A Big Reason Why the Fed Will Keep Printing

We continue our series of charts that keep some investors up at night. Today’s chart comes from Joe Brusuelas, a Bloomberg economist.

He points out that, despite all the money-printing, the velocity of money or the rate of turnover in the money supply remains at multi-decade lows. For him, this indicates the risk of deflation is bigger than the risk of inflation.

Mr. Brusuelas is right to point out that all that money-printing hasn’t really flowed to the overall economy. And that’s one reason why we haven’t seen generalized inflation, as measured by the Consumer Price Index.

But we’re seeing inflation in financial assets, such as bonds, stocks and gold. All the money global central banks are printing has to go somewhere.

This falling velocity of money will give the Fed more reasons to keep up its money-printing madness. The longer the Fed keeps its policy, the higher the risk we’ll end up having to deal with more bubbles and crashes in the next few years.

And that’s what scares me.

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