Contact Your Congressperson: Demand M3 Reporting
On March 9, 2006 the Federal Reserve discontinued reporting of M3. Below I have copied a transcript from an exchange between Dr. Paul and Chairman Bernanke on February 29, 2006. During the exchange, Bernanke stated that they would bring M3 back if Congress requested. After reading the exchage, I'll present an argument for returning M3 reporting, and ask you to call Bernanke's bluff. Contact your representative (instructions at the bottom) and ask them to support H.R. 1207 (Audit the Fed) and a return of M3 reporting.
Federal Reserve Statement on M3:
"M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits."
Transcript of Paul-Bernanke Exchange:
Chairman OXLEY. The gentlelady yields back. The gentleman from Texas, Mr. Paul.
Dr. PAUL. Thank you, Mr. Chairman. Thank you, and welcome, Chairman. Mr. Chairman, I was very pleased with what you said about your support for transparency, and I want to ask a question dealing with that. Also, at the bottom of page 8, you said something that I thought was very important, where you said that the Federal Reserve, together with all other central bankers, has found that successful policy depends on painstaking examination of a broad range of economic and financial data, and I also think that’s very important. There is a famous quote by an economist, which I’m sure you’re familiar with, that inflation is always and everywhere a monetary phenomenon. And likewise, another famous economist from the 20th Century, and I’ll paraphrase this, said that monetary authorities deliberately confuse the issue of inflation by talking only about price increases. Yet it’s the price increases which are merely the inevitable consequence of inflation. This is done on purpose to distract from the real cause, which is the increase in the quantity of money and credit. And I notice in your report to the Congress, you do report M2, and it went up last year at four percent. And M3 was not mentioned, other than the fact that it won’t be reported any more. M3, interestingly enough, went up twice as fast, and M3 is going up probably more than two times as fast as the GDP. And this is information that I consider important and I know a lot of other economists consider important. And I find it rather interesting and ironic that one of the reasons that the Federal Reserve has given – of course, this was before you were the chairman – for this change is the fact that it costs money; it costs too much money. Now that is really something in this day and age, especially since the Federal Reserve creates their own money and their own budget and they have essentially no oversight, and all of a sudden it costs too much money to give us a little bit of information. So that to me is a bit ironic that this information will not be available to us. And my question to you is, would you ever reconsider this policy of denying this information to the Congress just so that we have another tool to analyze what’s going on with monetary policy? It seems like with your support for transparency, this should be something that you would heartily support.
Mr. BERNANKE. Congressman, first, you’re absolutely right. We do look at a wide variety of indicators, and money aggregates are among those indicators. In particular, M2 has proven to have some forecasting value in the past, and I think the slowdown this year is consistent with the removal of accommodation that’s been going on. In regard to your references to M3, a still broader measure of money, we have done, and I’m now speaking about the Federal Reserve before my arrival, but we have done periodic analyses of the various data series that we collect to see how useful they are. And our research department’s conclusion was that M3 was not being used by the academic community, nor were we finding it very useful ourselves in our internal deliberations. Now it’s not just a question of our own cost; although, of course, we do want to be fiscally responsible on our own budget, but it’s also I think important for us to recognize the burden that’s placed on banks that have to report this information. And so when we can reduce that burden, we would like to do so. And that was one of the considerations in the decision that was made about M3. Would we reconsider it? If there were evidence that this was an informative series and that it was useful to the public and to the Federal Reserve in forecasting the economy, naturally we would look at it again. There’s nothing dogmatic going on here.
Dr. PAUL. If the Congress expressed an interest in receiving this information, would you take that into consideration?
Mr. BERNANKE. If there was broad interest in the Congress in receiving this information, we would look at it. But, again, Congressman, remember, it’s a burden on the reporting banks to provide the information, and we are trying to reduce that burden as much as we can. (Emphasis mine)
Dr. PAUL. But, of course, this has been available to the financial community for a lot of years, and for some people it’s very important to measure what you’re doing. If the money supply is important, which a lot of people believe it is, and it causes the inflation, this to me seems like we’re taking information about the money supply and literally hiding it from the people. And I yield back.
Reasons we need M3 reporting:
In the last year that M3 increased 8.2% versus only 4.6% for M2. Over the last several years, M3 has increased more rapidly than M2. The Fed's cherry picking of M2 is simply an attempt to present the least indicting information to the public, much in the same the government cherry picks the consumer price measures that have increased the least. The government excludes food and energy prices, claiming their volatility, simply so they can point to their hand selected core of prices showing lower than expected inflation. This is the same method the Fed is employing here. By being able to present a 4.6% increase in the money supply rather than a 8.2% increase, the Fed can promote the idea that it is employing moderate inflationary measures.
M3 includes all the categories of M1 + M2 as well as balances in institutional money funds, repurchase liabilities issued by depository institutions and Eurodollars held by US residents at foreign branches of US banks, in fact at all banks in the United Kingdom and Canada.The Fed' s decision to stop measuring M3 shows the extent of their actions to harm the economy in the long term. If you look at the growth over the last 25 years, you can see that M3 doubled in the first 15 years, and more than doubled (almost 2 1/2 times) M3 in the last 10 years it was measured.
The cost of reporting M3:
Bernanke stated that the cost of reporting M3 was too high. It's interesting that a private monopoly (that makes its own money) would have trouble producing accurate financial information due to high costs. In fact, the cost of reporting M3 is a whopping $1.5 million or .00000699% of their budget.
H.R. 1207 - Audit the Fed
Ron Paul's bill to audit the Fed is currently being deliberated in the Financial Services Committee. Please take a moment and call these numbers expressing your support for Ron's bill.Contact Info for Financial Services Committee
Majority Phone: 202-225-4247
Majority Fax: 202-225-6952
Minority Phone: 202-225-7502
Minority Fax: 202-226-0556
Demand M3 Reporting - Call Bernanke's Bluff
Below is a sample email that you may copy and paste into an email if you don't know what to say:
Please demand that the Federal Reserve report the M3 statistic which they discontinued in 2006. The M3 statistic is valuable information in determining the rate at which the Federal Reserve is expanding the money supply.
On February 29, 2006 Federal Reserve Chairman Ben Bernanke indicated that he would reconsider the Fed's decision to discontinue M3 reporting if Congress demanded it. Congress created the Inflation Engine known as the Federal Reserve. It is now time for Congress to exercise its proper authority by demanding that the Fed present all pertinent information about its activities to the American public.
The creation of money out of thin air by the Federal Reserve to paper over the multi-trillion dollar federal deficits and to prop up its fiat paper money system threatens to destroy the dollar and wipe out the value of our earnings from our jobs, our retirement income, our investments, and our insurance.
We the People deserve to know the truth about the Federal Reserve.
You can find your representative here.
David in Qatar