"Money Multipliers Have Collapsed Everywhere...Confidence Is Missing. I Don't See Any Way To Stabilise M3 In Such Circumstances"

George Washington's picture

Washington's Blog.

Former officials are often more honest than current ones, since they aren't under pressure to spread happy talk.

Former European Central Bank chief economist Otmar Issing recently said what current officials aren't addressing:

can be sure that we have a self-sustaining recovery. The challenges
facing the ECB are tremendous. "Money multipliers have collapsed
everywhere. What M3 is telling us is that confidence is missing. I
don't see any way to stabilise M3 in such circumstances.

As Ambrose Evans-Pritchard notes:


from the European Central Bank shows that the M3 broad money supply has
contracted over the last six months, confounding expectations that
ultra-low interest rates would soon boost monetary growth. Loans to the
private sector fell 0.3pc from a year earlier, the first such decline
since the data started in 1983.

The M3 figures include a wide range of bank accounts...

picture is even starker in America where M3 has shrunk at an annual
rate of 6.5pc over the last three months, a pace of contraction not
seen since the 1930s. US bank loans have plummeted since May.

(While the Fed stopped reporting M3 in 2006, people are still tracking it).

How can M3 have collapsed when governments world-wide are printing money faster than IHOP can cook pancakes?

Well, professor Tim Congdon from International Monetary Research says:

key reason for credit contraction is pressure on banks to raise their
capital ratios... "The current drive to make banks less leveraged and
safer is having the perverse consequence of destroying money balances,"
he said. "It strengthens the deflationary forces in the world economy.
That increases the risks of a double-dip recession in 2010."

But isn't it good that governments are requiring banks to raise their capital rations?

but unless they force the banks to write off their bad debts, they will
remain giant black holes, and will never be adequately capitalized. If
they are never adequately capitalized, they will never release money
out into the economy through loans and other economic activity which
increases M3.

As just one example, remember that the nominative amount of outsanding derivatives dwarfs
the size of the global economy. As another example, remember that
several of the too big to fails have close to a trillion dollars each in toxic assets in off-book SIVs.

IMF chief Dominique Strauss-Kahn says
that the history of financial crises shows that "speedy recovery"
depends on "cleansing banks' balance sheets of toxic assets". "The
message of all financial crises is that policy-makers' priority must be
to stop the quantity of money falling and, ideally, to get it rising
again," he said.

As many people have repeatedly written (including me),
the world's governments must restore sound economic fundamentals -
which includes forcing banks to write down their bad assets - instead
of cranking up the printing presses and trying to paper over all of the

Moreover, as Mish, Michael Rivero, and many others have pointed out,
governments can create all the credit they want, but if people do not
have jobs, they will not borrow that money.

When will the politicians listen? Will they wait until
after the next huge market crash? When there are tent cities
everywhere? After their governments default and they essentially lose
sovereignty under "austerity measures" imposed by the IMF, World Bank
or other agency?

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Anonymous's picture

The final chapter may well be going back to the gold standard. The question of what will be the pegged amount. Recent articles in Financial Times etc. have suggested approximately $8,000.00 per ounce. What a mess.

If even 10% of the 595 Trillion of derivatives are toxic, that is nearly 60 trillion of crap to write off on the books of the institutions holding it. What every happened to the best and brightest? Must have not paid them enough....quick get a few billion in bonuses in the pipeline...we can surely get someone in to figure out how to roll it over for another 100 years! Oh, wait,perhaps that is the solution. Just amortize it all over the next 1000 years.

Gunther's picture

This link leads to Euro M3 and the change month to month.


The US numbers are reconstructed by shadowstats.com and



Anonymous's picture

M3 is collapsing in part because of people like me. I'm refinancing my mortgage to a 15 year @ 4.375%. Unfortunately, because property values are down, I'm having to come up with 3% extra to buy the loan value down to 80%. That comes right off M3. And every month hereafter, I'll be paying that loan down at 3x the rate I was before.

Anonymous's picture

Gentlemen this is a related issue; but it occurred to me that a time will come when Zerohedge will lose its necessity and relevance.

I pray that day is sooner rather than later, but in the meantime I guess I'd just say: Keep up the good work!

