Dollusion, Not Inflation: The True Cause of Rising Prices and the Erosion of the Middle Class
Thomas@loker.com
What is Dollusion?
The term Dollusion is a blend of three key concepts: Dollar, Dilution, and Illusion. It captures the idea of how the value of the dollar is eroded by baseless monetary expansion while creating the illusion that inflation is under control. Here’s how each component of the term connects:
- Dollar:
- The core of Dollusion is the dollar, referring to the U.S. currency whose purchasing power is impacted by monetary policies. Dollusion specifically addresses how the value of the dollar is diluted through excessive printing of money and expansion of the money supply without corresponding growth in real goods or services.
- Dilution:
- Dilution refers to the decrease in the dollar’s purchasing power. When more dollars are created (through stimulus, QE, etc.) without a proportional increase in the production of goods and services, each dollar buys less. This leads to dollar dilution or the effective erosion of the currency’s value. Dollusion reflects this process of dilution.
- Illusion:
- Illusion refers to the false sense provided by traditional inflation reporting, which tends to understate the real impact of monetary policy. Standard metrics like CPI fail to capture the full effect of monetary expansion on prices, giving the illusion that inflation is moderate. In reality, prices rise faster than reported inflation suggests due to the dilution of the currency.
- Delusion (Conceptual Connection):
- While Delusions aren’t explicitly part of the term, they reflect the self-deception that occurs when people believe that inflation is under control because of official reports, even though their real purchasing power continues to decline. People are deluded into thinking the economy is healthier than it truly is based on incomplete or misleading inflation figures and the fact that often, their bank accounts have risen even though their purchasing power has declined by significantly more than the rise in their dollars. This contributes to the overall sense of Dollusion, where the severity of the problem is obscured.
Relationship Between the Concepts:
- Dollusion explains how people experience rising prices (due to the dilution of the dollar) while being told that inflation is low or moderate. This creates a disconnect between what consumers feel in their day-to-day purchases and what government metrics report. The illusion that inflation is under control masks the deeper dilution of the dollar’s value, leading to delusion about the real state of the economy.
In summary, Dollusion is the combination of dollar dilution—the loss of value due to excess money creation—and illusion, the mistaken belief that inflation statistics tell the whole story. This hidden erosion of purchasing power, which isn’t fully captured by traditional inflation measures, explains why the middle class feels financially strained even when inflation appears moderate. Dollusion directly measures the real loss in value each dollar experiences as the money supply expands, helping explain why real-world prices, particularly for essential items, seem to be rising faster than inflation.
The Real Cause of Dollusion: Arbitrary Monetary Expansion
Dollusion is driven by arbitrary monetary expansion, where new money is introduced into the economy without being backed by real economic growth. Government interventions, such as stimulus programs and quantitative easing (QE), increase the money supply and dilute the purchasing power of every existing dollar.
By creating money without corresponding production increases, the result is dollar dilution—the devaluation of the currency. Traditional inflation metrics don’t reflect this fully, leading to an illusion that inflation is moderate while real prices rise much faster than reported.
Dollusion explains why wages aren’t keeping up with living costs: the issue isn’t just inflation but the continuous dilution of the dollar.
Why Businesses Use Margins (and Why It's Not the Problem)
Businesses operate using margins instead of markup to ensure profitability and long-term sustainability. Margins are essential to cover operational costs like wages, energy, and overhead, especially during economic fluctuations. Here’s why margins are necessary and why they aren’t responsible for Dollusion:
- Covering Costs: Margins help businesses cover expenses and sustain operations. Without margins, companies can’t adjust to rising costs, especially in uncertain economic times.
- Profit Stability: By maintaining consistent margins, businesses can achieve a stable profit percentage regardless of cost fluctuations. This ensures businesses remain viable as costs rise.
- Efficient Pricing Management: Margin-based pricing allows businesses to efficiently manage cash flow and investments.
The real problem isn’t business margins—it’s the monetary policies that dilute the dollar’s value. When money is arbitrarily injected into the economy, businesses are forced to raise prices to maintain profitability, responding to the larger issue of monetary expansion, not causing it.
