Not So Transparent Reasons for Discontinuing M3

Many have asked about the Fed's decision to stop reporting M3:

Discontinuance of M3: On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).

The Big Picture has been tracking this story closely and it was through a post at that site that I first became aware of this notice (he was kind enough to quote me in his latest). My assumption is that the Fed believes this is no longer an informative aggregate and has decided that its potential to confuse by sending misleading signals outweighs its value.

Unfortunately, the Fed has been silent about its reasons for the discontinuance and that is my biggest complaint. This is not how transparency works. There are all sorts of conspiracy stories about (e.g. the Fed wants to hide the rapid growth of liquid assets so it's burying the information) and all the confusion could have been easily avoided by a simple explanation for the discontinuance posted on the Fed's web site. If it's there, I couldn't find it.

I am waiting to hear more on this decision from our newly transparent Fed, and as I find out more about the Fed's reasons I will update this post. William Polley has indicated he will post on this later as well. [Update: Institutional Economics also comments. Prudent Investor has lots to say as well. Graphs of M1, M2, and M3.]

[Update: David Altig at macroblog comments and is unconcerned.]

Comments

[Stormy]

Are we getting ready to roll out the printing presses?

The link below seems suggests that hiding the Repurchase Agreements in M3 may not be quite so innocent.

http://www.financialsense.com/editorials/bolser/2003/0602.htm

Am interested to see what those who "know" really think about all this.

[JS]

Stormy,
I usually use the site below to monitor repo, money, Fed and Treasury actions:
http://www.omo.co.nz/index.html
They also just posted their take on the M3 change, and it is worth reading imho. I sincerely hope that the treasury network block they mention is a coincidence, and not a reflection of someone's intent. It is an interesting site in general if you are interested in studying and tracking the monetary aspects of the US economy. They are diligent, precise and thorough in reporting and linking Fed and Treasury information.