By Peter Brimelow
CBSMarketWatch.com
Friday, November 18, 2005
http://www.marketwatch.com/news/story.asp?guid=%7B0CD96CE1%2D97BA% [1]
2D42DA%2DA472%2D2FA09F9B3913%7D&siteid=mktw&dist
NEW YORK -- The Federal Reserve's announcement that it will
discontinue reporting the broad monetary measure of M3 has exposed a
stark division between the establishment financial media (yawn) and
investment letterland (aargh!), and above all -- the burgeoning
financial blogosphere (Run for the hills!)
And, incidentally, with MarketWatch readers -- who, as my emails
indicate, were instantly alert.
As I reported Monday, James Turk of the Freemarket Gold & Money
Report complained about "an unbelievable announcement made this past
week. Without explanation, the Fed disclosed: 'On March 23, 2006, the
Board of Governors of the Federal Reserve System will cease
publication of the M3 monetary aggregate.'"
Turk's point:
"Why does the Fed no longer want to report the total quantity of
dollars in circulation? They know what's coming -- massive amounts of
dollar creation to fund the worsening trade and federal government
budget deficits. The Fed is just doing what other government agencies
already do when they don't like the result of their statistical
calculations. Like children, they play 'make believe.'" See my Nov.
14 column:
www.marketwatch.com/news/story.asp?guid=%7BE41A33BD%2D28D2%2D448C% [2]
2DB004%2D275D91CAADEB%7D&siteid=mktw
I have to report that the Hulbert Financial Digest's Mark Hulbert is
skeptical -- sort of. He has argued that M3 is not, in fact, closely
correlated with movements in the stock market. See his Sept. 28
column:
www.marketwatch.com/news/story.asp?guid=%7B80EB2EFB%2DE8FF%2D4818% [3]
2DBCA1%2D5911B1D85BD2%7D&siteid=mktw
Hulbert wrote me yesterday morning:
"The newsletter editors complaining about M3 strike me as willfully
ignoring the truth in order to make a cheap point. The Fed has very
little control over M3. It's affected by things like mortgage
refinancings, which should have no real consequence. The one thing
that the Fed does directly control is the money stock measure known
as MZM, money zero maturity, yet I don't see any editors focusing on
it. They instead act as though growth in M3 is something that the Fed
has caused, when that at best is a very indirect cause-and-effect
relationship."
But what is concerning the investment letters about M3 now, however,
is not simply the stock market but inflation and the economy overall.
Plus a determined minority believes that M3 is a measure of efforts
to manipulate the market, because it picks up "repo agreements" -- in
which the seller of securities agrees to buy them back at a specified
(more convenient) time and price.
The letters note that a paradox is emerging about Fed head nominee
Ben Bernanke.Bernanke is widely said to be identified with
inflationary restraint, but in fact he has advocated massive money
creation rather accepting deflation. See John Brimelow's March 8,
2004, column:
www.marketwatch.com/news/story.asp?guid=%7B1C452BB5%2DB6F9%2D4CD5% [4]
2DAA3F%2D688D002798EC%7D&siteid=mktw
Similarly, Bernanke has talked in his confirmation hearings about
transparency.
But the M3 decision inevitably makes things less transparent. And
this isn't the first example.
The gold bug letters are still seething about the forcible
privatization of the Bank of International Settlements, widely
regarded as a window on Central Bank activity, last year. One
service, Reg Howe's Golden Sextant, led a legal battle against it:
http://goldensextant.com/commentary22.html [5]
As the editor of the Prudent Investor blog put it:
"Get ready for $52 Grande Mochas at your Starbucks by the time you
retire."
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