The Buying Power of the U.S. Dollar Over the Last Century
The value of money is not static. In the short term, it may ebb and flow against other currencies on the market. In the long-term, a currency tends to lose buying power over time through inflation, and as more currency units are created.
Inflation is a result of too much money chasing too few goods – and it is often influenced by government policies, central banks, and other factors. In this short timeline of monetary history in the 20th century, we look at major events, the change in money supply, and the buying power of the U.S. dollar in each decade.
A Short Timeline of U.S. Monetary History
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.
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.
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.
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
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
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
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.
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.
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.
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.
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.
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.
The Changing Value of a Dollar
At the turn of the 20th century, the money supply was just $7 billion. Today there are literally 1,900X more dollars in existence.
While economic growth has meant we all make many more dollars today, it is still phenomenal to think that during past moments in the 20th century, a dollar could buy a pair of leather shoes or a women’s house dress.
The buying power of a dollar has changed significantly over the last century, but it’s important to recognize that it could change even faster (up or down) under the right economic circumstances.
About The Money Project
The History of Interest Rates Over 670 Years
Interest rates sit near generational lows — is this the new normal, or has it been the trend all along? We show a history of interest rates in this graphic.
The History of Interest Rates Over 670 Years
Today, we live in a low-interest-rate environment, where the cost of borrowing for governments and institutions is lower than the historical average. It is easy to see that interest rates are at generational lows, but did you know that they are also at 670-year lows?
This week’s chart outlines the interest rates attached to loans dating back to the 1350s. Take a look at the diminishing history of the cost of debt—money has never been cheaper for governments to borrow than it is today.
The Birth of an Investing Class
Trade brought many good ideas to Europe, while helping spur the Renaissance and the development of the money economy.
Key European ports and trading nations, such as the Republic of Genoa or the Netherlands during the Renaissance period, help provide a good indication of the cost of borrowing in the early history of interest rates.
The Republic of Genoa: 4-5 year Lending Rate
Genoa became a junior associate of the Spanish Empire, with Genovese bankers financing many of the Spanish crown’s foreign endeavors.
Genovese bankers provided the Spanish royal family with credit and regular income. The Spanish crown also converted unreliable shipments of New World silver into capital for further ventures through bankers in Genoa.
Dutch Perpetual Bonds
A perpetual bond is a bond with no maturity date. Investors can treat this type of bond as an equity, not as debt. Issuers pay a coupon on perpetual bonds forever, and do not have to redeem the principal—much like the dividend from a blue-chip company.
By 1640, there was so much confidence in Holland’s public debt, that it made the refinancing of outstanding debt with a much lower interest rate of 5% possible.
Dutch provincial and municipal borrowers issued three types of debt:
- Promissory notes (Obligatiën): Short-term debt, in the form of bearer bonds, that was readily negotiable
- Redeemable bonds (Losrenten): Paid an annual interest to the holder, whose name appeared in a public-debt ledger until the loan was paid off
- Life annuities (Lijfrenten): Paid interest during the life of the buyer, where death cancels the principal
Unlike other countries where private bankers issued public debt, Holland dealt directly with prospective bondholders. They issued many bonds of small coupons that attracted small savers, like craftsmen and often women.
Rule Britannia: British Consols
In 1752, the British government converted all its outstanding debt into one bond, the Consolidated 3.5% Annuities, in order to reduce the interest rate it paid. Five years later, the annual interest rate on the stock dropped to 3%, adjusting the stock as Consolidated 3% Annuities.
The coupon rate remained at 3% until 1888, when the finance minister converted the Consolidated 3% Annuities, along with Reduced 3% Annuities (1752) and New 3% Annuities (1855), into a new bond─the 2.75% Consolidated Stock. The interest rate was further reduced to 2.5% in 1903.
Interest rates briefly went back up in 1927 when Winston Churchill issued a new government stock, the 4% Consols, as a partial refinancing of WWI war bonds.
American Ascendancy: The U.S. Treasury Notes
The United States Congress passed an act in 1870 authorizing three separate consol issues with redemption privileges after 10, 15, and 30 years. This was the beginning of what became known as Treasury Bills, the modern benchmark for interest rates.
