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Re: [bafuture] Federal Reserve stopped reporting M3

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  • bsf1@mac.com
    This was in the economist a few months ago - very scary stuff. A serious miscalculation by the federal reserve. From the article: ONCE, a central banker who
    Message 1 of 6 , May 31, 2006
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      This was in the economist a few months ago - very scary stuff. A
      serious miscalculation by the federal reserve. From the article:

      ONCE, a central banker who did not believe in monetarism would have
      been viewed as equivalent to a priest who admits to being an atheist.
      A quarter of a century ago, control of money was seen as both
      necessary and sufficient to curb inflation—so most central banks set
      monetary targets. Monetarism has since become unfashionable.
      Financial deregulation and innovation made the money supply harder to
      interpret, let alone control. As the link between money and prices
      seemingly broke down, central banks scrapped money targets and
      instead focused on inflation directly. Or as Gerald Bouey, a former
      governor of the Bank of Canada, once said, “We didn't abandon the
      monetary aggregates, they abandoned us.”

      Today, America's Federal Reserve barely glances at money. Indeed,
      from this week it will stop publishing M3, its broadest measure of
      money. The Fed claims that M3 does not convey any extra information
      about the economy that is not already embodied in the narrower M2
      measure, so it is not worth the cost of collecting it. It is true
      that the two Ms move in step for much of the time, but there have
      been big divergences. During the late 1990s equity bubble, for
      example, M3 grew faster; over the past year, M3 has grown nearly
      twice as fast as M2. So it looks odd to claim that M3 does not tell
      us anything different. The Fed is really saying that it doesn't
      believe money matters.

      It is ironic that the Fed is dropping M3 only days after a conference
      was held to honour Otmar Issing, chief economist of the European
      Central Bank (ECB) and the architect of its highly money-oriented
      policy (see article). At that meeting many economists and former
      central bankers from around the world expressed unease about the
      recent rapid pace of growth in global money and credit. As Milton
      Friedman famously said, “Inflation is always and everywhere a
      monetary phenomenon.” Monetary aggregates are a fickle guide to the
      economy over the next year, but over longer periods the link between
      money and prices still holds. Many big mistakes in economic history
      were made when policymakers ignored monetary signals: the Great
      Depression in the 1930s, the great inflation of the 1970s, and the
      financial bubbles in Japan in the late 1980s and East Asia in the
      late 1990s.

      Those experiences surely suggest that central banks should keep a
      close eye on the growth in money alongside their immediate inflation
      goals—which is exactly what the ECB has done, with its much (and
      unfairly) criticised “two-pillar” strategy. The first pillar looks at
      how economic activity might influence inflation over the next year or
      two; the second focuses on the growth in money as a cross-check on
      medium- to long-run developments. The Bank of Japan's new monetary-
      policy framework adopted earlier this month has borrowed several
      elements of this approach. The Bank plans to focus on price stability
      and growth one to two years into the future, but also to carry out a
      broader assessment of medium- and longer-term risks, such as asset
      prices and credit growth. So, in scrapping M3, the Fed is looking
      like the odd man out.

      Research by the Bank for International Settlements has confirmed that
      monetary aggregates do still contain useful information. In
      particular, rapid growth in money and credit as well as asset prices
      usually signals the build-up of economic and financial imbalances,
      which often cause financial stress later on. Central banks cannot use
      the money-supply numbers as a way to set monetary policy on auto
      pilot: but they would be foolish to ignore the hazard warning lights.




      On May 31, 2006, at 11:46 PM, Wayne Radinsky wrote:

      > http://www.federalreserve.gov/RELEASES/h6/hist/h6hist1.txt
      >
      > Note M3 is missing. This happened on March 23rd of this year,
      > but I didn't notice until now. The official press release:
      >
      > + Discontinuance of M3 +
      > http://www.federalreserve.gov/releases/h6/discm3.htm
      >
      > The difference between M2 and M3 is that M3 includes the
      > dollar reserves held by foreign central banks.
      >
      > Here's the numbers showing M3 from March 16.
      >
      > http://www.federalreserve.gov/releases/h6/20060316/
      >
      > You can see the money added by M3 was 34% of the money supply
      > as of March 16.
      >
      >
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    • Steve Dekorte
      ... Some folks are guessing this is because the Fed is getting ready for a massive Fannie Mae bailout and they don t want the bottom to drop out on the dollar
      Message 2 of 6 , Jun 1, 2006
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        On 31 May 2006, at 11:46 pm, Wayne Radinsky wrote:
        > + Discontinuance of M3 +
        > http://www.federalreserve.gov/releases/h6/discm3.htm

        Some folks are guessing this is because the Fed is getting ready for a
        massive Fannie Mae bailout and they don't want the bottom to drop out
        on the dollar when the markets see how much the dollar is actually
        being devalued.

