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(DV) Zingh: The Invisible M3 and Plumping Up the Economy







The Invisible M3 and Plumping Up the Economy
The Subsurface World of Inflation, Cannibalism
and the Plight of the Squeezees

by Zbignew Zingh
May 5, 2006

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In March 2006,with practically no explanation, the federal government stopped reporting on M3, the broadest measure of the money supply in the U.S. economy. [1]

The most important “asset” in the 21st Century is not cash, gold, real estate, guns or even petroleum, but Information. “Knowledge” trumps everything. That is why, for example, the telecommunications industry is right now in the process of buying up Congress so that it can finish off “network neutrality” and, eventually, strangle your access to knowledge and information on websites like this one. [2]

Thus, when the federal government suddenly withdraws a well-established multi-trillion dollar measure of the economy's health, skeptical minds wonder if, yet again, the Government's penchant for secrecy is intended to keep us ordinary citizen types from seeing what it is up to. What the Administration is likely “up to” is flooding the economy with billions and billions of digitally created “cheap” dollars. The massive influx of money will juice the stock markets, plump up the economy and, of course, create price inflation. [3]

Other than starting a war (or a series of small wars) [4] and the huge government spending on weapons and military infrastructure that war entails, the next-favorite capitalist means of rescuing an economy on life-support is to increase the money supply and stoke inflation. [5] Sometimes, as in the present circumstances, the situation is so desperate that a government may feel the need to start a “perpetual war” and to massively increase the money supply at the same time.

Big Business and the financial sector really could care less about rising prices and the cost of living. That is why when the government reports that “core inflation” is “tame”, it has teased out all the data relevant to individuals who live by wages, that is, such “irrelevant” and “volatile” data as the cost of energy, food and housing. Big business and the financial sector could care less whether the costs of energy, food and housing literally determine how, and whether, the majority of us live or die.

The only inflation factor that Big Business and the financial sector really care about is Wages, that is your wages. If prices rise, but your wages, relative to your cost of living, remain static, then “inflation” only bites you, dude. The bite taken out of your hide translates into someone else's profit-meal ticket. Thus, when prices rise but wages do not, it is as though a portion of workers’ wages is being ripped off. On the other hand, if your wages rise commensurate with the increase in the real cost of living, then the increase in the costs of goods and services goes back into your wages. In that circumstance, money inflation does not give the owner class anything extra to bite into.

Not coincidentally, inflating the money supply (and consequently devaluing the dollar) will also allow the U.S. government to stealthily default on its own debt issues. Because of the dollar's reserve status, we pay for our imports from countries like China, in dollars. The merchants deposit these dollars in their countries' central banks, or exchange them for their local currency. The central banks often turn around and purchase U.S. treasury bills and bonds. By inflating the dollar, the U.S. government will pay back less on both principal and interest. This is also why mortgages benefit the debtor during inflation. Therefore, if, 1) by no longer reporting on M3, the Federal Reserve can increase M3 by more than the previous track record of a hefty 8.22% per year, and 2) the Administration masks the true increase in the cost of living, thus freezing or forcing down wages, then 3) it can engineer an increase in the profitability of corporations, and an apparent growth in the economy . . . all at workers' expense, of course.

Why would the Treasury and the Federal Reserve Bank want to do this? The answer is that the Collective We are in deep economic and environmental doo-doo. Somewhere in the supercomputers at the US Treasury or Federal Reserve, they have run an economic simulation which has analyzed the various humongous hairballs that 21st Century human beings have coughed up: a) Global Warming (or, better characterized as Global Weather Weirding because as the oceans warm and the ice caps melt, various parts of the globe's weather will change in different ways), b) overall natural resource depletion, c) pandemics caused by industrial food production (like bird flu), d) health and environmental problems caused by industrial pollution and foolhardy uses of mercury, pesticides, plastics, fluoride, cell phones, etc., e) radiation exposure due to DU weapons, nuclear armaments, nuclear power generation waste and Chernobyl-like accidents, and f) the peaking of easy light, sweet oil production such that petroleum extraction and refining will become progressively more energy intensive for every bit of energy you can get out of a barrel of oil.

When the Treasury and the Federal Reserve Board (and the Pentagon, too) ran their computer simulations, they came up with the TINA (There Is No Alternative) answer of inflating M3 to keep the global economy chugging. This is the only remedy that Free Enterprise/Open Market “cultists” (like those who populate America's power centers) could accept even though, paradoxically, the world and American economies have been totally and deliberately stage-managed since the end of the Second World War. However, even the TINA answer of inflating M3 is ultimately precarious, and hence the steep, steep rise in gold prices.

