The M3! never heard of it? Don’t feel bad even most financial professionals have at best a passing acquaintance with the term, it’s meaning and fewer still have a clue as to what it measure or what it foretells.
As a quick background the M3 is a measure of the amount of all monies except that which people have stashed in bank vaults, federal reserve bank credit, and money market funds so just about everything that can be reasonably considered to be available to be spent or invested etc.
As an indicator of economic activity, the M3 has had the most success predicting longer lasting or drastic economic trends, some say that it may be too volatile for shorter term prophesying and they may be right.
Either way the theory is this, if there is a lot of money out there then the economy will hum along as that money feeds the industrial furnace. If the supply of money available is small then obviously business have a hard time getting it and the consequences may be either an economic slow down if demand is weak or ever higher inflation is demand is strong.
The current economic activity and lack of inflation indicates that the demand is not exactly high.
Here is the rub, April’s measurement of the M3 really pooped the bed, dropping from $14.2 trillion to $13.9 in the previous three months. Worst yet institutional money market funds drooped 37% , the sharpest drop ever.
We have not seen numbers to match these since the Great Depression!
What is the Obama brain trust doing about this? Not a damn thing. wait actually if that was the case it would be an improvement over what they are doing now. For sarters the Charmain of the Federal Reserve has decided that the best way to fix the problem that may be foretold by the M3 supply is to stop measuring the M3 supply. Seriously , that’s exactly what we did! We discontinued the official M3 supply measurements. “Doctor, doctor, do something the EKG shows the patient is going into cardiac arrest! Oh that’s OK just disconnect the machine”
So Obama, Bernanke , Larry Summers – Obama’s chief economic adviser- as well as Obama’s lesser economists such as Nobel Laureates , Paul Krugman and Joe Stiglitz are all concerned and as one White House watcher said “they are deathly afraid of the economy going into a double dip”. The thing is that what they plan to do about it is to implement exactly the same policies that have gotten us here in the first place!!
To wit, just weeks after Obama pledged to reign in deficits and spending the administration’s economic lap dogs led by Larry Summers are telling congress that they need additional tens or hundreds of billions of dollars, to continue the same policies that got us here!
Obama’s economic team, Bernanke , Larry Summers, Paul Krugman and Joe Stiglitzaa are all Keynesian economists , ie. “demand siders, just like Jimmy Carter and his team were. The difference is that Obama spent exponentially more money, money that we don’t have, than Carter and his cronies ever did perhaps they even spent us past the point of no return. If so it will be a very expensive lesson to learn what history has shown us time and time again, communism with it’s centralized demand side economy doesn’t work. In fact it brings about death and misery.
The UK telegraph has a great article on this here