A trillion dollars were created this past year.
As of the beginning of October 2011, US Money Supply (M2) officially stands at $9.65 trillion dollars.
Last year M2 was measured at $8.76 trillion dollars, for a year-over-year growth in M2 of 10%.
To put this in perspective... consider the Eiffel Tower, which I am looking at right here.
This amount of printing translates into a printed stack of $100 bills the height of the Eiffel Tower ... about every 3 hours. For an entire year.
Quantitative Easing my ass. There's no way that we can print that much physical money. So we just add zeroes in the servers that tally the ledgers and in bits and bytes, currency is born.
Inflation
Officially, inflation is only running at about a 3.5% annualized rate.
Now if Money Supply is growing at 10% but 'official' inflation is only 3.5%, then this would imply that somehow we are able to keep price growth of our daily necessities at just 35% of growth in paper dollars available to chase real stuff.
This doesn't make a whole lot of sense. When the amount of fiat dollars in circulation rises, the prices of everything rise in tandem, with tangible commodities rising faster as the market recognizes their store of value to be greater than that of currency being depreciated through excessive printing.
I like coffee in the mornings.
But it's gotten a lot more expensive in the past year. About 18% more expensive, not 3.5%.
Now coffee has some wild swings looking back over many years (many of them weather-related) so it's not all just inflation.
But the trend is consistent for a wide range of commodities... here in this link looking at fuel and non-fuel components together... shows a price increase of about 15% (not 3.5%)
Some components show flat or slight decreases, but the net effect of those up sharply means price impacts on different parts of society are severe, and uneven with specific categories.
Like food.
Inflation-driven poverty: Minimum Wage and Food Distress
Okay so 15% may not sound like a lot in a year (it's a lot to me).
But over time the fact that prices for necessities such as food and energy rise faster than official inflation translates into real pain for millions of people, especially those linked a static wage, linked to a wage that grows only with the official rate, or who are on fixed-incomes.
Let's expand the time frame of the Food Price Index to look at 10 years, from 2001 through 2011.
Astounding. Food prices are 114% greater today than they were in 2001.
But according to the official measure of inflation by the Bureau of Labor Services, inflation has 'only' grown a cumulative 28% during that same time frame.
Incidentally... 28% / 114% = 25%, not much lower than the (1 year) 35% figure above!!
Now the minimum wage was set in 1997 at $5.15 per hour. It remained there for almost 10 years before a succession of hard-fought increases to its present level of $7.25 per hour.
This represents a 2001-2011 cumulative increase of 40.8%.
For shits and giggles.. a 40.8% increase in the minimum wage divided by a 114% increase in food prices equals 35.8%.
Put another way, this means price of food is growing ~3x faster than the ability of people on minimum wage to pay for food.
Does this correspond to increasing demand for Food assistance?
I think so.
The above link shows that as of August 2011 45.8 million people were on the Supplemental Nutritional Aid Program (SNAP), formerly, the Food Stamp program. For anyone counting, that's about 1 in 7 Americans. 1 in 7.
In 2006 there were only 26.5 million people requesting aid.
Going back 10 years to the end of the year 2001there were 18.7 million people on the program.
The cumulative growth of people falling into food distress over 10 years is then calculated:
(45.8 million people in 2011 / 18.7 million people in 2001) - 1 = 144% cumulative growth.
Not far from cumulative food price increases of 114% shown above.
Scrooged
Those what-nots in Congress and the Federal Reserve are currently trying to figure out a way to bail out the boat they've all shot to hell.
To summarize we have a history that looks something like this:
I can't solve this and neither can you. But understanding the roots of what is happening today and where things are trending can be used to prepare, much as one does for a winter storm. Watch what they say, and try to develop rules of thumb that make sense to your household...
Such as...
As of the beginning of October 2011, US Money Supply (M2) officially stands at $9.65 trillion dollars.
Last year M2 was measured at $8.76 trillion dollars, for a year-over-year growth in M2 of 10%.
To put this in perspective... consider the Eiffel Tower, which I am looking at right here.
This amount of printing translates into a printed stack of $100 bills the height of the Eiffel Tower ... about every 3 hours. For an entire year.
Quantitative Easing my ass. There's no way that we can print that much physical money. So we just add zeroes in the servers that tally the ledgers and in bits and bytes, currency is born.
