Monday, March 2, 2009

M3 - Gone In Fed Reports But Not Forgotten


Should we care how much money is floating around in our economy? What about how much debt our government and the Federal Reserve has created?

(From Wikipedia)
The different types of money are typically classified as "Ms".
The Federal Reserve previously published data on three monetary aggregates, but on 10 November 2005 announced that as of 23 March 2006, it would cease publication of M3.[15]
Now why is the fact that M3 is no longer published a significant item?
Perhaps the government and the Federal Reserve doesn't wish for anyone to easily know how much debt is being created. That number would be an indication of how much credit is being created out of thin air.
Prior to this discontinuation, M3 had included M2 plus certain accounts that are held by entities other than individuals and are issued by banks and thrift institutions to augment M2-type balances in meeting credit demands; it had also included balances in money market mutual funds held by institutional investors....

When the Federal Reserve announced in 2005 that they would cease publishing M3 statistics in March 2006, they explained that M3 did not convey any additional information about economic activity compared to M2, and thus, had not been used in determining monetary policy for years. Therefore, the costs to collect M3 data outweighed the benefits the data provided.[15] Some politicians have spoken out against the Federal Reserve's decision to cease publishing M3 statistics and have urged the U.S. Congress to take steps requiring the Federal Reserve to do so.

... Some of the data used to calculate M3 are still collected and published on a regular basis.[15] Current alternate sources of M3 data are available from the private sector[18].
Don't you just love the fact that the Federal Reserve ceased publicizing M3 as a "cost cutting measure"? Pretty ironic isn't it. Luckily it is information we can still get - but it takes a bit more foraging for it.

Congressman Ron Paul wrote;
"M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation."

Though M3 is the most helpful statistic to track Fed activity, it by no means tells us everything we need to know about trends in monetary policy. Total bank credit, still available to us, gives us indirect information reflecting the Fed’s inflationary policies. But ultimately the markets will figure out exactly what the Fed is up to, and then individuals, financial institutions, governments, and other central bankers will act accordingly. The fact that our money supply is rising significantly cannot be hidden from the markets.

The response in time will drive the dollar down, while driving interest rates and commodity prices up. Already we see this trend developing, which surely will accelerate in the not too distant future. Part of this reaction will be from those who seek a haven to protect their wealth – not invest – by treating gold and silver as universal and historic money. This means holding fewer dollars that are decreasing in value while holding gold as it increases in value.

Want to know about inflation? Check out this interesting website

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