Fed kills a key inflation gauge

moneycentral msn ^ | 3/31/2006 | Jim Jubak

[AdamSelene235]

The Fed wants you to think it's fighting inflation. So why did it kill an important measure of the money-supply boom that feeds rising prices?

By Jim Jubak

The U.S. Federal Reserve made big news at the end of March. And almost nobody noticed. Here's the headline you didn't see:

Fed kills M3, decides money supply doesn't count Move raises risk of higher long-term inflation and new asset bubble

I'm obviously not talking about the March 28 decision to raise short-term interest rates one more time to 4.75%. That got headlines all right, and most of them portrayed the Federal Reserve as a tough fighter against inflation.

The March 28 interest-rate hike wasn't exactly unimportant. Stocks and bonds both took a hit that day because the language accompanying the Fed's 15th rate hike since June 2004 proved that those who had bet on "one more and done" were clearly wrong. The Federal Open Market Committee is now very likely -- an 88% chance, according to the futures market -- to raise rates again at its next meeting on May 10. The odds on a further hike at the end of June have started to climb as well. Higher interest rates in the future will put downward pressure on the prices of stocks and bonds. See the news that affects your stocks. Check out our new News center.

The death of M3 No, the underreported story that, in my opinion, deserved headline treatment and didn't get it was the end of M3, on March 23. As the Federal Reserve had promised last November, the U.S. central bank will no longer collect or publish this most-inclusive measure of the growth of the U.S. money supply, although it will continue to publish narrower measures such as M1 and M2.

[AdamSelene235]

M3 RIP

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.....For various reasons the Fed might well be reluctant to incur credit risk, as would happen if it bought assets directly from the private nonbank sector. However, should this additional measure become necessary, the Fed could of course always go to the Congress to ask for the requisite powers to buy private assets. -Federal Reserve Chairman Bernanke

[Red Badger]

Let the presses roll.........

[skeeter]

Dunno, mebbee they want to keep this cheap money-fueled economy rolling?

[Moonman62]

Bernanke is busy inverting the yield curve, the exact opposite of being loose with the money supply.

[InterceptPoint]

Question for any Fed Wiz:

Who owns the Federal Reserve Banks? Who gets the profit?

[Designer]

Thank you, sir, for the excelent post. Don't let this drop off the radar.

Does anyone still wonder about the phenominal "success" of the stock market these days?

Gee, everthing is going up! What more can we wish for?

We've got bread and circuses, and SUV's and cheap gas, and movie stars, and lots, lots more.

And my paycheck is higher than it has ever been! Why, this year, we are scheduled to receive a whopping 2.3% "cost of living" increase!

Ain't life grand?

[dljordan]

"And my paycheck is higher than it has ever been! Why, this year, we are scheduled to receive a whopping 2.3% "cost of living" increase!"

Hmmm, we haven't gotten anything for two years despite the company posting record profits. Oh wait, the CEO got a $15 million "bonus" for re-structuring the company. Must have been really hard work.

[raybbr]

ping

[mr_hammer]

...we noticed, look at the price of gold and silver.

[stylin19a]

that's how they are going to fix SS

[Dinsdale]

What is in M3 that is not in M2?

Without that this is meaningless information.

It's been a long time. IIRC M1 is the actual currency in circulation. M2 is currency plus liquid assets (like bank accounts).

What's M3?

[AdamSelene235]

What is in M3 that is not in M2?

* M0: The total of all physical currency, plus accounts at the central bank which can be exchanged for physical currency.

* M1: M0 + the amount in demand accounts ("checking" or "current" accounts).

* M2: M1 + most savings accounts, money market accounts, and certificate of deposit accounts (CDs) of under $100,000.

* M3: M2 + all other CDs, deposits of eurodollars,dollars held at foreign offices of U.S. banks and repurchase agreements.

[A. Pole]

Bump

[Willie Green]

Let the presses roll.........

[CowboyJay]

"* M3: M2 + all other CDs, deposits of eurodollars,dollars held at foreign offices of U.S. banks and repurchase agreements."

Being done to deliberately hide the fact that M3 fueled 'growth' actually does much more to grow foreign economies than our own?

[OB1kNOb]

Good article. Thanks for posting. I had heard about this several weeks ago coming across a European article by chance. It bears watching. - OB1

[Designer]

"Oh wait, the CEO got a $15 million "bonus".."

"It's good to be the king."