Research Documentation
This page provides the complete research and sources for Inflation and Dollar Devaluation Ahead. All data sources are documented here for transparency.
Overview
This document provides detailed research supporting the six forces identified as driving inflation and dollar devaluation:
- Quantitative Easing and Money Creation
- US Debt and Fiscal Pressures
- Central Bank Gold Accumulation
- Yen Carry Trade Unwinding
- Policy Direction Toward Dollar Weakness
- US-Canada Economic Connection
1. Quantitative Easing and Money Creation
What is Quantitative Easing?
Quantitative easing (QE) is a monetary policy tool where a central bank purchases securities (typically government bonds) to inject liquidity into the financial system. This increases bank reserves and expands the money supply.
Source: Federal Reserve, Monetary Policy https://www.federalreserve.gov/monetarypolicy.htm
Federal Reserve Balance Sheet History
| Period | Balance Sheet Size | Context |
|---|---|---|
| Pre-2008 | ~$900 billion | Normal operations |
| Post-2008 (QE1-3) | ~$4.5 trillion | Financial crisis response |
| Pre-COVID (2019) | ~$4 trillion | After partial unwinding |
| Peak (mid-2022) | ~$8.9 trillion | COVID response |
| Late 2025 | ~$6.5 trillion | After QT, before restart |
Sources:
- Federal Reserve Economic Data (FRED): https://fred.stlouisfed.org/series/WALCL
- Brookings Institution, "Quantitative Easing and Housing Inflation Post-COVID": https://www.brookings.edu/articles/quantitative-easing-and-housing-inflation-post-covid/
M2 Money Supply
The M2 money supply includes cash, checking deposits, savings deposits, money market securities, and other time deposits.
| Period | M2 Money Supply |
|---|---|
| Pre-COVID (early 2020) | ~$15.5 trillion |
| Peak (early 2022) | ~$21.7 trillion |
| Late 2025 | ~$22+ trillion |
Growth rate: Year-over-year M2 growth reached approximately 4.5% in late 2025, the fastest since mid-2022.
Sources:
- Federal Reserve M2 Data: https://fred.stlouisfed.org/series/M2SL
- Economic Times report on Fed QE restart: https://economictimes.indiatimes.com/news/international/us/federal-reserve-restarts-quantitative-easing-with-40-billion-treasury-purchases-amid-inflation-and-market-pressure
December 2025 Policy Reversal
In December 2025, the Federal Reserve:
- Ended quantitative tightening (QT)
- Resumed Treasury purchases at approximately $40 billion per month
- Described purchases as "reserve management" rather than QE
Source: Federal Reserve December 2025 FOMC statement and press conference
Money Supply and Inflation Relationship
Historical research suggests money supply growth leads consumer price inflation by 12-18 months. The relationship is not mechanical but provides a framework for understanding potential price pressures.
Academic reference: Friedman, M. "The Lag in Effect of Monetary Policy" (1961)
2. US National Debt and Fiscal Pressures
Current Debt Levels
| Metric | Value | Source |
|---|---|---|
| Total national debt | ~$38 trillion | US Treasury |
| Debt held by public | ~$28 trillion | US Treasury |
| Intragovernmental holdings | ~$10 trillion | US Treasury |
| Debt-to-GDP ratio | ~98% (2024) | CBO |
| Projected debt-to-GDP (2029) | ~107% | CBO |
Sources:
- US Treasury Debt to the Penny: https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny
- Congressional Budget Office: https://www.cbo.gov/topics/budget
- AP News on $38 trillion milestone: https://apnews.com/article/national-debt-38-trillion
Debt Refinancing Needs
US Treasury debt matures at various intervals. When debt matures, the Treasury must:
- Pay it off (requires surplus or new borrowing)
- Roll it over (issue new debt)
Estimated maturities in 2026: $6 to $9 trillion in Treasury securities will mature and need refinancing.
