Prominent Economists Make Up Data That Doesn't Exist

For the week ending August 11^th, money supply grew by $7.0 billion to $7,728.1 billion (as measured by M2 on a seasonally adjusted basis). Since the week ending March 24^th seasonally adjusted M2 has only increased by approximately 0.35% which means that M2 continues to grow at a rate of less than 1% per annum. The Federal Reserve continues to confirm that since March 2008, its favorite economic bird has been the monetary hawk. After adjusting for inflation, money supply continues to shrink at a rapid pace.

Shrinking real money supply has the following macroeconomic implications:

• Slowing inflation;
• Lower economic activity;
• Strengthening dollar; and
• Credit rationing.

Economists Play A Game of Pretend By Publishing Data That Doesn’t Exist

Many so-called “prominent economists” in the United States and Great Britain were late to understand Federal Reserve monetary policy and are now covering up their past incompetence by making up data and presenting it at as both authoritative and accurate. The issues surrounding the destruction of money supply as result of the credit crisis were obvious but often ignored during the second half of 2007 and the first half of 2008.

Despite having the Great Depression’s monetary history as a guide, many economists that were critical of Federal Reserve policy in the international media didn’t bother to think before talking. These economists didn’t understand that the Federal Reserve’s emergency liquidity facilities were designed to prevent a wholesale destruction of the monetary base and that once the money supply was stabilized, the Federal Reserve could resume its current hawkish stance.

Now, those same economists who blew it earlier in the year are making up for lost time by fabricating M3 statistics. These economists want their paid subscribers to believe that they can calculate U.S. M3 and predict future policy, despite the fact that on March 23, 2006, the Federal Reserve stopped publishing M3 and several of the monetary components that are necessary to calculate M3. In its press release disclosing the discontinuance of M3 the Federal Reserve stated:

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.

According to Federal Reserve, it doesn’t use M3 for policy making, doesn’t collect the data necessary to calculate M3 and doesn’t even want to spend the money to calculate M3 just in case it becomes valuable in the future.

So, what are the expert economists saying when they “calculate M3″ and publish graphs that show its exact movements over the last 12 months? I think that there are two choices. Either they (i) are making up both data and analysis out of thin air or (ii) have supernatural powers that allow them to divine data that doesn’t exist and then act as a modern day Merlin when they predict the future.

My vote is that they’re making up data and analysis and we should not listen to them.

Comments

[greywacke:]

Note that Mr. Sunshine (!) does not possess the guts to name such economists, preferring to shy away from the potential for libel. Methinks we have a Fed shill with an agenda.

2008 Aug 25 10:23 AM

[JasonC:]

Nope the article is entirely correct, and the Fed bashers have been flat making it up for over a year.

2008 Aug 25 10:38 AM

[greywacke:]

JasonC: You evidence?

2008 Aug 25 10:49 AM

[GaryD:]

The author writes: "According to Federal Reserve, it doesn’t use M3 for policy making, doesn’t collect the data necessary to calculate M3 and doesn’t even want to spend the money to calculate M3 just in case it becomes valuable in the future."

This is not at all accurate. The Fed has never said this. They do collect the data that underlies M3 (they even publish it; this is there those re-constituted M3 sites get their data), they just don't calculate M3 anymore since it doesn't seem to tell them anything useful. They still need to collect the underlying data for other purposes.

I doubt that the author has even a basic understanding of how the federal reserve system works:
-He mis-states the Fed's stance on M3
-He describes the current Fed stance as "hawkish", which would imply a funds rate higher than inflation, which it is not.
-He does not understand that the data to calculate M3 is available to anyone who wants to examine it on the Federal Reserve site and accuses the people who take the time to dig up the data and calculate M3 as either liars or whack-jobs. They are whack jobs, but the M3 data is coming straight from the Fed, not from thin air.

Is is Mark Sunshine who is making things up by (a) attempting to pass himself off as knowledgeable on the subject of monetary policy, (b) mis-stating the Fed's monetary stance, (c) mis-representing the Fed's policies around data collection and dissemination, and (d) launching an ill-conceived straw-man attack on a nebulous, undefined group of "prominent economists".

2008 Aug 25 04:20 PM

[GaryD:]

He has also shown up on Fox News, which makes me think that he is either part of the Gay Republican Mafia, trying to get into the Gay Republican Mafia, or harmless enough so as not to be perceived as a threat by the Gay Republican Mafia.

2008 Aug 25 04:26 PM

[Jason Rines...:]

He seems like he is trying to help but to do that one should get all your facts and numbers straight and show the evidence in the data or the flaws in including or excluding data or how the output would look with different variables.

2008 Aug 25 06:07 PM

[Mark Sunshine:]

GaryD:

One of the principal tenent's of monetarist theory is that the level of interest rates matters less than the real level of money supply relative to GDP. The WSJ wrote an article about this on 8/22 when it pointed out that money supply has grown very slowely and that there are a lot of economists who believe that the Fed is being too tight. I didn't get my analysis from the WSJ article (I have been writing about this and/or speaking in the media for months about M2 and its direction).

