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

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