[Jthomp76]

Dr Herbener, why is M3 (as calculated by shadowstats) so low given the amount of money printing by the fed and low interest rates? It is lower than it was 10 years ago. Why is this? And Is this the reason inflation in consumer prices is relatively tame? And I for the record do not buy the govt stats but regardless I would think M3 and CPI would be much higher given the rampant money printing.
Thanks!!

[murphy560]

I took a look at shadowstats and M3 is actually around 55% higher than it was in 2006 so it is still growing robustly, just as we all expect. I think you may be looking at the solid line which represents year-over-year change of M3 whereas the shaded region actually represents M3 itself. The rate-of-change is considerably lower than it has been in the past (as much as 17% annual growth) but it is still growing at about 5% annually according to shadowstats.

http://www.shadowstats.com/imgs/charts/m3-2006.gif?hl=ad

[jmherbener]

The total stock of money is the sum of money plus money substitutes. The total stock of money and the total demand for money determine the purchasing power of money or the array of prices. In the last few years, the total stock of money has been increasing significantly, but the total demand for money has also been increasing. The result has been a modest, but significant increase in prices.

The monetary aggregates computed by the government are M1, M2, M2 – small time deposits, MZM, and M3 (discontinued). M1 is too narrow, excluding deposits that banks redeemable on demand at par. M2 is too broad, including small time deposits, which banks do not redeem on demand at par. MZM is too broad, including money market funds. M3 is much too broad, including large and small time deposits.

http://research.stlouisfed.org/fred2/categories/24

In the current reflation engineered by the Fed, credit expansion has been going into stocks and real estate instead of large time deposits at banks.

From 1/1/2010 to 9/1/2013:

M2-STD has increased 29 percent from $7,275.5 billion to $10,215.2 billion.

M2 has increased 28 percent from $8,432,8 billion to $10,770.4 billion.

M3 has increased around 1 percent from roughly $15,000 billion to $15,200 billion.

[Jthomp76]

Great stuff thank you. But why has M3 only grown 1% during the span you referenced? Also, if all those government measures are too narrow or too broad, what measure should we look at to best predict price inflation?

[jmherbener]

Rothbard developed a measure he called the True Money Supply:

http://mises.org/content/nofed/chart.aspx

Investors who are typically interested in large time deposits are currently interested in other financial assets.

[Jthomp76]

So has rothbards true money supply exploded during this QE spree?

[jmherbener]

TMS is up 8.4 percent over the last year.

Here’s the updated data:

http://www.forbes.com/sites/michaelpollaro/2013/11/16/global-monetary-watch-u-s-true-money-supply/

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