Focus on U.S. Dollar Inflation

The U.S. dollar is unanimously recognized as the world’s reserve currency today. Thus, all decisions taken by the Fed regarding the increase in the USD money supply have repercussions at the global level.

Indeed, the other central banks are each time obliged to align themselves with the Fed’s decisions.

When the Fed decides to print more than $6T in a few weeks, the citizens of the world will have to suffer the consequences in the months to come.

Unfortunately, the poorest will be more impacted than the richest. This is why the disparities are growing with the current monetary and financial system. The outstanding money supply of the U.S. dollar is represented by the Federal Reserve’s M2 Money Stock Index.

From 2009 to the end of 2019, the M2 Money Stock increased by 86%:

M2 Money Stock increased by 86% from 2009 to 2019

This increase represents an addition of $8T to the outstanding U.S. dollar money supply during this period.

During the year 2019, inflation in the M2 Money Stock had been 6.5% in total.

At the beginning of the year 2020, the U.S. dollar money supply was $15,129B. As you can see on the previous graph, a very strong increase has just taken place during the month of March 2020.

This increase is the result of the unlimited quantitative easing program that the Fed is currently conducting. To better understand the strong acceleration of this trend on the M2 Money Stock, I suggest you take a closer look at the first quarter of 2020:

M2 Money Stock and inflation, over 6 months in 2020

While M2 Money Stock inflation was 6.5% for the whole of 2019, it is already 8.5% in the first quarter of 2020 alone.

Worse still, in March 2020 alone, M2 Money Stock inflation is 6.7%.

April 2020 will be similar if not worse with the Fed’s quantitative easing program that will continue and the $2.3T program it has just announced.

If M2 Money Stock growth keeps the same pace as March over the rest of 2020, we would be on track for an increase of nearly 80% by the end of the year.

That’s huge, and that could give us an outstanding U.S. dollar money supply of nearly $30T by the end of 2020.

To give you a better idea of what this is going to mean in terms of loss of purchasing power, just look at the evolution of a purchasing power of $100 from 2009 to 2020:

With the already large increase in the outstanding money supply of the U.S. dollar from 2009 to 2020, your purchasing power of $100 in 2009 had lost almost 20% by 2020 to just over $80.

I’ll let you imagine the huge drop in purchasing power that we will all experience with the massive liquidity injections that the Fed is currently conducting.