Smoking Gun at the Fed! Who Cares?

When the American Government starts hiding things, it’s time to get concerned. And when the major news media doesn’t cry foul, it’s really time to start worrying. But on March 23rd of 2006 the Bureau of Labor Statistics (BLS) very quietly decided it will no longer publish M3 money supply data, and nobody said boo!

Now, for those of you who don’t know what the M3 is, let me briefly explain. Up until this purely political decision, the Fed tracked inflation using three sets of economic data called the M1, the M2, and the M3. The M1 covers the money you and I normal people use: Cash, checking accounts, and that sort of thing. “Real” money. To that, the M2 adds our savings accounts. (Savings accounts and retail money market and mutual funds under $100,000.) To that, the M3 tracked institutional money. So the M3 included the M2, and M2 includes the M1, making the M3 the largest, most comprehensive picture of real inflation in the United States — including U.S. Government expenditures!

So why would the BLS quit compiling the M3 data and the Fed choose to quit tracking it? Well, the official reason is nonsensical. They claim that the datum are tracked by other indicators, and so not tracking it will save the tax payer money. What other indicators? There are none!

So what’s the real reason?

I submit (and I’m not alone) that it’s to hide the real rate of inflation, and therefore exactly how much we are really being taxed to pay for the wars in Iraq and Afghanistan.

Recall, if you will, from your high school economics class that, in order for inflation to occur, the Government has to increase the supply of money, making it more plentiful , and therefore “cheaper”. What happens when the Government prints money? Its value goes down. It takes more money to buy goods whose real value hasn’t changed a jot. We get inflation.

And what’s happening to the dollar today? It’s value is going down. (About $1.40 per Eurodollar as of close of business on Friday. Or, put another way, your U.S. dollars are now worth about 60¢ in Europe.) What do people people and governments do when the U.S. dollar falls in value? They hedge by buying gold, driving the price up. What’s happening to the price of Gold? It’s at record highs. ($838.80/oz as of close of business of Friday.)

We have inflation.

And what happens if people think inflation is out of control? They begin to lose faith in the U.S. Dollar (which is the only thing that makes it worth anything to begin with) and begin to panic, as they did in the late 1970s. And that just makes things worse.

So my theory is: To hide the fact that its printing (more than the usual amount of) money to finance itself, the Bush Administration ordered the BLS to quit compiling data for the one indicator that would reveal to the American Public what it was doing — the M3.

Consider this: In 2005 (the last year for which the data was complied) the M3 went up an annualized 9.4%; in the last three months of that year alone it rose an annualized 17.2%! Now, a 9.4% increase in the money supply (which is what the M3 measures), should have translated into a 9.4% increase in inflation. But the BLS claimed that inflation only rose a paltry 3.6%.

I know that 2005 was a long time ago, but do you recall ending 2005 with 5.8% more stuff at your house than you started with? (9.4% ? 3.6% = 5.8%) Because if the inflation rate didn’t go up by 9.4% in 2005, then you and I and everyone else had to put 5.8% more stuff in our garages and storage units that year.

Now, I’m of the opinion that conspiracy theories are worth exactly the amount of time they’re given by most people. Zero! They’re usually simplistic and often times down right dumb. Certainly we’re not looking at “the collapse of the United States as we know it” as some claim. China isn’t going to end up owning America (or the world) as others claim. And going back to “the gold standard” isn’t the answer to life, the universe, and sin as we know it.(In fact, tying the dollar to gold again would make the problem worse!)

But all that said, we do have a growing problem, and the Government attempting to deceive us is, in the long run, only going to make it worse. America doesn’t live in a vacuum. Market forces are already revealing what the Government is trying to hide from us. As more dollars are pumped out, they’re worth less and less, and global market forces do what they’ve done for thousands of years: They adjust. The dollar falls in value on international markets, gold prices skyrocket, the price of import goods goes up, and the price of export goods goes down. Inflation brews up until natural economic equilibrium is restored.

And who is going to pay? You and I. We already are. The question is: Do we want to do it with our eyes open, or our eyes shut? If we want to do it with our eyes open, we need to demand that the M3 be compiled, tracked, and reported.