M3: The Money Supply Sure Doesn't Look Like Deflation

Not having looked at the M3 statistics in quite a while, the broadest measure of the nation's money supply that was discontinued by the government but which has been reconstructed over at NowAndFutures, it's not surprising to see that the growth rate is down sharply.
What is surprising is that, for all the talk of deflation these days, M3 has increased by about a trillion dollars since last fall when we entered the current phase of the financial crisis.

Comments

[Market Sniper:]

Question becomes at what point is digital "money" converted to printed "money"? When that starts happening, there will not be enough trees on the planet. Anybody know anyone at the Treasury's Printing Office? Knowledge that they are laying on more shifts and mandatory overtime might give one a very nice edge! LOL!

May 01 01:59 PM

[Mashuri:]

A classic path to hyperinflation. Gov't increases money supply heavily but because the public has deflationary expectations, demand for cash is high and velocity is low. Gov't sees that prices don't shoot up so mistakenly think they can keep the pedal to the metal with little consequence. Public eventually realizes prices aren't going down and change to inflationary expectations, reducing demand for cash and increasing velocity. Now gov't says, "Oh crap!" as prices skyrocket and eases off the printing press but, because expectations keep velocity super high, inflation continues to spiral out of control. Couple that with "sticker shock" from deeply reduced tax revenues and the recipe for inflation gets even stronger.

May 01 02:31 PM

[@TexasER:]

I'm no longer convinced that M3 tells me anything useful.

When Crazy Ben can wake up and tack on 11 or 12 zeros whenever he feels like it, the magic just seems lost to me.

May 01 03:38 PM

[LKofScotland:]

perhaps Sir Bernanke is pining to have his face on a new paper currency. certainly he loves to be quite public in his pronouncements. few professors have been so honored. there are of course advisors speaking to him about such things, no? your ways are not that different from mine are they not?

May 01 04:19 PM

[Andrew Butter:]

Questions

(1) are the toxic assets included in M3 as liquid or near to liquid (the definition) or (2) are they in "L" (3) if they are in M3 or "L" who says they are liquid and (4) who values them - is it book?

And where is (M) in all this?

May 01 04:50 PM

[inflate me:]

Gov no longer reports M3 figures. Not that I trust their numbers in the first place, but the lack of 'transparency' indicates that there is something in the closet they don't want out.

This deflationary spiral still stands in the moves to liquidity, bankruptcies (too often prevented), liquidations, etc... Great example of this today, as Florida tomato farmers opted to plow their crop under in an attempt to bolster price by cutting supply, instead of recovering cost. (serious throwback to Depression tactics that proved fruitless)

The prevailing economic conditions have and will continue to override the inflationary monetary movements for a while. The take home point is that inflation IS the increase in MS. The rise in Price level is merely a result. This MS increase has already occurred thus the corresponding increase in PL is inevitable (assuming Ben doesn't increase Interest rates, reserve requirements,etc which is doubtful in the current state of economy) The PL increase it will be pronounced, especially when banks relax when a 'recovery' is on the horizon and begin to lend out the accumulated reserves.

May 01 11:20 PM

[Steak:]

Would anyone like a big ol helping of M1 multiplier at 0.862?

research.stlouisfed.or...

May 02 01:48 AM

[abetterplace:]

I am thinking that the absolute certainty of the inflation that is ongoing now and continuing to worsen will make gold lovers out of us all.

May 02 08:01 AM

[TeresaE:]

I don't think there is anyone in America with a large enough brain-and power of deduction-to figure out how badly this is going to end.

I've begun searching for books on Weimer/Germany and Zimbabwe to see if I can figure out how to beat this inevitability.

Fixing too much debt, with more debt (and government waste to boot) is not going to end well.

We should start up basic cooking classes because once inflation hits it is going to be obvious that most of our "convenience" foods are shipped in from the third world. And huge swathes of our population cannot "cook" anything.

Scary and no one sees the cliff.

