Reply #37: Actually the amount of M-3 Currency is DOWN, M3 is the broadest measure of "Money"

[happyslug]

The Federal Government has several different definitions of "Money" (As while as Unemployment). This reflects how money is used and "created" (just like unemployment is defined differently for different purposes). Traditionally the different definition of "money" are called M0, MB, M1, M2 M3 and MZM.

M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.

MB: is referred to as the monetary base or total currency.<8> This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply. The Federal Reserve uses MB for its definition of "money"

M1: Bank reserves are not included in M1.

M2: represents money and "close substitutes" for money. M2 is a broader classification of money than M1. Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation.

M3: M2 +large deposits and other large, long-term deposits

MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand.

http://en.wikipedia.org/wiki/Money_supply

As you can see M2 is what is used to estimate inflation, but on the short term (i.e. less then a Six months to a year). As to long term inflation from the 1970s till 2006 M3 was viewed as doing a better job of predicting what long term inflation will be (since 2000 the Fed has turned to a measure of inflation that EXCLUDES Food and oil. The rationale is the prices of Food and oil is to volatile to be a good judge for what is the "Core" Inflation i.e. REAL inflation. While technically Core Inflation is NOT a measure of Money in circulation, the adoption of the concept lead to the drop of use of M3 money in the US Federal Reserve. The problem is, there are other ways to get what is M3 and several private parities have done so.

M3 supply of money has been DROPPING since 2009 at a rate NOT seen since 1929-1933 and that indicate DEFLATION is what is going to occur NOT Inflation:
http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

http://www.marketoracle.co.uk/Article19843.html

http://www.shadowstats.com/alternate_data/money-supply-charts

In fact it appears the Fed is trying to undo the drop in M3 Money Supply by increasing M1 for M1 is in relativity the only Money Supply item that the Fed does control. Thus the Fed is trying to cause inflation to avoid DEFLATION on the simple grounds, deflation is ten times worse then inflation (compare the 1930s, the last time we had long term DEFLATION, with the 1970s with its massive inflation, both were rough periods but the 1930s were much harder then the 1930s).