Home > Uncategorized > European Central Bank: “our money growth target is obsolete”

European Central Bank: “our money growth target is obsolete”

The ECB has published an important study about ‘money’. It investigates how recent and not so recent institutional changes have changed the ‘nature’ of the M-3 definition of money which the ECB uses to set its rigid 4,5% money growth target. Warning: it’s  a boring read. But the conclusion is straightforward and exciting: financial innovation has made this core money growth target of ECB policy, enshrined in official documents and many, many speeches and press releases, obsolete as money isn’t anymore what it used to be:

>”A lengthening of the financial intermediation chain typically implies more non-monetary financial intermediaries in the economy and therefore that more money is held by these intermediaries. This tends to result in a decrease in the overall share of money growth that is motivated by consumption or real investment transactions.”


>”Developments in sectoral money holdings therefore provide helpful insights into whether changes in overall M3 growth reflect changes in the underlying rate of monetary expansion, as well as into the channels through which the link between money growth and consumer price inflation operates.”

In other words: it matters if money is held by banks, households or corporations – and the relationship between these sectors as well as the relationship between money growth and the price level changes all the time. The report also states that asset price increases (i.e. house price increases) can be considered a kind of inflation which is fuelled by loose credit (they do state this a bit different, of course). And it contains very useful ‘boxes’ defining all the monetary actors as well as the financial bonds between them, a kind of ‘everything you always wanted to know’ information.   

Summarizing: the report effectively deconstructs as well the ECB money growth target as well as, by implication, the official ECB inflation target (which is explicitly defined as consumer price inflation) as well as the ‘hydraulic’ monetarist idea that there is one and only one right money growth target forever and ever (which is the basis of ECB policy!) and gives indispensable information about the structure of the financial sector.

They of course try to make it sound very conservative. But something is changing at the ECB.

  1. Bruce E. Woych
    January 20, 2012 at 1:34 pm

    It is high time that an intelligent discussion should be open upon the nature of what we call money, along with what intrinsically and extrinsically becomes the rhetorically perverted appeals to “capitalism” and “free market” . These, in turn, constitute the rudiments and mechanical foundations (now digital) to what we interpret as a composite interacting “economy” as model to the in situ realizations of ongoing systemic growth and systems potentials that scale and scope the systemic “tides” of expansion and contraction. Classical economists have consistently argued between name brand theoretical schools that have argued prestige and position for nearly two centuries. We interpret through this filter and are path dependent on position outcome that fit the factional theories. As an anthropologist with no theoretical axe to grind, it is surprising to see terms utilized without definition or methodical measures. Presumptions are made on a framework that “institutes” perspective.
    Polanyi and Keynes were empiricists and had practical measures against what they measured from observation. Heterodoxy in what is “resolutionary” (attempting to resolve…) economics has rebelled against the classical blindness, but is left wandering for survival against what amonts to the “homogenized milk” cart of theoretical indoctrinations that service selected “systems” that have distorted their “advantage” over the “systemic” with the capture of what is essentially digital market economy operationalized and then theoretically rationalized by the capture of fiat money. Political economic machanations and corruptions now fueled by the capture of wealth as accumulated wealth becomes stored power under energy and control mechanisms that are rationing industries for econometric validation. Thereafter the entire system takes on the appearance of quantifiable science…all in pursuit of a gold standard of paper currency to manage wealth not systemic demographic society.
    If apologies are in order for the fuzzy interlacing of ideas, it may well be because the current system of thinking about money is one big cloud cover itself. It is time that these be discussed as they exist…fallacies of construct.
    Is “wealth” equal to “capitalism” and if so , how so? It seems to me that as soon as you scratch the surface of wealth you end up with a definition that implies that wealth is the creation of inefficiency out of efficiency. It distorts systemic values distributed throughout the social fabric (after an initial surge of legitimate “challenge” and “stimulation” it becomes perverted incentive itself and alters market choices towares inefficiency that grows in scope and scale against rational use of resources, environmental health and the appropriate use of leveraged advantage over production and the necessary correlates from labor.
    (2) Is market equal to economy?
    A frightening equivocation! Yet “money” (as such…staying on topic)…measures all things market including (these days) human value and even identity (a book length prospect in itself). In the end it forges throw away profit to reinforce (luxury) alternate path dependent discretionary markets that envelope vocations as subject to market rather than vis versa. Hence we end up with the current situation where the majority of college students are seeking (rent seeking) to become professional money managers under the career entry prospects of a finance economy that demands wealth production…but necessitates “austerity” as the unruly reality of high finance wealth dependency. ALL orchestrated by this tool we are still calling money…but at hier tiers emerging as revenue flow streams and currency values.
    This is all possible under the inadvisable iron hand weighing down the butcher scales with a thick thumb that we indiscriminately call capital. A high flying flag that has no country but represents the “flag ship” mentality of the money managers writ large. Attempting to into this Chinese box set is a compelling challenge, but perhaps this starts with a doctrine of oppositional foundations made “gold standard” by a select “advantage capitalist” class Captains and captors of the leveraged majority…and is sustained by a snow white version of capitalism itself. So in my estimation, starting fresh and without bias from pre-existing ideologies entrenched in class warfare…the initial task and challenge is to adequately define “capitalism” before one can define “capital” before we can define its rudimentary tool of distributive value (money as proxy for capital); before we can begin to decipher how this has come to supremacy over environmental resources, ecological wisdom. social integrity and national mythology as “market” mentality and cash register natural law!

