According to statistics, almost 20% of the USD currency was created in 2022. The Federal Reserve, which is responsible for printing money, made a new record this year. Although so much USD was printed to alleviate the ill effects of COVID-19 on the economy, it has given rise to a new problem called inflation.
The reason why asset prices and everyday use items have such high prices can be attributed to this unprecedented printing of USD!
M2, which is a measure of the dollar stocks, saw an increase from $15.34 trillion to $18.72 trillion - This tells us that the overall stock of USD in the world has increased this year.
In total, the increase in the supply of dollars was $3.38 trillion... This is equal to around 18% of USD total supply or in other words, every one USD in five dollars were printed in 2020.
M2 data includes all types of coins and physical notes, including bank accounts, Fed reserves, and even mutual funds. Another data measure known as M0 also saw a 28% increase in the total supply of USD.
Many people will wonder where these $3 trillion printed by the Fed was spent. Well, the short answer is that these dollars were used as a measure to intervene in the economy.
The COVID-19 pandemic resulted in pausing the normal life and as a result, the market was crashed. It was only through pumping of $3 trillion (USD) that somehow stabilized the economy.
Although it may appear as if the Fed was printing money, it actually created digital version of the USD. These digital dollars were used for buying securities and government bonds.
This policy of central banks where thy flood the capital and other markets with money is known as quantitative easing (QE). Such a policy makes it easy to borrow cash at cheap rates but also has a downside of higher inflation.