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Has the Government stopped publishing M3 money supply figures to hide the true level of inflation?
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M3 Money Supply Numbers are Back- Sort Of
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Updated August 2, 2008 by Tim McMahon, Editor Back in March of 2006 I told you the U.S. Government was hiding something and that something was the growth in the money supply as measured by M3. Back then the Federal Reserve tracked and published the money supply measured three different ways-- M1, M2, and M3. Each of these three money supply measures track slightly different views of the money supply. The most restrictive, M1, only measures the most liquid forms of money; it is limited to currency actually in the hands of the public. This includes checking accounts travelers checks, and other deposits against which checks can be written. Of course the money supply is much bigger than that. What about savings accounts? M2 includes all of M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds. But if you have money in a money market mutual fund would you consider that money? Of course so there is M3. M3 included all of M2 (which includes M1) plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada. But then for some "unknown" reason the U.S. Government stopped tracking that number. Supposedly to save money (yeah right). See our article Good-Bye M3 for the full story. So why is M3 important? Because the money supply controls how much inflation we have. See the article Inflation Cause and effect for more information. One would have hoped that the disappearance of such a useful and telling indicator of fiscal responsibility would have been met by a public outcry. And that in a Democracy that outcry would have resulted in the Government reinstating the tracking of M3. But unfortunately, that did not happen. The news media barely mentioned the issue and the public remained blissfully ignorant and politicians could now inflate our currency virtually unseen. But the free enterprise system stepped in and took up the slack where Democracy failed. Along came John Williams of "Shadow Government Statistics" and he is calculating and publishing the current M3 Money numbers. Now of course these aren't "official" government M3 money supply statistics anymore but if you ask John, he will tell you his numbers are less subject to fudging than the government numbers anyway. So we will be updating and providing you with John's M3 money supply numbers right here. Current M3 Money Supply CommentaryAs you can see from the chart, (above right) M3 Money Supply is actually shrinking beginning at the end of the first quarter. What you can't see is that credit creation dropped from 18% down to about 2%. This means banks aren't loaning anywhere near as much money. In other words unless you are a great credit risk (i.e. you don't actually need the money) you won't be able to get a loan. This is precisely what triggered the "Great Depression" no money available from the banks to grease the economy. This puts the money supply is under extreme pressure to contract. In addition, banks are expecting further tightening until the middle of 2009. All of this is very deflationary. Now you might think a little deflation will help counteract all the inflation we've had lately. And yes that it will. But unfortunately, as we see in the article Inflation and Recession high inflation rates, followed by a contracting money supply, is the perfect recipe for recession or even depression. The impact the economy feels depends on how much the money supply contracts. A lot depends on what the FED does now. In order to create a "soft landing" they need to counteract the contracting money supply just enough to level it out. Think about it like an airplane... Look at the angle of descent... are we crashing down or leveling off? Unfortunately, based on the money supply, at the moment it looks like we are crashing down. See the following articles for more information:
How does the Money Supply affect our Inflation Rate? For more information on Inflation Planning: See our Compound Inflation Calculator aka. Retirement Planning Calculator How much do you need to earn next year to keep up with inflation? See our Salary Inflation Calculator to find out. Has this Chart been helpful? We appreciate your feedback. Disclaimer: At InflationData.com we are not registered investment advisors and do not provide any individualized advice. Past performance is not necessarily indicative of future performance and future accuracy and profitable results cannot be guaranteed.
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