Economy US

There’s a tremendous amount of money in the World. One can see this by the figures of the central banks around the world.  That is: except from one, the FED.   In March 2006 the FED stopped publishing the M3 money supply. http://www.federalreserve.gov/Releases/H6/20060309/h6.txt  The M3 money supply is the most complete figure that shows how much money circulates in an economy.  The European central bank, the ECB, still publishes the M3 and lately we see astonishing high figures of ca. 11,5%; far above the target of 4,5%. It’s not too hard to imagine that in the land of credit, the US, the M3 will far exceed the European figures. Therefore, it’s not that weird they stopped publishing the data. 

Is this really possible? How can they print the money without punishment? Well, it starts with simply not telling how much money you have printed. Because, what is money? Basically it is just a peace of paper, or some figures on a computer screen.  As long as we thrust each other to deliver real goods like food or energy for this money, everything is all right.  But, don’t we forget something real important? Like  one of the fundamentals in an economy: High supply, low price! At the figures of the M3 money supply we can see there’s a lot of supply, so the worth of our money should go down and we should bring more money every day to get the same goods.  This is called inflation. And here comes the paradox: the published inflation is not astonishing high; about 2% y/y.  http://www.bls.gov/bls/inflation.htm

Deliberately we write here published inflation because this figure is manipulated enormously.  On  http://www.shadowstats.com one can see how this is done.  Every year there is al list of adjustments of the inflation figures. There are several methods of manipulating them and one of them is to address different weightings. When the price of an element goes up, it gets a lower weighting,  when a price goes down, it gets al higher weighting. Beside this there is an adjustment when an element gets slightly improves.  Even when the shop price stays the same, the element is adjusted (lowered a lot!) because the consumer gets more pleasure out of the same product.  That will keep the figures on the bright site!  The great advantage of publishing low inflation figures is because these figures have a close relationship with, by example pension  and social benefit adjustments.  Besides this it will push interest rates sky-high and with a huge deficit this is the last thing the Bush administration likes to happen. 

Next time we will look at the connection between money and gold. In the old days there was a strong connection but now the relationship increases every year. Even stronger: members of the IMF are forbidden to express their money in an amount of gold.