The M3 indicator is a well-established, widely used economic indicator used to track the signs of inflation, and is commonly used and referenced in even the most basic books on macroeconomics.
The Fed's excuse for no longer releasing the information on M3 is weak and rather dubious:
"Our searching of the economic literature revealed that very few economists used that aggregate. . . M3 does not appear to convey any additional information about economic activity that is not already embodied in the M2 aggregate. Further, the role of M3 in the policy process has diminished greatly over time. Consequently, the costs of collecting the data and publishing M3 now appear to outweigh the benefits."
This argument does not seem to hold water, however; M3 data will still be tracked by banks and other financial institutions.
What is particularly disconcerting to market analysts is that by not reporting the M3 money supply, the Federal Reserve, central banks, and large financial investors can secretly manipulate the markets through large investments, or, in the case of the Federal Reserve, can print more money and use that money in ways to artificially stimulate the economy.
This attitude was expressed by the incoming head of the Fed, Benjamin Bernanke, back in 2002:
"The U.S. government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost."
While printing more currency can indeed be used to stimulate the economy, stave off deflation, and pay off US debts, there are costs involved. By printing more money, the US currency that we all own becomes worth less. The general reaction to oversupply of US currency is inflation, which devalues the savings of every American.
This change has led several independent financial investors to speculate that the Bush administration and the Federal Reserve will be working together to devalue the US currency in order to pay off US debt and stimulate the economy, while at the same time, by decreasing the value of the dollar relative to foriegn currencies, essentially increasing the price of overseas goods in order to reduce the trade deficit. This may trigger a bad headache for consumers, bringing about levels of inflation that haven't been seen in decades.
Needless to say, some investors are scared. Really scared. The big question is, do they have good reasons to be?