The Great Inflation of the 1970s
In the 1970s, the global stock market was a mess. Over an 18-month period, the market lost 40% of its value. For close to a decade, few people wanted to invest in public markets. Economic growth was weak, resulting in double-digit unemployment rates.
The low interest policies of the Federal Reserve in the early ‘70s encouraged full employment, but also caused high inflation. Under new leadership, the central bank would later reverse its policies, raising interest rates to 20% in an effort to reset capitalism and encourage investment.
Looking Forward: Cheap Money
Since then, interest rates set by government debt have been rapidly declining, while the global economy has rapidly expanded. Further, financial crises have driven interest rates to just above zero in order to spur spending and investment.
It is clear that the arc of lending bends towards ever-decreasing interest rates, but how low can they go?
$69 Trillion of World Debt in One Infographic
What share of government world debt does each country owe? See it all broken down in this stunning visualization.
$69 Trillion of World Debt in One Infographic
Two decades ago, total government debt was estimated to sit at $20 trillion.
Since then, according to the latest figures by the IMF, the number has ballooned to $69.3 trillion with a debt to GDP ratio of 82% — the highest totals in human history.
Which countries owe the most money, and how do these figures compare?
The Regional Breakdown
Let’s start by looking at the continental level, to get an idea of how world debt is divided from a geographical perspective:
|Region||Debt to GDP||Gross Debt (Millions of USD)||% of Total World Debt|
|Asia and Pacific||79.8%||$24,120||34.8%|
In absolute terms, over 90% of global debt is concentrated in North America, Asia Pacific, and Europe — meanwhile, regions like Africa, South America, and other account for less than 10%.
This is not surprising, since advanced economies hold most of the world’s debt (about 75.4%), while emerging or developing economies hold the rest.
World Debt by Country
Now let’s look at individual countries, according to data released by the IMF in October 2019.
It’s worth mentioning that the following numbers are representative of 2018 data, and that for a tiny subset of countries (i.e. Syria) we used the latest available numbers as an estimate.
|Rank||Country||Debt to GDP||Gross Debt ($B)||% of World Total|
|#1||🇺🇸 United States||104.3%||$21,465||31.0%|
|#3||🇨🇳 China, People's Republic of||50.6%||$6,764||9.8%|
|#6||🇬🇧 United Kingdom||86.8%||$2,455||3.5%|
|#13||🇰🇷 Korea, Republic of||37.9%||$652||0.9%|
|#34||Taiwan Province of China||35.1%||$207||0.3%|
|#54||United Arab Emirates||19.1%||$79.1||0.11%|
|#107||Congo, Republic of||87.8%||$10.2||0.01%|
|#108||Trinidad and Tobago||45.1%||$10.2||0.01%|
|#115||Papua New Guinea||35.5%||$8.2||0.01%|
|#119||Congo, Dem. Rep. of the||15.3%||$7.2||0.01%|
|#121||Bosnia and Herzegovina||34.3%||$6.9||0.01%|
|#157||South Sudan, Republic of||42.2%||$1.9||0.00%|
|#160||Antigua and Barbuda||89.5%||$1.4||0.00%|
|#169||Central African Republic||49.9%||$1.1||0.00%|
|#173||Saint Vincent and the Grenadines||74.5%||$0.6||0.00%|
|#174||Saint Kitts and Nevis||60.5%||$0.6||0.00%|
|#178||Hong Kong SAR||0.1%||$0.4||0.00%|
|#180||São Tomé and Príncipe||74.5%||$0.3||0.00%|
|#184||Micronesia, Fed. States of||20.3%||$0.1||0.00%|
In absolute terms, the most indebted nation is the United States, which has a gross debt of $21.5 trillion according to the IMF as of 2018.
If you’re looking for a more precise figure for 2019, the U.S. government’s “Debt to the Penny” dataset puts the amount owing to exactly $23,015,089,744,090.63 as of November 12, 2019.
Of course, the U.S. is also the world’s largest economy in nominal terms, putting the debt to GDP ratio at 104.3%
Other stand outs from the list above include Japan, which has the highest debt to GDP ratio (237.1%), and China , which has increased government debt by almost $2 trillion in just the last two years. Meanwhile, the European economies of Italy and Belgium check the box as other large debtors with ratios topping 100% debt to GDP.
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