Anonymous's picture

just as an exercise could we think about what should have been done instead of the printing money .What would the clever people who make the forum at ZH have done? let AIG go down ? let GS and the other banks implode? its great everyone saying banks should take hair cuts/ settle off balance sheet losses can they afford to do this ? who would place any deposits with them ? Its great everyone being critical and pointing out errors that have been made ( love Reg M. articles) but solutions?

mberry8870's picture

What should have been done was no intervention at all. All this intervention is doing is delaying the inevitable. There are an incredible number of factors that went into this calamity but the lessons learned have been obfuscated by all the levels of intervention. Hiding or covering up the problems inhibits the ability to learn and adjust. Imagine what finance would look like if there we actual analysis done on counterparties and products. It would be stronger in the long run. Now we go back and rely on what didn't and won't work i.e. government oversight and the lesson is lost.

Anonymous's picture

Simple: What should have been done is, in 1913 Congress should have been stopped from creating the Fed and levying the income tax. Instead we have 100 years of sh!t to unwind.

It has happened over such a long period of time that no one alive can even remember what it was like when there was real money in existence on this planet; as a result, our mores and morals have changed so drastically that we have no concept of "normal" and have no reference points. I'm sure everyone at this point will have plenty of "yeah, but..." sound bites with which to respond to these assertions, but those assertions will belie any depth of understanding of historical precedents. Unfortunately the only solution to this is for ALL of us (yes, the whole world got sucked in) to go back to HKU for a remedial learning experience (HKU=Hard Knocks University). The scam has taken so long amd has been so complete that it is not within human nature to have it any other way.

Anonymous's picture

Now we are using Michael Rivero as an expert in economics? That a-hole is an expert in everything.

ft65's picture

Surely those who like to spend money are tapped out (in fact are either defaulting or in default with their debt). Those who are generally more cautious, are being even more so. Small companies (even profitable ones like the one I work for) are getting squeezed by the financiers, and like my company are busy restructuring ready for tough times ahead. This mess is going to unfold over years. Meanwhile here in the UK, fuel prices are going through the roof, shortly they intend to slap on carbon trading. We now have to import more and more energy, so sending money out of the country, while exporting very little. Where will energy prices be in the unlikely event that this Ponzi scheme even starts to recover.

With the end of the Petro-Dollar (which we hear so little about, even on ZH) the US are going to feel yet another cold wind.

Money is not, and has never been real, just a point scoring system. The game was always rigged. We are now decending into the after match chaos. Unfortunately many people are finding they have no homes to go to.

The system can't be reset. Not only is redistribution impossible, who on earth is going to convince those that won nearly everything it is time to give it back.

Green shoots... phssst

Clancy's picture

>How can M3 have collapsed when governments world-wide are printing money faster than

>IHOP can cook pancakes?


M3 is the supply of money inflated through lending.  Governments don't print M3, they print M1.

If the banks continue to deleverage the M3 supply will continue to go down.

Anonymous's picture

"When will the politicians listen?" What are they to listen FOR? Who are they to listen TO?

Dummy, underemployment among those with a BA or higher is only 10%. Most upper middle class people will say, if anything, "throw some more money at it, and in six months it will be over."

Remember these politicians DO have to consult their constituents, and if their constituents are petit bourgeois--with more than just a lil' tincture of fascism thrown in--then what kind of policy do you EXPECT besides the one we have now?

Why don't you just make money where you can and wait for 40% unemployment among the BA class? THAT'S when you'll get some change. NEVER before. Politics doesn't work that way.

Anonymous's picture

that segment of unemployment is about 5%....

time123's picture

That is really the key to the recovery: money velocity and multipliers. Without it, any money you pump in, does not penetrate throughout the economy, and growth remains relatively subdued.


admin: http://invetrics.com 

ft65's picture

When will the politicians listen? Will they wait until after the next huge market crash? When there are tent cities everywhere? After their governments default and they essentially lose sovereignty under "austerity measures" imposed by the IMF, World Bank or other agency?

The politicians of who you speak have almost entirely been criminally corrupted, and so will only listen, when they find themselves in court (along with financiers). The IMF ("bad cop") and the BIS ("good cop") is owned by the same people who have allowed this mess to happen for heavens sake. No one is coming to the rescue, because these people OWN NEARLY EVERYTHING already. Redistribution is generally accomplished by war (or revolution). So it's back to law of the jungle, and Darwinian survival of the fittist - and the cycle starts again.

