Tthere's adebateeveconomicstheserndays as to whether inflation or deflation will drive the future of the U.S. economy. On one side, experts point to a confluence of trends-a weak economic recovery, high unemployment and overcapacity - driving down wages and prices. On the other, some economists maintain that inflation, as a result of the vast expansion of the money supply, is the bigger risk.rnFor money managers, the challenge is to prepare portfolios for both scenarios.rnThe U.S. Federal Reserve Bank has boosted excess reserves in the banking system from about $2 million before the financial crisis to $1.2 trillion at the February 2010 peak. Many economists believe that inflation will reignite as soon as the money sitting on bank and corporate balance sheets begins to circulate. "The real question is when we cross the divide," says Ronald Muhlenkamp, manager of the nearly $1 billion Muhlenkamp Fund.
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