In the modern economy, monetary
distribution is fundamentally asymmetric. New money created by central
banks—primarily through Quantitative Easing (QE) and bank reserves—flows first
into financial institutions and asset markets. This creates a "Cantillon 2.0"
effect, where stocks and real estate inflate long before new capital reaches
wages or "Main Street." According to Federal Reserve Distributional Financial Accounts (2025), the top 10% of households now
control approximately 67% of total U.S. wealth, while M2 money velocity
remains trapped near historic lows ($1.1$). This confirms that expansionary
policy currently functions as a regressive wealth transfer rather than a broad
economic stimulant.
What
"Monetary Distribution" Really Means in 2026
For decades, the "Money
Multiplier" was taught in every Econ 101 classroom as a neutral,
democratic process. The story went like this: the central bank lowers rates,
commercial banks lend to small businesses, and money "multiplies"
through the economy, lifting all boats.
In 2026, that model is effectively
dead.
Today, monetary distribution
refers to the specific, non-neutral pathways through which new liquidity enters
the financial system. We no longer live in a world of simple lending; we live
in a world of asset-first injection. When the Federal Reserve or the ECB
expands their balance sheets, the "distribution" isn't a gentle
rain—it's a targeted firehose aimed at the balance sheets of primary dealers
and institutional investors.
The result is a widening chasm
between the financial economy (S&P 500, luxury real estate, private
equity) and the real economy (wages, groceries, and small business
margins). If you’ve felt that the economy is "booming" while your
purchasing power is shrinking, you aren't imagining things. You are witnessing
the mechanics of modern distribution.
How
Money Is Created and Enters the Economy Today
To understand why the gap is
widening, we have to look at the "plumbing." Modern money creation
happens in two primary ways:
- Commercial Bank Credit: When a bank issues a mortgage or a business loan, it
creates new deposit money. However, in a high-interest, high-debt
environment, this channel has slowed for the average person.
- Central Bank Reserves (QE): This is the dominant force of the last 15 years. The
central bank buys government bonds or mortgage-backed securities from
"Primary Dealers" (big banks).
The
Cantillon Effect 2.0: Modern Pathways
In the 18th century, Richard
Cantillon observed that the person closest to the king (the source of the
money) benefited the most, while those at the end of the line paid higher
prices.
Cantillon 2.0 is the digital-age version. When the Fed performs QE, the
"New Money" doesn't go to your local credit union. It hits Wall
Street first. This capital seeks the highest immediate return, which is almost
always existing financial assets. By the time this money trickles down to
"Main Street" in the form of increased wages, the prices of homes,
stocks, and healthcare have already been bid up.
“The modern Cantillon Effect is
effectively a tax on the un-propertied class,” notes analyst Lyn Alden. “It rewards those who own the
collateral that the central bank is implicitly backstopping.”
Key
Data on Distribution Outcomes (2025-2026)
The numbers tell a story that
political rhetoric often masks. By analyzing the Federal Reserve’s
Distributional Financial Accounts, we see a clear trend of concentration.
Wealth
Concentration Records
As of late 2025, the top 10% of
Americans hold a record 67% of all household wealth. Meanwhile, the
bottom 50%—despite nominal wage growth—collectively hold less than 3%. Why?
Because the bottom 50% hold their "wealth" in cash and labor, both of
which are diluted by the very policies meant to "save" the economy.
Money
Velocity Trap and Its Role
The most damning metric of modern
distribution is Money Velocity (M2). Velocity measures how many times a
dollar changes hands.
- 1990s:
Velocity was around 2.0. Money moved, circulated, and created broad
prosperity.
- 2026:
Velocity lingers near 1.1.
This is what I call the Velocity
Trap. When money is distributed to the top 1%, it tends to sit in stagnant
pools of capital (high-end real estate, offshore accounts, or stock buybacks).
It doesn't circulate. It doesn't create "velocity." It creates Asset
Inflation.
The
Velocity Trap Framework: A New Lens on Inequality
To explain the current stagnation,
I've developed the Velocity Trap Framework. It challenges the idea that
"printing money" causes immediate, broad inflation. Instead, it
posits that:
Low Velocity + High QE =
Distribution Drag.
