M3 in Italy

The link is here.  There is a lot of talk of self-defeating austerity, and I agree that spending cuts often lead to real and nominal gdp declines in the short run, but most likely this is the critical problem, including in Greece.

For the pointer I thank Antony Slumbers.


I am probably repeating myself, but... does anyone have a graph of M3 in California?

"...most likely this is the critical problem", what is "this" referring to? The austerity?

The M3 graph.
M3 has collapsed in it.

As have pretty much every other measurement of money supply there - no matter how you look at it, money supply appears to be quite contractionary in Italy.

While comparable numbers of M3 in the US are unofficial (the Fed stopped tracking it in 2006), some private estimates had it falling at a nearly 10% annualized rate in early/mid 2010 before increasing again.

Yah, them no longer tracking it was a pretty stupid idea.


"M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits."

PS (see Wkipedia) M2 is money and "close substitutes"...M3 adds large and long-term deposits

I'm naive about this, shouldn't this relation always hold:

M1 <= M2 <= M3

Why doesn't it in the graph shown?

Yes, Claudia, I know what they said. I disagree with them.

[...] may have been dwzesiond, laid off, or just plain fired, but whatever the situation, unemployment is a traumatic life event. Many people think they will find another job rather quickly, but chances [...]

Ok, I should really know more econ shorthand, but really you should toss in a quick link to explain just what the devil is M3. Take pity!

Adding that M3 is basically just a measure of the money supply. Headed down like that should cause something close to panic. That's Milton Friedman's classic explanation of what turned the 1929 crash into the Great Depression.

While I think he's mistaken about cause and effect. It is a really important measure.

In something as integrated as the Eurozone (with minimal money movement barriers) how is nation-specific M3 measured?

I'm pretty sure Friedman focused on M2, which was likewise not tracked during the Great Depression.

But isn't that sort of the point that many Euro critics have?

The ECB's monetary policy is entirely terrible for countries like Italy. Italy needs a lot more monetary expansion, but because of some combination of concerns that the proper "Italian" monetary policy is the improper one for Germany and a more general sort of ramped up inflation hawkishness, it won't happen. Instead it's austerity measures that become self-defeating when not counter-acted by monetary policy (whether they're self-defeating even with a counter-acting monetary action is more debatable).

This is basically the point Krugman was making back in October.

"So the ECB was calling for austerity everywhere. Was any concern expressed about how that would affect Europe-wide growth? Was there any suggestion of expansionary monetary policy to offset such a coordinated fiscal contraction? No and no."

It's also pretty much the same point that was made on the Economist blog yesterday:


Related piece by Martin Feldstein:


But it's all related. Hyper-sensitive inflation hawkism mixed with a surreal faith in the power of expansionary austerity is not only not a solution, it'll just make things worse.

PS. I'm not quite sure why you're singling out M3 in the title when all the aggregates are tracking each other pretty closely. The story isn't much different using M2.

"Hyper-sensitive inflation hawkism mixed with a surreal faith in the power of expansionary austerity"

-1, If you need that many hyperbolic adjectives to describe another opinion then it suggests that emotion might be tainting your conclusion.

The local money supply in a fixed rate system is endogenous! A capital inflow raises the money supply and a capital outflow reduces the money supply. The ECB does not determine any one member country's money supply. Now, why might Italy have a capital outflow? That's a real puzzle...?

Endogenous! My Thesaurus has 678 pages. It does not have "endogenous."

Anyhow, Eurozone has the ECB. Does Italy have such an institution with open markets operations and/or authority to set reserve requirements?

Someone above asked what is California's M3? It may be measured but Califirnia can't do much to affect in state M measures. The Fed does that and always gets it wrong.

I hear that when do fiscal austerirty they need to have monetary expansion.

After you have mixed apples and oranges, let's get at the passion fruits: which ways are consumer prices, employment and GDP trending?

"Endogenous! My Thesaurus has 678 pages. It does not have 'endogenous'.”

I guess endogenous is exogenous to your thesaurus.

Seems that Fisher's theory of debt deflation is still in effect:

If so, austerity probably won't help. And it might be time to update this post:

(given how Ireland's economy seems to be weakening rapidly)

"If so, austerity probably won’t help...given how Ireland’s economy seems to be weakening rapidly"

Well this is only relevant to the relative economic growth of similar countries. If Ireland's growth is bad with austerity, but is on par with a similar countries growth without austerity measures, then austerity was the best approach. Just pointing out Ireland's slowing growth in isolation doesn't really mean much.

I don't have the link, but someone pointed out Irish 'austerity' isn't really all that austere. I suppose it's relative. It seems like to many 'austerity' means blowing through borrowed money slightly less rapidly than otherwise.

I don't think any of the Austerities have been that austere. Just like our "cuts" have been actually increases.

Not very knowledgeable about it, but reading Wikipedia it appears M3 is essentially the sum of banknotes held by Italian citizens and deposits in Italian banks.

If so, isn't its decrease an obvious consequence of increased default risk of Italy and thus of Italian banks holding a large amount of Italy bonds, leading people to withdraw their money and put it in banks less exposed to the default risk?

Seems like further evidence in favour of endogenous money to me.

If money is endogenous, but interest rates are not, then the fed adjusting interest rates is a terrible idea.


if you look at the 'çounterparts' of M-3 in the money accounts of the Central Banks you will find out that austerity and a decline of the amount of money ARE PRETTY MUCH THE SAME THING in the present situation. (Post-) Keynesians are talking about deleveraging all the time, this is the problem they are pointing at.

Look at graph 2 in this: http://www.paecon.net/PAEReview/issue58/Koo58.pdf

For Greece, look at this: http://rwer.wordpress.com/2012/01/05/the-euro-is-leaving-greece-and-a-new-great-depression-has-entered/

M-3 is of course shown on 'shadow statistics', which indeed shows that M-3 behaves quite a bit different than M-1 and M-2

The sheep escaping the pen where the wolves thought they had them trapped.

What's happening to the price level in Italy? If they don't have deflation, is this just a reflection of diminished aggregate demand and declining velocity of money?

I love the way that chart is cut of in 2004. Why not show previous cycles? In 2001 all three metrics were as low in Italy as they are now. Manipulative not to show them I think.

'Manipulative not to show them I think.'
Shhh - don't reveal the secret.

Comments for this post are closed