Concerns exist here over the decision of The Board of Governors of The Federal Reserve System to no longer publish the M3 monetary aggregate as of March 23, 2006. The Board of Governors will also cease publishing large-denomination time deposits, repurchase agreements and Eurodollars. The announcement appeared on November 10, 2005 and has received very little press:
http://www.federalreserve.gov/releases/h6/discm3.htm
A quick summary of M1, M2 and M3 is found below:
M1: The public's currency plus traveler's checks plus net demand deposits at commercial banks plus other checkable deposits at banks and nondepository institutions.
M2: M1 plus small deposit time and savings deposits plus overnight repurchase agreements plus overnight Eurodollars at foreign branches of U.S, banks plus money market mutual funds plus money market deposit accounts.
M3: M2 plus large time and savings deposits plus term repurchase agreements plus term Eurodollars.
This decision by the Board of Governors is flawed in several respects.M3 is the broadest measure of the supply of money for the U.S. economy. M3 has doubled in the past nine years while the economy has not produced such returns. As a result, we have financed our growth only to pay a price down the road. Moreover, foreign countries like China and Japan, not to mention the countries that are part of OPEC, have become large holders of our debt, specifically treasuries. To a certain extent, our future lies in the hands of our creditors- these foreign countries.
They will not be happy with less disclosure of our monetary policies. It is akin to a company like General Electric deciding to remove key components of its balance sheet so that investors cannot analyze what is going on at the company. As an investor, I would sell General Electric's stock immediately should they move to such a policy. Will foreigners decide to sell their holdings in 2006 and create a possible disruption of the capital markets?
At the end of January The Board of Governors will appoint a new chairman as Federal Reserve Chairman Greenspan retires and Ben Bernanke takes the reins. The decision to end the reporting of M3 could not come at a worse time than the transition to a new chairman of the Federal Reserve. Even more problematic is Iran's decision that is will open a new oil exchange, The Iranian Bourse, in March of 2006.
This exchange will compete against the NYMEX and IPE for trading of international oil. The Iran Oil Exchange will be Euro based. This exchange will allow for oil as well as gold to be bought and sold in Euros. If successful, then Foreign Central Banks may no longer believe they need to hold dollars or U.S. treasuries so that they can import oil. It is rather ironic that the Federal Reserve's cut off is March 23rd the same time that the Iran Oil Exchange begins.
These are serious issues and I have noted several links on the internet for review on this subject:
http://www.dailykos.com/story/2005/11/11/16272/574
http://www.peakoil.com/fortopic14770.html
http://www.globalresearch.ca/articles/CLA410A.html
To quote from Thomas Jefferson:
"Whenever the people are well-informed, they can be trusted with their government. Whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights."
