Information about finance, the economy and business. Entertaining and informative. Seeking Alpha Certified Mark Sunshine Chairman & CEO

MONEY SUPPLY AND ECONOMIC DATA WEEKLY WATCHTHE FED’S FAVORITE BIRD REMAINS THE HAWK AND PROMINENT ECONOMISTS MAKE UP DATA THAT DOESN’T EXIST" rel="bookmark">MONEY SUPPLY AND ECONOMIC DATA WEEKLY WATCHTHE FED’S FAVORITE BIRD REMAINS THE HAWK AND PROMINENT ECONOMISTS MAKE UP DATA THAT DOESN’T EXIST

Money Sup­ply

For the week end­ing August 11TH, money sup­ply grew by $7.0 bil­lion to $7,728.1 bil­lion (as mea­sured by M2 on a sea­son­ally adjusted basis). Since the week end­ing March 24th sea­son­ally adjusted M2 has only increased by approx­i­mately 0.35% which means that M2 con­tin­ues to grow at a rate of less than 1% per annum. The Fed­eral Reserve con­tin­ues to con­firm that since March, 2008, their favorite eco­nomic bird has been the mon­e­tary hawk. After adjust­ing for infla­tion, money sup­ply con­tin­ues to shrink at a rapid pace.

Shrink­ing real money sup­ply has the fol­low­ing macro­eco­nomic implications:

  • Slow­ing inflation;
  • Lower eco­nomic activity;
  • Strength­en­ing dol­lar; and
  • Credit rationing.

Econ­o­mists Play A Game of Pre­tend By Pub­lish­ing Data That Doesn’t Exist

Many so-called “promi­nent econ­o­mists” in the United States and Great Britain were late to under­stand Fed­eral Reserve mon­e­tary pol­icy and are now cov­er­ing up their past incom­pe­tence by mak­ing up data and pre­sent­ing it at as both author­i­ta­tive and accu­rate. The issues sur­round­ing the destruc­tion of money sup­ply as result of the credit cri­sis were obvi­ous but often ignored dur­ing the sec­ond half of 2007 and the first half of 2008. Despite hav­ing the Great Depression’s mon­e­tary his­tory as a guide, many econ­o­mists that were crit­i­cal of Fed­eral Reserve pol­icy in the inter­na­tional media didn’t bother to think before talk­ing. These econ­o­mists didn’t under­stand that the Fed­eral Reserve’s emer­gency liq­uid­ity facil­i­ties were designed to pre­vent a whole­sale destruc­tion of the mon­e­tary base and that once money sup­ply was sta­bi­lized, the Fed­eral Reserve could their cur­rent hawk­ish stance.

Now, those same econ­o­mists who blew it ear­lier in the year are mak­ing up for lost time by fab­ri­cat­ing M3 sta­tis­tics. These econ­o­mists want their paid sub­scribers to believe that they can cal­cu­late U.S. M3 and pre­dict future pol­icy despite the fact that on March 23, 2006 the Fed­eral Reserve stopped pub­lish­ing M3 and sev­eral of the mon­e­tary com­po­nents that are nec­es­sary to cal­cu­late M3. In its press release dis­clos­ing the dis­con­tin­u­ance of M3 the Fed­eral Reserve stated:

M3 does not appear to con­vey any addi­tional infor­ma­tion about eco­nomic activ­ity that is not already embod­ied in M2 and has not played a role in the mon­e­tary pol­icy process for many years. Con­se­quently, the Board judged that the costs of col­lect­ing the under­ly­ing data and pub­lish­ing M3 out­weigh the benefits.”

Accord­ing to Fed­eral Reserve, it doesn’t use M3 for pol­icy mak­ing, doesn’t col­lect the data nec­es­sary to cal­cu­late M3 and doesn’t even want to spend the money to cal­cu­late M3 just in case it becomes valu­able in the future.

So, what are the expert econ­o­mists say­ing when they “cal­cu­late M3” and pub­lish graphs that show its exact move­ments over the last 12 months? I think that there are two choices. Either they (i) are mak­ing up both data and analy­sis out of thin air or (ii) have super­nat­ural pow­ers that allow them to divine data that doesn’t exist and then act as a mod­ern day Mer­lin when they pre­dict the future.

My vote is that they’re mak­ing up data and analy­sis and we should not lis­ten to them.

Posted in: BANKS, Bernanke, Deflation, Federal Reserve, Finance, GDP, Inflation, M2, M3, monetary policy, Money Supply

1 Comment

  1. Free Economy Blogs» Blog Archive » - United States Economic Depression

    […] MONEY SUPPLY AND ECONOMIC DATA WEEKLY WATCH ? THE FED?S FAVORITE … By Mark Sun­shine Slow­ing infla­tion;; Lower eco­nomic activ­ity;; Strength­en­ing dol­lar; and; Credit rationing. Econ­o­mists Play A Game of Pre­tend By Pub­lish­ing Data That Doesn?t Exist. Many so-called ?promi­nent econ­o­mists? in the United States and Great … Sun­shine Notes — http://www.firstcapital.com/blogs/mark_sunshine […]

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>