Updated with January, 2017, data.


Annual changes in Fed Reserve dollar quantity - through 2017 January

The U.S. dollar inflation rate is 7.5 percent. Banks increased the quantity of dollars by 7.5 percent. They do this by making loans. (Most of the new dollars were created so the U.S. government could fill its budget deficit.)

This means your dollars and salary will be worth 7.5 percent less than they would have been had the banks not created the dollars.

Is a recession coming? Many financial analysts talk about whether Fed Reserve will raise interest rates, but the change in dollars (increase or decrease) may be more important. This chart shows FedRes is not issuing new dollars as fast as years past, so economic activity will not rise as fast as it has been. If people are planning for higher growth, then we’ll have projects without buyers: meaning a bust; small or maybe large.

If you look at the chart’s trend, you might be able to predict if economic activity will increase or decrease. When more dollars are available, more purchases will be made.

Of course, in the background, people’s savings are worth less, so they are poorer. Some people get rich, while most people get poorer since either their savings or their salaries are worth less. Part of the value of their savings and their salaries goes to the people who received the new dollars through loans.

Also, economic activity will decrease in the future. Creating “dollars” merely moves activity from the future to the present, and from savers to borrowers.

It is not necessary to change the increase or decrease the quantity of dollars. The quantity can stay the same. Federal Reserve usually issues new dollars to fund government budget deficits and to help failing (mismanaged) banks and companies. Savers suffer since the value of their dollars goes towards the new dollars. Bankers and politicians prosper while savers suffer.

How do you protect yourself? Hold less Federal Reserve dollars and be wary of the stock market.

Quantity of Federal Reserve “Dollars”

Line chart of Fed Reserve Dollar Quantity from 1959 to 2017, with callouts showing when total dollar quantity doubled. Current total is 12.3 Trillion

One of the most important financial elements is the number of Federal Reserve “dollars” in circulation and whether the quantity is rising or falling. Issuing new “dollars” lowers the value of existing dollars. Destroying “dollars” will increase the value of all other dollars. For example, when the total quantity doubles, the original dollars become worth half as much as they would have been if the quantity had stayed the same. The new dollars derive their value from existing dollars. Here is the current quantity of Federal Reserve Dollars.

As you can see, the amount of dollars doubled between 2009 and 2017. This means all the dollars in existence in 2009 are worth or will be worth half as much as they would have been had Federal Reserve not issued 6.1 trillion more dollars.

Note the real cause for the new dollars is that the U.S. administration requests these dollars to fill it’s annual budget deficit. If the administration balanced its budget, many fewer dollars would be requested/created.

Data for the Charts

As shown below, annual inflation declined slowly until May, 2016, then started to rise again. We will see how many dollars the new U.S. administration uses.

Table - Raw data showing composition of Fed Reserve Dollar total, from 1994 to 2017 (July)

Composition of the Dollar Quantity

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:

Pie chart showing components of Federal Reserve Dollars - 2017 Jan

We include savings deposits because the money can be easily moved into a checking deposits from which it could be spent.

Leave a Reply

Your email address will not be published. Required fields are marked *

6 + fourteen =

Time limit is exhausted. Please reload the CAPTCHA.