Bizarre Lies By The Federal Reserve

[bpw]

I have been intrigued this past few months by the Federal Reserves polices with regard to interest rates and the reporting of key fiscal statistics like money supply. The skuttle about M3 now appears to me true in that the Fed have stopped reporting it to the public. The reasoning is stated in the link below and at first sight seems plausible:

http://www.federalreserve.gov/boarddocs/re...0060124.ifr.pdf

EXTRACT

Current Actions: The Board of Governors of the Federal Reserve System announced on November 10, 2005, that it would cease publication of the M3 monetary aggregate on March 23, 2006. M3 does not appear to contain any additional information about economic activity that is not already embodied in M2. Moreover, the role of M3 in the monetary policy process has greatly diminished over time. The costs to the Federal Reserve and the private sector of collecting data and publishing M3 now outweigh the benefits. The discontinuation of this report will reduce private sector burden by 1,872 hours per year.

Now look at the link below which is also on the Federal Reserves website.

http://www.federalreserve.gov/pubs/bulleti...99/0399lead.pdf

EXTRACT

M1 consists of currency, travelers checks, demand deposits, and other

checkable deposits. M2 consists of M1 plus savings deposits (including money

market deposit accounts), small-denomination time deposits, and balances in

retail money market funds. M3 consists of M2 plus large-denomination time

deposits, balances in institutional money market funds, RP liabilities (overnight

and term), and Eurodollars (overnight and term).

It's very clear that M2 does not include the same data as M2. Can someone explain whether there is a sensible reason to stop the reporting of money held in institutional money market funds and EuroDollars?

We have talked of a possible run on the dollar as people get cold feet because of the size of the deficit. Is the real reason for not reporting M3 and increasing interest rates a desire to hide internationals dumping the dollar in favor of the euro. And could the Feds desire to prop up the dollar be the nail we would like to hammer into the UK house price coffin? The BOE will soon be faced with the prospect of a run on the pound if they dont keep UK interest rates ahead of the US.

I shall be praying for a collapse in the pound and house prices!!

[Harry Sacks]

I have been intrigued this past few months by the Federal Reserves polices with regard to interest rates and the reporting of key fiscal statistics like money supply. The skuttle about M3 now appears to me true in that the Fed have stopped reporting it to the public. The reasoning is stated in the link below and at first sight seems plausible:

http://www.federalreserve.gov/boarddocs/re...0060124.ifr.pdf

EXTRACT

Current Actions: The Board of Governors of the Federal Reserve System announced on November 10, 2005, that it would cease publication of the M3 monetary aggregate on March 23, 2006. M3 does not appear to contain any additional information about economic activity that is not already embodied in M2. Moreover, the role of M3 in the monetary policy process has greatly diminished over time. The costs to the Federal Reserve and the private sector of collecting data and publishing M3 now outweigh the benefits. The discontinuation of this report will reduce private sector burden by 1,872 hours per year.

Now look at the link below which is also on the Federal Reserves website.

http://www.federalreserve.gov/pubs/bulleti...99/0399lead.pdf

EXTRACT

M1 consists of currency, travelers checks, demand deposits, and other

checkable deposits. M2 consists of M1 plus savings deposits (including money

market deposit accounts), small-denomination time deposits, and balances in

retail money market funds. M3 consists of M2 plus large-denomination time

deposits, balances in institutional money market funds, RP liabilities (overnight

and term), and Eurodollars (overnight and term).

It's very clear that M2 does not include the same data as M2. Can someone explain whether there is a sensible reason to stop the reporting of money held in institutional money market funds and EuroDollars?

We have talked of a possible run on the dollar as people get cold feet because of the size of the deficit. Is the real reason for not reporting M3 and increasing interest rates a desire to hide internationals dumping the dollar in favor of the euro. And could the Feds desire to prop up the dollar be the nail we would like to hammer into the UK house price coffin? The BOE will soon be faced with the prospect of a run on the pound if they dont keep UK interest rates ahead of the US.

I shall be praying for a collapse in the pound and house prices!!

IMO they are trying to hide the movements of $ outside the US. Maybe because of the crime syndicate style printing and dumping of $'s in the Middle East recently.

I agree, we may see a run on the £ if this rate hiking continues, which is probably the desired effect as far as the FED are concerned.

[Time Will Tell]

Hi,

Great peice of information. can you explain the quote below in lamens terms.

And could the Feds desire to prop up the dollar be the nail we would like to hammer into the UK house price coffin? The BOE will soon be faced with the prospect of a run on the pound if they dont keep UK interest rates ahead of the US.

[frugalista]

Hi,

Great peice of information. can you explain the quote below in lamens terms.

My take on it would be this:

The Fed needs to increase the number of dollars in existence in order to make the US federal budget deficit shrink in real terms. It is currently at 8 trillion dollars, which incidentally is apparently equivalent to a pile of new $100 bills 12 miles high. They will partially hide this money printing activity by not publishing M3.

They are worried that the foreign holders of dollars and dollar-denominated assets (e.g. Japanese, Chinese and German central banks) will dump dollars as soon as they detect the money printing. This would have the effect of weakening the dollar in the FX markets, which has many negative consequences for the US. So, to counterbalance this weakening, the Fed will also raise their interest rate in order to stimulate more dollar demand.