May 02 09:22 AM

[Old Trader:]

"Great example of this today, as Florida tomato farmers opted to plow their crop under in an attempt to bolster price by cutting supply, instead of recovering cost. (serious throwback to Depression tactics that proved fruitless)"

A great pun (even if unwittingly so)! I've not heard/read this, so if true, it IS a bad sign. It does feed into what I've heard about pressure being applied all the way down the supply chain as mfgs. seek to trim costs wherever possible.

May 02 09:25 AM

[donbob:]

Looking at M1, M2, or M3 in isolation could be misleading. If you then look at the velocity of money in these categories and the money multiplier, they are falling off a cliff. The money is being pumped in, but going nowhere. This would indicate deflationary forces are still in effect with inflation to occur at some time much farther down the road.

May 02 12:46 PM

[Gregman2:]

I'm not sure M3 really can indicate deflation...since it's a function of too much debt in the system overall.

May 02 01:16 PM

[Yankee Runn...:]

The world started into Ponzi finance in August 2007. Just take a look at the Tedspread charts and they will tell you. All of the Fractional Reserve Banking air money started to disappear. People start grabbing at the air money and find there is nothing there... Decisions to put the keys in the mailbox and walk start making sense. Right now the only one pumping money into the Ponzi scheme is the Federal governments, with what else but air money... And look, it is starting to work, all of the main stream media is starting to talk about the economy stabilizing, Their scheme of starting the air money parade with the Fractional Reserve system is starting to show signs that the con is working. One has to realize that the Fractional Reserve Banking system is based on fraud, which allows banks to only hold 10% of all the air money that they pump. The rest is psychology. Deflation is when the masses smell the con and run for their money, 90% of which is thin air. Inflation is when the con wins and gets the suckers back in line and pumps the money. Right now we are the interesting point somewhere in between, and it still could go either way. Of couse, the nice sounding name business cycle sounds so much more pleasant

May 02 02:37 PM

[PeakOiler:]

The first question to ask is: where is the newly 'printed' money going? Answer: it's not going into the normal money stream, rather it's being used to bring the banking industry balance sheets to a semblance of balance so that it can function as it used to do before the credit bubble burst.

So those expecting inflation from this putative money printing are completely wrong. Inflation is dead for many years to come, and the great danger is continuing deflation as occurred in the lost decade in Japan. An enormous amount of (credit) money has gone to money heaven and cannot be replaced until another credit boom occurs. The Fed merely plants seeds for bubbles to grow over time, and right now they are only planting seeds to get the banking system on a solid footing.

Inflation is dead for at least another decade.

May 02 09:44 PM

[highlarche:]

My grandfather knew where to put his money for a real return
My father knew where to put his money
You and I havent a clue

May 02 11:16 PM

[dragonpaw:]

What the chart shows is that despite all reckless and feckless government attempts to inflate the economy, the consumer is not buying the scam. Most are beginning to realize the bad hand that they have been dealt (courtesy of of "bushonomics" and "obamanomics"). The only ones buying into the charade are the Wall Street flim-flam mouthpieces, "analysts" (with an emphasis on the "anal-" part) , mutual funds (themed : "always invested hell or high water"), and the clever day traders (who are forever each and always are ahead of the game.) The last of whom you seem to have an ardent and vociferous following.
The government is helpless in dealing with deflation as there is no way to curb the downward spiral. It also significant and abruptly curtails "revenue"
(read "taxes"), which further leaves the poor charlatans feeling more helpless, therefore the funny-money continues to be cranked out.
Good chance that the "green" line (money) continues dramatically upward and the "black-and-blue" line (growth,or lack thereof) disturbingly downward as the DEPRESSION continues. What appropiate however unintened coloration!
Sorry to be such a nay-sayer just as Wall Street , our esteemed legislators, and the "O'bamanators" are hooting that 'happy days are here again.' These are the self- same people who got us here.
For a more complete take on the matter ,please consult Martin Weiss and his publication "Money and Matters." He called all of this two years ago. Just wished I listened (I did) and heeded (I did not, unfortunately.) Sounded all too crazy at the time.

