Interesting Times

INTERESTING DEVELOPMENTS
by Bill Bryan
MarketPulses.com
December 2, 2005


After eighteen years of stewardship at the Federal Reserve, where we’ve witnessed the purchasing power of the US dollar evaporate by 50%, yes, that figure is correct folks, Chairman Greenspan’s days of tenure are fast approaching the end. “The Maestro”, as many have dubbed the present Chairman, will soon turn over the reigns of the Fed (February 06’) to Ben Bernanke, current senior economic advisor to the White House and former chair of Princeton University’s economics department, provided his successful confirmation in the Senate, where it is widely expected to pass without much fanfare. While the Bernanke nomination came as no surprise, particularly after his comments in November 2002, which tagged him as “Helicopter” Ben, where the then Fed Governor stated that, “The US Government has a technology, called a printing press, that allows it to produce as many U.S. dollars as it wishes at essentially no cost”, we’ve recently learned that the Federal Reserve will no longer publish M-3 (money supply) data as of March 23, 2006.

Why would the Federal Reserve wish to put a halt to the reporting of the M-3 data? Ah, the $6 million dollar question that we’re sure will provoke much debate and controversy in the months and possibly years ahead. Nevertheless, while it’s no secret that more money (debt) has been created in the US during the past four plus years than in the preceding one hundred years combined, a President who has yet to veto one single spending package sent his way, deficits ballooning out of control, consumers strapped with debt up to their eyeballs, record personal bankruptcies and perhaps soon to be foreclosures, horrific forces of mother nature, is the picture starting to become a bit clearer? The fact of the matter dear readers is that the “Master of Disaster” (Chairman Greenspan), has essentially created some of the world’s greatest asset bubbles (stock, bond and housing ring a bell) and in order to keep the punchbowl spiked and the partygoers feeling woozy, the powers that be have decided that the surest way to continue the affair into the late hours is to keep the printing presses running in overdrive.

And how does one determine how many dollars are flowing through the financial spectrum? Well, you guessed it, the M-3 data, which no longer will be published for public eyes. One may ask, “Why would the Fed be reluctant to disclose such information”? Well, let’s take a look at some other economic proxies that flow from our government bodies. For instance, the CPI (consumer price index), which measures the prices of consumer goods and services and is a measure of the pace of US inflation, continues to suggest that inflation remains tame and under control, at least from the “core” perspective. However, when examining the numbers closely, the government likes to “exclude” food and energy from the index, thus a “core” reading. Therefore, in simplistic terms, if you take out food and energy, not to mention healthcare, education tuition, and utilities, which for some reason the Fed does not perceive as necessary daily expenditures, you ultimately end up with a much lower reading than actuality. Therefore, while the general public is exposed to such daily expenses, perhaps the Fed is living in another world, whereby it is not necessary to eat, fuel their vehicles, turn on the lights, pay for their children’s education, receive hospital assistance when required nor heat their homes. Anyways, we think you’re starting to get the picture.

Furthermore, the BLS (Bureau of Labor Statistics), which provides employment data, appears to have their very own formulas for concocting desirous results. For example, when the BLS announces new jobs, they do so with a little creature called the “birth/death ratio”. What this vehicle does is determine how many jobs will be created based on the assumption of the number of births and deaths in any one given year. Thus for example, when the BLS reports that 200k jobs were created in a particular month, it’s not as though 200 thousand John and Jane Q public individuals were hired by the likes of IBM, Microsoft, Boeing, Johnson & Johnson etc. They are merely assumptions. Therefore, when dissecting economic data from governmental bodies, one much dig beneath the surface to determine the viability of such reports.

What does all of this have to do with the discontinuance of the M-3 data? From our perch, the answer is simple. When our government releases and reports economic data, it is with the hope that such statistics portray a healthy, vibrant and prosperous economy, whereby its citizenry participate (consume) in order to continue and expand its economic boundaries. Yet, although things may appear to be fine on the surface, which the public generally absorbs, it is the mechanisms beneath the surface, which are rife with rule changes, hedonics and replacement vehicles, which when tinkered with, produce the desired results. And although the general public may be mislead from such action, the financial markets seldom are. Hence, when viewing the charts below, of both the gold and silver markets, there undoubtedly seems to be some concern with respect to both the nomination of Mr. Bernanke as Fed Chairman, as well as the termination of the M-3 data.





It’s quite obvious when examining the charts of both gold and silver above, they are clearly in a strong up-trend. What are these pictures potentially foretelling? Well, as the old saying goes, “A picture is worth 1,000 words”, INFLATION!! The “smart money”, institutions, pension funds, and wealthy investors appear to be taking Mr. Bernanke’s remarks of November 02’ literally and in doing so, are acting with their money. Furthermore, it is our belief that should Mr. Bernanke’s confirmation hearings proceed without trouble, as we suspect such, the printing presses will remain in overdrive, as they have with “The Master”.

With inflationary pressures heating-up worldwide, due to massive credit expansion via Central Banks, is it any wonder why the Fed no longer is willing to share their crystal ball (M-3 money supply)? Is M-3 just the beginning of further economic data to be sandbagged by the powers that be? Who knows? Nevertheless, we would not be surprised one bit should the ocean of liquidity eventually engulf us all throughout the globe. Since the inception of the Federal Reserve in 1913, which by the way, we can find no such reference in the US Constitution, the purchasing power of the US dollar has evaporated by 97%, thus today’s .03cent value. Furthermore, since Mr. Greenspan took chair in 1987, you can cut your dollar in half, because that’s exactly what has occurred. We’re not sure about how our readers feel, but our view is that it seems as though the “confiscation” continues. Is the US dollars status as the world’s reserve currency in jeopardy?? Only in time will we know. Interesting developments for interesting times.


© 2005 William Bryan