue that the long-term rise in equity markets must reflect strong profits or powerful innovation cycles. To be sure, certain sectors—technology in particular—have produced genuine and substantial earnings growth. But broad measures of economic performance tell a more subdued story. Real GDP growth in the euro area has averaged barely above 1 percent per year since 2000. U.S. real GDP growth has been stronger but still modest by historical standards. Productivity growth across most developed economies has trended downward for two decades.

Corporate earnings have grown, but significant portions of that growth come from financial engineering: share buybacks funded by cheap debt, cost-cutting, and increases in financial leverage. These mechanisms boost earnings per share but do not necessarily reflect rising real productive capacity.

This disconnect between weak real economic growth and strong nominal asset performance is exactly what one would expect in a period of sustained monetary debasement. Since the early 2000s, and especially after the 2008 financial crisis, central banks around the world have engaged in unprecedented monetary expansion. Interest rates were cut to zero or below. So-called Quantitative Easing programs injected trillions of dollars, euros, and yen into the financial system. The Federal Reserve's balance sheet grew from under $1 trillion in 2008 to nearly $9 trillion at its peak. The European Central Bank followed a similar path.

This flood of money had to go somewhere. It flowed into equities, real estate, collectibles, and other assets, lifting their prices in nominal terms. While real innovation did occur and corporate earnings did grow, much of the market’s rise simply counterbalanced currency dilution.

Those Left Behind

One of the most important consequences of currency debasement is its impact on wealth distribution. It has profound and deeply troubling social consequences.

When money loses value, asset owners become nominally richer while savers become poorer. Wealth concentration intensifies because financial assets and real estate are disproportionately held by higher-income households. Workers with savings in term deposits or bonds face steady erosion. What’s more, their wages tend to be "sticky." They do not adjust upward as quickly as asset and property prices.

The result is the inequality crisis we see today: soaring house prices that exclude younger generations from property ownership, a growing sense among working people that hard work no longer translates into economic security, and a political fracturing driven in large part by the perception that the system is rigged in favour of those who already have.

When Money Fails, Real Assets Survive

History offers vivid and instructive examples of what happens when monetary debasement goes unchecked. Latin America in the 1980s provides one of the starkest warnings. Countries like Argentina, Brazil, and Bolivia experienced hyperinflationary spirals that wiped out the savings of the middle class almost overnight. Those who held cash or government bonds watched their wealth evaporate. Those who held real assets - land, hard commodities, equities of productive businesses - preserved their wealth. These episodes illustrate a universal truth: in an environment of monetary instability, monetary assets lose out to real assets.

Turkey offers a more contemporary case. Since the beginning of the decade, Turkey has experienced dramatic currency depreciation, with the lira losing nearly 90% of its value against the euro since 2019. Turks who held lira-denominated savings accounts saw their purchasing power devastated. Those who had invested in Istanbul real estate, or in equities were partially insulated from the destruction. The Istanbul stock exchange has, in lira terms, risen almost 15-fold. In euro terms, the gains are far more modest, but still positive. This shows that the rise in equity prices has more than compensated the spectacular fall in the currency.

TRY/EUR exchange rate

Source : Macrobond

Istanbul BIST 100 stock index in local currency

 
Source : Macrobond

Istanbul BIST 100 stock index in euro

 
Source : Macrobond

These are not exotic cases. They are reminders of a fundamental truth about fiat currency: it is only as sound as the discipline of those who manage it. Over the past quarter-century, that discipline has progressively disappeared. And going forward, the need to service an ever-increasing public debt load does not augur well for its return.
Equities ultimately represent ownership stakes in real businesses: companies with employees, factories, intellectual property, customer relationships, and cash flows. Real estate is land and physical utility. Commodities form the foundation of all economic activity. These things retain value when currencies do not, because they are claims on future economic output. Cash and bonds, by contrast, are promises of future currency payments. When that currency is relentlessly diluted, those promises become wasting assets — their face value stays constant but their ability to purchase real goods and services declines steadily.

Risk Redefined: Why Volatility Is No Longer The Enemy

Over very long periods of time, equity markets have indeed generated real wealth: innovation compounds, productivity rises, and corporate earnings increase. But the last decades’ nominal returns vastly exaggerate real gains. So when one reads that equity markets have delivered extraordinary long-term returns, one should pause before celebrating and ask oneself how much of that return reflects genuine growth in purchasing power, and how much reflects the mechanical effect of measuring prices in an ever-cheaper currency. Has the investor who earned 420% over twenty-five years (the return of the MSCI World index in euros between 2000 and 2025, dividends included), but in a currency that lost 70% of its purchasing power (in terms of how many coffees it can buy), truly increased their purchasing power that massively? When measured against real goods and services rather than depreciating units of account, asset returns look much more modest.
The stock market has indeed risen. But the dollar, the euro, and most other fiat currencies have fallen. Understanding this dynamic reframes both market interpretation and portfolio construction.
Traditional finance equates risk with volatility. In a world of stable money, that definition made sense; volatile assets were risky because their prices fluctuated, while cash and government bonds were safe because their nominal values were stable.

But in an era of structural currency debasement, this logic collapses. The true risk is no longer short-term price fluctuation, it is the long-term loss of purchasing power. Cash and bonds have relatively stable nominal returns, but steadily erode in real terms. Equities and other real assets exhibit volatility, but preserve purchasing power over time.

In this environment, volatility becomes the price one pays for maintaining real wealth. Smooth nominal returns can mask silent impoverishment. Conversely, accepting short-term fluctuations can be the only path to long-term financial security. That is the mental shift required today: volatility is discomfort, not danger. Currency debasement is danger disguised as comfort. In a world where money loses value, the ’safe’ assets have become dangerous and the ‘risky’ ones essential.

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