Thursday, May 27, 2010

Debunking the Shrinking M3 Money Supply Myth

Recently an article published on the UK newspaper Daily Telegraph received wide-spread global attention and debate. The article titled US money supply plunges at 1930s pace as Obama eyes fresh stimulus and claimed that M3, the broadest measure of total US dollars in circulation, is shrinking, rather expanding, at rapid pace.

The claim of a shrinking M3 can not stand the scrutiny of logic and fool even a three year old child. The US Treasury Department has been conducting bi-weekly treasury auctions of unprecedent and astronomical amounts. The treasury auctions never fail. There are always willing buyers bidding for the US treasuries at pathetically low, almost zero yields.

Regardless who those misterious US treasury buyers are and why they are buying at such low yields, any one who buys US treasury must tender US dollars to buy the treasuries. The money tendered must be US dollars in one form or another and hence must be part of the circulating M3 of US dollar.

If the total M3 is shrinking, where does the spare money come from that buys the US treasuries? Coming out of thin air? And where does the money go once they are tendered to the US treasury Department? Vanish into thin air again? A shrinking M3 makes no sense at all.

Now where does the idea of shrinking M3 come from? Read the history of M3b here. Notice that the FED stopped publishing statistics of M3 as of March, 2006. So there is no longer any official data on M3 after March, 2006. Any M3 number we see after the FED stopped publishing it, are NOT official numbers, but mere the guess work of private parties. These unofficial M3 numbers, or M3b, thus may not be accurate.

I studied how M3b is constructed ever since it was first published. I believe the person who originated the formulation to calculate M3b made a fatal mistake which renders the data useless.

That is, an important component of M3 is the so called eurodollar. Do not be mislead by the suffix "euro" in the word eurodollar. It has nothing to do with Europe or euro. Eurodollar means all US dollars outside the US territory, i.e., US dollar deposited in foreign banks or held by foreign individuals and organizations.

The official statistics of eurodollar is no longer published by FED. Without this data you can not construct the total M3. The inventor of M3b get around this problem by noting that eurodollar constitute only 3% of M3, and assumed that eurodollar is either a constant, or fluctuate only slightly with oil price.

Such assumption might be true a few years ago before the current global financial crisis. But it is absolutely wrong now. Eurodollar is no longer only a small percentage of total M3, nor is it just a constant. Trillion dollars worth of money is dashing around the world, rushing across borders in so called Hot Money, seeking safe havens and investment opportunities some where else. More over, the FED itself enacts numerous currency swap agreements with foreign central banks, exchanging huge amount of one kind of printed color paper funny money with another kind of printed color paper funny money.

How could any one still believe that the total amount of eurodollar is still small, and is still nearly constant? With all the US dollar rushing across borders?

The so called shrinking M3b tells one true story which is that huge amount of money is escaping from the US soil and going to foreign land. The M3 within the US boarder may indeed be shrinking, despite of the FED's mad printing of money, thus draining the money supply within the US boarder, causing an illusion of monetary deflation in the USA. But the money does NOT disappear. It simply gets hoarded up by foreigners and foreign central banks. Countries like China doesn't like to hoard more US dollar at all, despite of being forced to do so. China is trying all it can to block the inflow of US dollar hot money.

The total US dollar M3, globally, is NOT shrinking, but expanding rapidly. No one has an accurate account of the amount of hot money flowing around. Monetary inflation in countries like China and India are rampant. Eventually when foreigners have it enough, all those overseas US dollar will be flooded back home, causing hyperinflation in the USA.

The temporary illusion of monetary deflation in the USA is only a prelude to the looming hyperinflation to come when the eurodollars come back home. It is like rapidly receeding water right before a tsunami hits. If you are on a beach and you see suddenly receeding water, don't rush in to pick sea shells, immediately rush to the high ground for your dear life! When you actually see the water coming back, it is already too late!!!

People need to protect their financial lives by hoarding physical precious metals: gold, silver, platinum, but best of all, palladium is my favorite precious metal, before it is too late and inflation sign is already seen by every one.

15 comments:

Gemfind said...

Thanks for this information. It will really help in many analysis. :)

Anonymous said...