    My humble initiative on this, and I would love to see a suge of challenges… is that :

    Capital is a system over the systemic distribution of survival technologies that places (divisions of labor & production) advantaged relations of “specialization” into competition to provide for the undivided well being of the social demographic aggregate. It is premised not upon the ultimate working out of competitive exclusion, but upon the cooperation of interactive and interdependent exchanges (transactions) applied through the mutual market reinforcements of essential needs, wants, desires and demands from societies prioritized supply, distribution and redistributive requirements. As such (…ideally…) it can formally be said to create “best practices” and outcome for demographic long term survival, sustanence, and the maintenance, repair, replacement (adaptivity through transition) of a economic complex which intentionally assesses the ongoing measures of integrity and sustainability of the systems as they serve the systemic process of contemporary survival mechanisms.

    We, my friends, have come to see the systems for the systemic (can’t see the forest for the trees…); and we have come to serve our survival constraints which are everywhere a discrete product of money as measure to everything. I might add half jokingly, …
    the rest is “history”…but “that” is “another” story we might discuss after we clear this one up!

  2. January 20, 2012 at 2:51 pm

    Is this – perhaps – the reason why the Fed does not publish data on M3 years to date (from 3-2006)?

    • January 21, 2012 at 10:02 pm

      Holy smokes Bruce! Do you really expect a mere mortal to understand all that?
      I think I’m going back to stashing silver coin in the mattress.

      • Bruce E. Woych
        January 22, 2012 at 1:54 am

        @helge Nome: In the Middle Ages they had Angels on the head of a pin and the Mystery of the Trinity. Today we have microchips quantifying investment dollars and M1; M2; and the Holy Spirit = M3

  3. Bruce E. Woych
    January 20, 2012 at 7:56 pm

    This documentary explains the nature of capitalist crisis, visits the protests against austerity measures, and recommends revolutionary paths for the future. Special attention is devoted to the crisis in Greece, the 2010 G20 Summit protest in Toronto, Canada, and the remarkable surge of solidarity in Madison, Wisconsin. It may be their crisis, but it’s our problem.

    other interesting reviews:



  4. Bruce E. Woych
    January 20, 2012 at 8:24 pm

    The One Percent 2/8

  5. Bruce E. Woych
  6. March 25, 2012 at 9:11 pm

    As China continues to amass great quantities of gold, it can only be assumed that their plan is to eventually anchor their currency (YUAN) to that gold. This move will make the YUAN the only currency that is backed by real value, and possibly remove the US Dollar as the dominant world currency.

    If this happens, our entire monetary system will collapse and “money” as we now know it will be forever changed.

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