An inorganic emission of money leads to a greater devaluation of the currency.
This excess liquidity could flow into assets such as Bitcoin to seek capital protection.
Alarms are being raised about a potential new wave of inflation following data on the growth of money in circulation in the US economy, reaching levels not seen since early 2023.
According to the financial newsletter ‘The Kobeissi Letter’, the money supply reached $21.17 trillion in August, the highest level since January 2023.
The increase is part of an ongoing trend and marks the fifth consecutive monthly increase as indicated in the report.
The amount of dollars in circulation has increased by $484 billion in just 10 months, nearing a new all-time high.
After a brief contraction, the money available in the US financial system has risen again, potentially signaling the arrival of inflation.
Will there be a period of inflation?
An inorganic emission of money generates inflationary pressure, leading to a greater devaluation of the currency.
When more money circulates without a corresponding increase in the production of goods and services, prices tend to rise, impacting consumers.
This cycle of more money chasing the same products and services ultimately causes an increase in their prices.
In October, inflation expectations among US consumers for the next five to ten years stood at 7.1%, the highest level in over four decades.
This increase in inflation expectations contrasts sharply with the 3% average maintained over the past three years.
Federal Reserve Bank of Atlanta President Raphael Bostic stated that the Fed will need to carefully consider risks to inflation and employment when making decisions about future interest rate cuts.
Bostic claimed that risks to inflation have decreased while threats to the labor market have increased, emphasizing the economy’s strength.
The Federal Reserve began a cycle of monetary policy flexibility in September with a 0.5 percentage point cut in interest rates, bringing them to 5%.
This easing has impacted various assets, with gold seeing a nearly 30% increase in value over the past year.
Bitcoin has also shown signs of recovery, surpassing $64,600 in mid-October, reflecting an upward trend in the money market.
In inflation scenarios, investors are seeking alternatives like Bitcoin to protect their capital and assets due to their decentralized nature and limited supply.
As the US monetary authorities navigate between controlling inflation and bolstering employment, investors are preparing for a possible rebound in safe-haven assets like gold and bitcoin. The economy faces a critical moment where the balance between the money supply, interest rates, and economic growth will be crucial.
SOURCE