Your Dollars Are Now Worth Half
According to numbers released by the Federal Reserve, the amount of money that the Fed has put into circulation is more than double of what it was a year ago. In simple terms, every dollar you have is now worth half of what it was last year. That’s 100% inflation in one year.
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Regardless of what many so-called financial experts say, inflation causes high prices, not the other way around. Inflation is an increase in the amount of money in circulation. When that happens, the value of your money drops and prices rise. If our dollar was based upon a commodity (like gold or silver), the value of your dollar would remain virtually the same forever because it would be backed by something tangible. As it stands now, the Federal Reserve prints money out of thin air.
To the left is a picture of a Zimbabwean carrying a pile of cash to buy something. While it looks like a lot of money, the pile of cash is probably worth less than 100 US dollars. Zimbabwe is suffering from an inflation crisis where prices double every 24 hours in that country.
As much as I hate the Federal Reserve printing money, I think you are not taking into account the velocity of money. If the money is printed and no one uses it, then it’s not being used in the economy and is not inflationary. However, the danger is that the Fed will keep printing money… keep printing money… then all the banks and people’s accounts will fill up with cash. It’s like loading a powder keg with gun powder. Then one day everyone decides they want to use it and inflation will explode.
JOhn
John, if the Fed doubles the money supply but doesn’t release any of it, then no, there are no inflationary side effects because that money doesn’t really exist in the economy. Once the Fed inflates the money supply and releases it in the economy (via the US government and banks), then inflation has begun. It doesn’t matter whether or not if people hoard the money or spend it. By the time the money makes it’s way into average consumer’s pockets (via wages), the effects of inflation are present (i.e. higher prices). The only question is how long will it take for the market to react to the inflation.