        Btw, inflation is the government's greatest crime against the poor and
        middle class. It devalues their savings and then turns around and
        claims more government is needed to help people save. The poor,
        educated in public schools, know little about economics and think
        they're actually benefiting because they see their wages rise. But of
        course wages lag far behind prices and any bank savings will actually
        decrease in value as the interest rate is almost always lower than the
        inflation rate.

        -- Steve
      • Wayne Radinsky
        ... That s funny because I figured it had something to do with petrodollars and geopolitics. Don t you love always having to guess why the government does
        Message 3 of 6 , Jun 1, 2006
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          On 6/1/06, Steve Dekorte <steve@...> wrote:
          > On 31 May 2006, at 11:46 pm, Wayne Radinsky wrote:
          > > + Discontinuance of M3 +
          > > http://www.federalreserve.gov/releases/h6/discm3.htm
          >
          > Some folks are guessing this is because the Fed is getting ready for a
          > massive Fannie Mae bailout and they don't want the bottom to drop out
          > on the dollar when the markets see how much the dollar is actually
          > being devalued.

          That's funny because I figured it had something to do with
          petrodollars and geopolitics. Don't you love always having to guess
          why the government does things because the people who actually know
          won't tell you?

          The Fed's official explanation is (quoting the press release exactly)
          "M3 does not appear to convey any additional information about
          economic activity that is not already embodied in M2 and has not
          played a role in the monetary policy process for many years.
          Consequently, the Board judged that the costs of collecting the
          underlying data and publishing M3 outweigh the benefits."

          By the way, I said the difference between M2 and M3 is that M3
          includes the dollar reserves held by foreign central banks, but my
          knowledge was incomplete. The 3rd link I posted,
          http://www.federalreserve.gov/releases/h6/20060316/ actually lists
          all the components of M3, and foreign reserves is just one of them.

          At any rate, 35% of the money supply has just "gone dark". For the
          Fed to say this money doesn't matter borders on alice-in-wonderland
          absurdity.

          > Btw, inflation is the government's greatest crime against the poor and
          > middle class. It devalues their savings and then turns around and
          > claims more government is needed to help people save. The poor,
          > educated in public schools, know little about economics and think
          > they're actually benefiting because they see their wages rise. But of
          > course wages lag far behind prices and any bank savings will actually
          > decrease in value as the interest rate is almost always lower than the
          > inflation rate.

          Funny because I've heard the exact opposite -- inflation helps the
          poor because the poor tend to be in debt and they get to repay their
          debts in less valuable dollars than the dollars they borrowed.

          Unless, of course, they were stupid enough to get a loan with a
          variable interest rate that just wiggs up with inflation.

          You have a valid point about people getting exploited for their lack
          of economic and mathematical literacy. I've been getting credit card
          applications in the mail that scream "0% APR" on the envelope, but
          when I open it up and read the fine print, it says 0% for the first
          year, then it goes to 22%, with a "penalty APR" of 32%. So I miss 1
          payment on anything and wham! my interest rate goes to 32%. My normal
          reaction to this would be, "Ok, these guys know I've got a sucky
          credit rating, so they want to stick me with high interest rates to
          make up for the risk.". Except I've heard *everyone* is getting these
          kinds of offers -- so it has nothing to do with my credit rating
          (which is supposed to indicate how risky it is to lend me money) and
          everything to do with exploiting people's lack of mathematical
          literacy. If you do the math you'll see that if I borrowed $35,000
          (the credit limit on the card) at 32% APR I would owe $1 million in
          about 12 years.

          But if the inflation rate went up to 50%, I would be ok. No, wait,
          they also said they can change the terms and conditions of the credit
          card contract at any time. Darn.

