Caroline Baum: Europeans, conspiracy theorists lead M3 mourners

Section:

What's the Fed Up To?

By John Crudele
New York Post
Tuesday, November 22, 2005

http://www.nypost.com/business/58052.htm

The Federal Reserve couldn't have handed conspiracy buffs a better
gift.

While Congress is still deciding whether Ben Bernanke, the Princeton
economist with the big mouth, is worthy of succeeding Alan
Greenspan, the Fed announced that it would discontinue publishing
the so-called M3 money supply figures.

The money supply is such a boring topic that most people just ignore
it -- though Wall Street was once fascinated by these statistics --
and go on with their lives.

But this time the death of M3 has gotten the ire of those who don't
trust the government anyway.

Why?

Because Bernanke is the guy who said a couple years ago that if the
government's monetary policy wasn't working, Washington could just
print money to get the economy going and drop it from helicopters.

That's OK for a professor lecturing to freshmen, even the bright
ones in the Ivies. But that's not the sort of thing that inflation-
wary professionals on Wall Street are accustomed to hearing.

And in the very unlikely event that the government took Bernanke's
advice, where would that shocking breach of monetary policy show up?
In the M3 figures that are being discontinued, of course.

The Fed explained the elimination of M3 as a cost-cutting move. (The
government cutting costs, in itself, isn't credible to many).

And the Fed says this broadest monetary measure doesn't add any
information that can't be obtained from M2 and doesn't contribute to
monetary policy.

But the skeptics note that M3 -- which includes the very biggest
deposits not contained in M2 -- is rising about 7.5 percent right
now, compared with just 5.6 percent growth at the end of 2004.

M2, on the other hand, has a more modest 4 percent growth, which is
down from 5.6 percent last year.

So if Ben Bernanke did convince the Treasury to print money and drop
it from the sky, the elimination of M3 might allow the move to go
unnoticed.

"They are trying to hide what they know is a monetization of the
debt problem," says one economist who doesn't buy the Fed's
explanation.

Great timing, guys.

More on the Fed chairman wanna-be, nominee, and gonna-be. ...

Bernanke says he'd like to use a specific inflation target when
moving interest rates. That's nice, except that inflation can be
measured in many different ways. So whose measurement is Bernanke
proposing to use?

Greenspan recently said that when "measured properly," inflation was
really zero. Why then has Greenspan raised rates 12 times in the
last 18 months?

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