February 12, 2009
M1, M2 and M3 and Gold
M1 measures the most liquid forms of money and is limited to currency actually in the hands of the public. M1 includes checking accounts, travelers checks, and other deposits against which checks can be written.
M2 includes M1 plus savings accounts, time deposits under $100,000, and balances in retail money market mutual funds.
M3 includes M2 plus time deposits above $100,000, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the U.K. and Canada.
The chart above shows the M3 money supply (Green Line). M3 is an estimate of the total money supply of Dollars in our banks and economy. In the Spring of 2006, the Fed stopped publishing official M3 numbers to supposedly "save money". M3 was about $10.3 Trillion at the time. The Dollar, which is said to be a "unit of account", no longer has any accounting.
A private company began keeping track of M3, and M3 has since soared past $13.5 Trillion, hitting a high of 17% in annual change year over year. The Federal Reserve is accountable to you, but only if you do something about it, such as buying gold and silver. In 1971 when the rate of annual change reached a high of 16% we saw massive price inflation in the years ahead that sent gold through the roof to as high as $850 which when adjusted for inflation equals $2,300 per ounce! With Bernanke taking interest rates to 0% and simultaneously printing Trillions of Dollars out of thin air, we could see gold head to these levels or higher within the next 3 years.
Even though the U.S. Dollar isn't backed by gold anymore, anyone with Dollars could smarten up and start buying gold and silver on their own. China, for example, could spend their $1.3 Trillion U.S. Dollars reserves and start buying all the gold and silver they can find. We could see the Dollar seriously collapse overnight and there isn't a single thing the U.S. could do about it.
As you read this central banks are running short on gold and are starting to buy it up again. Currently, the U.S. "officially" has 261 Million ounces of gold. If U.S. money-$13.5 Trillion in M3- were backed by "U.S. gold", there would be over $51,724 Dollars for every one ounce of gold.
The total value of all the paper money and bonds in the world is about $100 Trillion, and all the gold ever mined in all of the human history is just under 5 Billion ounces. Think about it, world money, divided by world gold, gives a figure of $20,000 per ounce!
In summary, at about $1,000 an ounce, there is about $5 Trillion Dollars worth of gold in the world, but there is $500 Trillion in derivatives, $100 Trillion worth of bonds and $40 Trillion worth of paper money. The fact of the matter is, bonds and paper money will inevitably go down and gold must go up!
|
