Oh, you're looking for some entertainment. Ok, I can get a few yucks out of this stupido's comments.
I am beginning to lose my respect for the Federal Reserve. At a time when money supply (link to Wikipedia) has been exploding and weekly figures provide a nasty experience week after week, month after month, the Fed put out a short, flat notice last Thursday, saying that it will discontinue publication of M3 figures after March 2006. Such a step may fit in the policy of the current Bush administration but certainly not a supposedly independent central bank.
He never had any respect for the FED. He was programmed long ago to hate them. Notice the Bush rip indicating this guy has a giant chip on his shoulder.
M3 is the most important money aggregate for economists, analysts and Fed watchers to get an idea at what speed the (electronic) printing press is running.
The first mythical invention, "(electronic) printing press". The guy could never define what he meant by "printing press", so you can bet he won't be doing any better electronically. But I ask you, how could M3 be important if none of its components is important? It isn't this point that caused the FED to dump the measure. It was because several of components overlapped in what they represented. That makes M3 ambiguous. Ambiguity spawns myth.
The European Central Bank (ECB) honors this set of data with a special press release every month. So much about transparency.
I can't decipher this cryptic statement. Notice how the author used the term "honors". It's just sufficiently ambiguous so that he knows you won't be able to pin it down, or, under challenge he could segue into another nonsensical redefinition.
In any event the ECB's M3 equivalent is growing faster than M3 especially after the advent of the euro, so its unclear that there's any honor in it!
Money Supply M3
GRAPH: Recent M3 figures are certainly unpleasant and worrisome.
Why is a rising M3 worrisome? If GDP grows, money supply rises. So what?
M3 has been growing at an annual rate of 7.5 percent or double the most recent rate of GDP growth (subject to a revision.)
But the average rate of growth of M2, M3's largest component representing 70% of it, tracks GDP growth well.
Since Bush took office money supply M3 has risen by 40%.
When Clinton was in office it grew at 12%. So what?
The Fed prints it
The Federal reserve banks through the mint print currency only. "print" can't be used abstractly as an equivalent to "create". Most of the "money" is created by the private sector. Read that sentence again.
and the government spends it
Government does not spend the currency that FED prints. It spends the money that is thrown off from the money the private sector creates. It spends tax dollars and borrowings, with taxes taking the lion's share.
as can be seen by growing government participation in growth numbers.
What growth numbers?
I am still shocked and in a state of disbelief that gives place to being disgusted about the new style. What will be next?
The same thing we've had for 40 years, and creeping inflation.
Discontinuation of industrial production figures below zero? The consumer price index (CPI) being treated as a national secret once it rises above 5% despite all hedonic adjustments? Torture threats against people insisting to get the whole picture?
Notice this segue into hysterical blathering suggesting a low sloping forehead indicating stupidity.
US Investing Will Become A Fly By Night Adventure
No! First comes the discontinuation of more important data releases. No more repo data, no more Eurodollar data, no more large time deposits. Investing will become a fly by night adventure.
How does any of this data influence investment decision? I never use it for that. Interest rate policy doesn't use it for that. FED examines real world data about the economy to set monetary policy, not its own measures of what it did in response to past real world data. FED does covertly keep close tabs on C&I loan growth and check deposits because it does want to know to what extent the economy is responding to its monetary policy.
From the Fed website (saved locally for later reference):
On March 23, 2006, the Board of Governors of the Federal Reserve System 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.
Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).
Take note that only publication, but not calculation of these figures will be discontinued.
So what? FED keeps a lot of internal measures like L. Who cares how many gears there are in the train? What can anyone conclude about what any of them are doing? FED can't. That's why although they're kept, they aren't used to launch into paranoid hysterical reactions.
I strongly hope that Ben Bernanke will revise this decision, being an economist who knows that sound research can only be done on the basis of data.
I reiterate that FED monetary policy isn't determined by monetary response to past policy. You can lead a horse to water but you can't make it drink.
Looking back into history economic data was only kept a secret in failing economies, e.g. the Soviet Union.
Everything in Soviet Union was kept secret.
As this data is published by the board of governors of the Fed every one of their words will have to be scrutinized most carefully in the future and tested for credibility.
Dust off the Volcker Voice Stress-O-meter!
Words are easy, but I prefer hard data. No prudent investor will navigate his funds through a foggy world but lie at anchor below a clear sky, meaning: elsewhere.
