M3 - M2 plus large time deposits that are over $100,000, non individual (financial institution or company) money market fund balances, repurchase agreements held by commercial banks in values over $100,000 and that are based on U.S. government securities like Treasury bonds, and most Eurodollars.

 

M3

One of many money measures published by the Fed.

M3 consists of M2 plus (1) balances in institutional money market mutual funds; (2) large-denomination time deposits (time deposits in amounts of $100,000 or more); (3) repurchase agreement (RP) liabilities of depository institutions, in denominations of $100,000 or more, on U.S. government and federal agency securities; and (4) Eurodollars held by U.S. addressees at foreign branches of U.S. banks worldwide and at all banking offices in the United Kingdom and Canada. Large-denomination time deposits, RPs, and Eurodollars exclude those amounts held by depository institutions, the U.S. government, foreign banks and official institutions, and money market mutual funds. Seasonally adjusted M3 is constructed by summing institutional money funds, large-denomination time deposits, RPs, and Eurodollars, each adjusted separately, and adding this result to seasonally adjusted M2. Source

Also see money measures

 

 

 

M3 is back

We did some sleuthing and data extraction and put M3 back together from various weekly Federal Reserve reports that are still available.

 

1. The formula we're using has five 9s correlation to the original data back to 1980.
2. There is only one missing element that is apparently no longer available (Eurodollars) and an adjustment has been applied to generate it. Its only about 3% of total M3 so should not have a material effect on the total.

11/30/2007 - Note that much of the large growth in M3 lately has been in flows into CDs and Money Market Funds, a normal occurrence during financial turmoil. See our financial crisis page for more detail, and a picture of the current level of a U.S. financial crisis.

 

3/31/2008 - Also see our best effort construction of all Fed activities here. As of today, it shows that the Fed has been backing off on total money creation activities on a relative basis since about December 2007.

 

4/4/2008 - As of 3/19/2008, we have added the results of the new Fed TAF, TSLF and PDCF "tools" to our M3 reconstruction, since they are quite similar to temporary repos (repurchase agreements). Temp repos are part of the original definition of M3. Note that they add very roughly about 2-2.5% to the annual growth rate.

 

5/30/08 - Removed TA, TSLF, etc. from the "regular" M3 weekly chart and now maintaining it as just a link here (M3 with TAF, etc.).

 

Here is our article on M3b, which details our work and notes the sources for the data. Note that as of Nov. 10, 2006 the Eurodollar estimation formula has changed - see the article for details.

 

John Williams monthly reconstruction of M3 is here. Ours tends to be more volatile and averages slightly higher than his, partly because it's weekly and partly because of our minor differences in calculating the Eurodollar component of M3 and repos.

 

Finally and to put M3 into proper perspective with inflation (as measured by CPI without lies), the M3 and M2 strong inflation link is virtually unquestionable. The longer term inflation picture is clear, although M2 shows a pause and likely temporary disinflation as of 2008. Certain bloggers are incorrect and have continually avoided these facts and the linked chart.

 

 

 

M3, longer term chart

 

M3 consists of M2, institutional money market mutual funds, time deposits in amounts of $100,000 or more, repurchase agreement liabilities of depository institutions (in denominations of $100,000 or more) on U.S. government and federal agency securities, and Eurodollars.

 

For reference, and as of early 2007, M3 is about $11.5 trillion, M2 about $7.1 trillion, institutional money markets funds about $1.4 trillion, jumbo CDs about $1.7 trillion, repos about $.67 trillion ($670 billion) and estimated Eurodollars are about $.61 trillion ($610 billion).

 

Important change - July 16, 2007

A proprietary adjustment has been made as of this week. We have detected and back adjusted for changes to H8 (a weekly Fed publication) elements that we believe the Fed changed in mid March 2007 that affect M3. We are no longer publishing our M3 component chart.