Follow the M3 money to hell
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.
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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
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
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.