[lit-ideas] When Money Disappears...only to reappear later
- From: "Simon Ward" <sedward@xxxxxxxxxxxxxx>
- To: <lit-ideas@xxxxxxxxxxxxx>
- Date: Mon, 10 Apr 2006 20:55:41 +0100
On March 23rd, the US Fed stopped publishing figures for the M3 measure of
money supply. They said that the measure was outmoded and the costs associated
with measuring and publishing it outweighed the benfits.
M3 is, or rather was as far as the US is concerned, the broadest measure of
money supply, taking into account such interesting aspects as EuroDollars,
large-denomination time deposits, and repurchase agreements, all of which will
no longer be published.
What this means is that it will no longer be possible to measure the true
amount of dollars circulating in the world and without that it will be next to
impossible to guage the true value of the dollar.
Now of the previously mentioned components of M3, that is those components over
and above those of the lesser aggregate, M2, the most interesting seems to be
Eurodollars. This measures the value of all US dollar accounts held outside the
US. Coincidentally, March was also the month when Iran's Bourse was scheduled
to open, a securities exchange that trades in Euros rather than dollars.
As yet, I haven't found out if the Iranian Bourse did actually start trading,
but it was scheduled to begin on 20th March. And three days later the US Fed
stops publishing M3. Coincidence?
Interestingly, blogworld is for the most part split over what impact the
Iranian Bourse would have. Ranging from monetary apocalypse as oil trading
flees from the dollar to the Euro, all the way to little or no effect.
Doubtless, the actual impact would be somewhere in between initially, but
conceivably rise as time progresses.
However, the disappearance of M3 does have other implications. If, over time,
the Petrodollar is usurped by the petroeuro - if oil is traded in euros rather
than dollars - then countries holding necessary securities (typically treasury
bonds) to cover their trades, will be cashing them in, exchanging them for
Euros and making their trades. Without M3 as a measurement, the US Fed can
expand the dollar money supply in order to facilitate these demands without it
being noticed so easily.
But of course, economics isn't that simple and over time, a rapidly expanding
money supply will lead to inflation and a consequent devaluation of the
currency. To offset this, the only viable course is to increase interest rates,
which will have an impact on things like debt, stock prices, housing start ups
and such like.
The other downside is, traders aren't idiots. While the disappearence of M3 had
for the most part gone unnoticed, the traders aren't so blind. Recent rises in
gold, oil, copper etc, might just be a reaction to what the traders believe is
behind the demise of M3.
Naturally, conspiracy theorists are having a field day over this, and who can
blame them. Add into the mix the resignation of Greenspan in January, the
stoking up of rhetoric against Iran and you have a wonderful coincidence of
events that just invites connecting.
Simon
Other related posts:
