#8 The panic is that the United States is monetizing the debt by printing dollars. The net effect is to reduce the value of the dollar and creates inflation. The panic is based on the decision by the Fed to cease publication of M3. Here are the definitions of the various measures:
"M0 is all coins and paper bills. M1 is M0 plus all checking accounts. M2 is M1 plus savings accounts, money market accounts, and certificates of deposit of less than $100,000. M3 is M2 plus all deposits, euro dollars, and repurchase agreements that are $100,000 and larger."
The concern is that "Big money" manipulates the economy by moving around large dollar amounts exceeding $100,000 (to have a big effect), and thus is tracked by M3 via the repurchase agreements. By eliminating the publication of M3, the conspracists speculate that the Fed is trying to hide transactions intended to artificially boost the stock market. Here be the paranoid.. (A repurchase agreement is when the seller agrees to buy back the stock from the buyer at a later date. It is not really an increase in economic activity, but the speculation is that a massive purchase of a stock may trigger a band-wagon effect in which market watcher may believe that the stock is hot. Based on whats in the repurchase agreement, The buyers can opt to sell the stock on the market for a profit. The seller would be glad if that happens since it would take a loss on the re-purchase if the value of the stock went up.)
The obvious problem with this scenario is that M3 is a gross measure that never specified which stock purchases were based on repurchase agreements. Those "needing" this measure use it as an indication of whether a stock market boom is being fueled by manipulation or by a real growth in the markets.
You can't monetize the debt by printing more money or extending more credit without inflating M0 or M1.
Here's probably the REAL crisis: M3 was the only measure of the number of EUROS in the country, and the Fed is saying that Euros don't count anymore. This is a Euro think tank, so I imagine the panic is all about being regarded by the Fed as a financial non-entity.
The connection they propose is with Iran creating an oil stock market denominated by Euros, and they project an increase in the value of the Euro.
What they DON'T mention is that an increase in the value of the Euro makes exports more expensive relative to the Dollar, and it is EXPORTS that the Euros are counting on to pull themselves out of their economic doldrums.
For all we know, the Feds believe that the Euro may collapse, and are cutting out M3 to mask the effect of that collapse: if that measure goes down, it may casue a panic, and it may be politically unacceptable to state that the Euros f*cked up, and f*cked us up with them (That's State's turf, not the Fed's).
Finally, one has to wonder about what such a group is thinking when they view the Fall of the Iron Curtain and the liberation of hundreds of millions of human being as the second "most significant political crisis the world has ever known", with the position of MOST SIGNIFICANT happening to be reserved for THEIR PREDICTION.
Personally, My concern is that monitoring of repurchase agreements may cease, and we will have stock manipulations a-la Enron. Such purchases should NOT be counted by the Stock Market because it obscures the signals that the market is sending. |
