Doubling. It’s something that one can understand quickly. The Federal Reserve banks have doubled the number of dollars in just seven years – 2008 to 2015. That was three years faster than the previous doubling and seven years faster than the doubling before that. Inflation is picking up.
When there are twice as many dollars, than prices will be twice as much as they would have been had the quantity stayed the same. This is because the value of ANYTHING is based on supply and demand. When the supply doubles and demand is the same, then the value of the item is worth has as much; think of a glut in oranges and the price of oranges falls.
When prices double, that means your salary and savings are worth half as much as they would have been if Federal Reserve had not increased the quantity.
The annual increases in the dollar quantity of Federal Reserve dollars continues to decrease. Last month’s update showed a 7.5% increase compared to 12 months ago, whereas this month’s update shows an 7.4% increase, using data through July 2015. The annual change last year was 8.5% and the year before was 10.2%. (The increases are based on a 12 month moving average.) Everyone is focused on the changing interest rates, instead of just looking at the actual changes in the money quantity that show Federal Reserve is already applying the brakes to the economy. How can they do this? The banking system is a cartel. Almost all banks are part of the Federal System. We have this situation because the federal departments taxed the alternatives out of existence. See the updated charts showing the Quantity of Fed Reserve Dollars and the Annual Percentage Changes in the Quantity.
Many financial analysts wonder whether Fed Reserve will raise interest rates, but the actual increase or decrease in dollars may be more important. The chart below shows that Fed Reserve has slowed the issuing of new dollars for the past three years. For the 12 months ending June 2015, Fed Reserve issued 7.5 percent more dollars, whereas the 2014 increase was 8.3 percent, and the 2013 increase was 10.5%. Since the 7.5 percent increase is a smaller increase than past years, any increase in economic activity is likely to be less than past years.
A recession can happen even if Fed Reserve issues more dollars. Though if the pace slows, then less economic activity might happen versus past years, and some businesses or business projects may fail if the business managers expect the higher growth of past years.
The total quantity of dollars has doubled during the past seven years. This was two years faster than the prior doubling. This might be due to the size of the bank and business mistakes that helped cause the recent great recession. Bigger mistakes require bigger infusions of new dollars. Of course, Fed Reserve could have let those businesses fail since they made mistakes, but it’s a rigged market and the politically and financially connected often come out on top.
People use different ways to calculate the quantity of Federal Reserve U.S. dollars. At Monetary Choice, the inputs are:
Currency in Circulation + Checking Deposits + Savings Deposits + U.S. Government Demand Deposits and Note Balances + Demand Deposits Due to Foreign Commercial Banks + Demand Deposits Due to Foreign Official Institutions.
The first three comprise 99 percent of the dollars:
We include savings deposits because the money can be easily moved into a checking deposits from which it could be spent.
See more info about our tracking of Federal Reserve U.S. Dollars.
One way to try to forecast booms and busts is to look at changes in the quantity of dollars in circulation. More dollars, means more loans, and more jobs but also more inflation and lower valued salary. As of May, 2015, the quantity of dollars increased about 8 percent versus last year, but this increase was a little less than the prior annual increase and the increases have been declining. Fewer dollars means fewer loans and less business transactions BUT also less inflation and a higher value salary, if you still have a job.
It’s not hyper-inflation, but it is inflation. The number of dollars in circulation doubled in just seven years. This means the value of dollars from 2008 are now worth half as much as they would have been had Fed Reserve and U.S.Gov not issued the new dollars. The seven year pace is faster than the prior doubling that took nine years. The new dollars are loaned to the U.S.Gov to cover the budget deficit.
The Swiss central bank recently stopped devaluing their currency, which is great news for everyone but currency traders and people who live on the dole. However, this article and many others espouse the harmful myth that a strong franc hurts exporters, since their goods become more expensive in other currencies. This only applies to greedy exporters. The rational exporters will LOWER their prices since the franc is more valuable.
Let’s say I’m selling a watch for 10,000 francs, and each franc is worth one ounce of oil. This means I’m getting paid 10,000 ounces of oil. If the franc rises 30 percent in value, than each franc will be worth 1.3 ounces of oil, and now I’m selling my watch for the equivalent of 13,000 ounces of oil, which makes my watch over-priced, since comparable watches still only cost 10,000 ounces of oil.
I MUST lower the Swiss Franc price for my watch to about 7,700 francs, which returns the REAL (not nominal) price to 10,000 ounces of oil. Then my sales will remain the same.
Any action by the Swiss central bank merely requires a price change. I must focus on the value of money, not the quantity of money. As I like to say, don’t count your money. Value it.
See article on Economic Policy Journal
An article on Seeking Alpha reported that the people living in Switzerland rejected a measure that would have forced the “central bank” to have on hand enough gold to represent 20 percent of outstanding francs. In an ideal world, there would be 100 percent backing, and as reported in the article, the Swiss franc recently had 40 percent backing. The measure also would have required all Swiss gold to be moved back to the country.
The article did note that the referendum raised awareness about money and gold. It’s a long road back to monetary sanity, and this referendum was an important step.
The quantity of Federal Reserve “dollars” increased 8.0% as of October, 2014, compared with last year, down from the most recent annual increase of 14.6% in June, 2012, just two years ago. [See chart below.]
The bad news is prices will eventually be 8.0 percent higher than they would have been if Federal Reserve had not created these new “dollars.” Another way to say this is that your salary and savings will be worth 8.0 percent less at some point. This also means the stock market will rise more slowly.
The good news is the annual increases continue to fall compared to prior months. I guess this what “tapering” means. This is good news because more dollars means each dollar is worth less, and when dollars are worth less, merchants raise their prices.
The quantity of Federal Reserve dollars is now at an all-time high of 104.5 trillion, about double the 2007 amount of 52 trillion. The original 52 trillion “dollars” from 2007 will soon be worth half as much as they were in 2007 because the new dollars, issued since 2007, derived their value from the existing dollars. [See chart below.]
The value of the current 104 trillion dollars will be the same as the value of the 52 trillion dollars, meaning 104 trillion dollars will buy the same amount of goods as could be purchased with the 52 trillion. It’s as if you had 10 dollars in 2007 and now have 20 dollars in 2014, but the price a movie ticket was $6 in 2007 and now is $12, so you can still only buy the same amount of movie tickets. The catch is that you probably don’t have 20 dollars, you still have the same 10 dollars, and now you can only buy half as many movie tickets.
Your money will be worth 8.4 percent less than in should be in about a year or two because Federal Reserve banks have issued 8.4% more of their dollars/digits in the past year (see chart below). In other words, in the past 12 months, the quantity of Federal Reserve digits/dollars has increased by 8.4%. Thankfully, this is slightly down from the 8.5% annual increase last month, and down from the most recent high of 14.6% in June 2012, just two years ago. Any increase in digits/dollars will reduce the value of existing digits/dollars.
The total quantity of Federal Reserve digits (“dollars”) is now 102 trillion, up from 50 trillion just eight years ago. If you’re wondering why prices have doubled since then, this is the reason.
The table below shows the key metrics. The annual moving average was 10.2 percent one year ago and now is 8.3 percent. The total Federal Reserve digits is primarily composed of currency, checking deposits, and the whopping savings deposits (100 trillion is about the sum of 1,213 billion of currency, plus 1,619 billion of checking deposits, and 7,297 billion of savings deposits). In May, surprisingly, the total dollars/digits went down 0.1 percent. The bankers and their government benefactors had some mercy.