Can M3 be Saved?

Monday, March 06, 2006 | 07:33 AM

I always find it curious when a good source of public data gets cancelled by an administrative source.

Mass layoffs were the first victim, killed by the White House in 2003.

Next came the proposed ending of funding for a Census Bureau survey on the economic well-being of U.S. residents -- a move decried by both the left and the right.

But the most egregious and unwarranted cancellation of a data source has been the Federal Reserve plan to end M3 reporting. It struck me that Ben Bernanke's defense of this was the first blot on his tenure as new Fed Chair.

Its a clean historical data series. Its accurate, not seasonally adjusted, not hedonically altered. There is really no good reason to cancel this.

For a nation that is capable of scrapping together 100s of millions of dollars for an Alaskan bridge to nowhere, it is ridiculous that an important measure of money supply will no longer be reported, ostensibly as a cost cutting measure.

Puh-leeze. That's tough to believe, especially when we look at M3.   

M2_v_m3 Its no coincidence that M3 has been soaring in advance of its impending death: Jim Picerno observes that "The broadest measure of U.S. money supply -- the so-called M3 -- has less than a month to live, but its swan song continues to be one of growth, and growth that's notably higher relative to that of M2, the official replacement for the doomed series."

As the Federal Reserve data makes clear, M3 is growing at a much faster pace than M2 -- which  has a time-lag and contains no "electronic" money.

Given the current account deficit, and any structural risks to the US dollar, as a fund manager, I want access to more and not less information. 

Its not too late to save M3: Congressman Ron Paul is sponsoring a bill that will require the Fed to continue to monitor and report M3. This bill will need your support.

You can contact the congressman at:

Ron Paul
Washington, DC
203 Cannon House Office Building
Washington, DC 20515
Phone Number: (202) 225-2831

A historically clean, accurate data source is a terrible thing to waste . . .



Related links:

US FED discontinues reporting M3 data

The End of M3 Reporting?


Where Do All Those Numbers Come From?

Money Supply and the End of M3

Historical M2 vs M3

Chart of the Week: M1, M2, M3 Money Supply Components



M3 Reporting: Whats The Big Deal?

Monday, March 06, 2006 | 07:33 AM | Permalink | Comments (25) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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You have misrepresented Bernanke's argument for killing M3. It is not merely a money saving effort. Bernanke said that M3 has lost its correspondence to other macro variables. Fed economists aren't able to make good use of it, so they intend to stop building the series. Can you show that M3 does, in fact, have some current value as a predictive tool?

There is the obvious problem that M3 might again become useful as a predictive tool, but that we can't know that if the series is no longer published. However, the same could be said for various monetary aggregates the Fed has created along the way.

Posted by: kharris | Mar 6, 2006 8:55:38 AM

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