Perhaps there is time for a relatively bloodless revolution, if people rally around the likes of Dr. Ron Paul. Otherwise we are  lost to fighting among ourselves (war).

Anonymous's picture

"Perhaps there is time for a relatively bloodless revolution, if people rally around the likes of Dr. Ron Paul. Otherwise we are lost to fighting among ourselves (war)."

TherE is absolutly time for a bloodless revolution. Its very easy. It can start today and end tomorrow, just spread the word.



trx's picture

”Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world's monetary system with liquidity, according to an internal client note from the US bank Citigroup. The bank said the damage caused by the financial excesses of the last quarter century was forcing the world's authorities to take steps that had never been tried before. This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised."

Tom Fitzpatrick, Chief Technical Strategist. Citigroup. 11/25/08

Anonymous's picture

I don't think banks will be allowed to write down their bad assets because of political (obviously) and military/balls issues particularly with China and all that (forged) steel they're stockpilling.

agrotera's picture

We the people deserve the truth, and we don't have it--we need to know everything about the balance sheets of the TBRF which more accurately would be called BHB (blackholebanks) so that we can stop the criminality of the bankster machine, led by the privately held federal reserve, which has robbed money from us and from tax payers for many generations.

We need to put together a coalition to insist on the truth, and expose the truth so all citizens can see and understand how we have been robbed.  People know it in their gut but they run into confusion when imagining what to do about it.  So until the media will cover this fact, the robbing continues.

The fed cant tighten because if it does, it has to lie even more and use more double books for the zero rate it uses for the brethren while charging non member banks whatever the tightened rate may be.   IT is just a joke that people still hypothesize about then the fed will take away the old punchbowl--the punchbowl was given to insolvent entities that drank all the punch while having a death spasm. 

Hephasteus's picture

Well doesn't M3 grow at M0's expense?  I mean if there's more real inflation than M0 knows about it grows M3 because long term M3 rates go up while the actual M0 doesn't raise to match it. If there's more real deflation than M0 knows about then it shrinks M3. That's the way I see. Other than M3 being ponzi having the interest rate for M3 at 0 percent and keeping it there while growing M0 to make M3 workable is the only balancing solution there is to ponzi fractional reserve systems. That's why to completely heal the economy it will have to provide 0 percent interest to everybody for over a decade while it prints more and more money. This will be what fixes the banks balance sheets. Getting to a point where it can make real money out of the real economy through M0 while simultaneously reaming their depositors by giving them less and less valuable money over time.

So hard to explain what I'm talking about. It's like this. If M3 appears smaller than it really is it makes m3 grow because people think money is more scarce and hard to come buy. This is why fed hides M3 and why M3 is always in danger of having the buck broken.  It's the same gold ponzi scheme with the reciepts. When you loan gold out at interest you end up with too many receipts for the gold you have because it refuses to grow. It's not a problem if debt isn't a problem but once debt gets pervasive and everyone has to have a mortgage and stuff then the gold get's reciept doubled because it's all being used at interest.

Now take M0 as the fiat "gold" equivalent and M3 is the ponzi gold reciepts. You can never have enough M0 to match M3 so you can never get cash in a matress in our society. If everyone took out cash and hid it in a safe at home then it would be entirely under OUR control and they couldn't fudge M3 to M0 ratio's by refusing to print more cash or keeping it purely electronic to play the same scarcity manipulation game. The latest balloon mortgages housing bubble CRE bubble is simply a real life play out of that mathematical distortion. It's all good and works until MB becomes so twisted and distorted that it has to correct.



The way it works is exactly how it works now. The banks get more and more leverage as the ponzi runs and the only way to bring it out of the leverage is to fix the accounting "myths" of interest. Which is why central bankers have considered charing you negative interest. In other words charging a storage fee for money. They have to correct it one way or another and the only way to do it is honestly or setting up some sort of crash and crisis and then restarting it where they pretend they own everything again.

hbjork1's picture

Thanks for the thought and the link  

I fear that the only way this problem can be properly analysed is to add a catagory which we could call MI or MF (for inaginary or fraudlent) to include all monies represented by worthless loan paper or overvalued assets.  Until that is done, there can be no valid analysis of monitary status or outcomes.

