Have You Seen the M3 Lately?

Haven't looked at this chart from NowAndFutures in some time now - either someone's asleep at the switch over at the Federal Reserve or the M3 really isn't all that important an indicator.
Then again, maybe this is what the central bank didn't want people to see. What was it, about three years ago that the Fed discontinued reporting of the broadest measure of the money supply and conspiracy-minded folks thought it was going to go to the moon?

It looked like it was headed there ... that is, right up until last summer.

Comments

[User 443773:]

You should show this piece to Jim Grant, whose position on inflation vs deflation is covered in your piece, Whats Next, Inflation or Deflation? (July 9th). And other inflation-paranoids too. The sweeping decline in the broadest measures of money in the US (and elsewhere) simply remind us that the Fed can create bank reserves until the cows come home, but it can't make private sector lending happen, if the supply is impaired and the demand doesnt exist. Both conditions are set to continue a while. We might get some inflation in 2-3 years if public sector debt continues to expand without limit, or if there's a nasty squeeze on supply from protectionism or capacity destruction. This isn't to say some commodity prices wont go up but it's delusional for people now to think a generic inflation is around the corner.

Jul 09 08:13 AM

[GregZw:]

What about tax induced inflation? If taxes for business go up 10% next year (which is way lower than my business because they tripled my property taxes) most will have to pass through or shut down.

If I think Cap and Trade or Healthcare will increase my taxes by a similar amount for years to come, I will plan my business to reach equilibrium at the higher prices.

Jul 09 09:36 AM

[TeresaE:]

Actually I read this chart in the exact OPPOSITE way of the above user.

Less money because we are BROKE and the BULK of our necessities purchasing (gas, oil, food-mainly processed we can't cook anymore, steel, heating oil, medicines, clothing and EVERYTHING else) is from FOREIGN COUNTRIES.

So, our wealth/money is disappearing at a rate never seen before AND we are sending more of the what we have left to Asia.

And you really don't think this will lead to hyper-inflation as our purchasing dollars plummet in value and other countries decide to speculate on our misfortune. IF you were a housewife who does the shopping & pays for electricity, you might realize the truth. Or maybe if you were an accountant in a small company, you could see that inflation is already happening.

For everything except the value of our "hard" assets, our wages and the products we sell and produce.

Open your eyes and see what is occurring. See how our middle class is being eradicated. See how the banks and unions will own EVERYTHING that foreigners don't buy.

Nah, keep believing that the lessons learned from Weimer and Zimbabwe don't apply to us.

We are no longer the "richest nation on earth" we are the most indebted. And debt leads directly to the bill coming due.

Ours is coming due faster and faster everyday.

Jul 09 09:40 AM

[wg:]

has anybody ever considered that the reason there's so little lending is that the solid borrowers already have their loans and the new "borrowers" are just too risky? Think about it. About every solid taxpayer already either owns a home or has a mortage. Same with businesses. 'Sure, there may be new businesses out there wanting a loan, or old business in trouble, but banks just got burned badly, and aren't gonna take on much risk--no matter what the government wants.

Inflation, sure, but when? People are gonna have to start buying up flat screen tvs and cars and clothes and stuff before it hits, and that means it won't happen until a recovery is well on its way--coupld of years probably, maybe more.

Jul 09 11:11 AM

[Jimmy Crack...:]

Flat Screens are 60% cheaper than they were 5 years ago, I should know. I paid $3,100 for a 42 inch plasma in 2004 and now I can buy one for $1,200......I will say that food is more expensive....but with the recession beef prices are down. There are areas of commodity inflation and there are areas of technology deflation. I wholeheartedly agree with the concept that, for the most part, people have already flipped up to a newer house, or have decided to remodel. The economy is stalling because we already have bought up most of the things we need that are good for the next 10 years. Not to mention the dent in retirees portfolios putting the kabosh on their lifestyles.

The M3 really started to dive when we were paying $150 a barrel for oil, that giant sucking sound was the M3 heading abroad. Until the forein companies that are holding all those Dollar reserves start buying stuff from America that money will flitter around the globe from one country to the next and not into or through the hands of US workers. Thanks to our friends at Wal-Mart we no longer make anything that isn't highly specialized and employs large numbers of people. A highly efficient economy does not provide jobs for the masses. Thus the need for large scale building projects such as high speed rail, smart grid infrastructure, and the redevelopment of inner cities for higher density living.

Jul 09 11:31 AM

[wg:]

Also, Theresa (above) is quite correct when she writes: "See how our middle class is being eradicated."

For anyone who's interested, it was Lenin who said that the best way to destroy a government was by debasing its currency. Marxist dogma delared that the "bourgeoise" or middle class, must be eradicated before socialism could be successful. "The best way to crush the bourgeoise," Lenin said, "is to grind them between the millstones of taxation and inflation." Sound familiar.

The middle class is the key. The aristocrary, Lenin knew, could be killed or intimidated by such threats, and the proletariat would always follow. But the bourgeoise--the middle class, which made things, which owned things--the capitalist class--they were dangerous and must be destroyed.

Study Marxist history, then take a good hard look at what's happening in this country today. It a bit scary.

Jul 09 11:35 AM

[DrZero:]

On Jul 09 08:13 AM User 443773 wrote:

> The sweeping decline
> in the broadest measures of money in the US (and elsewhere) ...

