By Patrick A. Heller
The US government and the Federal Reserve Bank inflate the money supply, which reduces the value of the US dollar. Two online reports from the Federal Reserve document the extent of this inflation.
First, go to the Federal Reserve website. This shows the size of the Fed’s balance sheet from August 2007 to the last weekly update. For example, on September 11, 2019, the Fed’s total assets were $3,769,673,000. That was just a week before the Fed began pumping tens of billions of dollars into bank liquidity every day (which now stands at hundreds of billions a day). As of April 6, 2020, assets had grown to $6,083,141,000! That’s an increase of over 61% in less than 30 weeks! $1.77 trillion of this increase occurred in the last month!
Clearly, only major economic turmoil would have forced Fed officials to take this drastic step, where assets are now more than a third larger than they were at the peak of $4.5 trillion during the efforts to pull the US economy out of the Great Recession.
As frightening as this news is, US government and Fed officials have already announced actions that could push the Fed’s balance sheet to over $10 trillion by the end of this year!
Next, the chart from the Federal Reserve Bank of Saint Louis shows a chart of M2 money supply over time. At the end of the Great Recession, this definition of money supply stood at $8,362,000,000. As of March 30, 2020, that had nearly doubled to $16,668,000,000.
However, increases in Fed assets and money supply are not in themselves automatic proof of a decline in the purchasing power of the US dollar. For example, if US production of goods and services had doubled since the end of the Great Recession, that would not necessarily mean that consumer prices would be higher today. You also need to consider other changes such as changes in population.
If you go to www.usinflationcalculator.com, you will see that the consumer price index in May 2009, the official end of the Great Recession, was at 213.856. In March 2020, it was 258.115, or 20.7% higher. As imprecise as this figure is (I think it underestimates consumer price inflation), it confirms that the purchasing power of the US dollar has declined significantly over the past 11 years.
Particularly with the recent sharp increases in the Federal Reserve Bank’s balance sheet and M2 money supply, you are pretty much assured of an accelerated decline in the purchasing power of the US dollar.
As my friend and money guru, David Morgan, said during a presentation at the Silver Summit in Spokane, Washington on October 24, 2014, “You can’t have real peace and prosperity unless you absolutely cannot trust money.”
Unfortunately, the actions of the US government and the Federal Reserve prove that right now you absolutely cannot trust the US dollar. It is a scary sign for future peace and economic prosperity.
This is the fundamental reason why the price of gold is now at its highest level since late 2012 and is destined to go even higher this year.
Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association’s 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, National Dealer Award from the Harry Forman Year 2012 and the 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2019), the Professional Numismatists Guild, the Industry Council for Tangible Assets, and Michigan State Numismatic Society. He is the communications manager for Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals. Past issues of the newsletter can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That You Don’t, and Important News You Need to Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which broadcasts in live and be part of the audio and text archives published at http://www.1320wils.com).