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Causes And Effects

M3

Intro

But of course you are not convinced. Sure. Why not? There is so much propaganda out there (most of it coming from governments which are using your tax money to brainwash you) that you are confused. OK. We got it. We were there with you not so long ago.

In order to clarify the situation, let's take a look at a variable called M3. This statistical variable is what is called a "broad money" measurement. Basically, it is a measure of all the cash or quasi-cash (almost cash) that it is available in the markets. This is money that is "liquid", or immediately available for loans. Some of it is cash and some of it is credit and so on. Now, in a normal and truly free market M3 should change very little. This is so because the amount of money in any given market is more or less constant. Think of it in this way. If we would be using gold as money, there would only be so much gold out there. True, not all the gold would be available for loan, but this amount would not change over time too much simply because there would not be noteworthy booms and busts. Companies would have no reason to either expand or contract dramatically just because interest rates would be low (i.e. cheap money) because interest rates would also remain more or less constant. If a company would become immensely successful, this would represent genuine customer interest in their product and not artificially low interest rates that push people to borrow and spend. In other words, M3 in truly free markets would be very boring indeed!

Alas, we don't have truly free markets. What we have are manipulated markets. As such M3 is anything but boring. It changes all the time. How could it be? Simple, the amount of money is most definitively not constant. It is as if some "selected" people would have discovered the secret of the lapis philosophorum (or philosopher's stone) and would be capable of transmutating worthless base metals (e.g. brass) into gold at will. The modern equivalent of this "magic" is the printing press and more recently the computer yielded by Central Banks. They are capable of transmutating worthless information (literally zeros) into any amount of money they desire. As such, M3 is a direct measure of the amount of money that Central Banks are "printing" as nobody else can create money out of thin air (legally).

Calculations

Measures of M3 are typically published by Central Banks, although lately some of them decided that this is not such an "important" or "critical" measure and have discontinued such calculations…right…

Furthermore, not all Central Banks calculate M3 in the same manner. Additionally, they calculate M3 in their own respective currencies, which makes it difficult to determine a global M3. Although it is possible to do this calculation government by government, it so happens that we don't have a few months to spare on the calculation alone. We have many other topics with which to embarrass governments which are very busy creating misery all the time. And so we need to look at other sources, other people who may have done it for us. In this case we found two sources, one providing government M3 values as percentage of GDP and the other providing country GDPs as International GK Dollars. With two pieces of information we can estimate world M3 levels.

However, the values we obtain are International GK Dollars (for a lengthy explanation search Wikipedia for "Geary–Khamis dollar"). Basically, USD calculated in this manner for each country are comparable with each other in terms of wealth and therefore compatible for addition. We can add GK Dollars to calculate global M3 values. However, we must be careful because GK Dollars do not exist in reality. They are simply a measure of wealth. Unfortunately, the data we have ends in 2008, which is a shame, although it is sufficient for our analysis.

The Picture

If we calculate and subsequently plot global M3 values, we obtain the following picture.

Global M3

As you can see the plot is somewhat unusual, to say the least. To begin with, not much seems to be going on between 1959 and 1968. This is not an anomaly. If we could extend the graph back to let's say 1950 or so, we would also see a gentle slope going up. This is so because immediately after the post-WWII era, Central Banks were not printing like drunken sailors. The amount of money they printed had some correlation with the amount of goods and services (i.e. real wealth) being produced. Hence, the money being printed did reflect (to a degree) the increase in wealth. However, passing 1970 we see that M3 skyrockets. This was the era of the Vietnam war and the many "socialist" governments that took over most developed countries. Their motto was spend, spend, spend and then spend some more in a futile attempt to reach "equality" Nirvana. Of course, they used the unholy trinity (tax, borrow and print) and as such they all end up printing like drunken sailors. No surprises there.

Yet, after the initial jump in M3 we can see that the curve tends towards a maximum and constant level. This is clearly visible in the black (trend) line superimposed to the real M3 (blue line). Now, we know from the previous graph that during the 70's and up to 2008 there were many financial and economic catastrophes for which countries were again printing like drunken sailors in a pot/smack/white party at the printer's shop. However, we don't see this reflected in the M3 level! How could this be?

Simple. Our M3 measurement is plotted in GK Dollars and they reflect real wealth, not price. What this means is that passed certain point the amount of money printed overtook the amount of real wealth that was created. Passed a certain point printing did not represent wealth any longer. The amount of wealth was the amount of wealth and only the amount of wealth that was present in the world at that time. Hence, printed money represented nothing whatsoever and therefore the curve tends towards a maximum and to stay there no matter how much is being printed. It would have been interesting to know if the curve would have actually stayed on the maximum (a plateau) or if it would have decreased post 2008 as we suspect (and as hinted by the trend) since passed certain point printing actually destroys wealth. Unfortunately, we just don't have the data.

Another interesting observation in this curve is that as it approaches its maximum (somewhere in the 8.000.000 GK dollars) the "swings" in the curve become more violent. Translation: the more Central Banks print, the more violent financial crisis become. Furthermore, passing 1986 a long cycle of 6 or 7 years seems to have been established between major catastrophes. Interesting, isn't it? Central Banks begin to print and the entire world seems to get into permanent debacle cycles. Humm… where have we seen this before? If you said Argentina, you got it! This is pretty much the same as it has been happening in Argentina since the 50's. Should we be surprised here? Of course not!

The Crystal Ball

But there is more to this story. What would happen if we artificially extend the pattern above described? Take a look below. The section in red is pure forecast.

Global M3 Forecast

Hummm… in it we see that the maximum wealth destruction happened mid-2009, which is more-or-less accurate. The 2008 debacle started in 2008 but it took some time for its full destructive force to be felt. Furthermore, we can see that the next maximum wealth destruction should occur mid-2019. If we then assume that this wealth destruction happened roughly 1.5 years before an economic catastrophe, we can then forecast that the next financial tsunami should hit around 2018.

This is indeed very much interesting, since many economists are now sounding alarms regarding the absolutely ridiculous levels of debt and funny money unleashed on markets. Many economists are calling for the next debacle to happen soon. Very soon. As a matter of fact, we would say that visually our method is being too conservative. Using the scientifically tested, tried and truth method of eyeballing the whole thing, we would say that 2018 is too optimistic due to pattern distortion. Probably 2017 is closer to a better forecast. Would this come to pass? We have no clue whatsoever. We are being honest here. We just discovered this effect and have no idea if it is valid or a fluke, but it is very interesting nevertheless. Will there be a financial crisis in the near horizon? Absolutely. Do we have a clue when will it hit? No idea.

Yet another interesting observation is that M3 as expressed above seemed to have gone into some sort of oscillation mode with a fixed frequency of 6 to 7 years. If this is true (and it may well not be) this would mean that thanks to Central Banks the entire world is now in permanent financial hell and the engine of it all is printing. If this phenomenon does indeed exist, this would be entirely compatible with natural physical and chemical phenomena exhibiting natural resonant frequencies. Basically, when a system enters resonance it is typically very stable. If energy is added to it, it will have the tendency to remain on a specific frequency. This is exactly what we seem to be observing here. The more funny money Central Banks pump into the economy (energy feeding bubbles), the more stable the collapse frequency becomes. Hell has become a way of life.

Note: please see the Glossary if you are unfamiliar with certain words.

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