Bruce McF suggests that M3 is the product of the asset bubble, which is fair enough. My point is that the value of taking M3 out of the public eye is that it removes this thing that is potentially an indicator of the asset bubble from the public vision.

M2 is also growing, but the mechanism for that is more easily explained in ways related to other fundamentals and as such doesn't act as a signifier of an asset bubble the way M3 might.

Maybe I'm not making any sense, I'm too tired to clarify this now, I'll try to remember tomorrow.

Looking at what constitutes M2, other than savings accounts, only the relatively wealthy can afford to park their money in time deposits, let alone money-market accounts which have rather high minimum balances (in the tens of thousands of dollars).

An important part of the income loop is the provision of short term finance for operating capital ... sales of materials or stock on terms of 60 or 90 days net, the finance of the wage bill, etc.

The decline of the M1 component of M2 seems highly likely to be tied to the decline of cash and checks in total consumer purchases compared to credit and debit cards. The reduction of the average time that money is residing as cash between withdrawal and purchase, or in the checking account between writing the check and the check being covered, would seem to imply that  money in the income flow spends a larger share of its time in the firm sector, and that would imply an increase in the M2 ex M1 component relative to the M1 component.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

If M3 ex M2 is growing faster than M2, then it is indeed at least compatible with growing financial wealth faster than incomes are growing ... and while there are various scenarios where that could happen, an asset bubble is one of the most straightforward.

M2 rather than M2 ex M1, since high income nations passed heavy reliance by retail and commercial enterprises on overdraft lines of credit decades ago ... M1 on its own doesn't directly indicate much about the total liquidity of the system.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.