The M's

Through all the doomsday inflationary forecasts coming over from the right on QE, something made me remember (though I don't recall it at the time) - the Fed stopped tracking/publishing/releasing M3 data back in 2006. A bit of background details on the money supply definitions for the US - 

M0 is basically your physical currency including coins. (Fed Reserve notes + US Notes + Coins)

The Monetary Base (MB) is M0 + Fed Reserve Deposits

M1 is M0 + demand deposits, traveller's cheques and checkable deposits

M2 is M1 + Savings Accounts, Money Market Accounts, Retail MMFs and small CDs

M3 is M2 + all CDs (includes institutional mmf balances), eurodollar deposits and repos

M4 includes the above as well as commercial  paper

In any case, the Fed's reasoning was that the benefit of what M3 provided wasn't enough to offset the cost of tracking it or something like that. John William's at Shadowstats however, has a compilation of M3 estimates. I have no idea what assumptions have been made or whether any constants have been used to estimate data from eurodollar deposits or for that matter, how repurchase agreements were factored in. But here's what it looks like:

That's what's there to know about the financial sector money multiplier - a deep contraction clearly observed for broader forms of money. Clearly, M3 growth has been much lower since Oct 2008 than before that. Indeed, the monetary base almost triples in size and M1 almost doubles, but M2 growth averaging the past five years has been about the same as before, and M3 growth much less than before. 

One would automatically think that euro-data will look similar. Atleast a straightforward inference of direction could be made. You wouldn't be wrong: 

M1 and M3 definitions are broadly similar - 

• M1: Currency in circulation + overnight deposits
• M2: M1 + deposits with an agreed maturity up to 2 years + deposits redeemable at a period of notice up to 3 months.
• M3: M2 + repurchase agreements + money market fund (MMF) shares/units + debt securities up to 2 years

From '08 onwards, there's perfect asymmetry in the y-o-y growth rates uptill '10 before M1 growth normalizes, so to speak. 

But coming back to the US money supply, it's clear that official M3 measures might not be that useless after all.