Inflation
Officially, inflation is only running at about a 3.5% annualized rate.
Now if Money Supply is growing at 10% but 'official' inflation is only 3.5%, then this would imply that somehow we are able to keep price growth of our daily necessities at just 35% of growth in paper dollars available to chase real stuff.
This doesn't make a whole lot of sense. When the amount of fiat dollars in circulation rises, the prices of everything rise in tandem, with tangible commodities rising faster as the market recognizes their store of value to be greater than that of currency being depreciated through excessive printing.
I like coffee in the mornings.
But it's gotten a lot more expensive in the past year. About 18% more expensive, not 3.5%.
Now coffee has some wild swings looking back over many years (many of them weather-related) so it's not all just inflation.
But the trend is consistent for a wide range of commodities... here in this link looking at fuel and non-fuel components together... shows a price increase of about 15% (not 3.5%)
Some components show flat or slight decreases, but the net effect of those up sharply means price impacts on different parts of society are severe, and uneven with specific categories.
Like food.
Inflation-driven poverty: Minimum Wage and Food Distress
Okay so 15% may not sound like a lot in a year (it's a lot to me).
But over time the fact that prices for necessities such as food and energy rise faster than official inflation translates into real pain for millions of people, especially those linked a static wage, linked to a wage that grows only with the official rate, or who are on fixed-incomes.
Let's expand the time frame of the Food Price Index to look at 10 years, from 2001 through 2011.
Astounding. Food prices are 114% greater today than they were in 2001.
But according to the official measure of inflation by the Bureau of Labor Services, inflation has 'only' grown a cumulative 28% during that same time frame.
Incidentally... 28% / 114% = 25%, not much lower than the (1 year) 35% figure above!!
Now the minimum wage was set in 1997 at $5.15 per hour. It remained there for almost 10 years before a succession of hard-fought increases to its present level of $7.25 per hour.
This represents a 2001-2011 cumulative increase of 40.8%.
For shits and giggles.. a 40.8% increase in the minimum wage divided by a 114% increase in food prices equals 35.8%.
Put another way, this means price of food is growing ~3x faster than the ability of people on minimum wage to pay for food.
Does this correspond to increasing demand for Food assistance?
I think so.
The above link shows that as of August 2011 45.8 million people were on the Supplemental Nutritional Aid Program (SNAP), formerly, the Food Stamp program. For anyone counting, that's about 1 in 7 Americans. 1 in 7.
In 2006 there were only 26.5 million people requesting aid.
Going back 10 years to the end of the year 2001there were 18.7 million people on the program.
The cumulative growth of people falling into food distress over 10 years is then calculated:
(45.8 million people in 2011 / 18.7 million people in 2001) - 1 = 144% cumulative growth.
Not far from cumulative food price increases of 114% shown above.
Scrooged
Those what-nots in Congress and the Federal Reserve are currently trying to figure out a way to bail out the boat they've all shot to hell.
To summarize we have a history that looks something like this:
- The cumulative effect of our political game over the past several decades has led to massive deficits and little in the way of tangible solutions to pay it back.
- They have been putting band-aids on this by printing more digital currency to pay back debts with conjured money, since our economy is not growing fast enough to provide the tax revenues to do so (and no thanks to ill-timed tax cut packages).
- The more money that is printed, the faster the prices of real things, such as food, energy, and necessities must rise.
- Printing money is easier for them to do politically in the short-term, vs. raising taxes on the wealthiest. This pattern will likely continue.
- The official rate of inflation is lower than the tangible rate for real things; we saw that Food has risen at about 3x the official rate of inflation over 10 years.
- Wages for many people are tied to the official rate or lower, meaning their income by definition cannot keep up with the price of food.
- This leads to greater food distress, and increases demand for Food Stamps.
- Looking forward, more Baby Boomers are retiring every year and their future income from Social Security will be tied in some measure to the official rates of inflation.
- We can expect increased demands from Food Stamps, Food Banks, and extended family support to grow as the gap between official rates and actual rates continues to diverge.
I can't solve this and neither can you. But understanding the roots of what is happening today and where things are trending can be used to prepare, much as one does for a winter storm. Watch what they say, and try to develop rules of thumb that make sense to your household...
Such as...
'When they say inflation is at 3%, my wages probably won't rise beyond 3% but food may rise 3x as fast in price, or 9%, so I better adjust.'
