[Congressional Record (Bound Edition), Volume 152 (2006), Part 2]
[Extensions of Remarks]
[Page 2871]
[From the U.S. Government Publishing Office, www.gpo.gov]




          INTRODUCTION OF THE SUNSHINE IN MONETARY POLICY ACT

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                         Tuesday, March 7, 2006

  Mr. PAUL. Mr. Speaker, I rise to introduce the Sunshine in Monetary 
Policy Act, which requires the Federal Reserve to resume reporting the 
monetary measure known as M3. M3 consists of M1 (M1 is currency in 
circulation plus travelers' checks, demand deposits, Negotiable Order 
of Withdrawal (NOW) accounts, and similar interest-earning checking 
account balances) plus M2 (M2 is M1 plus household holdings of savings 
deposits, small time deposits, and retail money market mutual funds 
balances except for balances held in IRA and Keogh accounts) plus 
institutional money market mutual fund balances and managed liabilities 
of deposits consisting of large time deposits, repurchase agreements, 
and Eurodollars.

  The Federal Reserve Board has recently announced it will stop 
reporting M3, thus depriving Congress and the American people of the 
most comprehensive measure of the money supply. The cessation of 
Federal Reserve's weekly M3 report will make it more difficult for 
policymakers, economists, investors, and the general public to learn 
the true rate of inflation. As Nobel laureate Milton Friedman famously 
said, ``inflation is always and everywhere a monetary phenomenon.'' 
Therefore, having access to a comprehensive measure of the money supply 
like M3 is a vital tool for those seeking to track inflation. Thorsten 
Polleit, honorary professor at HfB-Business School of Finance and 
Management, in his article ``Why Money Supply Matters'' posted on the 
Ludwig von Mises Institute's website mises.org, examined the 
relationship between changes in the money supply and inflation and 
concluded that ``money supply signals might actually be far more 
important for inflation--even in the short-term--than current central 
bank practice suggests,'' thus demonstrating the importance of the M3 
aggregate.

  The Federal Reserve Board has claimed neither policymakers nor the 
Federal Reserve staff closely track M3. Even if M3 is not used by 
Federal Reserve Board economists or legislators, many financial 
services professionals whose livelihoods depend on their ability to 
obtain accurate information about the money supply rely on M3. For 
example, my office has been contacted by a professional money manger 
complaining that the Federal Reserve Board's discontinuing M3 reports 
will make it difficult for him to do his job.

  Whatever lack of interest policymakers are currently displaying in M3 
is no doubt related to the mistaken perception that the Federal Reserve 
Board has finally figured out how to effectively manage a fiat 
currency. This illusion exists largely because the effects of the Fed's 
inflationary polices are concentrated in malinvestments in specific 
sectors of the economy, leading to ``bubbles'' such as the one that 
occurred in the stock market in the late nineties and the bubble that 
many believe is occurring in the current real estate market. When 
monetary inflation is reflected in sector-specific bubbles, it is 
easier to pretend that the bubbles are caused by problems specific to 
those sectors, instead of reflecting the problems inherent in a fiat 
currency system. Once the damage to our economy done by our reliance on 
fiat currency becomes clear, I am certain that policymakers will once 
again take more interest in M3.

  Economists and others who are following M3 have become increasingly 
concerned about inflation because last year the rate of M3 rose almost 
twice as fast as other monetary aggregates. This suggests that the 
inflation picture is not as rosy as the Federal Reserve would like 
Congress and the American people to believe. Discontinuing reporting 
the monetary aggregate that provides the best evidence that the Federal 
Reserve Board has not conquered inflation suggests to many people that 
the government is trying to conceal information about the true state of 
the economy from the American people. Brad Conrad, a professor of 
investing who has also worked with IBM, CDC, and Amdahl, spoke for many 
when he said, ``It [the discontinuance of M3] is unsettling. It 
detracts from the transparency the Fed preaches and adds to the 
suspicion that the Fed wants to hide anything showing money growth high 
enough to fuel inflation...''

  Discontinuing reporting M3 will only save 0.00000699% of the Federal 
Reserve Board's yearly budget. This savings hardly seems to justify 
depriving the American people of an important measurement of money 
supply, especially since Congress has tasked the Federal Reserve Board 
with reporting on monetary aggregates. Discontinuing reporting M3 may 
not be a violation of the letter of the Federal Reserve Board's 
statutory duty, but it is a violation of the spirit of the 
congressional command that the Federal Reserve Board ensure the 
American public is fully informed about the effects of monetary policy.

  Mr. Speaker, knowledge of the money supply is one of the keys to 
understanding the state of the economy. The least the American people 
should expect from the Federal Reserve Board is complete and accurate 
information regarding the money supply. I urge my colleagues to ensure 
that the American people can obtain that information by cosponsoring 
the Sunshine in Monetary Policy Act.

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