http://onlinejournal.com/artman/publish/article_3923.shtml
Analysis Last Updated: Oct 27th, 2008 - 00:04:34
Follow the M3 money to hell
By Jerry Mazza
Online Journal Associate Editor
Oct 27, 2008, 00:21
Email this article
Printer friendly page
Let me not keep you in the dark. As Wikipedia states, our money supply
has three large components. M1 is physical currency circulating in the
economy plus demand deposits (checking accounts). This measure is used
by economists to try and quantify the amount of money in circulation.
M1 is the most liquid measure of money supply since it only contains
cash and assets quickly usable for conversion to currency. Hang in.
M2 is MI + time deposits, savings deposits and non-institutional money-
market funds. M2 is a wider category of money than M1. It’s also used
to quantify the volume of money in circulation and to explain economic
conditions. M3 is the biggie. It’s M2 + M1 + large deposits,
institutional money-market funds, short-term repurchase agreements,
and other larger liquid assets. It’s the broadest measure of money
used to estimate total supply of money in the economy.
The Fed used to publish data on all three money descriptors. But for
some strange reason (couldn’t be saving money as they claimed because
they never save money), the Board of Governors of the Federal Reserve
discontinued publishing data on M3 (which contain all data on M1 + M2
=M3) on March 23, 2006. M3 also included balances in institutional
money funds, repurchase liabilities issued by depository institutions
and Eurodollars held by US residents at foreign branches of US banks,
in fact at all banks in the United Kingdom and Canada.
In other words, M3 tracked what the fat cats were doing with their
bucks. You have to think, why would the Fed do this? Of all three
categories, M3 was your best bet to track inflation, i.e., to monitor
what the Free-Market’s “Invisible Hand” was picking from your pocket
through inflation, sometimes called “the hidden tax” because that’s
just what it is. When the government runs off some extra funny money
rest assured it’s to spend it. And you get the tab.
It would be, as InflationData.com editor Tim McMahon described it,
“like writing checks from an account that was empty.” You would end up
in the slammer. Nevertheless, that’s what the criminal Fed (and the
government) is doing when it creates money out of air. To see the
result, go back to Wiki’s Money Supply and scroll down to “Money
Supplies Around the World,” the United States chart for M1, M2, M3
since 1959. You will see the widest expansion of dollars is in M3. You
might ask yourself where were all the big bucks going.
Also of interest at Wikipedia’s Money Supply is to scroll down to
“Bank Reserves at Central Bank,” which discusses how a central bank
can ease the flow of money by purchasing government securities in the
open market, or tightening the flow by selling securities on the open
market and pulling in money. Also, along with that control, up until
the 1970s, the government said that banks had to keep a fraction on
deposit of what they loaned out. Let’s say that would be $1 on every
$10 dollars. This was to prevent a total freeze-up in case of a run on
banks, like the one in 1929.
“However,” as Wiki says, “in the 1970s [the Nixon Era] the reserve
requirements on deposits started to fall with the emergence of money
market funds, which require no reserves. Then in the early 1990s [the
GHW Bush era], reserve requirements were dropped to zero on savings
deposits, CDs, and Eurodollar deposits. At present, reserve
requirements apply only to “transactions deposits“ -- essentially
checking accounts. The vast majority of funding sources used by
private banks to create loans are not limited by bank reserves. Most
commercial and industrial loans are financed by issuing large
denomination CDs. Money market deposits are largely used to lend to
corporations who issue commercial paper. Consumer loans are also made
using savings deposits, which are not subject to reserve requirements.
These loans can be bunched into securities and sold to somebody else,
taking them off of the bank’s books.” Call that the beginning of the
end.
“Therefore, neither commercial nor consumer loans are any longer
limited by bank reserves. Since 1995 the amount of consumer loans has
steadily increased, while bank reserves have generally remained
constant . . .” Here, too we find the blueprint for disaster, which
actually occurred in the Savings and Loan debacle,” beginning in the
Reagan Era, 1981, ending in the GHW Bush era, 91-92. I leave that
fiasco for your perusal. The point of it all has to do with Free
Market deregulation of bank lending rules and the lack of lending
transparency.
Hiding the growing debt
Returning to March of 2006, McMahon points out the US Trade deficit
was running about $800 billion annually, meaning we were spending that
much more in foreign markets than we were taking in for our exports.
We were shipping billions extra overseas, mainly to China, in return
for Wal-Mart’s everyday low prices, or, as Wal-Mart currently says,
“Live well. Save money.” Sure. McMahon points out the Chinese weren’t
buying our goods to lower our trade deficit. Instead they were saving
half their GDP (gross domestic product), which would have been about
half of $1.1 trillion a year.
The US only tucks away about 13 percent of its GDP (that is
government, business and personal) earnings. But Chinese households
tuck away about 30 percent of earnings while US households save less
than zero. We’ve actually been spending .4 percent more than we earn
every year. So, if you wonder what the Chinese have been doing with
all the extra bucks, they’ve been buying back our debt, that is in the
form of US government Treasuries. In doing that, they’re actually
loaning us the money to buy more stuff. So, the big reason to stop
publicly tracking M3 was not to advertise that fact.