          If people's lack of mathematical literacy can be exploited this
          blatantly, imagine what the Fed, which has direct but largely
          invisible control over the monetary system, can do...

          But anyway, I'm straying off topic. The real point here is that the
          Fed stopped reporting M3, and I have a creepy feeling that something
          MAJOR is going to happen with the US dollar in the years ahead...

          My premonition could be wrong... after all, I can't give you any
          rational explanation for it. I just figure the Fed must have some
          important reason for wanting to hide M3 which is unknown to me.
        • Steve Dekorte
          ... As you mention, they aren t coming out ahead unless the inflation rate goes above the interest rate - and the banking industry and fed tend to carefully
          Message 4 of 6 , Jun 1, 2006
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            On 1 Jun 2006, at 10:00 am, Wayne Radinsky wrote:
            > Funny because I've heard the exact opposite -- inflation helps the
            > poor because the poor tend to be in debt and they get to repay their
            > debts in less valuable dollars than the dollars they borrowed.

            As you mention, they aren't coming out ahead unless the inflation rate
            goes above the interest rate - and the banking industry and fed tend to
            carefully avoid this possibility.

            It's also been suggested that people are increasingly going into debt
            as the culture has realizes that saving is useless since their money is
            constantly being sucked away to the fed via inflation.

            Actually it's the New York banks who their money is going to since the
            fed creates money these days via federal reserve checks used to buy
            back government bonds. The checks can only be deposited in the federal
            reserve and allow the banks to make government backed loans of amounts
            equal to their federal reserve deposits times some multiplier (a
            multiplier which has only gone up over time).

            http://en.wikipedia.org/wiki/Federal_reserve

            In short, the Federal Reserve transfers money from everyone else and
            hands it to certain New York banks and then guarantees the loans made
            on that stolen money - meaning they'll steal more money from everyone
            via inflation or taxes to cover the loans of the banks in needed. The
            disappearance of the M3 may suggest that that bad loan bailout scenario
            is approaching.

            If Fannie Mae has trouble, I hope they let it collapse and make the
            Chinese Government pay the bill (a major holder of Fannie Mae bonds)
            instead of the American public.

            > But anyway, I'm straying off topic. The real point here is that the
            > Fed stopped reporting M3, and I have a creepy feeling that something
            > MAJOR is going to happen with the US dollar in the years ahead...

            It's been said that such premonitions are what has been pushing up
            precious metal prices in recent years.

            -- Steve
            http://www.dekorte.com/
          • Wayne Radinsky
            I posted a story here 9 months ago about how the Fed stopped reporting M3. You might recall I was mystified as to why they did it, and worried out loud that
            Message 5 of 6 , Feb 15 2:58 AM
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              I posted a story here 9 months ago about how the Fed stopped
              reporting M3. You might recall I was mystified as to why they did it,
              and worried out loud that something major might happen to the US
              dollar in the years ahead. Well, this guy has a theory as to why they
              did it:


              + A Peak Behind the Curtain +
              And, of course, the timing of the discontinuation of M3 data
              just happens to coincide with the opening of Iran's
              euro-denominated oil bourse. Funny how that hasn't exactly been
              reported at all by ABC, CBS, NBC, CNN, Fox or the other "Main
              Stream Media" sources.
              http://www.jeffvail.net/2005/12/peak-behind-curtain.html


              If this guy is right, the US dollar could collapse, and sooner than I
              would have expected.




              On 5/31/06, Wayne Radinsky <waynerad@...> wrote:
              > http://www.federalreserve.gov/RELEASES/h6/hist/h6hist1.txt
              >
              > Note M3 is missing. This happened on March 23rd of this year,
              > but I didn't notice until now. The official press release:
              >
              > + Discontinuance of M3 +
              > http://www.federalreserve.gov/releases/h6/discm3.htm
              >
              > The difference between M2 and M3 is that M3 includes the
              > dollar reserves held by foreign central banks.
              >
              > Here's the numbers showing M3 from March 16.
              >
              > http://www.federalreserve.gov/releases/h6/20060316/
              >
              > You can see the money added by M3 was 34% of the money supply
              > as of March 16.
              >
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