Use of broad money supply can uncover the stealth liquidity driven inflation – Fed and ECB differ on over monetary strategy
Sam Adelton
Nov. 11, 2006

Ben Bernanke, US Federal Reserve chairman said use of borad money supply measures like M3 may not be appropriate in America. Jean-Claude Trichet, ECB president stressed at Frankfurt conference the importance of indicators such as M3.

When you use M3 to guage the inflation, all hidden liquidity creation effort by Governments and central banks are exposed. For example, the real inflation is US is more than six percent while the officially accepted infation in less than three percent.

The borad measure soes take into consideration (indirectly) the effect of debt driven escalation of real estate prices, tution hikes in the universities and the rising health care costs. These are rising so fast that they contribute significantly on the overall inflation.

The broad money measures exposes the inflationery effects of the debt creation apparatus in America. This is going on since 1980. The so called ‘supply side economics’ has created huge debt at every level. The inefficiencies in the economy is readily converted to debt. The status quo is maintained and the inflation is disregarded.

The ECB pointed out why M3 should be used to guage inflation. It does nor allow any central banks to hide stagflation that plagues economies. The underemployment is America is caused by the stagflation. While the rich can pay for what they need, the common people are suffering to make both ends meet. The prices are going up without appropriate rise in salaries. The inflation and stagnation are hidden below the rug through the mechanism of counting inflation with little regard to the broad rise in money supply.

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