View Full Version : M3 is back...
After reading this little known press release ( http://www.federalreserve.gov/releases/h6/20060316 ) a few weeks ago, I started to wonder… and the surprising result is that (except for the Eurodollars element of M3), the data is still available with which to reconstruct M3.
* The formula used has over five nines (.9999946 – 1.0 being perfect) correlation to the original data back going back to 1980, and is taken directly from the Federal Reserve’s definition of M3.
* There is only one missing element that is apparently no longer available (Eurodollars) and I've applied an adjustment to generate it. Its only about 3% of total M3 so should not have a material effect on the total
* The data sources are M2, Institutional Money Market and two weekly reports from the Fed – H.8 and H.4.1.
* Not surprisingly, the growth rate has continued up since the last official report in early March
* I’ll leave it up to the reader on why M3 was discontinued but wish to point out this quote: The last duty of a central banker is to tell the public the truth. -- Alan Blinder, Vice Chairman of the Federal Reserve, on PBS’s Nightly Business Report in 1994
http://www.nowandfutures.com/images/m3b.png
Nice. We can call it the iTulip.com M3 index.
How about we start keeping a few of our own monthly statistics in addition to bart's M3. Some suggestions:
- Consumer Confidence Game Index
- Alternative to Consumer Confidence Index - Measures the level of confidence of households in the future health of the economy by measuring the amount of debt taken on relative to real income
- Bubble Domestic Product
- Alternative to GDP - Measures economic growth that's dependent on asset appreciation versus production
- iTulip Price Index
- Alternative to CPI - Measures eal Household Inflation, comprised of traded and non-traded goods and services, in proportion to the average household's budget for each category. Currently, expenditure on non-traded goods represents 83% of the typical household's expenses. This weighted approach shows that the average household experienced a 4% rate of annual inflation between 2003 and 2004.
http://www.alwayson-network.com/comments.php?id=7525_0_1_0_C
Other ideas?
I actually already have taken a shot at bubble GDP.
Its based very roughly on John Williams work on the lies imbedded in CPI (and therefore the GDP deflator), and simply takes GDP with the deflator and subtracts CPI in an attenpt to get a truer picture.
John's work indicates the needed adjustment to CPI is roughly about 3%, and that's the rough range of CPI itself. Its obviously not terrbibly accurate to do this over the period 1988-1996 (when the Boskin Commission work made a major CPI adjustment) but it sure does present a more true picture in my opinion.
http://www.nowandfutures.com/images/real_gdp.png
By the way EJ, my M3 work is fully in the public domain.
There's even a full copy of the Excel data with how its calculated and the various sources for the data available in the zip at http://www.nowandfutures.com/download/m3b.zip
An update - just recently the broad money measure called M3, which was discontinued by the Fed last March and reconstructed by me in April, broke above a 10% year over year growth rate. It also is now over $11 trillion in total value.
Here's the current chart:
http://www.nowandfutures.com/images/m3b.png
Do note that its actual effect will be delayed for at least 12-18 months due to the nature of monetary lags... but if it were still being published by the Fed. it would likely trigger a gold buying spree.
A definition of M3 and it components are available in my glossary under "money measures".
Finster
10-31-06, 05:22 PM
An update - just recently the broad money measure called M3, which was discontinued by the Fed last March and reconstructed by me in April, broke above a 10% year over year growth rate. It also is now over $11 trillion in total value.
Here's the current chart:
http://www.nowandfutures.com/images/m3b.png
Do note that its actual effect will be delayed for at least 12-18 months due to the nature of monetary lags... but if it were still being published by the Fed. it would likely trigger a gold buying spree.
A definition of M3 and it components are available in my glossary under "money measures".
Holy monetary profligacy, Bartman!
Ten percent? That ROC line looks too scary even for Halloween!
FWIW, if that's what they're doing, I think the markets will react before too long even if they don't publish M3. (Of course those of us privy to m3b needn't even wait for that). Think we ought to be making sure we have some gold now?
Holy monetary profligacy, Bartman!
Ten percent? That ROC line looks too scary even for Halloween!
FWIW, if that's what they're doing, I think the markets will react before too long even if they don't publish M3. (Of course those of us privy to m3b needn't even wait for that). Think we ought to be making sure we have some gold now?
