Thursday, December 2, 2010

What About the Money Supply?

Taylor Conant emails:
You've talked a lot about prices lately but not as much as the money supply. Meanwhile, when you were calling for a stock market crash all year last year and early this year you were all about the money supply and had less to say about prices.

I am not "calling your bluff" more I am just curious why your emphasis has switched, if it has?
Actually, what I like to focus on at EPJ are the broad themes, so that readers can get a sense for what is actually going on.

When the money supply is tight and the stock market is going up, it's important to discuss the money supply to show that there won't be enough to keep the stock market strong.

At the present time, the most important thing to understand is that there is significant price inflation in the system already, despite the talk of deflation by Paul Krugman and others.

My next mention of money supply growth at EPJ will probably be when I have a fuller sense of the impact that QE2 is going to have on M2. This is probably two or three weeks away.

That said, I do track money supply and comment on it every week in the EPJ Daily Alert.

Right now, three month M2 money supply growth, through October, is at an astounding 7.6%. This is astounding because it is before QE2 was launched.

Thus, for as far as the eye can see, I expect price inflation to continue and to accelerate. And as I have indicated before, the same for the stock market.

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