Language usage has changed since my heart was young and gay.  But "fraud" remains unchanged in its meaning.  Why can't it be used? 




Hephasteus's picture

LOL MP Money ponzied or Money Pyramided. Pyramids as dream language is a symbol for stability. Like we can't have any sort of stable society unless it's based on pyramid schemes.

agrotera's picture

...or a Bank Oversight Bill that allows our crooked legislators and the treasury/privately held federal reserve machine step in, ready to save the day by taking over bankrupt regional banks with plenty of good assets,  and let the blackholebanks buy up the pieces for pennies, and then turn around and do more accounting magic and value their kill much higher when they put the meat on the blackholebanks' balance sheets...

Renfield's picture

SO DIFFERENT in the USA from Aus. Here the only thing not in inflation is wages. Banks are attempting to make up the difference by piling into 'subprime'-style lending:


Which is why the RBA is set to raise rates, again and again and again:


Whether this lasts remains to be seen. Aus 'big four' banks are drastically overexposed to the international derivatives market, and as insolvent as their counterparts across the pond. Aus is gambling everything on the China boom, so if China can hold out then I think the Aus M3 looks to be going nowhere but straight up. Unemployment here can be rescued by China but it seems unlikely that wages will rise anytime soon. Aus sheep continue their stroll into a lifetime of debt slavery, since many apparently think debt is a good substitute for wages.

Just for a different perspective from elsewhere in the world. Always appreciate your reports from the 'other side of the tracks' George Washington! :-)

SteveNYC's picture

Hi Renfield, nice post! I'll be down there for a visit soon, hoping to pickup some real estate at prices 8x median income and load myself up with some nice, floating-rate debt just so I can pay more mortgage as rates rise!

You know, I've really gotta "get in now, or miss out", as they say down there, the "critical shortage of housing" means one thing.....prices are set to boom to 16x median income!!!

I know you detected my sarcasm. Haha, hope all is well with you.

huubs's picture

GW: "As another example, remember that several of the too big to fails have close to a trillion dollars each in toxic assets in off-book SIVs."


"the world's governments must restore sound economic fundamentals - which includes forcing banks to write down their bad assets -"


How can we have proper write-down, if they are TBTF and hold $ 1 T of toxics?

Isn't that THE reason why 20 months after Bear S and 13 months after Lehman B no effort to that effect has been made?

Won't the proper write-downs be made, once most of the toxic stuff has been put on the taxpayers balance sheet?



mannfm11's picture

Your work is appreciated GW.  I read the pritchard article the other night.  The Fed is swapping assets, or liabilities, not printing money.  They owe back the assets they hold, kind of like someone who bought a house with a mortgage.  If I wanted to invest in bank capital, I would write a check to someone and the check would eventually say pay to the order of XYZ bank.  The check might be drawn on ABC bank, at which time ABC bank would send Lets say $5000 Fed credit to XYZ bank.  What bank account does my check go into?  There isn't one and instead of a bank account, it is shown as an increase in paid in capital.  The bank now has more Fed credit(XYZ while ABC has less Fed credit and may actually have to sell something or borrow the money itself), with which it is likely to buy bonds with to hold as assets against equity and deposit liabilities.  So, increasing bank capital decreases the money supply.  The Fed buying paper does nothing to the money supply other than increase the float of fed funds that flow between banks. 

Why higher bank capital?  Because when a bank makes loans, it has to be able to act as surety or it is commiting fraud.  Why not let everyone float checks and get rid of the banks, as providing the banks with the capacity to act without capital pretty much amounts to a title of nobility and is against the law.  The reason we deflate is because the stack of IOU's in front of debtors is bigger than their capacity to repay. 

ED's picture

Best to render unto the Fed what is the Feds, and start over

CreditcalMass's picture

Nothing too crazy to figure out here, the pace of credit being destroyed is outstripping by far the amount of money being printed and ponzi'd, I mean fractionalized.

bugs_'s picture

Well the train (government) may want to go but the

track (the little guy) has run out.

