Money and inflation

A dangerous turning point of the U.S. economy

From Tuomas Malinen’s Forecasting Newsletter.

“It is curious how often you humans manage to obtain that which you do not want.” - Mr. Spock

Issues contributed:

• There’s still a massive amount of money ‘sloshing around’ in the U.S. economy.

• The velocity of money has started to accelerate, which is likely to create a massive headache for the Federal Reserve in its fight to bring inflation down.

• Moreover, the ill-advised policies of the Fed has put the U.S. into a road that, in the worst-case, leads to ‘hyperinflation’.

This entry will conclude our in-depth analysis on the U.S. economy (see, this and this). In this last piece, for now, I will concentrate on the relationship between inflation and money and why it has reached a likely pivotal turning point.

First, however, let’s note that, in the background, inflation has been running hot in the U.S. even though the growth of the headline CPI has been cooling (the figure is of courtesy of the Daily Shot).

The pace of ‘core-inflation’, which strips out volatile food and energy, accelerated again in January. Moreover, the “super-core inflation”, stripping out also housing, accelerated with its fastest pace for over a year in January. Thus, I would not be holding my breath for a ‘dovish’ Federal Reserve later in March.

But, there’s also a more worrying issue brewing under the surface of the U.S. economy: money in circulation.

Warp speed, Mr. Powell!