Other interest rates around the world will rise as a reaction to this. The more tied a country's economy is to that of they US, the more they will have to follow the Fed rate. Historically, the UK rate has tracked the Fed rate fairly closely, so rising US rates will cause UK rates to rise. These rate rises will eventually filter through into the mortgage lending market.

frugalista

[Culpability Brown]

It means that the Yanks will continue to print ever greater quantities of their funny money in a desperate attempt to stave off impending financial disaster and blame it on the North Koreans who are allegedly dumping it all in the Middle East...

In order to persuade global investors not to ditch their funny money, the FED will keep on giving you more and more of their funny money, should you choose to ignore the fact that it's worth less than the paper it's printed on.

Dollar bulls will keep telling you that it will become the most valuable currency on the planet even though a piece of bog roll will probably be more valuable than a $100 bill before too long.

The truth is, 5% has already been priced in at current exchange levels and should the FED dare consider not to raise their IRs any further, then the world and its dog will be ditching the US$ quicker than you can shout, "financial meltdown!!!"

Indeed.

I suspect that the interest rate hikes we've seen so far are due, not to inflationary pressures at all, but to a massive drop off in the amount of US Treasury purchases by Japan and China. If this is correct as Bond prices fall interest rates will have to rise further exacerbating the cycle.

Ouch! When you're in unchartered territory anything can happen and probably will.

Watch for another leap in the Gold price.

[Fabio]

IMO they are trying to hide the movements of $ outside the US. Maybe because of the crime syndicate style printing and dumping of $'s in the Middle East recently.

I agree, we may see a run on the £ if this rate hiking continues, which is probably the desired effect as far as the FED are concerned.

Can someone explain how printing more money has an effect?

[Margret Thatcher]

Can someone explain how printing more money has an effect?

http://en.wikipedia.org/wiki/Hyper_inflation

Interesting what they say about Governments....

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

Outright lying as to official statistics such as money supply, inflation or reserves.

Suppression of publication of money supply statistics, or inflation indices.

Edited March 28, 2006 by Margret Thatcher

[Culpability Brown]

Can someone explain how printing more money has an effect?

Bernanke is famous for his printing press speech in which he stated: -

"the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services." He went on to say that, "If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation".

This speech was made in early 2003 when the Fed were terrified of falling into the defaltionary trap that had besieged Japan for a decade.

A highly effective yet risky policy.

They are now in unchartered territory.

[Fabio]

http://en.wikipedia.org/wiki/Hyper_inflation

Interesting what they say about Governments....

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

Outright lying as to official statistics such as money supply, inflation or reserves.

Suppression of publication of money supply statistics, or inflation indices.

Thanks

[Culpability Brown]

Oh I wouldn't say that. Think Germany 1930s, Argentina 1990s and Zimbabwe current day...

I wasn't thinking as optomistic as that!

Edited March 28, 2006 by Culpability Brown

[DoubleBubbleTrouble]

It seems to me that it's a calculated attempt to hide the devaluation of their money from those Asian countries propping up the American way of life.

Whether it stops them shifting out of the dollar remains to be seen. They have an awful lot of them.

Edited March 28, 2006 by DoubleBubbleTrouble

[vinny]

"

Indeed.

I suspect that the interest rate hikes we've seen so far are due, not to inflationary pressures at all, but to a massive drop off in the amount of US Treasury purchases by Japan and China. If this is correct as Bond prices fall interest rates will have to rise further exacerbating the cycle.

Ouch! When you're in unchartered territory anything can happen and probably will.

Watch for another leap in the Gold price."

I'd perhaps call the move gold the other way, there is an inverse relationship between IR's and gold.

As you say anything is possible!!!!!

I do agree that a portion of the rises have been related somewhat to foriegn US Treasury purchases. Ironically, I'd suggest higher US IR rates may have helped keep the bubbles afloat by facillitating American credit. (Just a thought to bolt on to the carry trade situation, sorry DBT if this is what you meant ).

As for those wishing for a tanking pound - be careful what you wish for, although it could indeed be bearish for HP's, depending on the rate of fall - it could be very bullish for asset prices.

Edited March 29, 2006 by vinny

[Culpability Brown]

"

I'd perhaps call the move gold the other way, there is an inverse relationship between IR's and gold.

As you say anything is possible!!!!!

Look at it go vinny.

Up $11 to $585 / oz.

This is for real.

They're dumping US Treasuries and buying gold instead.

Edited March 30, 2006 by Culpability Brown

[vinny]

Look at it go vinny.

Up $11 to $585 / oz.

This is for real.

They're dumping US Treasuries and buying gold instead.

Indeed. But it may take time for "tightening" to take effect. There IS though an historical paradox between gold and IR's.

Those bullish on asset prices think that the fed (and others CBs) are done raising rates. I think they may be proven wrong. Gold may be moving in anticipation that rate hikes are done. But IR's / bonds look like they may break out soon. I think there may be bull traps in many markets.

Looking at gold in particular I think there are many convincing arguments out there why you should buy and hold - and I may yet do this. I've traded a large amount of GBS, but with gold (and oil) I'm sitting it out for the moment.

Edited March 31, 2006 by vinny