Stock records revive debate over dollar debasement and real returns

U.S. stocks have been hitting record highs, renewing a familiar debate for retail investors: are businesses becoming more valuable, or is the dollar buying less? The answer matters for anyone tracking a portfolio, because inflation can lift the nominal price of assets while real returns, returns after inflation, show whether purchasing power actually improved.

Investor Lee Roach recently argued on X that stock gains are mostly a currency story. Roach said the federal government is running a 7% structural deficit, meaning a budget gap that persists even after adjusting for the economic cycle, and claimed U.S. debt issuance could push publicly held debt above 130% of gross domestic product within five years. He also argued that the Federal Reserve is effectively the buyer enabling that borrowing through new dollar creation.

That view is often called debasement theory: government borrowing and money creation reduce a currency’s value, so assets priced in that currency rise. Roach’s conclusion was that investors who own real assets, productive businesses and scarce commodities are better positioned than those betting against asset prices.

There is pushback. An Of Dollars and Data analysis noted that Japan, the U.K. and other countries have exceeded 130% debt-to-GDP without hyperinflation or default. It also argued that the U.S. holds an unusual advantage because the dollar is the world’s reserve currency, creating steady global demand for dollars that past hyperinflation cases such as Weimar Germany, Zimbabwe and Argentina did not have.

The same analysis separates inflation from hyperinflation. From January 2020 to May 2026, the U.S. consumer price index rose 29%. Over roughly the same period, U.S. home prices rose 55%, according to the home-price index tracked by FRED. Using those as rough bookends, Of Dollars and Data estimated that the dollar’s purchasing power fell 22% to 35%.

That is painful inflation, but the comparison with true hyperinflation is far more extreme. Adam Fergusson wrote in When Money Dies that Germany’s mark had one-fortieth of its overseas purchasing power left by early 1920 after World War I. Of Dollars and Data calculated that the mark lost nearly 98% of its purchasing power over about six years.

Stocks beat the inflation range in this period

The stock-market numbers complicate the claim that equities merely tracked a cheaper dollar. Of Dollars and Data said the S&P 500 returned 143% including reinvested dividends from January 2020 to May 2026. After adjusting for inflation, it said the index was still up 88% in real terms.

In plain English, the analysis says a dollar invested in the S&P 500 at the start of 2020 had 88% more purchasing power by May 2026, after dividends and inflation. That is a real return, which means the gain left after accounting for higher prices in the economy.

Earnings growth appears to be a key reason. Chart Kid Matt, in a separate breakdown cited by Of Dollars and Data, said equity returns in 2026 were driven by rising earnings rather than multiple expansion. Multiple expansion means investors are paying a higher price for each dollar of company profits. In early 2026, the analysis said earnings growth more than offset falling valuation multiples.

The debate comes down to speed

The analysis reaches a middle position: the dollar has been losing value since the creation of the Federal Reserve in 1913, and that decline has recently been slightly faster than much of the past 40 years. It argues that recent inflation does not by itself show that U.S. hyperinflation is near.

Inflation can lift revenue when businesses raise prices, but the stock gains cited by Of Dollars and Data were larger than the CPI and home-price measures it used. For everyday investors, the practical issue is measurement. Nominal returns show what a brokerage account says. Real returns show whether those dollars buy more goods and services.

The current debate is less about whether inflation exists, and more about whether it explains most of the stock market’s rise.

This story draws on original reporting from Of Dollars and Data.