Green Sharts's picture

I think one of the factors in bank loans declining since May has been record issuance of corporate debt.  Having seen the collapse of the commercial paper market after Lehman's collapse and the huge spreads of corporate debt versus treasuries that developed through the end of 2008, CFOs with a lick of sense took the opportunity presented by the latest bubble to issue longer term debt to issue intermediate to long term debt to reduce their dependence on bank loans and commercial paper.

GW, any idea of how the size of net corporate debt issuance this year compares to the shrinkage in bank loans?

Anonymous's picture

What you're trying to say here is that about November 2008, most corporations in the U.S. should have dissolved and returned the money to stockholders.

And that is right--that is what SHOULD have happened. But in a petit bourgeois society like the U.S.? Come on. We have to have our Panic of 1837. We have to have our complete collapse. Nothing else will do.

mberry8870's picture

I absolutely agree a total collapse is necessary. These people in congress are completely ignorant on the topics of economics and finance and their ignorance is only exceeded by that of the public at large. Nothing like a near death experience to focus the mind. In the meantime there is substantial profit opportunity ahead.

Miles Kendig's picture

GW - Politicians will only possibly consider listening when faced with utter collapse.  And then only if their positions and by extension the positions of their patrons are secure. Johnson, Kwak, Roubini and others have discussed at length the process of needing to extract the political, financial & economic processes from the grip of oligarch control before meaningful political, economic & financial repair can safely take root.  Naturally, a big stumbling block in the current crisis is that the US, EU & China are all above that process of forced action.  Hence, this train has quite a way yet to run.

Anonymous's picture

I concur. The illusion of democratic freedom is what keeps Americans, who have the closest flavor to it - from realizing that we've all been had. We are addicted to materialism and instant gratification and it is the price we charge for giving up our rights to freedom of thought the pursuit of personal opportunity in an openly expressive environment.

Those three specific powers have such a strangle-hold over their respective geographic regions that there is little chance that things will get fixed in an expedient and beneficial way for anyone - let alone those at the top. Thy guys at the top won't even consider a 10% haircut despite the fact that a whole 99.9% of their wealth is not only illegitimate but nonexistent. They genuinely believe that they have things under control and righteously deserve what they have stolen due to long hours of determined self-sacrifice for the so-called "greater good" or however it is objectified to help one sleep.

Maybe some realize that, and that is why the scheme is still perpetrated - they are as much slaves to it as we are - they just have more cozy houses. The beast has grown beyond control. It's an illusion, samsara, some know it - to be sure - they must - but remember without poor people who allow you to oppress them, you are just another poor and helpless individual.

They have no choice but to take the current course of action. To resist is suicide, and to embrace logic is suicide. It's like the mafia. Once you're in, there's no retirement.

Miles Kendig's picture

Anon, I suspect, coming from a dissociated old family that there is significant understanding that the monster that has been loosed may well have grown beyond all control.  By doing so there is an ever increased awareness that it is all slipping away and the time for half measures may well be past.  We are seeing more and more anecdotal evidence of this every day.  My belief is that the mass & momentum of the debt cycle makes the process inevitable.  The choice now is will those with sufficient collective power exert it at the risk of losing it.  This is a time for those in the positions of systemic leadership (not the politicians or CEO's) to exert it.  The time has come for the handlers to step up and answer the call themselves. 

Anonymous's picture

if a government and its vampire squid central banksters wanted to fix the problem they could....it's easy....they are not blinded by ideology - they are blinded by power...it's not going to be fixed until they have accomplished certain objectives....

until the debate shifts from ideology to power, the problems will remain....

Pat Hand's picture

"... it's easy..."

OK.  What do you think the fix should be?  Default the bad debts?


doesn't look easy to me

Anonymous's picture

R.E. ANON #114388

"if a government and its vampire squid central banksters wanted to fix the problem they could....it's easy....they are not blinded by ideology - they are blinded by power...it's not going to be fixed until they have accomplished certain objectives....

until the debate shifts from ideology to power, the problems will remain...."

You GOT IT! (Everyone else PLEASE TAKE NOTE~!)

GW is confusing EFFECT with CAUSE here.

bonddude's picture

They are hording cash for the sale of the century. Kind of like the one last century.

I have an 800 credit score and was an Alpha /Premier cust @ B of A (LOTS on deposit and mortgages).

Now, even though things are ok, they're like "Who are you?" Fuck them, I'm examining small local banks right now.