Alex, I’ll take esoteric economic indicators for $100:
Last week, the Federal Reserve System
announced that, as of March 23, 2006, they will be ceasing the publication of
the M3 monetary aggregate. According to a Fed spokesman, the Federal Reserve
Board of Governors wants to “de-emphasize the role of M3.” Academically, they
add, this measure of money supply receives less attention than M1 and M2 do. A
Fed spokesman also suggested that M3 is “no longer closely tracked by
For those of you who are not econogeeks, M3* is the broadest
measure of money supply in the U.S.
The Fed will still report the individual components, and so
anyone who wants to can (painstakingly) reassemble this into their own M3 No
word if the regional Fed banks like the St. Louis Fed will continue to do so.
The cessation of M3 data publication was hardly auspiciously
timed. Consider the huge increase in Money Supply over the past 8 years, while
the US has becomie excessively reliant on overseas credit to fund our twin
deficits (Balance of Trade, and Federal Budget) have reached record levels. So
why stop reporting M3?
Spencer England of SEER noted that MZM may be a more useful
measure of Money Supply, ever since the relationship between M1 + M3 and the
markets broke down. He blamed money market funds and banks paying interest on
demand deposits as the prime cause for the decoupling.
Oregon Economics Professor Mark Thoma noted that having M3
available makes it easier to track movements “into and out of M1 and M2 over
time.” While not having it available “is not a huge loss, it was nice to know
it was there to look at when it was needed. Thoma would have preferred that if
M3 goes, “some improved measure of highly liquid assets beyond M2 be
constructed to take its place.”
Given the computing power at the Fed’s disposal, and the
already incurred expense of compiling the data components, it essentially costs
the Fed nothing to create the M3 data. Compared to CPI, this is one of the most
steady data points the Federal Government generates. It seems a shame to lose a
series that has been reported (and in such a consistent manner) for so many
* M3 includes M2 components, plus institutional money market mutual funds,
large-denomination time deposits, repo agreements on U.S. government and
federal agency securities, and Eurodollars held by U.S. addressees overseas.
Category: Federal Reserve