Methinks you're correct on all counts, oh Maven of the Manor - and I wish it were an April 1st joke too. Its actually probably higher than that, since I'm estimating the truly discontinued Eurodollar component very conservatively.
I've recently added to my gold long position substantially too, based on many indicators of which M3 is only one. Here are a few more:
http://www.nowandfutures.com/images/predict_usdx.png
http://www.nowandfutures.com/images/predict_gold.png
http://www.nowandfutures.com/images/predict_silver.png
Finster
10-31-06, 05:41 PM
Methinks you're correct on all counts, oh Maven of the Manor - and I wish it were an April 1st joke too. Its actually probably higher than that, since I'm estimating the truly discontinued Eurodollar component very conservatively.
I've recently added to my gold long position substantially too, based on many indicators of which M3 is only one. Here are a few more...
Gold seems to make sense, and the action there the past few days might even be the first early signs it's being felt. Any other actions investors ought to consider?
Silver
1) Has many industrial uses
2) Often isnt mined for primarily; so if mining operations looking for copper,zinc,gold slow down, even with a high silver price, you wont necessarily get alot of increased output.
3) China and India will need it
Gold seems to make sense, and the action there the past few days might even be the first early signs it's being felt. Any other actions investors ought to consider?
Things could get squirrelly pretty fast after the election. It also depends a lot on how much the Fed & Treasury are pumping. In my opinion, the markets are being artificially propped up and could drop significantly at any time.
Also, if anyone doesn't have a clear idea what they will do if the dollar starts to drop precipitously, now is the time to do the research and make decisions.
Here's a chart from JesseL's site ( http://www.geocities.com/arthurcutten/jesse.html ) that speaks to the first issue:
http://www.nowandfutures.com/download/insider_sales(jesse).png
Finster
11-01-06, 06:56 AM
Things could get squirrelly pretty fast after the election. It also depends a lot on how much the Fed & Treasury are pumping. In my opinion, the markets are being artificially propped up and could drop significantly at any time.
Also, if anyone doesn't have a clear idea what they will do if the dollar starts to drop precipitously, now is the time to do the research and make decisions.
Here's a chart from JesseL's site ( http://www.geocities.com/arthurcutten/jesse.html ) that speaks to the first issue:
...
It sounds like you are saying that this 10% money growth is apt to end fairly abruptly (after the elections). But wouldn't a more restrictive Fed be good (or at least less bad) for the dollar? What am I missing?
It sounds like you are saying that this 10% money growth is apt to end fairly abruptly (after the elections). But wouldn't a more restrictive Fed be good (or at least less bad) for the dollar? What am I missing?
Sorry - what I was referring to on a possible drop off after the elections was the "hot money" actions of the Fed & Treasury. If they start dropping off much, I think we'll see a stock market correction due to the likelihood of recession, etc.
The M3 10%+ growth rate has more to do with inflation 12-24 months in the future... but if it was still around, it would give even more impetus to gold & hard assets.
As far as a more restrictive Fed being good for the dollar, very true... and also not very likely in my book. It appears to me that there's at least a 40% chance that the Fed is loosening up already. Here's a chart showing credit growth in all four of the main types - we're not exactly in a credit crash.
http://www.nowandfutures.com/images/credit_all.png
Finster
11-01-06, 08:53 AM
Sorry - what I was referring to on a possible drop off after the elections was the "hot money" actions of the Fed & Treasury. If they start dropping off much, I think we'll see a stock market correction due to the likelihood of recession, etc.
The M3 10%+ growth rate has more to do with inflation 12-24 months in the future... but if it was still around, it would give even more impetus to gold & hard assets.
As far as a more restrictive Fed being good for the dollar, very true... and also not very likely in my book. It appears to me that there's at least a 40% chance that the Fed is loosening up already. Here's a chart showing credit growth in all four of the main types - we're not exactly in a credit crash.
...
So if I understand you right, my congnitive dissonance is due to different time frames. Near term, a lighter Fed foot on the accelerator pedal would remove support from stock prices, but further on down the road the money growth will do the same for the dollar.
