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November 20, 2005



My opinion is the fairest way to discuss an indicator's relevance is to assess it's performance over time, reletively to other indicators. Personally, I think it's utterly absurd to micro-analyse inflation on a month-to-month basis. Over time I believe M3 better reflects my picture of inflation than ANY other gov't indicator. I'd like to see a pollster ask 1,000 or 100,000 people which indicator most closely reflects tax-paying adults of the present value of their 15 year old dollar, i.e what did they pay for a car or a house or college education, or medical expenses, or groceries, or gas, or 90% of household expenditures 15 years ago? My guess is the overwhelming majority would pick M3 over cpi, pce, m1, or m2. But, so what?



You'll get no argument from Puru Saxena, in today's Daily Reckoning. (scroll down 3/4). I have been surprised by the fact that I've seen so few crying foul. But I spend most of my time thinking about forests, agriculture, and the unsustainable mess we've made of those systems and for years haven't been focusing much on M2, M3, etc. I'll have to see, once it's gone, how much it is missed.


by Puru Saxena

... "These days, we are being told that the Federal Reserve is raising interest-rates to 'control' inflation. If the Federal Reserve were really curbing inflation, why would the American money supply continue to surge despite recent interest-rate hikes? Despite all the noise about inflation, the Federal Reserve has added roughly $1 trillion to the system over the last year. So, on one hand, the Federal Reserve continues to inflate, and on the other hand, it is raising rates. 'But why would they do that?' you may ask. You see, the U.S. economy is in a mess, and a true contraction in the money supply (deflation) would send the whole world into a severe recession. Under this scenario, millions of companies and individuals would go bust and the entire financial system may collapse. Therefore, you can rest assured that the Federal Reserve will continue to inflate for as long as possible. It is shocking to note that the broad-based money supply (M3) has increased from $ 6.5 trillion to $10 trillion in five years - representing a 54% increase! Yeah, Greenspan did a fine job 'managing' inflation!

"As far as the current situation is concerned, I believe the Federal Reserve is raising interest-rates to prevent an outright collapse of the U.S. dollar. A weak currency needs to offer a high yield (interest) in order to attract capital. Indonesia, Russia, Brazil and Venezuela come to mind. Today, the United States is the world’s largest debtor nation, and its current account deficit stands at $730 billion or 6.3% of GDP! ..."


Thx, as always, for your reading referrals. It sure takes a edge off a good "shrill" to sit through another's. :>)


Man, that Bill Bonner sure is a curmudgeon. Good article though.

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  • Chronicles of international finance and geopolitics, with hints from thither and yon to help us find a way from "growth and development" to "sustainability."

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