The Math Behind Dollusion vs. Inflation
Traditional Inflation Calculation (Markup-Based):
Inflation Adjusted Price = Original Price × (1+Inflation Rate)
For example, with a 23% inflation rate from 2019 to 2024, the price of bread at $1.27 would be:
1.27 × (1+0.23) = 1.56
Dollusion Calculation (Reflecting the Dollusion Rate):
\(\text{Dollusion Adjusted Price} = \frac{\text{Cost}}{1 – \text{Dollusion Rate}}\)
Using a 35.09% Dollusion Rate, the price of the same loaf of bread becomes:
\[
\frac{1.27}{1 – 0.3509} = 1.96
\]
The actual price in 2024 is $1.98, far closer to the Dollusion-adjusted figure than the inflation-adjusted one.
Dollusion vs. Inflation: A Real-World Comparison
Here’s a table comparing actual 2024 prices with inflation-adjusted and Dollusion-adjusted prices, demonstrating how Dollusion more closely aligns with real price increases.
The Formula for Calculating the Dollusion Rate
The Dollusion Rate quantifies the degree to which the dollar’s value has been diluted due to the expansion of the money supply through mechanisms like Quantitative Easing (QE) and direct stimulus. The formula is as follows:
\[
\text{Dollusion Rate} = \left( \frac{\text{Baseless Currency (QE + Stimulus)}}{\text{Prior Year GDP}} \right) \times 100
\]
For example, based on $10 trillion (QE + stimulus) divided by the 2023 GDP of $28.5 trillion:
\[
\text{Dollusion Rate} = \left( \frac{10}{28.5} \right) \times 100 = 35.09
\]
This 35.09% rate indicates exactly how much the purchasing power of the dollar has been diluted due to monetary expansion during the period. In effect, you are most likely paying 35.09% more for the same goods you purchased in 2019 than in 2024, largely because while the value of the goods is the same as in 2019, the value of the dollar has declined by 35.09%.
Check out our last article: Middle Class Betrayed: Failed Government Interventions
Visual Representation: QE and Stimulus Contribution
This graphic compares the prices of five staple products in 2019 and 2024, with an analysis of actual, inflation-adjusted, and Dollusion-adjusted prices. The products compared include Gasoline, Bread, Milk, Eggs, and Whole Chicken. The chart highlights four price metrics for each product:
- Price in 2019 (Gray)
- Actual Price in 2024 (Red)
- Price in 2024 adjusted for reported inflation (23%) (Green)
- Price in 2024 adjusted for the Dollusion rate (35.09%) (Blue)
The purple circles emphasize where the Dollusion-adjusted prices (in blue) closely match the Actual 2024 prices (in red). This alignment demonstrates how the Dollusion Rate is more accurate in predicting real-world price increases compared to traditional inflation-adjusted metrics, which consistently fall short in comparison to actual prices (green bars).
For example:
- Gasoline: The Dollusion-adjusted price of $3.53 closely matches the actual price of $3.62, while the inflation-adjusted price lags behind at $2.82.
- Milk: The Dollusion-adjusted price of $3.74 is nearly identical to the actual price of $3.72, significantly outperforming the inflation-adjusted price of $2.99.
This graphic visually supports the argument that Dollusion—a measure of dollar dilution due to baseless monetary expansion—provides a more accurate reflection of real price increases than traditional inflation measures like CPI.
The Real Problem: Dollusion is Destroying the Middle Class
While inflation numbers report moderate price increases, the real issue is Dollusion—the erosion of purchasing power due to excessive, unbacked monetary expansion. When more dollars enter the economy without an equivalent rise in goods and services, each dollar buys less. Businesses facing higher costs and operating in a diluted economy pass these expenses down to consumers. Over time, the Dollusion Rate compounds, leading to significant price increases beyond the levels reported by traditional inflation metrics.
The middle class suffers the most from Dollusion because their wages have not kept pace with the rising costs of goods and services. As their purchasing power declines, financial stability erodes, creating a widening gap between reported inflation and the real-life struggle to afford basic necessities. Dollusion, not inflation, is the hidden driver of economic hardship for millions of Americans.
Summary: Dollusion and the Way Forward
To fully address the economic strain on the middle class, the government must shift from traditional inflation reporting to measuring and reporting Dollusion and the Dollusion Rate. By focusing on how much the dollar’s purchasing power has been diluted due to unbacked monetary expansion, we can gain a clearer understanding of the economy’s real challenges. This approach will allow policymakers to create more targeted solutions that restore the dollar’s value and reduce the hidden tax on the middle class caused by Dollusion.
By moving beyond traditional inflation reporting and focusing on Dollusion, we can protect the financial future of millions of Americans and ensure that the value of the dollar is preserved.
