This Deflation Is Why The Dollar Can Rally A Lot

Deflationary forces remain strong in the U.S. economy. The chart below shows M3, in green, which is the broadest measure for money supply. The black and blue lines show its rate of decline. Essentially money supply is shrinking, which is deflationary, and thus dollar-strengthening.

The Big Picture: …it’s hard to see how consumer prices are going to be bid higher anytime soon, given a chart like the one above.

Of course, if banks ever start lending some of their massive reserves, an entirely different dynamic could quickly develop and the recent trend could quickly reverse, but, fortunately, our central bank leaders have assured us that they’re on top of that particular situation.

This is why the Ben Bernanke isn’t worried about inflationary threats right now:

M3

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