How Bush's Secret Plan to Fool Saudis, Chinese With Loan Money Backfired


Yesterday, I wrote a post titled "Who Killed M3?" that explored a Bush-era decision to stop tracking a key measure of money supply, and its link to the housing bubble. Today, I explore that further.

What did George W. Bush have against M3 that made it important enough to risk the world economy to get rid of? It was an inconvenient measure of inflation -- a kind of inflation that Bush really liked, being monetary inflation rather than price inflation. Monetary inflation tends to lower the long-term cost of deficits, because they are repaid with cheaper dollars. But it is inflation nonetheless, and a potential political embarrassment. Was that enough?

It could well have been. Think for a moment about W's character. If there was something potentially embarrassing he really liked, whether it was an arcane type of inflation or cocaine, what better way to deal with it than to pretend it didn't exist?

So M3 had to die.