Will the FED destroy the dollar?

Just thinking about that question should put dread in your heart. Shouldn’t the goal of the Central Bank of a country protect the currency of that country? Well, the answer is that, it’s not actually destroying the dollar itself, but the purchasing power of said dollar.

You see the Federal Reserve has an official inflation target rate of 2% per year. What does that exactly mean? Well, it means that the purchasing power of the dollar would be worth a third of its current value in 50 years. You must be thinking at this point, “No way that’s true!”

No? Well let’s bring it down to the definition of inflation. In economics, inflation (or less frequently used, price inflation) is a general rise in the price level in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.

So now tell me, why is the FED so obsessed with inflation? Right now, the FED will be letting the inflation run hotter above 2%, instead they’re aiming for an average inflation of 2%. If you’ve been looking at the current market news and especially the inflation metrics of CPI (Consumer Price Index) and PCE (Personal Consumption Expenditures), you’d notice that these two metrics, which the FED uses the most, have been incredibly low for the past several years, ever since the 2008 financial crisis to be exact.

Meaning that in order for the FED to achieve its 2% ‘average’ (and I say that with the utmost of sarcasm) inflation needs to run much higher than the 2% target to reach an ‘average.’ This means that the FED will keep interest rates close to 0% for an extended period of time until inflation picks back up.

Now you must be thinking that this can’t happen in our lifetime, we’d be long dead. Guess again, as it already has happened. Just take a look at the below graph compiled by howmuch.net.

Ever since 1913, when the FED was created, and the purchasing power of the $100 bill has been falling. Take your time and look at the infographic above and understand what the FED has done to the dollar.

In a video conference held by Peak Prosperity, hosting two of the most renowned FED experts weigh in on what the FED is currently doing. Danielle DiMartino Booth and Axel Merk, both of whom have inside access to the people running the Federal Reserve, revealed in the video that they share the same sad conclusion that the FED really doesn’t have a plan to get out of the mess it’s in (a mess of its own creation) and is pretty much just playing for time, trying to delay the inevitable, which is painful repercussions of its failed policy.

Back to the matter at hand; inflation and why is the FED so obsessed with it. You see, the FED has been doing this exercise in the market. There has been an overwhelming consensus in the markets that investors that the FED has become the market. The FED has been training the market, underhandedly, to not fight it when it comes to market decisions.

One of the best ways to see this first hand is through the stock market. That magical Neverland that’s in disconnect with the real world. The FED has been feeding the market with the inflation prospect as it bolsters the stock market with higher rates brought on by the concept of inflation, while the real underlying value of these assets is nowhere near the price tag it comes with.

Now to add fuel to an already raging inferno, the market has grown accustomed to the plague, no not COVID, but QE (Quantitative Easing) that has spread globally. Please note that this is not a recession that is brought on by the Coronavirus, but a situation of over indebtedness and over leverage that is exposed by the Coronavirus.