My only quibble (and how boring things could get without quibbles ;-) would be to argue that that 10% money growth represents inflation in the here and now. The mere fact that it would take 12-24 months to work its way into consumer prices (and measures of them) reflects the lagging nature of those measures, not of the inflation itself! :eek:
So if I understand you right, my cognitive dissonance is due to different time frames. Near term, a lighter Fed foot on the accelerator pedal would remove support from stock prices, but further on down the road the money growth will do the same for the dollar.
My only quibble (and how boring things could get without quibbles ;-) would be to argue that that 10% money growth represents inflation in the here and now. The mere fact that it would take 12-24 months to work its way into consumer prices (and measures of them) reflects the lagging nature of those measures, not of the inflation itself! :eek:
Always with the nits, eh FinMeister? ;)
Very much true on both the time frames issue and it also being inflation now. And speaking of inflation now and lags and predictions, gold sure is tracking pretty well with my chart with its high so far today of about $615... even though it doesn't include M3 as an input.
http://www.nowandfutures.com/images/predict_gold.png
Finster
11-01-06, 09:40 AM
Always with the nits, eh FinMeister? ;)
Very much true on both the time frames issue and it also being inflation now. And speaking of inflation now and lags and predictions, gold sure is tracking pretty well with my chart with its high so far today of about $615... even though it doesn't include M3 as an input.
...
Well it's a good thing gold is on the move today, because that Canadian government tax grab has the income trusts tanking big time!
On to your gold chart. It is suggesting gold will return to its earlier highs within a couple months or so? FWIW, my gold forecast is calling for something very similar, only just a little later on towards mid-year. Remarkable concurrence.
http://users.zoominternet.net/~fwuthering/FFF/AUY.png
Well it's a good thing gold is on the move today, because that Canadian government tax grab has the income trusts tanking big time!
On to your gold chart. It is suggesting gold will return to its earlier highs within a couple months or so? FWIW, my gold forecast is calling for something very similar, only just a little later on towards mid-year. Remarkable concurrence.
I'd make a tinfoil hat enabled comment about that income trust move in Canada, but I'm feeling charitable towards that North American Partnership outfit today.
Very much so on gold, and tentatively am looking for a another peak around Jan 1st. Two great minds with but a single thought... ;)
Finster
11-01-06, 10:44 AM
I'd make a tinfoil hat enabled comment about that income trust move in Canada, but I'm feeling charitable towards that North American Partnership outfit today.
Well since as a result I'm at least $10K poorer than yesterday, maybe you could direct some of that charitable impluse this way ... ;)
Tinfoil hat comments welcome! :D
Well since as a result I'm at least $10K poorer than yesterday, maybe you could direct some of that charitable impluse this way ... ;)
Tinfoil hat comments welcome! :D
Its pretty much just semi-informed conjecture. All I'm looking at is the longer term trend towards what's behind the curtain at http://www.spp.gov. The various applicable laws will need to be aligned, and this is likely one of the steps.
There's also the more obvious one of governments being fond of tax income.
Finster
11-01-06, 11:56 AM
Its pretty much just semi-informed conjecture. All I'm looking at is the longer term trend towards what's behind the curtain at http://www.spp.gov. The various applicable laws will need to be aligned, and this is likely one of the steps.
There's also the more obvious one of governments being fond of tax income.
Well if this piece of high-sounding politico-bureaucratic claptrap is any indication, I'll don my foil beanie, too! ;-)
The Security and Prosperity Partnership of North America (SPP) was launched in March of 2005 as a trilateral effort to increase security and enhance prosperity among the United States, Canada and Mexico through greater cooperation and information sharing.
This trilateral initiative is premised on our security and our economic prosperity being mutually reinforcing...
Of course these types always hunger for more tax revenue, but the way in which it is collected and the complexity of the system matter too. Instead of cutting the dividend tax rate here, for example, and giving us a whole new layer of complexity, our politicos could have simply treated corporate payments of dividends as deductible to the corporations, like their interest payments to bond lenders are, and then let the individual investors pay the same rate on both. Doing it the way they did, however, was IMO a cynical attempt to gain voter sympathy as the other could have been demagogued as a tax cut for "rich corporations".
Politics. Yuck.
