M3 - Deafening Silence In The MSM - And The Federal Reserve

Tuesday, November 15, 2005

A comment at The Big Picture complained on Monday about the deafening silence in blogosphere about the Fed's decision to discontinue the data series on monetary supply M3, in importance on a par with industrial production figures which are also provided by the Fed.
As I can only see deafening silence from the side of the MSM (commercial mainstream media) which can be attributed to ignorance or lacking expertise or successful evasive answers by some Fed spokesmen (to the tune of "this data is not relevant anymore") I want to correct that blogosphere has kept mum on the issue. A Google MSM news search about M3 news reveals only a story by Peter Brimelow at Marketwatch - who barely scratches the surface - whereas other media that normally echo every word from the Fed shine through a notable absence on the issue.
Blogosphere has come up with lots of educative and informative material on last weekends hottest econ topic.
Barry Ritholtz, Mark Thoma and myself have requested an explanation from the Fed, but so far in vain. I think it is not overly speculative to say whatever reason the Fed may (not) give will not make them appear in the brightest of all lights.
Macroblog has followed up with a tutorial on monetary aggregates MZM, M1, M2 and M3 and concludes for the disappearance of M3, "the much ado about the pending disappearance of M3 is much ado about not much."
The cultural view on the eastern shoreline of the atlantic is different, M3 being here the most closely watched of all the monetary aggregates. If we were to watch M1, currently growing at close to 11% annually I would sleep still worse than I do with M3 growing at 8.5%, a rate that brings a lot of headaches at the ECB and gives them more reason to think about rate hikes than the comparatively tame headline inflation figure of 2.5%.
Withdrawing one of the oldest data series at a time when it depicts a dramatic worsening of the monetary situation can hardly be explained intelligently without raising even more eyebrows.
Several editorials at Financial Sense Online by myself, Doug Gillespie, and Robert Hugh have added more insight why the Fed might have a vested interest in hiding M3 growth in the future. Yes, and the conpiracy theorists have jumped on the bandwagon as well as the gold-bugs. Tending to side with minorities out of a democratic principle I would not brush away all of their arguments - but many of them are not tightly connected to reality either. My favorable view about gold as a corrective to fiat money is documented in this blog anyway. (Reminder: 13th century - witches; 21st century - conspiracy theorists and 9/11 doubters)
Blogosphere has gone abuzz as well. A Google blogsearch lists 24 entries for "Fed + M3" dealing with the issue. I came across a couple more yesterday on the blogo-link-trail. The same search at Technorati finds 20 entries in the last 2 days but a manual count in the computer generated list finds more than that. William Polley has promised to add another entry. Bill Cara argues that the disappearance of M3 will veil a coming reflation and he has more harsh words for the move towards less transparency.
A sum-up of all the stuff I read about the next set of data to come under the veil of secrecy results in the impression that the coming disappearance of M3 data has initiated a steep learning curve for all those who have been contributing to the issue.
My reasons why I dread the discontinuation can be found in the 2 previous posts "Unpleasant Trend - Fed Counters By Stopping Release of M3 Money Supply Data" and "M3 - There Is Always A Funny Side To A Sad Story." Not that they would end with this. Diving deeper into the issue I get some more suspicions, but they will first have to be proven by the developing reality.
But taking away the data sets on repo agreements and Eurodollar deposits will mean that a lot of money will not go accounted for after March 2006 and that the Fed's operation in the repo market cannot be overseen anymore. This will make it easier for the Fed to throw unlimited amounts of money onto the bond market without being held accountable for it. The Fed is already a very big player in this market, raising questions about what other than market forces are at work there. No indebted government can be interested in higher interest rates and interventions with electronically generated dollars are a very cheap way to disturb free markets normally driven by risk and reward considerations.
The coming lack of information on Eurodollars means that a good part of OPEC's oil revenues will not be accounted for anymore. If I would see cheat and betrayal all over I would conclude that oil prices will not matter anymore for the US government and its oil-thirsty army. Just print and buy. For this reason the Iranian Oil Bourse could become a real threat to the dominance of the greenback.
After seeing what loose hand the Bush government had with billions of cash that simply vanished in Iraq I would strongly prefer that economic research could still look at all the available gauges. Or would you fly on a plane where the gas gauge is taped over?
UPDATE: Once again, Tim Iacono from The Mess That Greenspan Made has the same thoughts at the same time, and quotes some other blogs on the issue.
UPDATE II: I forgot to tune in for the Bernanke hearing at the Senate Banking Committee from the beginning. But right now he is talking about bringing more transparency to the Fed, reminding committee members that he once suggested live TV transmissions of the FOMC meetings. I am not sure if that would not be over the top as the closed circle would certainly tame all utterances when being conscious that all market participants would listen - and trade - on every unclear wording.
Go slow, Mr. Bernanke. Bring back the M3 data and have a press conference after the FOMC meeting as the ECB does very successfully (still haven't blogged about the shortcomings of attending journalists; will do.)


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