May 03 01:01 AM

[American in...:]

That's the whole point. The writer has provided no justification for looking at M3. M3 has never tracked inflation or economic growth.

No, the distressed assets are not M3. Assets have to be very liquid to be included in any money supply

These distressed assets are claims to future income, they cannot be used to buy goods and services (have you ever bought a Pepsi using a mortgage-backed security?).




On May 01 04:50 PM Andrew Butter wrote:

> Questions
>
> (1) are the toxic assets included in M3 as liquid or near to liquid
> (the definition) or (2) are they in "L" (3) if they are in M3 or
> "L" who says they are liquid and (4) who values them - is it book?
>
>
> And where is (seekingalpha.com/symbol/m) in all this?

May 03 07:06 AM

[American in...:]

The chart shows nothing of those sort. M3 has never tracked inflation or economic growth very well.

There are dozens of money supply measures. You have to justifiy you selection of a money supply as relevant to the issue at hand.

The author made no attempt to tell the reader why M3 is relevant to anything!

By the way, inflation is not just not a matter of printing money. It depends on the velocity of money as well, which has plunged.

Finally, inflations a la 70s was in large part due to labor contracts indexed to inflation. Those contracts don't exist any more.


On May 03 01:01 AM dragonpaw wrote:

> What the chart shows is that despite all reckless and feckless government
> attempts to inflate the economy, the consumer is not buying the scam.
> Most are beginning to realize the bad hand that they have been dealt
> (courtesy of of "bushonomics" and "obamanomics"). The only ones buying
> into the charade are the Wall Street flim-flam mouthpieces, "analysts"
> (with an emphasis on the "anal-" part) , mutual funds (themed : "always
> invested hell or high water"), and the clever day traders (who are
> forever each and always are ahead of the game.) The last of whom
> you seem to have an ardent and vociferous following.
> The government is helpless in dealing with deflation as there is
> no way to curb the downward spiral. It also significant and abruptly
> curtails "revenue"
> (read "taxes"), which further leaves the poor charlatans feeling
> more helpless, therefore the funny-money continues to be cranked
> out.
> Good chance that the "green" line (money) continues dramatically
> upward and the "black-and-blue" line (growth,or lack thereof) disturbingly
> downward as the DEPRESSION continues. What appropiate however unintened
> coloration!
> Sorry to be such a nay-sayer just as Wall Street , our esteemed legislators,
> and the "O'bamanators" are hooting that 'happy days are here again.'
> These are the self- same people who got us here.
> For a more complete take on the matter ,please consult Martin Weiss
> and his publication "Money and Matters." He called all of this two
> years ago. Just wished I listened (I did) and heeded (I did not,
> unfortunately.) Sounded all too crazy at the time.

May 03 07:12 AM

[catbox32@ya...:]

Thanks for saying what needed to be said. Most posts don't realize this very important point. To increase money supply, you need a willing lender and willing borrower. Currently, that is pretty much limited to the FED and the US Govt (unwilling taxpayers). Eventually, we will hit a limit on that by the rise in interest rates due to fear of default, not inflation. Deflation wins for now.


On May 02 12:46 PM donbob wrote:

> Looking at M1, M2, or M3 in isolation could be misleading. If you
> then look at the velocity of money in these categories and the money
> multiplier, they are falling off a cliff. The money is being pumped
> in, but going nowhere. This would indicate deflationary forces are
> still in effect with inflation to occur at some time much farther
> down the road.

May 03 04:28 PM

[Mashuri:]

Then take a look at the True Money Supply (on mises.org) instead of M1-3. It shows actual money in circulation and does not include bank reserves or even MMMF shares because "they represent equity shares in a portfolio of highly liquid, short-term investments which must be sold in exchange for money before such shares can be redeemed."

<url>mises.org/content/nofe...;/url>

Sure doesn't look like deflation to me. Velocity is low right now because of deflationary expectations and flight-to-safety demand. Once the demand for money lowers (and it will) hold on to your hard assets! The money Ben is pumping into the system will not be so easily harnessed.

May 04 12:58 PM