Gold bugs, however, are equally deceived by its luster, for gold has little intrinsic value. Gold is mostly an anxiety index, a psychological measure of economic insecurity. When, as now, people with “money” feel stressed and anxious, they put their chips on precious metals. However, gold, like all money, is also based on faith in the system and the ability to exchange the stuff for something else of value. Faith in glittering gold often interferes with the realistic perception that money, including gold, is just a confidence game. The Federal Reserve's own handbook on the money supply (which they no longer make publicly available) states:

What, then, makes these instruments -- checks, paper money, and coins  -- acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.

We really are a faith-based world, but not in the religious sense that Mister Bush intends it. The “faith” in the currency comes from the implicit confidence in the societal stability that will allow future exchanges using the currency. In as much as military might is the ultimate enforcer of that stability, military might is the ultimate guarantor of any form of money. Nevertheless, as we saw during the U.S. Army's slow motion meltdown during the Vietnam War, and as the retired generals are beginning to gnaw their knuckles about today, the stability of the military might itself depend on the stability of the larger society and society's confidence in itself.

Thus, if the Government tries to use intimidation, force and military oppression, at home and abroad, to maintain the “stability” of domestic and world systems (gee whiz, has Mister Bush tried to do any of that???), then it inevitably undermines the confidence of society in itself and in its own institutions... which, in turn, further undermines faith in the economy and the monetary system. As the repeated application of intimidation, force and military oppression continue to undermine social confidence, then Leaders usually look for other means to artificially pump up “faith”, such as hyping religion as a metaphysical way to buttress “confidence” in an otherwise disintegrating world. That is historically what Leaders have always done and are doing today.

The process of disintegration can occur like water torture over many years, or it can fail catastrophically. Which brings us right back to TINA and why the Administration has stopped reporting on M3. By obscuring M3, the feds can sneakily inflate the economy, and indirectly, fizz up the stock markets (the stock markets being yet another confidence game which will reach maximum bubble dimensions just in time for the mid-term November elections, fancy that!).

What the ownership class and its leaders will not suffer, however, is this simple truth: the best guarantee of confidence in the stability of the economy is simply to allow people to live well and to prevent or alleviate as much human suffering as possible. Alas, permitting the Many to live well necessarily means that they must have more material benefits, which, in turn, means that those who have more material benefits now are not going to give up any part of their stash to allow everyone else to do better. Thus, are the Powerful Ones and the Owners hoisted on their own petards, and, once again, the resort to TINA and the non-solution of the obliteration of data about M3.

So let us return to the stealthy inflation that is engendered by not reporting on M3 and the accompanying petrification of wages. Unfortunately, wage earners everywhere will bear inflation on their shoulders because wages, specifically your wages, are, practically speaking, frozen whenever the Government pronounces that “core inflation” is “tame”. If inflation is reported to be “tame”, then real wages will not rise in sync with rising real prices. When the Administration and its media lapdogs thus report that you should be assuaged because “core inflation is tame”, they are deliberately deceiving all the Little People of the world because all that is really tame is your wages and your own paycheck! The profits, the difference between the rise in prices for essential goods and services and your stagnant wages, will fatten the large corporations and overseas debt will be reduced with the payment of inflated, less valuable dollars. All the while your real well-being and security will become progressively more tenuous. Of course, this undermines societal confidence and erodes faith in the economy and in money. And so the economic death spiral continues.

Once an economy has “matured” (as it has in the United States) and once there is no more free lunch like that afforded by cheap and abundant hydrocarbon fuels, then capitalism (which is great for producing consumer goods and advancing “technology”, but hardly worth anything for improving the overall lot and well-being of the masses) reverts back to what it really is: an economic form of cannibalism. Capitalism either eats surplus Labor or, if surplus energy is available, it consumes energy. When there ain't no more surplus energy to consume, then Labor has to eat less so that Owners can continue to eat more; and when the “food” runs out, Owners will start to eat Labor alive. Ultimately, in truly straitened times, the Owners end up eating one another. That's why, when the economy starts to splutter, capitalists, resolutely united against the rest of us, still eyeball one another as a victim to devour. It's that economic Donner Family Bar-B-Que that the Administration is desperately trying to forestall by surreptitiously shooting up digital growth hormones into the economy's sclerotic arteries.

Real income for working people has actually been trending downward over the years. In inflation-adjusted terms, on average, working men and women are actually making less money than in the 1970s and our quality of life is going down. The demise of union pension funds, the under-funding of public schools, the deterioration of public health programs, the curtailment of library hours and the cutting of worker salaries all contribute to the general decay in the standard of living. What we need to appreciate is how the economic and financial shenanigans of the Administration, such as its recent elimination of reporting on M3 data, are deliberate steps toward unraveling the, albeit minimal, progress made since WWII by the Northern Hemisphere's middle and working classes, all in the cause of preserving profit for the ownership class.