This guy always argues that the previously published data are foggy. Can you see it? The guy goes down and buys some gold every time FED creates too much money(in his opinion).
For further information read "If it weren't that cheap to print them greenbacks" and "M3 and public debt hit record highs." Once you read this you may be in the mood to read "US AAA rating - how much longer?" The lack of transparency at the Fed got discussed in this post.
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UPDATE I: Mark Thoma had a post on November 3, discussing "The Declining Role of Money In Monetary Policy." He says that the Fed cannot control two variables (the monetary aggregate and interest rates) with their single tool, the Fed funds rate.
Trivially true. There's no 1:1 connection between rates and money supply so FED can't use interest rate control to control money supply. It uses interest rate control to control interest rates, effectively the rate of C&I creation and thereby indirectly, GDP.
FED tried only once to directly control money supply. During the brief period '88 - '93, it targeted M1. The targets were poor, the experiment was done at a time when the economy did not respond to overt money creation due to extended period of high interest rates, so the result was that money supply targeting was irrelevant. It was a false conclusion. FED knows it and that's why FED uses money supply as an indication of past policy result, just like it always did, just one of many indicators. So what?
As Dr. Thoma focuses on the shift of importance from M1 to M2 and does not cover M3 at all I am left with another conundrum.
Why? In fact. why should Thoma get jazzed about M2? He's pumped up about savings deposits, small time deposits, and MMFs? I can't imagine why. They all come from previous demand deposits.
Take note of his graph though. It shows that the additional contents of M3 have been growing over the years, reaffirming me in my view that M3 is the one to watch as it has become easier for investors to shift funds and money market funds have seen above-average growth in the last decade.
Growth implies importance? He wasn't concerned when C&I loans dropped for many years, yet that was the thing that FED and I were concerned about.
Also of note is that the ECB tries to control both variables with the single tool of overnight rates.
The ECB deals with a monolith that comes from the fact of many sovereign nations under the same currency. The monolith enables one monolithic tool to handle the situation, however, let's see what happens when that tool is put under stress.
I am left with the conclusion that monetary policy is so complicated that not even central banks with their large research teams are sure what to do
This part of the sentence is true, a truth that the guy accidently hits, but doesn't know that he's done so as proved by the other part:
to guard the value of fiat money.
This part makes the entire sentence false. Indeed, this part is a contradiction in terms. Money created by CBs isn't fiat until the public acts in a way with it to make it fiat! You can lead a horse to water, but you can't make it spend.
How easy was that in the times of a gold standard...
Blatantly false. Quite the opposite, actually. How does gold have any more integrity than fiat money? Just a different set of liars who set the conversion rate. No one trusts this guy but many trust the officials at the FED. Great truth: gold does not circumvent the need for trust. In fact, gold is built on distrust and therefore, is contrary to commerce. This guy has to examine just what value would be gold to him if there was no commerce. Fact is, possession of gold would get him killed in that circumstance.
In Europe M3 growth is the most intensely watched number and I feel safe with M3 as it has been a good indicator for true inflation trends.
The only correlation that exists between M3 and inflation is that they're always rising. Does this mean that if M3 was declining, so would general prices? Keep that M3 rising!
Or to say it oversimplified: deduct GDP growth from M3 growth and you should arrive at true inflation.
Yes. deduct M2 from GDP growth and you get true inflation.
Juggle this equation and M3 minus inflation should give you GDP growth which in the current situation would be 7.6% minus 4.7% and voila we get GDP growth of 2.9% at the end of Q3 2005.
That was close to what it was. 3.5%, I believe, which was closer to M2 at 6% minus 2.5%.
UPDATE II: If you are in the mood for further speculation why M3 data will not be published anymore jump to this lively discussion at PeakOil and judge yourself what could make sense. I will look into my Palgrave as soon as possible, hoping for the ultimate auhtoritative explanation. I have also contacted the Fed and look forward to their answer. But I feel honoured that the discussion at PeakOil interconnects M3 secrecy with my so far most read post "Iranian Oil Bourse Could Kill The US Dollar" which will be continued with a follow-up soon. Check back at this blog for it.
Peak oil!? Typical dreg plug. They have to wrap all their conspiracy theories around one giant: the Kennedy assassination.
The actual FED H8 announcement:
On March 23, 2006, the Board of Governors of the Federal Reserve System 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.
Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).
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. |
