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49 comments on The Finance Round-Up: November 29th 2007
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49 comments on The Finance Round-Up: November 29th 2007
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M3 is a measure of broad money, but not broad enough to capture the full scope of the credit expanion we've seen in recent years (derivatives and all). The money supply in broadest terms has effectively been increasing far faster than M3 would suggest.
In other words, M3 is only part way up the inverted pyramid of credit. The credit contraction we've seen this year has not proceeded down to that level yet. I would argue that it will in the new year, whereupon credit contraction will become much more noticeable to ordinary people, in terms of their personal access to credit being curtailed.
Is this 'broader' money supply the $80T number I have seen a few times that presumably refers to the products of mainly hedge funds that lever relatively small pools of, say, mortgages into mortgage backed securities? And, if so, is it safe to say that this broad supply of credit is officially deflating or is it just not inflating as quickly as it was before?
well, the derivatives market is currently valued at $516 trillion by the Bank of International Settlements (the central bankers' central bank). Most of that was money pulled out of thin air, and destined to return to where it came from IMO. I would say by the broadest definition of money supply, we are already seeing deflation. As it works its way down the inverted pyramid, it will rapidly become more apparent.