by Lance Roberts
Real Investment Advice
I recently debated with Michael Pento, who made an interesting statement that increases in the money supply, the deficit, and a return to quantitative easing (QE) will lead to 1970s-style inflation. The recent experience of inflation in 2021 and 2022 would seem to justify such a view. However, is that historically the case, or was the recent inflationary surge due to a different set of drivers? In today’s post, we will examine the money supply represented by M2, the Federal budget deficit, the Fed’s previous adventures with QE, and the correlation to inflation.
Let’s begin with the money supply. One common mistake the “inflation is coming back” crowd makes is focusing on increases in the money supply. Their key argument is that the government is “printing money out of thin air, destroying the dollar’s value.” This argument has two fallacies.