The current account balance is not a good measure of US economic strength because it includes not just the balance of trade, but also investment, not just stocks and bonds, but also capital investment, e.g., factories built in the US by Mercedes, Honda, Toyota are treated as a plus in the capital account and a minus in the current account.
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No matter how negative you are on the US economy it's very unlikely that these factories are going to be "repatriated."
There are undoubtedly more precise numbers to look at to make your point.
Noland, whom I think is generally interesting, never alarms me. I have a constitutional tendency to pooh-pooh writers who hyperventilate. "Stunning - unprecedented - staggering" always makes me say "ho-hum." He never gets an "A" in my book because he always tells only part of the story in order to make it more sensational.
M3 is defined as follows:
>>M3: M2 plus: large denomination ($100,000 or more) time deposits;
repurchase agreements issued by depository institutions; Eurodollar
deposits, specifically, dollar-denominated deposits due to nonbank U.S.
addresses held at foreign offices of U.S. banks worldwide and all
banking offices in Canada and the United Kingdom; and institutional
money market mutual funds (funds with initial investments of $50,000
or more).<<
Why should I be staggered by an increase in large denomination time deposits, repurchase agreements issued by depository institutions, Eurodollar deposits, and institutional money market funds?
Institutional money market funds are backed by bonds. Eurodollar deposits appear to be bank deposits in dollar denominated deposits in certain foreign banks. Everything in M3 is outside the reserve requirements of the Federal Reserve, as you are no doubt aware. There are also no reserve requirements for anything in M2, which is defined as
>>M2: M1 plus: savings deposits (including money market deposit accounts)
and small denomination (less than $100,000) time deposits
issued by financial institutions; and shares in retail money market mu-tual
funds (funds with initial investments of less than $50,000), net of
retirement accounts.<<
The things which come within the Federal Reserve's reserve requirements are in M1, but not all of M1. As you probably know but not everyone does.
So I don't see how the growth in M3 can be blamed on the Federal Reserve. Other forces are at work here. |