What are you talking about? A decline would mean the M3 is going down. It is not. As the chart shows it's gone from 10 to 14 Trillion over the last 4 years. The RATE OF GROWTH has slowed ... to "only" 6%. Growing at 6% is not a decline, either.

A "sweeping decline in M3" might mean it drops back to 10 Trillion. OK, *THAT* would be a decline. What the chart above shows is that we went from frenzied creation of money to merely muscular creation of money.

Jul 09 11:58 AM

[dirtyharry:]

My interpretation of that graph is that there is not a "sweeping decline" in the money supply, but rather a sharp decline in the RATE of expansion. If I'm reading that correctly, money supply is still growing, just at a reduced rate.

If we get a "second stimulus" package, the rate of change could head up again.


On Jul 09 08:13 AM User 443773 wrote:

> The sweeping decline
> in the broadest measures of money in the US (and elsewhere) simply
> remind us that the Fed can create bank reserves until the cows come
> home

Jul 09 12:49 PM

[White Shield:]

"Those charts give me the biggest woodie since the passing of the FRA" - The "Monopoly Men".

And "User 443773" - (quote):"... the Fed can create bank reserves until the cows come home, but it can't make private sector lending happen, if the supply is impaired and the demand doesnt exist."

It's called "COLLUSION". As the last "bubble" was hidden in mortgages, the next one...the one to unleash GODZILLA-size inflation, is being hidden INSIDE THE BANKS. That "little meeting" last fall...with Hank, the GS Shill and the "big boys"(JPM-Chase,Citi,BOA, etc)? WHY DO YOU THINK THEY ALL BECAME (rechartered as) "BANKS"?

Hello? ("Officer, there's been a collusion. We're gonna need some tow trucks and possibly some ambulances.")

Jul 09 12:54 PM

[TeresaE:]

"a bit"?

For those of us that realize truth wealth comes from producing tangible products, NOT paper shuffling, I would say...

a LOT scary, a whole lot.


On Jul 09 11:35 AM wg wrote:

> Also, Theresa (above) is quite correct when she writes: "See how
> our middle class is being eradicated."
>
> For anyone who's interested, it was Lenin who said that the best
> way to destroy a government was by debasing its currency. Marxist
> dogma delared that the "bourgeoise" or middle class, must be eradicated
> before socialism could be successful. "The best way to crush the
> bourgeoise," Lenin said, "is to grind them between the millstones
> of taxation and inflation." Sound familiar.
>
> The middle class is the key. The aristocrary, Lenin knew, could be
> killed or intimidated by such threats, and the proletariat would
> always follow. But the bourgeoise--the middle class, which made things,
> which owned things--the capitalist class--they were dangerous and
> must be destroyed.
>
> Study Marxist history, then take a good hard look at what's happening
> in this country today. It a bit scary.

Jul 09 02:35 PM

[awake09:]

Darn, I thought this was about a new BMW. What else is an M3?

Jul 09 05:03 PM

[Moon Kil Woong:]

Whether or not you believe M3 is inflationary or not, the bigger point is the government should report it. In most businesses increased employees and bigger budgets mean more productivity and work gets done. Au contraire. According to the Fed it means less paperwork and less reporting. No wonder they are squaking at the very idea they would have to report to Congress' GAO. The GAO is not a monetarist and doesn't want to monetize debt as the Fed is accusing them of wanting to do. Rather Congress should monitor the Fed for conflicts of interest, liability to the taxpayer for all their bets and backstops (if you think Fannie Mae and Freddie Mac put the US at risk look at the trillions the Fed is happy risking in the taxpayers name).

Simply put, the Fed has been delinquent at reporting on itself for ages now. Dropping M3 is only another indication they aren't doing their jobs. So what are they doing?

Apparently, according to the Fed they are too busy making trillions of primary money and backstopping everything to the point they can't even account for it to Congress to do what they are suppose to do, report on protecting the value of the dollar, efficiently auction US Treasuries, and provide a modicum of economic stability.

Ok, now I get why they can't manage to do any reporting. They are real busy. Busy making a mess of everything as usual and then making a mess cleaning it up. Their last major mess was their dabbling with QE. I think they need a babysitter.

Jul 09 07:48 PM

[Northstar10000:]

Inflation is coming. the next wave of stimulus is going directly to the people in the form of coupons. You either spend them or they expire worthless. It's the same as printing money and sending a check except the gov forces you to spend it. Free money that has to be spent. Wee watch the fun.

Jul 09 09:31 PM

[nobby73:]

It's important to remember what M3 is. One of the biggest components is repo agreements. Prior to the credit crunch, all of this toxic ABS crap was being moved around with huge frequency. Nobody really wanted to tie up cash on such assets as the yields were terrible, but they repo'd it, got the cash back and moved on. The deflationary force we are now experiencing is not because these assets have gone away (uncle Ben's taken plenty for a start) but because they have stopped moving. The velocity of this "money" has become zero.

But this was what bothered me about stopping publishing M3, as you didn't see the impact of the securitization on money supply and the fact that the repo market meant nobody gave proper scrutiny to the underlying assets, they just treated like cash. For it to get moving again, it would require proper recognition of what it is now worth, which would require the holders to take the losses and right now, they don't want to do it. Therefore, we are stuck.

Jul 10 01:59 PM