The law of the free money supply can be stated as follows, for simplicity’s sake: an increase in the free money supply circulation (M3) leads to a fall in real GDP, and vice versa.
This free money supply is the difference between the variation (from one year to the next in percentage terms) of this M3 money supply and (minus) that of the annual real GDP.
More precisely, this law on free money supply can be stated as follows: when the free money supply circulation increases faster than real GDP, i.e. faster than wealth creation, the growth of real GDP declines, and vice versa.
It is therefore the variations in this free money supply that are the root cause of the variations in real GDP.
For the United States, the problem at present is to find a solution to replace the M3 money supply figures with another entity…
***
The relationship between money and wealth creation, measured by real annual GDP, is so important that, before taking over as chairman of the Fed at the beginning of February 2006, Ben Bernanke managed to ensure that the M3 global money supply figures were no longer published as soon as he took office!
Since that date, therefore, only the members of the FOMC can have access to this data, which means that they are the only ones who can anticipate very precisely and before anyone else the development of a recession that they themselves have caused in order to break up a monetary hypertrophy… which they themselves had previously and imprudently allowed to develop.
The publication of M3 money supply data is therefore of great importance because its increase leads to a fall in real GDP, and vice versa according to the law that I refer to as the free money supply.
This free money supply is the difference between the variation in this M3 money supply and (minus) that of the annual real GDP,
Document 1:
The problem since March 2006 is this: what data can be used to replace the M3 money supply data, given that the US authorities still refuse to publish them again?
Well, I have found a relevant solution…
***
What is important is the behavior of the Americans with regard to the money they have in their bank accounts, in notes and in their savings accounts, which is recorded globally in the M2 monetary aggregate.
However, American citizens are increasingly investing capital (possibly on a very short-term basis) in Money Market Mutual Funds (MMMF) in order to benefit from advantageous and risk-free interest rates.
This money therefore leaves the money supply of the United States, but this must be taken into account in order to highlight the behavior of American citizens with regard to the money they have available, and this is what determines the variation in their consumption, and therefore the demand to which supply responds, i.e. real GDP.
Therefore, to anticipate variations in real GDP, it is enough to know the variations in this free money supply calculated in relation to the entity constituted by the M2 monetary aggregate and deposits in these money market mutual funds (MMMF).
Thus, we can see the very great similarity between these first two graphs, which represent on the one hand this free money supply calculated from the figures for the M3 money supply (document 1) and on the other hand from this free money supply consisting of the M2 monetary aggregate and the funds deposited in MMF (document 2, data available from 1976),
Document 2:
These two methods of evaluating the overall money supply held by US citizens overlap, the only differences being in the amplitude of these variations.
For example, it is always possible, according to these methods (and graphs), to clearly show that it was from the end of May 2005 that the money supply held by Americans began to jump (and even from a false start in December 2003!), which would then continue to escalate into what became the Great Recession of 2008.
Document 3:
Ben Bernanke was therefore very judiciously chosen in November 2005 to chair the Fed from February 2006, precisely on the basis of his skills, as he was considered the best specialist in managing a major crisis created by monetary hypertrophy (the 1929 crisis) in anticipation of the monetary bubble that was then in the making.
***
It is possible to use the variations of the M2 monetary aggregate without the MMMF to anticipate the variations of the real GDP but the information obtained is less relevant (than the method presented previously) as shown by the fact that in February 2006 the free money supply calculated solely on the basis of the M2 aggregate is significantly lower than the growth of the real GDP, whereas it is the opposite when the figures for the M3 money supply or those for the M2 monetary aggregate and the MMMF are taken into consideration to calculate the free money supply (documents 1 and 2).
Document 4:
The differences between the data of the free money supply calculated on the basis of the M3 money supply and the M2 monetary aggregate are greater than those obtained previously using the difference between M3 and the combination of the M2 monetary aggregate and the money market mutual funds (MMMFs),
Document 5:
***
The data used are those of our friend Fred de Saint Louis on a monthly basis.
The data on money market mutual funds (MMMFs) are those coded MMMFFAQ027S
© Chevallier.biz