Category: Economics, Finance, and Political Economy

A SHORT TIMELINE OF PURCHASING POWER

(from visual capitalist)

1900s

After the Panic of 1907, the National Monetary Commission is established to propose legislation to regulate banking.

U.S. Money Supply: $7 billion

What $1 Could Buy: A pair of patent leather shoes.

1910s

The Federal Reserve Act is signed in 1913 by President Woodrow Wilson.

U.S. Money Supply: $13 billion

What $1 Could Buy: A woman’s house dress.

1920s

U.S. dollar bills were reduced in size by 25%, and standardized in terms of design.

The Fed starts using open market operations as a tool for monetary policy.

U.S. Money Supply: $35 billion

What $1 Could Buy: Five pounds of sugar.

1930s

To deal with deflation during the Great Depression, the United States suspends the gold standard. President Franklin D. Roosevelt signs Executive Order 6102, which criminalizes the possession of gold.

By no longer allowing gold to be legally redeemed, this removes a major constraint on the Fed, which can now control the money supply.

U.S. Money Supply: $46 billion

What $1 Could Buy: 16 cans of Campbell’s Soup

1940s

The massive deficits of World War II are almost financed entirely by the creation of new money by the Federal Reserve.

Interest rates are pegged low at the request of the Treasury.

Under Bretton-Woods, the “gold-exchange standard” is adopted.

U.S. Money Supply: $55 billion

What $1 Could Buy: 20 bottles of Coca-Cola

1950s

The Korean War starts in 1950, and inflation is at an annualized rate of 21%.

The Fed can no longer manage such low interest rates, and tells the Treasury that it can “no longer maintain the existing situation”.

U.S. Money Supply: $151 billion

What $1 Could Buy: One Mr. Potato Head

1960s

An agreement, called the Treasury-Federal Reserve Accord, is reached to establish the central bank’s independence.

By this time, U.S. dollars in circulation around the world exceeded U.S. gold reserves. Unless the situation was rectified, the country would be vulnerable to the currency equivalent of a “bank run”.

U.S. Money Supply: $211 billion

What $1 Could Buy: Two movie tickets.

1970s

In 1971, President Richard Nixon ends direct convertibility of the United States dollar to gold.

The period following the Nixon Shock is uncertain. The federal deficit doubles, stagflation hits, and the oil price skyrockets – all during the Vietnam War.

Over the decade, the dollar loses 1/3 of its value.

U.S. Money Supply: $401 billion

What $1 Could Buy: Three Morton TV dinners.

1980s

The stock market crashes in 1987 on Black Monday.

The Federal Reserve, under newly-appointed Alan Greenspan, issues the following statement:

“The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”

The Dow would recover by 1989, with no prolonged recession occurring.

U.S. Money Supply: $1,560 billion

What $1 Could Buy: One bottle of Heinz Ketchup.

1990s

This decade is generally considered to be a time of declining inflation and the longest peacetime economic expansion in U.S. history.

During this decade, many improvements are made to U.S. paper currency to prevent counterfeiting. Microprinting, security thread, and other features are used.

U.S. Money Supply: $3,277 billion

What $1 Could Buy: One gallon of milk.

2000s

After the Dotcom crash, the Fed drops interest rates to near all-time lows.

In 2008, the Financial Crisis hits and the Fed begins “quantitative easing”. Later, this would be known as QE1.

U.S. Money Supply: $4,917 billion

What $1 Could Buy: One Wendy’s hamburger.

2010-

After QE1, the Fed holds $2.1 trillion of bank debt, mortgage-backed securities, and Treasury notes. Shortly after, QE2 starts.

In 2012, it’s time for QE3.

Purchases were halted in October 2014 after accumulating $4.5 trillion in assets.

U.S. Money Supply: $13,291 billion

What $1 Could Buy: One song from iTunes.