Also, if you check the Fed press releases around the time of the suspension of M3 you will notice that they stopped publishing certain key components of M3 in the "flow of funds reports". If the Fed didn't have an official M3 number they didn't want others to publish competing M3 numbers. The data that they no longer publish is technical stuf relating to eurodollar desposits and flow of funds but without those key components M3 cannot be calculated.

And, anyone who is wondering why I didn't name the economists by name and are thinking I am worried about being sued is correct.

Thanks.

Mark Sunshine

2008 Aug 26 08:49 AM

[Elaine Supkis:]

This is Elaine Supkis of Culture of Life News:

I was one of the many people who protested very loudly when the Fed capriciously suddenly said, no one needed to see M3 numbers anymore. A number of central banks still publish this data but not the privately-owned Federal Reserve!

When the Fed made that announcement back when we were at the very peak of the housing bubble, oil inflation was just beginning to really take off. I figured, this M3 data was being terminated because Bernanke and Greenspan, as one left office and the other entered, knew that we were on the eve of global hyper-inflation.

And I was right. Immediately, inflation took wing and shot upwards. This is very significant because it happened precisely when asset values of things like properties, etc. began to lose value, rapidly.

A classic situation that M3 helps track was this rapid wealth destruction in assets running during a raging rise in commodities. We saw this in the past like in the stagflation years of the seventies, for example.

We know from history, the only cure for this is to raise interest rates. Instead, now we are 'driving blind' and the first wave of hyper-inflation has hit shore and the next is definitely on the horizon. Until the Fed and the Bank of Japan cease making loans below the rate of real inflation of COMMODITIES, these future inflation waves will destroy the value of global trade monetary icons. Already, the world's #2 economy, Japan, has killed its currency to the point, even the Japanese don't want it anymore.

Now, the #1 economy has set out to do the same. The frightened Europeans are trying desperately to up the value of the dollar but they will fail. Not with both China and Japan, the #2 and #3 economies, flooding Europe with exports or blocking European exports to third parties like the OPEC nations, etc.

For ultimately, none of this is really about monetarist values. It is all about TRADE. With 'free trade' we have a system of 'beggar your neighbor' trade that is extremely hostile and dangerous. The only way the US can get out of this trap is to install tariffs and barriers. This is because we are the world's #1 trade deficit nation. This is utterly unsustainable.

And when we look at debt, trade and monetary policies all at once, we then understand, the 'money creation' business is just a symptom, not a cause.

Also, where does Seeking Alpha find these 'economists'? Mr. Sunshine is pretty close to the bottom of the pit where these poor guys live.

2008 Aug 27 08:58 AM

[phdinsuntan...:]

well, I was a POW for 5 years and spent most of this time estimating M3, now all of you will be in the same situation for 4 years, so check my estimations, I guess in a free world each one can do their own think isn it? check Bank of International Settlements and do your on homework Sunshine, maybe they listen to you...

M0 M1 M2 M3
Annual Monetary Supply Growth IQ 2008
China 13,0% 18,0% 18,0% N/A
Russia 26,0% N/A 33,0% N/A
Indonesia 22,0% 28,0% 15,0% N/A
Norway 11,0% 8,0% 14,0% N/A
U.A.E. 19,0% 51,0% 42,0% 38,0%
Kuwait 11,0% 28,0% 23,0% 23,0%
India 19,0% 20,0% 22,0% 22,5%
Saudi Arabia 13,0% 27,0% 22,0% 22,0%
Denmark 11,0% 19,0% 22,0%
Turkey 20,0% 20,0% 21,0% 21,0%
South Africa 14,0% 12,0% 20,0% 21,0%
Australia 5,2% 3,3% 17,0% 20,0%
U.S. 1,6% 1,5% 6,0% 19,0%
Venezuela 1,6% 1,5% 6,0% 19,0%
Brazil 21,0% 17,0% 26,0% 17,0%
Sweden 0,5% 11,0% N/A 16,0%
Republic of Korea -0,6% 16,0% 15,0%
Poland 5,0% 17,0% 17,0% 15,0%
U.K. 6,0% 16,0% 13,0% 14,0%
Mexico 9,2% 10,0% 12,0% 14,0%
Canada 3,4% 8,0% 8,8% 13,0%
Singapore 10,0% 29,0% 12,0% 12,0%
E.U.-13 7,5% 2,3% 10,0% 10,5%
Japan 1,9% -1,2% 7,0% 9,0%
Switzerland 0,2% -2,0% -4,5% 2,6%

it looks good to hold a swiss account...stay away of BRICS and oil producers and commodity currencies, including the bolivar and the
greenback (same expected 19% inflation in 2008 according to my M3)

2008 Aug 27 04:22 PM