Source: Treasury Direct, Securities Outstanding: https://treasurydirect.gov/govt/reports/pd/pd.htm
Interest Expense
Federal government interest expense has risen significantly:
| Year | Interest Expense |
|---|---|
| 2020 | ~$345 billion |
| 2023 | ~$659 billion |
| 2024 | ~$882 billion |
| 2025 (est.) | ~$950 billion |
Source: Congressional Budget Office, Budget and Economic Data
Debt-to-Interest Rate Relationship
Research from the Dallas Federal Reserve estimates that each 1 percentage point increase in debt-to-GDP ratio raises long-term interest rates by approximately 3 basis points.
Source: Dallas Fed Economic Research: https://www.dallasfed.org/research/economics/2025/0812
3. Central Bank Gold Accumulation
Central Bank Gold Buying
Central banks have been net buyers of gold for over a decade, with acceleration since 2022.
| Year | Central Bank Gold Purchases |
|---|---|
| 2021 | 463 tonnes |
| 2022 | 1,082 tonnes |
| 2023 | 1,037 tonnes |
| 2024 | 1,000+ tonnes (estimated) |
Source: World Gold Council, Central Bank Statistics: https://www.gold.org/goldhub/data/gold-demand-by-country
Key Central Bank Buyers
China:
- Official gold holdings: Over 2,300 tonnes (as reported)
- Actual holdings estimated higher (unreported purchases)
- Reducing US Treasury holdings since 2022
Russia:
- Significant gold accumulation since 2014
- Part of de-dollarization strategy
Other buyers: Turkey, India, Poland, Singapore, Czech Republic
Gold Price Movement
| Date | Gold Price (USD/oz) |
|---|---|
| January 2023 | ~$1,800 |
| January 2024 | ~$2,050 |
| January 2025 | ~$2,400 |
| Late 2025 | ~$4,300+ |
Calculation: Gold more than doubled from early 2023 to late 2025 (~140% increase).
Source: World Gold Council, Gold Prices: https://www.gold.org/goldhub/data/gold-prices
Why Central Banks Buy Gold
- No counterparty risk: Gold is not anyone's liability
- Reserve diversification: Reduces dependence on USD
- Sanctions protection: Cannot be frozen like bank deposits
- Currency devaluation hedge: Maintains value as fiat weakens
4. Yen Carry Trade
What is the Yen Carry Trade?
The yen carry trade involves:
- Borrowing Japanese yen at low interest rates
- Converting to higher-yielding currencies (often USD)
- Investing in higher-yielding assets
- Profiting from the interest rate differential
Estimated Size
Precise figures are difficult due to the nature of the trade, but estimates range from $1 trillion to $4 trillion when including all leveraged positions.
Sources:
- Bank for International Settlements currency data
- Various investment bank research reports
Bank of Japan Policy Shift
| Date | BOJ Policy Rate | Significance |
|---|---|---|
| Pre-2024 | -0.1% (negative) | Ultra-low rates encouraged carry trade |
| March 2024 | 0.0-0.1% | First rate hike since 2007 |
| July 2024 | 0.25% | Further tightening |
| 2025 | ~0.5% | Continued normalization |
Source: Bank of Japan: https://www.boj.or.jp/en/
Unwinding Mechanism
When carry trades unwind:
- Investors sell USD assets
- Convert proceeds to JPY
- Repay JPY loans
- This creates selling pressure on USD and buying pressure on JPY
August 2024 volatility: Market volatility in August 2024 was partially attributed to rapid yen carry trade unwinding following BOJ rate hikes.
5. Policy Direction Toward Dollar Weakness
Arguments for Intentional Dollar Weakness
Export competitiveness:
- Weaker dollar makes US exports cheaper globally
- Could improve trade balance
Debt reduction:
- If dollar loses 30% of value, real debt burden reduced
- $38 trillion in debt becomes ~$27 trillion in real terms
Historical precedent:
- Plaza Accord (1985): Coordinated effort to weaken dollar
- Multiple devaluation episodes in US history
"Mar-a-Lago Accord" Speculation
Some analysts speculate about a coordinated effort to:
- Revalue the dollar lower against major currencies
- Restructure trade relationships
- Potentially revalue gold holdings
Note: This is speculation, not confirmed policy.
