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Congressional Record [.PDF]
IN THE HOUSE OF REPRESENTATIVES
Tuesday, March 7, 2006
2006 Ron Paul 10:1
Mr. PAUL. Mr. Speaker, I rise to introduce the Sunshine in Monetary Policy Act, which requires the Federal Reserve to resume reporting the monetary measure known as M3. M3 consists of M1 (M1 is currency in circulation plus travelers checks, demand deposits, Negotiable Order of Withdrawal (NOW) accounts, and similar interest-earning checking account balances) plus M2 (M2 is M1 plus household holdings of savings deposits, small time deposits, and retail money market mutual funds balances except for balances held in IRA and Keogh accounts) plus institutional money market mutual fund balances and managed liabilities of deposits consisting of large time deposits, repurchase agreements, and Eurodollars.
2006 Ron Paul 10:2
The Federal Reserve Board has recently announced it will stop reporting M3, thus depriving Congress and the American people of the most comprehensive measure of the money supply. The cessation of Federal Reserves weekly M3 report will make it more difficult for policymakers, economists, investors, and the general public to learn the true rate of inflation. As Nobel laureate Milton Friedman famously said, inflation is always and everywhere a monetary phenomenon. Therefore, having access to a comprehensive measure of the money supply like M3 is a vital tool for those seeking to track inflation. Thorsten Polleit, honorary professor at HfB-Business School of Finance and Management, in his article Why Money Supply Matters posted on the Ludwig von Mises Institutes website mises.org, examined the relationship between changes in the money supply and inflation and concluded that money supply signals might actually be far more important for inflation — even in the short-term — than current central bank practice suggests, thus demonstrating the importance of the M3 aggregate.
2006 Ron Paul 10:3
The Federal Reserve Board has claimed neither policymakers nor the Federal Reserve staff closely track M3. Even if M3 is not used by Federal Reserve Board economists or legislators, many financial services professionals whose livelihoods depend on their ability to obtain accurate information about the money supply rely on M3. For example, my office has been contacted by a professional money manger complaining that the Federal Reserve Boards discontinuing M3 reports will make it difficult for him to do his job.
2006 Ron Paul 10:4
Whatever lack of interest policymakers are currently displaying in M3 is no doubt related to the mistaken perception that the Federal Reserve Board has finally figured out how to effectively manage a fiat currency. This illusion exists largely because the effects of the Feds inflationary polices are concentrated in malinvestments in specific sectors of the economy, leading to bubbles such as the one that occurred in the stock market in the late nineties and the bubble that many believe is occurring in the current real estate market. When monetary inflation is reflected in sector- specific bubbles, it is easier to pretend that the bubbles are caused by problems specific to those sectors, instead of reflecting the problems inherent in a fiat currency system. Once the damage to our economy done by our reliance on fiat currency becomes clear, I am certain that policymakers will once again take more interest in M3.
2006 Ron Paul 10:5
Economists and others who are following M3 have become increasingly concerned about inflation because last year the rate of M3 rose almost twice as fast as other monetary aggregates. This suggests that the inflation picture is not as rosy as the Federal Reserve would like Congress and the American people to believe. Discontinuing reporting the monetary aggregate that provides the best evidence that the Federal Reserve Board has not conquered inflation suggests to many people that the government is trying to conceal information about the true state of the economy from the American people. Brad Conrad, a professor of investing who has also worked with IBM, CDC, and Amdahl, spoke for many when he said, It [the discontinuance of M3] is unsettling. It detracts from the transparency the Fed preaches and adds to the suspicion that the Fed wants to hide anything showing money growth high enough to fuel inflation... Discontinuing reporting M3 will only save 0.00000699% of the Federal Reserve Boards yearly budget. This savings hardly seems to justify depriving the American people of an important measurement of money supply, especially since Congress has tasked the Federal Reserve Board with reporting on monetary aggregates.
2006 Ron Paul 10:6
Discontinuing reporting M3 may not be a violation of the letter of the Federal Reserve Boards statutory duty, but it is a violation of the spirit of the congressional command that the Federal Reserve Board ensure the American public is fully informed about the effects of monetary policy.
2006 Ron Paul 10:7
Mr. Speaker, knowledge of the money supply is one of the keys to understanding the state of the economy. The least the American people should expect from the Federal Reserve Board is complete and accurate information regarding the money supply. I urge my colleagues to ensure that the American people can obtain that information by cosponsoring the Sunshine in Monetary Policy Act.