The Mysterious case of the disappearing M3

"The last duty of a central banker is to tell the public the truth."-- Alan Blinder, Vice Chairman of the Federal Reserve, on PBS’s Nightly Business Report in 1994.

Your New Year Cut out 'N' Keep New year supplement for 2007

Here are some charts stolen from the always excellent Signs of the Economic Apocalypse (SEA) which show (briefly) that in 2006 gold rose in price whether paid for in dollars (23%) Euros (10%) and as oil (from 8.5 to 10.5 barrels of oil for an ounce of gold).











Now to let you in on a US Gubment secret - well not much of a secret (where to hide a pebble, but ona beach ?) but way back on March 23, 2006, the Board of Governors of the US Federal Reserve System announced that they .....

" will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.......

...... 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."

Now SEA says , " Inflation (which you might estimate as being the relationship of the number of dollars in circulation compared with the value of available goods and services) is commonly thought of as having something to do with Gross Domestic Product versus cash money in circulation". i.e GDP (Growth of )M1 = inflation.

Which of course it doesn't, because it relates to all effective money in circulation - M3 - which is the broadest measure of money supply in the U.S. It includes coins, currency, checking accounts, money market funds, time deposits and institutional money market accounts.If the Fed no longer publish it we rely on (say Bart over at Financial Sense University) who has calculated M3 - and again here at (Now and Futures)



The above is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such.

So M3 inflation is running as of today in excess of 11% - now does that agree with your personal circumstance ? Energy / Food / Fuel / ? ... no wonder the Fed wants to hide the M3 figures..... "is an evident and growing disconnect between what people are told the rate of inflation is, and what they experience in their own lives "(Tim Iacano)- and not just for energy. Healthcare, tuition, and many other service categories have been rising sharply in the US.

"the costs of collecting the underlying data and publishing M3 outweigh the benefits" ... yet Bart can do it (see the site for how it's done) and the Fed have square miles of bright economists, statisticians and other ne'er do wells littering their payroll. The cost ? When they pay our US$20 Bn a year in interest on Treasury Bills ?

Dr. Mark Skousen, Chairman, Dec.8th Investment U tells of having lunch (see pic) with the 93 year old Milton Friedman, and still very alert and knowledgeable about current geo-politics.This is what old MIlt said ..."“I don’t know why the Federal Reserve discontinued the M3 chart,” he said. “But inflation is clearly a problem right now.”

The Prudent Investor has published the corresponsence (originally in WSJ online) between Senator Jim Bunning who asked (the new) Fed Chairman Bernanke why M3 was no longer published - who persists that it is merely a cost saving exercise.

This elementary housekeeping is however watched with great care in Europe , because the European & Asian Reserve banks take considerable notice of M3.

SEA sees this (as do many others - follow the links - have strong coffee handy) as the Big Con. The Fed knows money supply is out of control so we won't re-define it, we'll just ditch the component which everyone has found handy to use and rely ojn the funny money component - as SEA calls it "the real estate boyz and derivatives players weren't making money all day hand over fist through the process of loan creation. A splendid damn miracle. And government - having hidden M3 where it can't see daylight can argue "Ain't no measure of digidollar inflation...that's all speculative."

If you live in the US ... the only thing you will buy cheaper in a year's time is your house.

If you live in the UK ...expect interest rates 1/4% to rise when the Monetary Committee meet 2nd Thursday in Janaury... highest ever under Gordie as bhe battles soaring inflation which new energy bills which have been capped for many wil flutter through the letter box.

Glossary

The M3 "Grease Gun" (more formally United States Submachine Gun, Cal. .45, M3/M3A1) was a WW2 sub machine gun developed by the US as a cheap substitute for the THompson or "Tommy Gun". It was nicknamed the Grease Gun because of its resemblance to an automotive grease gun. Absolutely nothing to do with The Fed's M3. EXcept that it is no longer in use.

