Broad Money signaling problems ahead?

The Telegraph blog today reports of the possibility of an ‘inflationary blow-off’ in the US. They report that looking at the (no longer officially reported) M3 measure of broad money (now being reported by Capital Economics) shows that it is rising at a rate of over 10 percent per year.

The fact that this is increasing should put further pressure on the FED to increase rates, however as they no longer report this measure that pressure is not as strong as it might once have been. The fact that other banks are looking at the M3 supply and are increasing rates may put further strain on the FED to raise rates or risk a ‘liquidity driven asset bubble’.

The M3 data suggests that there are 2 possible outcomes. The first is old style inflation, bad for business and bad for the stock market. The second possibility, which I consider even worse, is a deflationary bust.

If Mr Evans-Pritchard’s article is right (and I agree), then we could be in for some trouble.