1. You have no proof the M3 money supply is expanding.
2. China, who has a trillion US dollars, can't cash them in because it would reduce the value of their hoard. Therefore, the sudden cashing in of dollars by foreign countries is economically unlikely and unfeasible because it would hurt them as well as us.
Ellsworth Frankson
South Bend, Indiana

hxl said...

tn requin

chaussures tn

women's shoes

chaussure requin

air max

chaussures sport

air 90

air 95

chaussures pas cher

air bw

air max

air 90

air chaussures

discount handbags

timberland

timberland chaussures

bottes ugg

ugg classic

ugg

bottes ugg

Chaussures Femmes

ugg classic

ugg

moncler

Chaussures mode

doudoune moncler

健康365天天网秉承为大家带去健康365天为己任,联合各大国内外知名品牌,其中国外加拿大营养屋系列产品为主,健康药品大全几乎被加拿大营养屋产品所覆盖。国内知名品牌欣乐佳以高纯度提取技术为优势,给大家带来高纯度、高质量,健康365天优质生活。欣乐佳的高纯度提取技术堪称国内提取技术行业领头人。中食月太也是保健品行业的新生力量,肽产品是中食月太不可忽视的主推品牌力量,完全符合国家食源性低聚肽标准和行业标准。健康365天天网集国内外,知名三大品牌,成就保健品行业先锋。带给大家最新、最安全、纯度最高的,保健健康药品大全

Anonymous said...

Malaysia & Singapore & brunei finest online blogshop
for wholesale & supply korean add-ons, accessories, earstuds, pendant, rings, bangle, bracelet
& hair accessories. Deal 35 % wholesale discount. Ship Worldwide
My web page - Onesie

Anonymous said...

In stand-up humorous you need for funny, not your entire shirt.
Therefore, test out and take long more no-perishable meals than perishable.

The machines started its ins and outs almost 150 back and started by- selling travelers carriers.
GUCCI shoes are available for everyone in rotten inexpensive price.
http://www.menis.pl/phpBB2/profile.php?mode=viewprofile&u=92252

Anonymous said...

You can opt for to have along some thing striking.

Most have vanity frames, cushioned bicycle seats and also are
blessed with dry storage underneath. They will operate like a leaning
article, a seat or that bench. Shouldn't stroll into the parking good price for a use your electronic cigarette. http://demo.socialengineexpress.com/profile/freddieqok

Here is my web-site ... バック ヴィトン

Anonymous said...

Then, she would definitely have a small mirror pouch in their bag.
and especially currently the Gauffre Antik plastic carrier bag.

These bags are sophisticated, ladylike, and seen more consisting of classic threads.
This sort akin to seat normally overheads around $750.
00. http://www.krisandkristen.com/zenphoto/index.
php?album=Seattle+-+Thanksgiving+2008&image=DSC01191.
jpg

Also visit my web site :: モノグラム ヴィトン

Anonymous said...

Newly Americanized Posh Spruce (a/k/a Victoria Beckham) is also a major fan.
You will save some huge cash to buy from these precise sites.
It will be indeed a genuinely smart and memorable footwear
of the century. This sort involved with seat normally expenses
around $750.00. http://buddystream.info/forum/profile.
php?mode=viewprofile&u=102531

My blog: ルイヴィトン 財布

Anonymous said...

Howdy! Do you know if they make any plugins to protect against hackers?
I'm kinda paranoid about losing everything I've worked hard on.
Any tips?

Also visit my web blog - Xxxvideofix.Com

Anonymous said...

Genuinely no matter if someone doesn't know afterward its up to other viewers that they will assist, so here it takes place.

My homepage; teen porn

Anonymous said...

Because the admin of this site is working, no uncertainty very rapidly it will be
renowned, due to its feature contents.

Have a look at my homepage - party girl sex

Anonymous said...

Hi there! Someone in my Facebook group shared this website with us so
I came to check it out. I'm definitely enjoying the information. I'm book-marking and will be tweeting
this to my followers! Terrific blog and great design and style.



my blog buy saffron

Anonymous said...

I am sure this piece of writing has touched all the internet users, its really really nice
paragraph on building up new weblog.

Feel free to visit my web blog common sense (joonjeong.kr)

Anonymous said...

When I initially commented I clicked the "Notify me when new comments are added" checkbox and now each time a comment is added I get several emails with the same comment.
Is there any way you can remove people from
that service? Thanks a lot!

My website how to cure hemorrhoids (coropolis.com)

Anonymous said...

Guests never know what Mulch, Sweat Shears will do and
vice versa. Additionally has drawn around his familiy's establishment experience in Utica and Ithaca. Are you want to fix your service but nonetheless , don't know exactly what you should together with?

Of 1968, the androgynous hippie look was at style. http://omikoshi.
co.jp/cgi-bin/guest/aska.cgi