What Must Lie Beyond The M’s

M1 was pretty much obsolete already while M2 was steadily moving in that direction – in 1974 – leaving Coombs to suggest an even broader M3. Why?

Go back and reread what Coombs had said; essentially, these eurodollars outside the United States were creating undeniable problems for conditions inside the United States. Let me rewrite that: offshore dollars causing issues inside US to the degree that even central bankers conditioned to their own narrow bureaucratic domain couldn’t look away (“benign neglect”) from them any longer.

While the Federal Reserve staff did attempt to include eurodollars (and repo) in their M3, they never came close to capturing enough of them to make M3 worthwhile, either.

But if M2 never changed its definition, then what about all the stuff that should have gone into M3 but remained way beyond even the Federal Reserve’s technical abilities to define and measure? These offshore dollar formats didn’t disappear; they just never got even close to properly M-ed.

And it was this shadow money outside the M’s which explains the world before GFC1, what really happened during GFC1 in 2008, and almost everything which has followed, including what has failed to materialize ever since – the inflation (therefore real recovery) always promised due to “money printing” theories that never account for what lies beyond the M’s.

To put it back into Coombs’ terms; yes, M2 has increased dramatically in 2020-21, but that only includes domestic, deposit-based money and does not include, not one single penny, non-domestic, non-deposit-based money to which, offshore, there’s an enormous amount (see: quoted passage above; if just eurodollar deposits, not even the exotic stuff, back in 1988 was 130-some% of domestic M2 would eventually become in 1991, just how large had the shadows grown by 2007? 2015? 2021?)

And since in 1974 these Fed guys could see how the hidden offshore money outside their M’s was causing problems even inside the US, what might we conclude for 2020-21 just like 2008-09? The shadow money must continue to be an even larger deflationary (or disinflationary, to be more specific) drag than the visible inflationary deposit-based increase pictured in M2.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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