Inflation drops to seven-year low. Bust on the way?

The annual inflation rate of U.S. Federal Reserve dollars has fallen to 7.2 percent, a pace not seen since 2009, about seven years ago. Federal Reserve IS slowing the economy. It’s banks are making fewer loans and this means fewer dollars in the system. However, fewer dollars means that all existing dollars will not lose their value as quickly; it will be a 7.2 percent decline in the value of the dollar versus the 15 percent decline seen in 2012. If there’s a 15 percent decline, then everyone must ask for a 15 percent salary increase to maintain their same standard of living, all other things being equal. But a better way to describe this is that by increasing the number of dollars by 7.2 percent, all salaries and savings will be worth 7.2 percent less than what they would have been worth had Federal Reserve banks NOT increased the number of dollars.

Annual changes in Fed Reserve dollar quantity - through 2016 April

Line chart of Fed Reserve Dollar Quantity from 1959 to 2016, with callouts showing when total dollar quantity doubled

Pie chart showing components of Federal Reserve Dollars - 2016.04

Table - Raw data showing composition of Fed Reserve Dollar total, from 1995 to 2016, April

Inflation quickens, after years of slowing – now at 7.5 percent

The main charts have been updated. The Federal Reserve banking system issued 7.5 percent more dollars during the past 12 months. The annual change had been slowing since 2012, but now has quickened slightly. The lowest recent increase was 7.4 percent, but now has risen to 7.5 percent. See the bottom of the table below. The total dollars is 11.4 trillion, double what it was just seven years ago.

Data table showing composition of Federal Reserve dollar quantity

Annual Changes FRD - 2016.01 vert bars v1

Total Federal Reserve U.S. Dollars - Shows time it takes for Federal Reserve to double the number of dollarsPie Chart of locations of Federal Reserve dollars - in circulation, checking accounts, savings deposits, US Gov Demand Deposits, Foreign Commercial Banks deposits, Demand Deposits of Foreign Official Institutions

 

U.S. Inflation High, but Declining (data as of Nov 2015)

The annual U.S. inflation rate is now 7.5 percent, down from 7.9% last year and 9.5% the year before. FedRes is slowing the economy, so plan accordingly. Plus FedRes just increased the main interest rate, making loans more expensive, which also reduces economic activity.

FR Digit Quantity thru 2015-11

I also show the instances when the quantity of dollars doubled, since 1985. Whereas FedRes took 14 years to double the quantity of dollars back between 1985 and 1999, the most recent doubling only took seven years.

Since the truth is always the opposite of what’s in the big media, the lower inflation rate means your savings and your salary won’t lose value as fast as prior years. Though the value of your paycheck and your savings will go down 7.5 percent (all other things being equal).

Visit the charts page for supporting charts and tables.

Inflation by any other name…

Most articles about U.S. inflation don’t mention U.S. inflation. That’s because they focus on price changes not the amount of Federal Reserve “dollars” in existence. The powers-that-be wanted to hide their devaluation of the money by simply changing the definition of the word most used to complain about the devaluation of the money. That word is “inflation.”

There may be articles about increases in the quantity of dollars, which is the real inflation, but most of the articles won’t use the word inflation. The authors might just be noting the change, without stating how an increase will harm anyone holding dollars. That is that an increase in dollars steals value from anyone holding dollars.

Take for example this Bloomberg article with the headline “Where’s the inflation?” The article states,

The Bureau of Labor Statistics estimates that overall consumer prices were down 0.2 percent in July from a year earlier, driven largely by a sharp decline in oil prices. Even after stripping out food and energy, prices were up 1.8 percent — or 1.2 percent, according to the Fed’s preferred measure, produced by the Bureau of Economic Analysis. That’s well below the central bank’s longer-term target of 2 percent.

The article is supposed to be about inflation, yet it focuses on prices changes. It also mentions the two percent inflation target of Federal Reserve, which is really a price change target.

They have done a good job of distracting attention away from the issuing of new dollars. And they need to do this because inflation was 14 percent in 2012 and is now about 7 percent in 2015. (See charts). Inflation is so bad that in just seven years, the banks (working with borrowers) doubled the number of dollars in existence. This means that the value of the dollar will soon be half of what it would have been if those new dollars had not been issued. That’s why a lunch sandwich costs about $10 when it used to cost five dollars about seven years ago, wouldn’t you say?

If you want to reach about inflation, visit this site, not Bloomberg or most of the corporate media. You should note that many media companies are owned by companies that want low interest rates on loans. Interest rates can be low if the banks are simply creating the money. If the banks actually had to borrow the money from someone else, than interest rates would rise and loans would cost more.

Lower inflation but still high

Updated charts for U.S. annual inflation appear below. For the last 12 months, inflation has been 7.3 percent, based on a 12 month moving average. That is lower than the prior period which had an 8.2 percent increase and much lower than 2012’s increase of 14 percent. Yikes!

Annual Changes FRD - 2015.08 vert bars v1

If you’re not making 7.3 percent more than last year, than you are likely WORSE off because the value of the dollar has or will go down about 7.3 percent, all other things being equal. Now if people from other countries suddenly want more dollars, than the value of the dollar may not fall the full 7.3%; the value could even go up. However, the value will be 7.3 percent lower than what it would have been if Federal Reserve had not created more dollars. Note, all the entities that took out loans are equally responsible since Fed Reserve banks only created dollars when they loaned them out.

The chart below shows that numbers of dollars doubled in just seven years, two years faster than the prior doubling.

FR Digit Quantity thru 2015-08 Website v1

Here is the data driving the charts.

Money Quantity Table - 2015.08

Doubling down on inflation.

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.

Number of Years it took federal reserve to double dollar quantity

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.

Dollar Quantity Charts Update – Through July 2015

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.

Dollar geyser is ebbing, though doubled in nine years

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.

Annual Changes Federal Reserve Dollars

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.

Fed Reserve Digit Quantity thru 2015-06

 

Definition of Money 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:

Composition of Fed Res Dollars - 2015.05

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.