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Subject: [cia-drugs] Europeans, Conspiracy Theorists Lead M3 Mourners: Caroline Baum
Nov. 22 (Bloomberg) -- A chill wind swept across Western Europe, rattling the remains of long-dead Germans who carried memories of wheelbarrows full of worthless deutsche marks to their graves.
Stateside, the conspiracy theorists seized on the new information as further proof of deceit and manipulation. And ordinary folks, who never had the slightest interest in the Ms, wondered why the Federal Reserve was discontinuing the weekly publication of its broadest monetary aggregate, M3, on March 23.
The announcement, posted quietly on the Fed's Web site on Nov. 10 as part of the weekly report on money stock measures, said simply that the Fed would cease to publish M3 data and the following components: large-denomination time deposits, which are captured in another weekly report on bank balance sheets; repurchase agreements; and Eurodollars.
Institutional money market funds will still be included in the weekly monetary aggregates report. Most of the information from M3 is captured in the Fed's quarterly flow of funds report or in depository institutions' call reports filed with supervisory agencies.
When queried about the decision, a Fed spokesperson said that because M3 doesn't appear to contain any more relevant economic information than M2 and has a diminished role in the policy process (when did it ever have a role?), the costs of collecting and publishing the data outweigh the benefits.
Good 'Til Canceled
That may all be true, but why no advance warning or comment period?
``It doesn't seem they reached out very far to get user feedback on the discontinuation of the series,'' said Maurine Haver, president of Haver Analytics and chairwoman of the National Association of Business Economics statistics committee.
In that latter capacity, Haver meets quarterly with directors and deputy directors of the U.S. statistical agencies, including the Bureau of Economic Analysis, Census Department, Bureau of Labor Statistics, the Internal Revenue Service and the Fed. The committee is ``consulted regularly whenever a series is being discontinued or changed,'' she said.
Who knew so many people cared about M3? Are the folks carping about its termination the same ones who regularly rag on money as having lost its relevance to the economy?
More surprising than the Fed's announcement was the level of misinformation emanating from Europe, where the memory of 1920s hyperinflation never dies. The European Central Bank has made monetary analysis one of its ``two pillars'' and M3 its preferred stone.
Chairman-in-Waiting
``As he is on the verge of being confirmed by the Senate, Dr. Bernanke's first act as Fed Chairman has been to cease publication of M3,'' wrote Gabriel Stein, director of Lombard Street Research in London.
Bernanke has yet to be confirmed by the full Senate. (He was approved by voice vote of the Senate Banking Committee on Nov. 16, one day following his appearance before the committee.) He is still President George W. Bush's chief economic adviser. If confirmed, he will move from fiscal policy to monetary policy on Feb. 1, 2006. At that point, he would be in a position to have input on monetary matters.
And even then, the lifespan of M3 or any other data series might not rest entirely with him. That's because all government statistical reports come up for review every three years, on a staggered basis, in accordance with the Paperwork Reduction Act. The Office of Management and Budget requires agencies to submit a report justifying the continuation of data series.
Review Process
This applies to the Fed as well, which has to submit all the reports it produces to a periodic cost/benefit analysis. The Board identifies the cost to the institutions collecting the data, the cost to the Fed of processing the data and the users.
``It's tough to argue that tax money should be spent collecting data that no one looks at,'' said Dick Anderson, an economist at the St. Louis Fed.
It was for that reason the deposit turnover survey and demand deposit ownership survey were summarily killed nine and 15 years ago, respectively. A measure of liquid assets, ``L,'' met its maker in 1998, while debt was discontinued in 2002.
In the M3 review, the board staff determined the elimination would save roughly $500,000 a year for the board and Reserve banks and $1 million a year for depository institutions, according to a Fed board spokesperson. In addition, a search of the economic literature yielded very few results for M3.
Conspiracy Perps
So while the discontinuation of a series very few people pay attention to may have been a surprise, it was not nefarious. Nor was it a prelude to a massive, secretive money-printing operation on the part of the Fed, which is how the hard-core conspiracy theorists are playing it.
On Safehaven.com, where fantasy and reality mix, contributor Robert McHugh offered up the answer to why the Fed is discontinuing the weekly report of M3.
``Why? It's simple, really,'' wrote McHugh, a regular contributor to the site. ``So that the Plunge Protection Team can hide its market manipulative, equity buying activities.''
The PPT is an alleged cabal of government institutions and large banks that intervene to support the markets, most notably stocks and gold.
Repurchase agreements, which are among the M3 components to be discontinued, are ``the most obvious reporting item where PPT market buying transactions show up,'' McHugh said.
If the theory sounds far out, the accounting is even harder to follow, especially when actions are in anticipation of some future stock-buying binge, as McHugh implies.
Altruistic Exposure
``Apparently, the Federal Reserve (a key member of the PPT?) sees a coming need to buy -- or facilitate the buying -- of markets, including the equity market, incognito.'' That explains ``the extra M3 growth over the past several months.'' can print as much money (buy as many government securities) as it wants, but if the banks don't want the reserves, they will dump them, and the federal funds rate will collapse.
That isn't happening. The funds rate has been creeping up every six weeks to 4 percent even as M3 expanded an annualized 10.9 percent in the last 13 weeks.
If the markets are rigged, and McHugh has it all figured out, ``why is he exposing it rather than telling me how to profit from it or profiting himself?,'' asked Jim Bianco, president of Bianco Research in Chicago.
Good point. Don't let reason interfere with a good conspiracy theory.
To contact the writer of this column: Caroline Baum in New York at [EMAIL PROTECTED]
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