M3 Drops Dead
August 19th, 2008 by 
reality
I’m not a big fan of M3 as being predictive of anything very much. The Fed dropped the series for that reason. However, others still calculate it and its growth has been a favorite indicator for those who believe that the Fed is covertly printing or something. Interestingly, the Telegraph reports that M3 is now dropping. I don’t think this means anything much, but it will be interesting to see how the inflation advocates spin it.
The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months.Data compiled by Lombard Street Research shows that the M3 ”broad money” aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959.
“Monthly data for July show that the broad money growth has almost collapsed,” said Gabriel Stein, the group’s leading monetary economist.
Posted in Inflation & The Dollar | 
August 20th, 2008 at 12:06 pm
Today, as the market bets that FNM and FRE stock goes to $0, I find it most interesting how the rest of the markets don’t seem to be affected very much.
FRE Sept calls are cheap for those who like to bet against the crowd mentality.
August 21st, 2008 at 3:44 pm
To r: long FRE calls would be pure “contrarian” gamble (not investment or even speculation).
To reality: government can print out (credit out) its’ way out of deflation and will do exactly that.
Why? Because without printing/bailing out/intervening there isn’t any fun - there is nothing to steal. Government cannot function without stealing, it’s the essence of contemporary politics.
Deflationary periods are very propitious for such activities.
People naively argue, that FED is private institution, which will not act against its interest to keep stable dollar as a foundation of exclusive political influence. It’s to simplistic. FED is semiprivate nonsense. Centers of power (money centers) are outside the FED, and I suspect monetary stability is not the biggest priority in their wish lists.
So, interventions, bailouts, capital theft, transfers to offshore hedge funds, gearing will happen, and then what?
For the smartest elite people, clearly,- OTC investments into super senior instruments - covered mortgage bonds, preferred shares with racketeering provisions and similar. For the rest of not so smarts - gambling on the “next bubble”.
If that next bubble will not be a Google with their private space exploration programs, it can again be commodities. And so, (price) inflation.
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In various blogs I saw a lot of ranting about unavoidable “deleveraging”, which cannot be fighted by any government interventions, and it suppose to be very deflationary. I never was able to understand these arguments. Japan was net creditor and was unable reinflate for decade? So what? We already saw very impressive statistics of banks nonborrowed assets. Does such things happened in Japan? May be secretary Hank will hesitate to play with his $0.8 trillion “bazuka”? May be he is the guy, who doesn’t know, how to leverage money and information? Or he is controlled enough by Congress/Senate/Executives?
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OK, I understand slowdown of money/credit velocity is happening right now. I would not be too surprised if deflationary process (devaluation of broad classes of assets and slowdown of money/credit velocity) would last for one-two quarters, before bazukas be fired. But then, I don’t know, how the value of dollar can be preserved in a chaos, which I expect to happen.
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Speaking clearly, I’m very bearish now. Play on most part “overbought in a bear market” plays, and am quite happy with the results.
Best wishes to everybody,
Vytas
August 21st, 2008 at 3:59 pm
mistype in my comment:
banks nonborrowed assets -> banks nonborrowed reserves