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Inside Liberty Watch Today - Dec. 5, 2005

With Maestro Alan Greenspan on his way out, and Maestro-in-waiting Ben Bernanke ready to take over the wheel at the Good Ship Federal Reserve, the agency quietly dropped a bomb on November 10th, deciding that come March 23rd it will discontinue publishing the big monetary aggregate, M-3. 

I'm sure you all are like me wondering how on earth we can live without knowing how much the central bank is inflating the supply of money? But, according to a Fed spokesman, "Our searching of the economic literature revealed that very few economists used that aggregate,"adding, "M3 does not appear to convey any additional information about economic activity that is not already embodied in the M2 aggregate. Further, the role of M3 in the policy process has diminished greatly over time. 

Consequently, the costs of collecting the data and publishing M3 now appear to outweigh the benefits." 

Of course I'm for cutting the cost of government anywhere and everywhere. But, this looks a bit suspicious. Besides, Fed staff estimate the savings to only be $1.5 million per year. 

For those not hip to the M's, "M-3 is a kind of statistical Russian doll, consisting of M-1, M-2 and other monetary time series,"explains Grant's Interest Rate Observer. The other monetary items in M-3 are money funds, large-denomination time deposits, repurchase agreements and Eurodollars.

And, as John Crudele writes in the NY Post, skeptics note that M-3 is rising at a 7.5 percent clip at the moment, compared to M-2's more modest four percent growth rate. Crudele quotes an economist who believes, "They are trying to hide what they know is a monetization of the debt problem." 

Monetization is when money is created out of thin air through the banking system to soak up the government's bond issues. That's how Iraq, Katrina, and who knows what all gets paid for without overtly taxing the public to the point of rebellion. The government knows that while the Fed prints away, the public blames the oil companies, the insurance companies or whatever businesses when prices rise. "Those damn price gougers." 

James Turk in the Free Market Gold & Money Report echoes the monetization view, telling the Journal Inquirer; "They know what's coming – massive amounts of dollar creation to fund the worsening trade and federal government budget deficits." 

Hard core conspiracy theorists believe the Fed is going to quit publishing M-3 statistics, so that its manipulations in the stock market will be covered. These folks believe the Fed and others have formed a PPT or "Plunge Protection Team" that intervenes to provide support when the stock market is tanking. Financial analyst Robert McHugh, Jr. says, "If they no longer report this item, folks like us who monitor the growth of M3 for clues as to when the PPT is likely to buy the market will have a harder time reporting that fact. Investors will be left more in the dark as to any secret rigging of the stock market."

McHugh thinks a financial catastrophe may be coming and the Fed wants to print money with complete abandon without anyone able to track what it is up to. Bill King, who publishes the financial newsletter, The King Report, goes as far as saying; "Am I suggesting there might be something of a nefarious nature going on here? I certainly am." 

Respected financial columnist Caroline Baum is no wacky conspiracy nut. But, in her Bloomberg News Service column, she wonders, "why no warning or comment period?" 

Maurine Haver is the chairwoman of the National Association of Business Economics statistics committee. In that role she meets quarterly with all of the wonks from agencies like the Fed, the IRS, and the Bureau of Labor Statistics. But, it sounds like she found out about the M-3 axing when every other Tom, Dick and Harry did. "It doesn't seem they reached out very far to get user feedback on the discontinuation of the series," Haver told Bloomberg. 

Grant's points out that the Fed can control either the supply of money or the cost of it. But, it can't control both. "By turning out the lights on one-third of the money stock, the Fed is taking steps to wed itself irrevocably to interest-rate targeting. That is, to price fixing." 

Bernanke could be the smartest guy in the world, but he is incapable of picking the perfect interest rate. No doubt the Fed is up to no good, thus, if you haven't started yet, maybe its time to trade in some of that government-created money you're holding for the people's money—gold.

Doug French, Liberty Watch Columnist