What is the real reason the Fed no longer calculates M3?

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pohnpei397 eNotes educator| Certified Educator

This depends on how cynical you are.  The Fed says it no longer calculates M3 because it does not add anything to our understanding of the money supply beyond what measuring M2 tells us.  Cynics believe that the Fed has stopped measuring M3 because they do not want people to realize how much the money supply is growing due to government efforts to pump up the economy.

Cynics believe that the government's efforts to revive the economy (some of which revolve around simply creating more money) will soon lead to inflation.  They believe that the Fed has stopped calculating M3 so that people will not realize how much the money supply has grown.  To this way of thinking, the Fed's decision is meant to allow the government to do what is politically popular (try to stimulate the economy) while obscuring the effects that this has on the money supply and, eventually, on inflation.