What Must Lie Beyond The M’s

Though identified fifty years ago, this monetary blind spot was never actually corrected, the M3 effort never more than half-hearted at most (as Alan Greenspan would admit a few decades later). To put it very simply: if the shadow money you can’t define and measure is so much more and more relevant than the traditional money you can, why bother with either of them?

This explains why our central bank transitioned from an actual central bank and into nothing more than a domestic bank regulator which specializes in expectations-based policy rather than money. In short, if they can make you think they, or the banking system, is printing money then they believe you’ll act in anticipation of expected future inflation even if no effective money (on net) ever gets printed.

As we’ve witnessed and observed time and time again over the last thirteen years (longer in Japan), it just doesn’t work that way. Again, M2 is way up – like the Fed’s bank reserves – but there’s no inflation. Even that tells us something specific about the rest of the much broader monetary system both inside and outside the US even though we cannot directly observe the offshore (and onshore) shadows; furthermore, it fits neatly with all the rest of the indications more directly affected by the gross eurodollar system (bond yields, curves, etc.).

This M2 part of the inflation hysteria is at least understandable, though, in the end, not at all compelling lagging, as it does, (at least) half a century behind.

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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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