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Don't Be Fooled: Inflation Has The Upper Hand

Wednesday, December 8, 2010, 6:23 PM
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Don't Be Fooled: Inflation Has The Upper Hand

Wednesday, December 8, 2010

Executive Summary

  • Money supply (M2) has been steadily growing for a decade, and banks hold an unprecedented amount of excess reserves that could enter the market at any time.
  • Credit growth is flatlining.
  • Debt in the household & financial sectors (the big enchilada) exhibits the deflationary trends that are pre-occupying the Fed.
  • Federal government credit is exploding upwards as a result.
  • Corporate and state debt are increasing, but at more moderate rates.
  • Energy costs are high and getting higher = inflationary.
  • Confidence in paper currencies is plummeting = potentially hyperinflationary.
  • Forecast for the future...

Part I

If you have not yet read Part I of this report, please click here to read it first.

Part II 

In Part I, we stepped through prices as useful indicators of whether we are in a period of inflation or deflation.  Because there’s no more important determination to make than to get an early read on whether we are facing a future of inflation or deflation, we are going to dive a bit more deeply into the evidence here to round out the story.

Let’s begin with….

Money

The classic definition of inflation or deflation is a “relative change in the amount of money compared to goods and services.”  Too much money and you have inflation; too little and you have deflation.

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