The M3 went up an annualized 9.4 percent back in 2006 in the first
quarter and 17.2 percent by the fourth quarter. Why would the Fed want
to deal with it when it could bury it? I’m sure Mr. Greenspan must
have felt shocked and terrible about it, but the pain we’re feeling
now didn’t come yesterday, out of the blue, with the phony bailout.
We’ll be once again bailing out the M3 types, not the M1s or M2s, when
the derivative bomb hits. And, after paying the “hidden inflation tax”
we’re being served up deflation, recession and a “once in a lifetime
economic tsunami” for dessert. Jolly-o!
Nice going Greenie. I hope you and all your pals enjoy buying up our
pensions’ bonds and securities, devalued real estate, subprime
mortgages, and going to the Cote D’Azur for a few years to get away
from it all. This could get really ugly. Or will it be to the Caymans,
to those stashed offshore, tax-free accounts, frosted Daiquiris and
Caribbean sunshine. But don’t worry. The lynch mob will be here when
you get back.
The thing is you could have loosened up the M1 money supply, as my
economist friend Dick Eastman says, to ease the purchasing power on
that overpriced gasoline and food, that is, while your friends in the
club lived high on the hog, sucking up the good times. And, at the
same time, we have your good buddy Hank Paulson lining the pockets of
his banker friends, hedge fund managers, derivative devils, short-
sellers, long-in-the-tooth elites like the Rockefellers, the
Rothschilds, and even foreign princes.
Yes, with great sleight of hand, we’ve enabled the stock market to
bring us Black Friday with Black Monday, and the volatility of the
Perfect Storm, ironically the great liquidity crisis. And our latest
$700 billion in tax money paying for all the high rollers to stay high
and dry, while we scuffle in steerage, just waiting for the Titanic to
hit the iceberg, and to see who gets into the lifeboats. Yes, Mr.
Greenbacks, you did a great job of outpacing inflation and debt with
obfuscation. The Wizard of the Fed has turned out to be just another
felon-in-waiting, along with Dennis Koslowski, the maybe not-so-dead
Ken Lay, hopefully Mr. Bernanke and Mr. Paulson, as well.
The disaster dream team
There are others worth a quick mention, the Chinese-speaking New York
Federal Reserve Bank President, Timothy Geithner, ex Henry “China
Opener” Kissinger’s protégé. Then there’s Goldman sacker John
Alexander Thain; Dr. Gerald Corrigan, chairman of Goldman Sachs
Counterparty Risk Management Policy Group, actually in charge of
creating the risks and fiascos; BlackRock’s former manager of $1.2
trillion in assets, Ralph L. Schlosstein; BlackRock CEO and co-founder
Larry Fink, who pioneered mortgage-backed securities (let’s hear it
for this genius); John Pickel, president of the International Swaps
and Derivatives Association, et al. [Included is an explanation of
Securitized Mortgaged Lending and a lovely diagram].
Forgive me if I’ve missed some names, like Mario Draghi, Bank of
Italy’s governor, former Goldman sack; or even Joshua Bolten, current
White House chief of staff from Goldman.
With a dream team like this, it’s not surprising Goldman Sachs missed
the shock of the securitized mortgage collapse and actually showed a
79 percent rise in profits. In fact, back when Paulson was an
economist for Goldman, he was outraged that the Chinese had only 4
percent of their capital coming from organized capital markets, when
elsewhere two-thirds of capital came in from the usual suspects’
capital markets. The Ultimate Sacker is even encouraging Chinese
peasants these days to sell off their hard-won land and move to the
cities to work in the slave labor palaces of Wal-Mart’s everyday low-
prices.
On and on it goes, including that fact that our shocked Mr. Greenspan
(along with Goldman’s Lawrence Summers) was being investigated in
September of 2001 for illegal gold transactions, specifically for
selling Federal Reserve Gold to friendly Wall Street financiers at
below market prices at that time. And wait, what about all that gold
that disappeared in the collapse of the World Trade Center’s north
tower on the 11th of that month?
So it goes, everything into the rabbit hole, no longer published like
the M3 reports, more razzle-dazzle from the folks that brought you
today’s mayhem, which was another controlled demolition of our
economy, not just a matter of some bad mortgages. By the way, those
“bad mortgages” were estimated by Paul Craig Roberts, in his “The
Bailout and the Smell Test” to be no more than 10 percent of all the
mortgages issued in that time frame.
Feel used, feel abused, feel like someone pulled the plug from your
life? The answer is yes, yes, yes. But don’t let it disable you. Be
strong. Suck it up. Fight back with the truth. We can’t let these
vandals take the beachhead of the economy and gobble up the country we
live in and love. There will come a time and you will be asked to act.
So be ready, patriot. It’s coming, and not at a local theater near
you, but in the streets and on the barricades.
Jerry Mazza is a freelance writer living in New York City. Reach him
at [EMAIL PROTECTED] Look for his new book, “State Of Shock: Poems
from 9/11 on” at www.jerrymazza.com, Amazon or Barnesandnoble.com.
Copyright © 1998-2007 Online Journal
Email Online Journal Editor=
------------------------------------
Complete archives at http://www.sitbot.net/
Please let us stay on topic and be civil.
OM
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/cia-drugs/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/cia-drugs/join
(Yahoo! ID required)
<*> To change settings via email:
mailto:[EMAIL PROTECTED]
mailto:[EMAIL PROTECTED]
<*> To unsubscribe from this group, send an email to:
[EMAIL PROTECTED]
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
