Australian workers have largely kept pace with inflation over the past quarter century, but they have fallen dramatically behind the growth of the nation’s money supply, according to new research that argues inflation alone no longer tells the full story of purchasing power.
The findings appear in the latest edition of The Balance Sheet, a research series examining liquidity, housing, capital markets and the Australian economy. The report applies global macro investor Raoul Pal’s “Everything Code” framework to Australian data for the first time, testing whether the country’s economy follows the same relationship between money creation, debt and asset prices seen in the United States.
It concludes that Australia shares many of the symptoms identified by Pal, but runs on a very different economic model.
One of the report’s most striking findings is what it calls Australia’s “debasement scoreboard”, which compares the growth of major assets against the expansion of broad money rather than consumer prices.
Since 2000, Australian broad money has expanded by roughly 7.2 times, or close to 8 per cent a year. Over the same period, wages measured by the Wage Price Index increased by about 2.1 times, only marginally ahead of consumer prices, which roughly doubled.
The report argues that while wage earners largely maintained purchasing power against inflation, they lost substantial ground against the expanding money supply.
“Wages rose just 2.1 times while broad money expanded more than sevenfold,” the report says. “Measured against money rather than prices, wage earners lost around two-thirds of their relative purchasing power.”
Housing performed better than wages, but still failed to keep pace with monetary expansion.
National house prices increased by around 5.3 times between 2000 and 2026, comfortably exceeding inflation but remaining below the growth in Australia’s money supply.
Australian shares also produced mixed results.
The S&P/ASX 200 price index rose about 2.8 times over the period, substantially below broad money growth. Once dividends were included, however, total returns climbed to around 8.1 times, almost exactly matching the rate at which money expanded.
Gold proved the strongest performer.
Priced in Australian dollars, gold increased roughly 12.4 times over the same period, making it the only major asset examined that comfortably outpaced both inflation and monetary growth.
The report says the findings broadly support Pal’s argument that scarce assets tend to preserve purchasing power over long periods of monetary expansion, although Australia’s market behaves differently from the United States.
Unlike the American market, dominated by technology companies, Australia has relatively little listed technology exposure.
The sovereign debt spiral at the centre of Pal’s framework is absent. Australian government debt stands at about 61 per cent of GDP against 126 per cent in the United States, interest consumes less than 5 per cent of federal spending, and the Reserve Bank has unwound roughly 43 per cent of its pandemic-era balance sheet, proportionally faster than the US Federal Reserve.
“Australia’s money is not created by a central bank monetising unpayable sovereign debt; it is created by commercial banks writing mortgages, against a government balance sheet that remains among the healthiest in the developed world,” the report says.
The most striking results come from what the researchers call a liquidity horse race, which tested eleven relationships between candidate money measures and Australian asset prices using growth rates rather than the simple trend correlations the series has twice shown to be unreliable.
House prices proved most responsive to household credit and, with a lag of about a year, to the combined balance sheets of the major central banks. The sharemarket answered to something else entirely. Changes in Chinese credit led Australian share prices by about three quarters with a correlation of 0.45, nearly twice the strength of American, European and Japanese central bank liquidity combined. Domestic money supply, the measure that matters most for housing, barely registered for shares at all.
The report attributes the difference to the structure of the market. Financials make up 32.4 per cent of the ASX 200 and miners 24.9 per cent, while information technology is just 2.2 per cent, against roughly a third of the S&P 500. Twenty-nine per cent of Australian exports go to China. “The ASX is not a broken Nasdaq. It is a different machine: a dividend utility bolted to a Chinese commodity warrant,” the report says.
Pal’s most provocative claim, that money devalues at about 8 per cent a year, a rate he calls debasement and argues matters far more than inflation, turns out to translate to Australia almost exactly. Broad money has grown roughly sevenfold since 2000, about 8 per cent a year, while consumer prices grew at 2.7 per cent and wages managed just 2.1 times over the quarter century.
Measured against the money supply rather than the dollar, gold in Australian dollars rose about 12.4 times since 2000, house prices 5.3 times, and the ASX 200 price index just 2.8 times. But the sharemarket’s apparent failure reverses once dividends are counted. The accumulation index, which reinvests them, returned 8.28 per cent a year, clearing the money-growth hurdle almost exactly. More than half the market’s total return since 2000 has come from dividends, and the grossed-up yield runs above 4 per cent against about 1 per cent in the United States.
Wage earners fared worst on every measure, losing roughly two thirds of their purchasing power against the money supply over 26 years, a result consistent with Pal’s central claim about the widening gap between asset owners and salary earners.
Instead, the report argues Australia’s strongest long-term performers have been gold and reinvested dividend income rather than fast-growing technology shares.
The research forms part of a broader examination of whether Pal’s “Everything Code” applies to Australia.
While the report finds Australia’s broad money has expanded at almost exactly the 8 per cent annual pace highlighted in Pal’s work, it argues the source of that liquidity differs fundamentally.
Rather than central bank money creation driven by government debt, Australia’s money is created primarily through commercial bank mortgage lending.
It also concludes the Australian sharemarket responds more strongly to Chinese credit conditions than to the balance sheets of the world’s major central banks.
“The symptoms are similar,” the report says. “The machine is different.”
The paper argues Australia’s economic model is better described as a “mortgage-and-commodity code”, where population growth has replaced productivity as the primary driver of economic expansion, commercial banks create most new money through housing loans, and Chinese demand exerts a stronger influence on equity markets than overseas central bank liquidity.
The latest research is the fourth publication in The Balance Sheet series, following previous reports on Australian money creation, productivity and taxation, and the rental impact of international students.
Disclaimer: This report is provided for research and informational purposes only and does not constitute financial, investment or legal advice. While every effort has been made to ensure the accuracy of the data and analysis, some findings rely on long-term estimates, assumptions and statistical relationships that may change as new information becomes available. Correlation does not imply causation, and readers should not rely on this report as the sole basis for financial or investment decisions.
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