Of course these types always hunger for more tax revenue, but the way in which it is collected and the complexity of the system matter too. Instead of cutting the dividend tax rate here, for example, and giving us a whole new layer of complexity, our politicos could have simply treated corporate payments of dividends as deductible to the corporations, like their interest payments to bond lenders are, and then let the individual investors pay the same rate on both. Doing it the way they did, however, was IMO a cynical attempt to gain voter sympathy as the other could have been demagogued as a tax cut for "rich corporations".
Politics. Yuck.
Not only that, but by making the additional complexity, more bureaucratic jobs are created... which after all is one of the primary functions of a bureaucracy.
As you can see, I switched to my cynic hat temporarily... ;)
Finster
11-01-06, 02:43 PM
Not only that, but by making the additional complexity, more bureaucratic jobs are created... which after all is one of the primary functions of a bureaucracy.
As you can see, I switched to my cynic hat temporarily... ;)
How could you not be cynical when it comes to politicians and bureaucrats? The complexity of the tax code is an important source of power for them. By setting tax rates high and then creating a network of loopholes, exceptions and traps, they can grant special favors to moneyed constituencies, who in turn then depend on the politicians for continued breaks and favors. Keeps the campaign donations flowing!
It's the same kind of logic behind the creation of central banks and the fostering of inflation. Inflation is a form of taxation that politicians can levy covertly to fund programs, promises and wars without having to directly present voters with the bill. Instead the costs show up at the grocery store, gas pump, and in our utility bills. Because the spending is obvious but the cost is not, it allows the politician to appear to be producing something.
Even corporate managements like inflation because in combination with artificially low interest rates it makes traditional saving fruitless and forces marginal capital into the stock market. That lowers the cost of capital for corporate managements to spend on empire-building acquisitions and with which to fund their stock option gravy train, while giving them a less sophisticated shareholder base that is less likely to notice their hands in the cookie jar.
… and you thought you were being cynical …
… and you thought you were being cynical …
:D
That was just my kinder, gentler, 1000 points of light cynic mode... ;)
The next constitution I write will not have legal protection of any kind for any politicians, or any corporate body fictions either. :mad:
Finster
11-02-06, 01:40 PM
:D
That was just my kinder, gentler, 1000 points of light cynic mode... ;)
The next constitution I write will not have legal protection of any kind for any politicians, or any corporate body fictions either. :mad:
As a central bank guru, however, how would treat the issue of central banking in your constitution?
Would such things exist? If so, what constraints would you place on them? If not, what would be the nature of your monetary and banking system?
As a central bank guru, however, how would treat the issue of central banking in your constitution?
Would such things exist? If so, what constraints would you place on them? If not, what would be the nature of your monetary and banking system?
Thanks for the vote of confidence but in no way do I consider myself a central bank guru. I'm literally not well enough read or educated or experienced in the area.
But that said, and with the disclaimer that my opinions are very much in a state of flux and quite incomplete, a central bank would probably not exist under "my constitution" but the basic functions would. A country just plain has to have functions like check clearing, international flows, production of coin & currency, and also an organization or body to handle things like inflow sterilization.
The basic constraint would be the lack of any legal or governmental or other shield. In other words, they could be sued by any citizen for dereliction of duty, the primary duty being zero inflation.
Finster
11-02-06, 04:08 PM
Thanks for the vote of confidence but in no way do I consider myself a central bank guru. I'm literally not well enough read or educated or experienced in the area.
Well would you consider Alan Greenspan a central bank guru? Or Ben Bernanke?
And how good have they done? :rolleyes:
But that said, and with the disclaimer that my opinions are very much in a state of flux and quite incomplete, a central bank would probably not exist under "my constitution" but the basic functions would. A country just plain has to have functions like check clearing, international flows, production of coin & currency, and also an organization or body to handle things like inflow sterilization.
The basic constraint would be the lack of any legal or governmental or other shield. In other words, they could be sued by any citizen for dereliction of duty, the primary duty being zero inflation.
That pretty clinches my vote! :)
Now maybe just for kicks, we wrestle with the question of how you define "zero inflation". (No, this is not going to turn into an FDI plug...;) But I sure hope after all the ink spilt here on price and value indices, you're not going to suggest some measure of consumer prices!) What about other possibilites? Money supply? Would you target some monetary aggregate? Allow no money growth? For example, by insisting on the apparently quaint, *old fashioned* notion that somebody actually has to save money for someone else to borrow it? Or maybe stipulate that per-capita money supply be held constant? Tie it to gold and/or silver?
