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Merk Notes Inflation Risk

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Currency experts at Merk Mutual Funds have an interesting point of view on the inflation-deflation debate. In an outlook article on their Web site, “Inflation: The Runaway Train,”analyst Kieran Osborne notes that because there are currently, $1.1 trillion of bank reserves just sitting on the sidelines waiting to be deployed,” due to banks’ unwillingness to lend right now, and that once they become less afraid to lend, this liquidity would pour into the U.S. economy and create an inflationary environment.

The environment would be caused by an increase in the “velocity of money” in the economy, “which slowed down considerably throughout the crisis (a key reason why all the additional money printing has not yet been inflationary),” according to the article.