Inflation and the M3 Money Supply

I’m no financier and I don’t trade stocks, but the one thing I do know about is the M3 money supply.

Inflation and the M3 Money Supply
Photo: fuschia_foot, Creative Commons, Flickr
Inflation and the M3 Money Supply
Photo: Jayel Aheram, Creative Commons, Flickr

This knowledge arrives as a result of my father’s ongoing economic concerns after surviving the Great Depression. My father, who saw the banks close, was one of five brothers between the ages of 15 and 21 sent out to work after that debacle, and he never forgot the lessons learned. When the M3 arrived in the 50s, he saw it as an ideal barometer of the country’s financial stability.

So what is the M3? It is the third in a series of money tracking and measuring tools, or databases, preceded by the M1 and M2. The M1 measures the consumer economy – cash in hand, deposits in checking accounts, etc. M2 includes M1 but also tracks savings accounts, time deposits (CDs and savings deposits held for specified periods) under $100,000, and money in retail money market mutual funds (which are pools of money market securities).

M3, measured since about 1959, is the granddaddy of money tracking, including all of M1 and M2 plus time deposits over $100,000, monies in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars (not to be confused with Euros) held by US citizens at foreign branches of US banks, including all UK and Canadian banks. This is the money the big boys play with, and reveals a lot about the nation’s economic stability, or lack thereof.

Congressman Ron Paul calls the M3 "…the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation."

The US Federal Reserve, or Fed, stopped tracking the M3 money supply in 2006. They said it was a cost-saving measure. Since the Fed is better known for making money than saving it, doubts ensue, intensified by the Fed’s other excuse – that the M3 is tracked elsewhere.

In fact, some of the data used to calculate M3 are still collected and published. The key word is "some," and it requires a financial guru to untangle and interpret the skeins of information. Still, if you have the head for it, you can visit You can also go to the Financial Forecast Center.

According to Gary Kuever, who owns the website mentioned above, the failure to report the M3 is an attempt by the Fed to hide the liquidity being pumped into the market, meaning the creation of more paper money with less tangible "stuff" to back it. Others speculate the M3 non-reporting is the first in a series of steps leading to the creation of the amero.

The amero, for those new to conspiracy politics, is the financial instrument of the New World Order, or the Security and Prosperity Partnership. To Kuever, who stands outside conspiracy theory but inside a rising web of concern, the Fed’s actions are nonetheless resulting in runaway inflation, with the dollar losing 98 percent of its value in the past 100 years.

Kuever’s data shows the M3 increasing at a curve reminiscent of Michael Mann’s global warming "hockeystick." The global warming curve has been debunked; it has not been so easy to denounce the money supply curve. Bob Chapman calls the Fed’s policies and lack of transparency "inflationary," pointing out that money is being created at an 18-percent rate, leaving a situation where a sharp drop in commodity prices would mandate the Fed increasing the M3 by as much as 25 percent. Chapman further charges that the Fed is only interested in rescuing banks and Wall Street, but not in the value or fate of the dollar, and cites the fact that OPEC’s head, Chakeb Khelil, admits that every 1-percent decline in the dollar causes oil prices to rise by $4.

The U.S. trade deficit is running at an annual rate of about $800 billion. This means we are sending our devalued dollars overseas, to China for example, and getting back "stuff," the value of which is highly questionable.

What happens when the Chinese start demanding real value? They can’t send warships to confiscate New York, but they can raise the prices for this stuff, or even – heaven forbid – stop trading in US dollars. It can’t happen overnight – the dollar supports 70 percent of China’s $1 trillion in foreign reserves – but the Chinese have already threatened to begin paying Iran for oil in yuans, and in March of 2007 announced that it would no longer accumulate foreign exchange (read dollar) reserves.

In Europe, a similar inflationary situation exists. In April of 2008, the European Central Bank (ECB) said annual growth in the broad M3 money supply hit 10.6 percent across the 15-nation Eurozone. The rate dropped in July to 9.5 percent, but the potential for runaway inflation still rears its ugly head across the pond as well.

As several pundits have noted, the Fed was clever to stop reporting the M3 when Greenspan left, all the better to hide either past incompetencies or future plans. Either way, add global warming to the mix and expect commodities to spike, leaving bread close to $5 a loaf by midwinter. You can forget the jam, peanut butter, lunch meat or cheese. In fact, you will probably end up making a sandwich the way my father did; two slices of bread with margarine in the middle – though in his day it was lard. The result in emerging economies will be no bread, pure and simple.

Disclosure: I do not currently own any stocks.

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