ab analytical servicesAlan Brochstein, CFA submits:

A major logical error that humans can make is to draw a conclusion from an observation without considering the bigger picture. These days, as folks can clearly see a rise in money supply and deficit spending by the federal government, they quickly jump to the conclusion that we are headed for rampant inflation, with many invoking analogies to Zimbabwe or post WWI Germany. While we could certainly be setting up for an inflationary period once we get through this economic crisis, I believe that it is extremely premature to bet that way.

When one looks at recent money supply growth, it has indeed been strong. I say thank God! It is one of the natural responses of the Federal Reserve to counter the prevailing deflationary headwinds. As you can see in the chart below, the year-over-year growth is about 10%. While this level is high, it is in no way a major aberration.

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