So here's the bottom line. Capitalism's “Profit” has to come from somewhere. During the last century or so, it largely came from the extraordinary energy that could be derived from the easy extraction and refinement of cheap and readily available hydrocarbon fuels. Meanwhile, the environment and the world's climate are undergoing a meltdown. Just as petroleum is becoming less available, less easy to extract and more costly to refine, the environment is turning to dog poop and the weather is becoming ever more weird, all interfering with the pursuit of PROFIT. As profit gets squeezed in its traditional venues, Capitalism demands that profit come from somewhere, namely by squeezing it out of something... or getting that profitable pound of flesh from someone else. [6]

The Administration has nominated all of us as the “Squeezees”. In the Administration's mind, dismantling all of the remaining social services and safety nets, and gradually reducing the majority of us to medieval peonage (and, eventually, human hamburger), is a noble and necessary suicide mission to rescue capitalism. It won't work in the long run, of course, but meanwhile we've all been volunteered for the mission.

Zbignew Zingh can be reached at: Zbig@ersarts.com. This article is CopyLeft, and free to distribute, reprint, repost, sing at a recital, spray paint, scribble in a toilet stall, etc. to your heart’s content, with proper author citation. Find out more about Copyleft and read other great articles at: www.ersarts.com. copyleft 2006


1) M3 is the aggregate of M0, M1 and M2, the total money supply, plus the total of all commercial and industrial loans that are financed by large denomination Certificates of Deposit and Eurodollars (essentially, the amount of dollars held outside of the control of the Federal Reserve, in European banks, or other central banks.). M0 is the total of all physical money; M1 is M0 plus the amount of money in checking and bank demand accounts; M2 is the total of M0 + M1 plus savings accounts, money market accounts and CD up to $100K. M3 includes such mysterious accounts as those huge and possibly unstable hedge funds and derivatives that the major money institutions use to try to spread the risk of their clients' low quality and highly speculative investments. M3 may total more than 3-4 trillion dollars in excess of M2. Obviously, M3 dwarfs the actual amount of physical dollar bills and coins that are in circulation.

2) The Electronic Frontier Foundation's website
is a good place to learn about this issue. The problem starts with some major ISPs and the back-bone telecommunication companies trying to implement a “fee” for sending e-mail, and will graduate to charging different rates for “prioritizing” the delivery of your e-mail and creating a tiered system for the delivery of web content based on ability to pay. In short, your “friends” in Congress and in the telecommunications industry, even as you read this, are colluding and working on legislation to strangle the Internet and curtail your access to alternative information websites like this one.

3) Money is created all the time by the Federal Reserve Board and by the banks. A loan creates money, as does the sale of government bonds as do numerous other complicated financial instruments created in years past to expand and protect “money” without public scrutiny or control.

4) The never-ending “War on Terror” of the post 9.11 era, like the 50-year “Cold War”, is intended by Republicans and Democrats alike to create a permanent “war economy” that creates “wealth”, keeps capitalism sputtering along and maintains the status quo domestically and worldwide. The fact that a lot of people die in the process of preserving economic interests is viewed by technocrats and the political sociopaths who pass for “leaders” as just so much “collateral damage.” In the geopolitical and economic chessboard, the pawns -- like in Vietnam, Serbia, Haiti, Rwanda, Chile, Iran, Iraq and the NYC Twin Towers -- are always sacrificed for the “good” of the game and the preservation of the capital playing pieces.

5) Inflation is created by monetary policy. It is the cause of, not the effect of an increase in “prices” or wages.

6) This is why all those deepwater wells, heavy oil and Canadian shale oil deposits won't relieve rising hydrocarbon prices. The energy return on the phenomenal investment necessary to extract and process these deposits will be passed on in the form of phenomenal increases in prices.

Other Articles by Zbignew Zingh

* Cracks in the Coalition of the Crackpots
* Dear George... Have I Told You How Much I Appreciate You?
* Facilitating Fascism
* Detroit Dialectic: The Irony of the Super Bowl in a Supercilious Nation
* The Nuclear “Threat” At the End of the Age of Petroleum
* Roberts' Rules of Order
* Project for the New American Colonies (A Neoconned American Revolution)
* Pat Robertson's Fatwah and the Emergence of Medieval America
* The Neocon Cookbook: Savory Recipes for the Power Hungry by the Power Elite
* President Bush Supports Alternative Fuels Research Instead of Conservation
* Bush Wants Answers: Did Chavez, Castro and Bin Laden Lead Embassy Siege in Iran?
* The University's Biocontainment Lab: Coming to a Neighborhood Near You!
* The Convergence
* The Political Descent of Mankind
* Soviets “R” US
* November Strategy
* New Dogs for the New American Century
* Vive la Difference
* Dennis, We Hardly Knew You
* The 2004 Political All-Star Game
* George Bush, Destroyer of the Faith
* Zbignew's Inferno
* The Statue of Liberty is Missing
* Monuments To The New American Century
* What Are We Trying To Achieve?
* Bush Administration Relents: American Style Elections Promised for Iraq
* E.U. Researchers Publish Findings of Widespread Mad Cow Infection
* The Declassified Ads

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