When the Federal Reserve decided to get rid of its M3 measure of monetary supply in 2006, it sparked a wave of ‘what are they trying to hide?’ conspiracy theories — most of those centred around inflation.
So it’s perhaps with some surprise, that this Bloomberg story has surfaced on Monday:
May 24 (Bloomberg) — A measure of the U.S. money supply, created but abandoned by the Federal Reserve, has turned negative in the past year and signals disinflation or outright deflation, according to economists who track the figure.
The CHART OF THE DAY shows M3 has shrunk 5.4 percent in the past year, an indication the economy may face deflationary pressure as fewer dollars chase the same amount of goods, according to economists Paul Ashworth and Paul Dales at Capital Economics Ltd. in Toronto. They began compiling a measure of M3 after the Fed discontinued it in 2006.
And here’s the chart:
M3 is generally considered to be the broadest measure of money supply, incorporating M1 and M2 (the Fed’s standard money supply measures) plus large-denomination time deposits and balances in institutional money funds, repurchase agreements, and eurodollars.
More fuel for the (also re-surging) deflationary fire then.
Related links:
US monetary base growth really is quite off the chart – FT Alphaville
Dear BoE, where does money come from? – FT Alphaville
On the edge of a deflationary precipice… – FT Alphaville
M3, where art thou? – FT Alphaville