In this framework, the "New
Money" is trapped at the top of the pyramid. Because the wealthy have a
lower marginal propensity to consume (you can only buy so many pairs of
shoes), the money stays in the financial stratosphere.
The Proof:
Look at the St. Louis Fed (FRED)charts comparing the S&P 500 to M2 Velocity. They move in opposite
directions. As we inject more liquidity into the system, the "speed"
of that money in the real economy drops. This is the Distribution Drag:
the more the central bank intervenes, the more it reinforces a structure where
the 1% "hoard" liquidity in assets, while the 99% fight over a
stagnant pool of circulating cash.
Policy
Implications and What Individuals Can Do
The "Fundamentals of Monetary
Distribution" aren't just academic; they are the blueprint for your
financial survival. If the system is designed to reward asset ownership over
labor, your strategy must reflect that reality.
The
Institutional Shift
There is growing pressure in 2026
for "Fiscal Distribution" (Direct transfers, UBI, or infrastructure
spend) to bypass the "Monetary Distribution" (QE) that has failed the
middle class. However, fiscal spending often leads to the type of consumer
inflation that further squeezes the "squeezed middle."
Protecting
Your Purchasing Power
To hedge against Cantillon 2.0,
individuals are moving away from the "savings" mindset and toward the
"positioning" mindset:
- Scarce Assets:
Moving out of the "flow" (wages) and into the "stock"
(assets like Bitcoin, gold, or productive land).
- Equity over Debt:
Owning the "means of production" rather than being the
"creditor" (holding cash) to a system that devalues its
currency.
Interactive:
Are You Caught in the Distribution Drag?
To calculate your exposure to the
Velocity Trap, consider your "Asset-to-Income Ratio."
|
Wealth Category |
Primary Income Source |
Asset Exposure |
Distribution Risk |
|
Labor Class |
Wages/Salary |
Low (Cash/Savings) |
High
(Purchasing power diluted) |
|
Middle Class |
Salary + 401k |
Moderate (Home/Stocks) |
Neutral
(Keeping pace with inflation) |
|
Asset Class |
Capital Gains/Dividends |
High (Equity/Real Estate) |
Low (Direct
beneficiary of QE) |
Frequently
Asked Questions
What
is monetary distribution in the modern economy?
It is the process by which new money
is introduced into the system. Unlike the past, it is currently asymmetric,
favoring financial institutions and asset owners who receive the "first
use" of new capital before it loses purchasing power.
How
does QE affect wealth inequality?
Quantitative Easing (QE)
artificially boosts the price of stocks and bonds. Since the top 10% of
households own the vast majority of these assets, their net worth skyrockets,
while those who rely on wages see no comparable benefit.
Why
is money velocity so low in 2026?
Velocity is low because of wealth
concentration. When money is concentrated in the hands of those who already
have their needs met, that money stops circulating in the "real"
economy and instead sits in financial instruments.
Does
printing money always cause inequality?
Not necessarily. If money is
distributed through fiscal channels (like building a bridge or direct
stimulus), it can reach the lower rungs of the economy. However, the monetary
channels used by central banks are structurally regressive.
The
Verdict: Reclaiming the Narrative
The "Fundamentals of Monetary
Distribution" teach us one harsh truth: The house always wins if you
play by the old rules. The system isn't "broken"—it is
functioning exactly as it was designed to in a post-2008 world. It is a system
that prioritizes the stability of the balance sheet over the stability of the
dinner table.
Understanding the Velocity Trap
and the Cantillon Effect 2.0 isn't just about being right at a dinner
party; it’s about recognizing that in a world of infinite money, the only
things that matter are the things that cannot be printed.
Stop being the "last in
line" for the new dollar.
If you're ready to stop feeling squeezed and start positioning yourself on the
right side of the distribution curve, you need to understand the flow of
capital before it happens.
[Join our Private Briefing: The 2026Wealth Preservation Toolkit]
Join 50,000+ investors and
professionals getting the data the Fed won't show you. Learn how to hedge the
Cantillon Effect and move your family into the Asset Class today.
Change Log - January 2026:
- Updated wealth concentration data from the 2025 Fed
Distributional Financial Accounts.
- Integrated 2026 World Inequality Report persistsence
metrics.
- Added "Velocity Trap" framework to explain M2 stagnation.