Lord Bassam of Brighton talks in his sleep

Whilst Ruth Kelly and Margaret Beckett are members of the Gubment it seems unreasonable, inaccurate even, to say that the splendidly named and unelected (and unelectable) Lord Bassam of Brighton (created 1997) is the stupidest member of the New Labour criminal fraternity . (Very strongly in favour of smoking ban and ID cards)

However his performance on Tuesday in the House of Lords takes some beating. (Pic 4th left over the V in Hove)

My Lord Cobbold rose to ask what seems a reasonable question. The Home Secretary in January 2005 announced a "root and branch review of the ABC system of drug classification". The current sytem is based, it is claimed, on classifying drugs on the degree of self harm they cause.

My Lord Cobbold (David Antony Fromanteel Lytton Cobbold. 2nd Baron created 1960 - father Governor of the Bank of England from 1949/1961 and sensibly married into the Bulwer-Lyttons of Knebworth House - believes Members of HOL should retire at 75 or 80 - C) was aware of "the excellent report of the House of Commons Science and Technology Committee, Drug Classification: Making a hash of it." and pointed to their conclusion on Page 48

“we have found glaring anomalies in the classification system as it stands and a wide consensus that the current system is not fit for purpose”.

He pointed out that the drugs trade is the second largest global business after oil, and it is all in the hands of criminals. Did the Minister consider this to be acceptable?

Or ...would the Gubment agree ...

" the real problem is not about detailed composition of their classification system but that current national and international drugs policies are as a whole not fit for purpose? Is it not obvious that prohibition, as the late Milton Friedman once wrote,

“is an attempted cure that makes matters worse”?

Lord Bassam of Brighton: (All this happened just after Prayers at 2.30 so one perhaps should take into account that My Lord Bassam may have been digesting a comforting and splendid lunch - perhaps with the addition of a decent claret and maybe a post prandial port or three).

"I am aware that there are some critics of the classification system, but we have to base our policy on something. The Advisory Council on the Misuse of Drugs has served us well in advising not just our Government, but successive Governments, on the best course of action with regard to particular types of drugs and their derivatives."

Of course my Lord Bassam was right, although not helpful, nor indeed did he answer the question, but merely stated some easily determined facts and placed the blame squarely, if not fairly on the oddly named Advisory Council on the Misuse of Drugs . A point which the sharp minded The Countess of Mar was swift to point out ;

"My Lords, the noble Lord did not really answer the question put to him by the noble Lord Swinfen - Can he please tell us what consideration Her Majesty’s Government have given to purchasing the harvest of opium from Afghanistan and using it for medicinal purposes in this country? "

The policy of the excellent and very sensible Senlis Council - see endless postings here.

Lord Bassam of Brighton: My Lords, my understanding from colleagues across government is that we are looking to ensure that crop substitution takes place. Work is being undertaken on that. (Whilst dodging the bullets in Helmand province no doubt)

Lord Tebbit: My Lords, can the Minister tell us whether it is the Government’s view that legalising any particular drug would be likely to increase or to decrease its consumption?

At which point the blundering Lord was saved (as it were) by the bell, as Lord Rooker The Minister of State, Department for Environment, Food and Rural Affairs curtailed further debate by reminding the House that in its quaint way "My Lords, I am sorry, but we are well into the eighth minute, and we must move on...."

Perhaps it would be right to mention that Baroness Gardner of Parkes had also asked about ,"What can be done to prevent tragedies occurring where someone has caused even death due to driving under the influence of drugs? to which the beached Bassam provided, not an answer but some fascinating statistics....

"My Lords, the noble Baroness is right that we should focus our attention on the practical impact of substance misuse. It is for that reason that the Government have invested as heavily as they have in drug treatment and tackling misuse. Since 2001-02, £7.5 billion has been invested by the Government in tackling drug abuse. In the past year alone, the Government invested £1.5 billion, and a further £86 million was made available for treatment services. If we can start to deal with drugs issues in those ways, we have a greater chance of success."

"There are examples of success in terms of reducing people’s interest in and consumption of drugs "

..... but he failed to provide any.

One could be forgiven for worrying about the way our legislators handle the greatest social evil of our times, the greatest criminal enterprise (although VAT fraud is fast overtaking) and the most profoundly damaging effect on young people, prostitution, people trafficking, crime committed to indulge in drugs ....

Curious how expenditure of £7.5 Mn with no demonstrable effect on the problems of drugs misuse is decribed as ..... an investment.

It seems very unreasonable that we should taunt these chaps after a decent lunch with all these difficult questions, and expect answers -