This is not just an academic question, though; there has been some serious public discussion about an inflation target and we may even de facto have one. Amazingly, however, the question of how you define that target is all but absent from the discussion.
Well would you consider Alan Greenspan a central bank guru? Or Ben Bernanke?
They might be, given the correct environment... I honestly don't know. Neither one are unintelligent.
Now maybe just for kicks, we wrestle with the question of how you define "zero inflation". (No, this is not going to turn into an FDI plug...;) But I sure hope after all the ink spilt here on price and value indices, you're not going to suggest some measure of consumer prices!) What about other possibilites? Money supply? Would you target some monetary aggregate? Allow no money growth? For example, by insisting on the apparently quaint, *old fashioned* notion that somebody actually has to save money for someone else to borrow it? Or maybe stipulate that per-capita money supply be held constant? Tie it to gold and/or silver?
This is not just an academic question, though; there has been some serious public discussion about an inflation target and we may even de facto have one. Amazingly, however, the question of how you define that target is all but absent from the discussion.
You define zero inflation by the basic definition - money equal to goods, also know as stable prices. For the nitty gritty details, just hire a few demonstrated experts that are subject to the same rules and let them go at it.
Its not ultra rocket science if I can get close with Excel with a bunch of days work and virtually no training.
As far as targeting a monetary aggregate, not likely... but we're getting into both too many slippery slopes and also beyond the level of my certain knowledge for me to say much more.
Money supply must change and usually grow in virtually any reasonably sane economy.
I also would not tie money to gold or silver, etc. - it can easily be an artificial constraint on growth, can be used as an ugly "control" tool much like current fiat is, and also is too subject to the flaws of the "living off interest" basic definition of capitalism.
Finster
11-02-06, 05:20 PM
They might be, given the correct environment... I honestly don't know. Neither one are unintelligent.
Maybe it's not so much in the cerebral department but in the spinal area?
..................
Quibble time. Can you rectify the following two statements?
a central bank ... [its] primary duty being zero inflation.
Money supply must change and usually grow in virtually any reasonably sane economy.
Maybe it's not so much in the cerebral department but in the spinal area?
Or, in more or a local vernacular, cojones... ;)
Quibble time. Can you rectify the following two statements?
a central bank ... [its] primary duty being zero inflation.
---------
Money supply must change and usually grow in virtually any reasonably sane economy.
If the economy is sane, goods (and services) production will be increasing and therefore in order to maintain stable prices, money supply must also increase equivalently.
By sane, I basically mean that production only goes two ways - up or down (level is effectively down), and up is by far the more favorable and "correct" of the two - even if its only caused by population increase.
Finster
11-02-06, 05:56 PM
If the economy is sane, goods (and services) production will be increasing and therefore in order to maintain stable prices, money supply must also increase equivalently.
By sane, I basically mean that production only goes two ways - up or down (level is effectively down), and up is by far the more favorable and "correct" of the two - even if its only caused by population increase.
I'd definitely stick with the population increase. The problem with the first is it gets into subjective judgments as to the amount or value of goods and services produced. It's Alan Greenspan's best friend, "productivity". And when known as "hedonics" also the best friend of Michael Boskin. Used to justify all sort of inflationary mischief.
A verrrry slippery slope you are on with those two ...
I'd definitely stick with the population increase. The problem with the first is it gets into subjective judgments as to the amount or value of goods and services produced. It's Alan Greenspan's best friend, "productivity". And when known as "hedonics" also the best friend of Michael Boskin. Used to justify all sort of inflationary mischief.
A verrrry slippery slope you are on with those two ...
Truth on the mischief... but just imagine Greenspan's or Boskin's face if they were sued for millions, etc. :D
I also think a decent inflation measure (I could always use "index" or "price index" to tweak you ;)) is quite possible to do... but perfect 100% accuracy isn't.
Finster
11-02-06, 07:03 PM
Truth on the mischief... but just imagine Greenspan's or Boskin's face if they were sued for millions, etc. :D .
LOVE IT!
:)
I also think a decent inflation measure (I could always use "index" or "price index" to tweak you ;)) is quite possible to do... but perfect 100% accuracy isn't.[/QUOTE]
Yep.
:D
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