Law on Rice

Despite all the Fed’s efforts, the broadest measure of the money supply indicated a drop of 2.2% for the last three months. What’s going on? Are banks still not lending?

This from a BusinessWeek article:

Paul Ashworth, senior U.S. economist for the economic consulting firm Capital Economics, says it’s “disconcerting” that in August the broadest measure of money fell at an annual rate of 2.2%. That rate comes from comparing the amount of money in the three-month period of June through August to the previous three months. This broadest money measure, known as M3, is no longer officially published by the Fed but is tracked by private forecasters. It includes cash, checking and savings accounts, certificates of deposit, savings and loan deposits, and money-market funds.

My financial institutions class is starting soon. We spend at least half the class talking about the money supply, so I’ll have to see what I can find out.

Here’s my chart of M1 and M2:

There’s an interesting article in the New York Times (front page above the fold, no less) about industrial banking. Click here to read it.

Mr. Geithner plans to bring the banks within the Federal Reserve’s ambit. Of course, there are arguments on both sides:

A few industry observers go further in their complaints. Some companies intentionally chose an industrial bank charter — where they could raise money through brokered C.D.’s, investor funds in cash accounts and funds from business clients — so that they could take riskier bets and have higher leverage in their other business units, argued Raj Date, who leads a nonprofit industry research group, Cambridge Winter.