80% Of US Dollars Were Printed in the Last 2 Years: How Do We Know, and What Does It Mean?

In a worrying trend, the proportion of U.S. dollars printed and entering circulation has been increasing. You may have seen many money-printing headlines similar to this one recently. Specifically, while money in circulation is not the same as government stimulus spending, the fact remains that more of the money now in circulation is held by the government, in one form or another.

The alarm bells were rung in early 2022 about the last two years producing 80% of all U.S. dollars. But since then, the Fed has moved forward and sped up quantitative easing. This has come hand in hand with already high and now increasing inflation rates, which have been over 7% for the first quarters of 2022.

The U.S. Government has approved massive stimulus spending meant to stave off a major economic crash. This injection of currency into the economy is already historic, but the subsequent increased stimulus payments to help fight inflation have yet to produce returns. So how did we get here, and what does it mean? 

How we got here

The 2020 stimulus bills represented the largest injection of U.S. dollars into the economy in history. About $5 trillion made its way to households, businesses, and public institutions. The scope of the stimulus has been massive, reaching small family businesses, large hotel chains and airlines. Schools and other local government institutions received funds as well.

Many economists praise the move for jolting the economy into a recovery that otherwise could have turned into a serious recession. However, on the other side, the inflationary risk associated with such a massive injection of cash into the economy has also become clear.

The overall inflation rate is high. $1.00 in January 2020 would be $1.15 in August 2022. But in the categories of food and energy, inflation has been more clear. The Bureau of Labor Statistics (BLS) reports a 12-month price increase of 23.8% overall for energy, and 11.4% for food, from August 2021 to 2022 in their consumer price index.

The same BLS CPI report revealed an 8.3% increase for all goods and services across the board. However, the most worrying item in the report was housing, which showed a 32.2% increase. For a clear look at where the COVID-19 response funds have gone, the Committee for a Responsible Federal Budget has compiled the data most effectively. 

What does it mean?

We know where the money is going, roughly, but what it means is still up for debate. For the government, $5.9 trillion in stimulus spending means a much larger federal deficit. 

The Federal Reserve reports several positive effects of the stimulus, but mentions the effects on both the supply and demand side of the economy. These include manufacturers’ abilities to produce and consumers’ abilities to consume.

Advanced and emerging economies saw that the stimulus initially supported the demand for consumer goods. But the increase in demand did not produce an equal increase in supply, contributing to the current imbalance in the markets. This change implies several different effects that all lead to the same destination: inflation.

It’s hard to predict the exact effects of fiscal policy, but the Fed reports several clear effects:

• Bottleneck between supply and demand in the U.S. (inflation).
• Extra demand in other countries due to greater demand for imports in the U.S.
• Ultimately, greater domestic stimulus means greater inflation, even if it accompanies a current increase in consumer purchases.

Does crypto present an alternative?

For some policymakers, crypto represents some part of the solution to inflation risk. Compared to when we touched on the topic two years ago, cryptocurrencies are even more popular now. Wallet counts went up steadily during the pandemic, and there are over a billion users today. Zippia conducted research finding that over 15,000 businesses accept Bitcoin and that there are over 36,000 Bitcoin ATMs in the U.S.

If we go by Bitcoin ATMs alone, the number of crypto users in the U.S. has more than doubled from 2021 to 2022. In terms of market cap, cryptocurrencies including Bitcoin have taken a huge dip at the same time. But while prices have stagnated, mainstream adoption of Bitcoin has picked up at a much faster pace. 

Bitcoin has been embraced to some extent by many industries. But there is a particular acceptance of it (and other cryptos) in:

• Banking
• Retail
• Restaurant and food industry
• Gambling
• Tourism

Gambling is the most pro-crypto industry of them all, with about half of crypto transactions taking place in gaming. Perhaps far more promising is how the information technology industry has embraced Bitcoin.  There has also been a broad acceptance of crypto from many well-known mainstream brands, including:

• Whole Foods
• PayPal
• Starbucks 
• Rakuten
• Twitch

How the pandemic and inflation are accelerating crypto

As we reported last year, new companies are investing in Bitcoin all the time. Since then, crypto’s growth has been a worldwide phenomenon.

The most advanced crypto ecosystems in 2022 are in Africa. Expert research on the subject reveals that currency volatility and ease of access to P2P networks has increasing crypto popularity. Retail purchases in particular pushed crypto transaction volumes to 6.4%, the current high globally.

Mainstream corporations continue to bring Bitcoin and sometimes other cryptos into their payment options and investments. In May 2022, Gucci announced they would start accepting crypto payments. Around the same time, several other companies have joined them in some capacity in accepting crypto, including Chipotle and Balenciaga.

Institutional acceptance of crypto has always come slower, but the Wharton Business School has started accepting tuition payments in Bitcoin for its new cryptocurrency program. For the first time, Disney posted a job opening on September 23rd for a principal counsel in NFTs and DeFi. This full-time position hints at a possible expansion of Web3 at Disney.

In addition, Spanish telecom company Telefonica started accepting crypto payments. The telecom company, Spain’s largest, adopted a payment feature offered through Bit2Me, Spain’s largest crypto exchange.

In some unique cases, crypto has filled the demand left by many people who don’t have access to traditional banking as well. In El Salvador, Bitcoin adoption has centered on offering banking services to the 80% of Salvadorans lacking access.

Conclusions

Inflationary warnings, as well as real statistics about inflation, have become more intense since our last report in 2021. The same trends continue:

• Inflation, particularly in prices for food and energy products and services, continues.
• Greater crypto adoption by large corporations and institutions.
• More people are investing in crypto in some capacity.
• Global adoption, especially in developing economies, continues.

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Since our post 35% of All U.S. Dollars in Existence Have Been Printed in the Last 10 Months was published at the end of December 2020, we’ve reviewed the rising inflation numbers, and created this follow up post. Although the M2 data has been revised to include additional datapoints, it still shows a worrying trend of inflation increasing.