Dollar Index Movement
The US Dollar Index (DXY) measures dollar strength against a basket of major currencies.
2025 performance: Reports indicate the dollar suffered significant weakness in early 2025, with some sources citing the worst first-half performance since 1973.
Source: Various financial news sources on DXY performance
6. US-Canada Economic Connection
Trade Integration
| Metric | Value |
|---|---|
| Canadian exports to US | ~75% of total exports |
| Canadian imports from US | ~50% of total imports |
| Daily bilateral trade | ~$2.5 billion |
Source: Statistics Canada, International Trade: https://www150.statcan.gc.ca/n1/daily-quotidien/eng.htm
Currency Correlation
The Canadian dollar (CAD) and US dollar (USD) tend to move together against other major currencies due to:
- Trade integration
- Commodity price exposure (both resource economies)
- Geographic proximity
- Similar monetary policy frameworks
Inflation Transmission
When US inflation rises:
- Prices of goods Canada imports from US increase
- USD weakness raises prices of non-US imports (priced in stronger currencies)
- Bank of Canada must consider Fed policy to manage CAD/USD volatility
Historical Comparison: 1970s Inflation
1970s-1982 Inflation Period
| Year | US CPI Inflation |
|---|---|
| 1970 | 5.7% |
| 1974 | 11.0% |
| 1978 | 7.6% |
| 1980 | 13.5% |
| 1981 | 10.3% |
Source: Bureau of Labor Statistics Historical CPI Data
Causes of 1970s Inflation
- Fiscal deficits: Vietnam War spending, Great Society programs
- Monetary accommodation: Fed kept rates low despite inflation
- Oil shocks: 1973 embargo, 1979 Iranian revolution
- Wage-price spirals: Strong union power, automatic cost-of-living adjustments
- Loss of gold anchor: Nixon ended dollar-gold convertibility in 1971
Resolution
Paul Volcker's Federal Reserve raised the federal funds rate to over 20% in 1981, causing severe recessions but ultimately breaking inflation.
Current Similarities
- Large fiscal deficits
- Central bank accommodation of government spending
- Supply shocks
- Rising commodity prices
- Growing skepticism about currency values
Current Differences
- Central bank credibility and inflation targeting
- More anchored inflation expectations
- Greater global economic integration
- Technology creating deflationary pressure in some sectors
- Different labor market dynamics
Forecasts and Scenarios
Official Forecasts (Late 2025)
| Source | 2026 Inflation Forecast |
|---|---|
| Philadelphia Fed Survey | ~3.1% CPI |
| Bank of America | ~3.0% core PCE |
| Nomura | ~2.5% core PCE by year-end |
| Goldman Sachs | ~2.1% core PCE by December |
Sources: Various investment bank research and Federal Reserve Survey of Professional Forecasters
Scenario Framework
Base case (3-4% felt inflation):
- Fed manages money supply carefully
- Deficits remain large but stable
- No major supply shocks
- Dollar weakens gradually
Elevated case (5-6% felt inflation):
- QE expansion continues
- Fiscal deficits grow
- Energy or supply shocks
- Dollar weakens significantly
High case (6-8%+ felt inflation):
- Multiple shocks coincide
- Policy loses credibility
- Inflation expectations unanchor
- Rapid currency depreciation
Limitations and Disclaimers
This Analysis Does Not:
- Predict specific future inflation rates
- Guarantee any outcome
- Constitute personalized financial advice
- Recommend specific investment actions
What This Analysis Does:
- Identify and document forces affecting currency values
- Provide data sources for independent verification
- Present a framework for thinking about purchasing power
- Support the main article with detailed research
Professional Advice
Currency movements, inflation, and investment decisions involve significant complexity. Work with qualified professionals (CPA, financial advisor, lawyer) before making decisions based on economic outlook.
Document History
- 2026-01-22: Initial version created
- Data sources accessed January 2026
- All links verified at time of publication