“The FOMC often refers to the “credit proxy” — daily average total deposits at all member banks.”

Presumably, this corresponds to your “total liabilities, and not total assets”.

Bank credit proxy used to be an FOMC target:

“The Federal open market committee’s strategy remained essentially unchanged for more than three years, from Sept 66, when the committee first began including a bank credit proviso clause in its directive until Dec 1969.”

“The FOMC often refers to the “credit proxy” — daily average total deposits at all member banks.”

Presumably, this corresponds to your “total liabilities, and not total assets”.

Bank credit proxy used to be an FOMC target: “The Federal open market committee’s strategy remained essentially unchanged for more than three years, from Sept 66, when the committee first began including a bank credit proviso clause in its directive until Dec 1969.”

From the standpoint of monetary authorities, charged with the responsibility of regulating the money supply, none of the current definitions of money make sense. The definitions include numerous items over which the Fed has little or no control (e.g., M2), including many the Fed need not and should not control (currency).

The definitions also assume there are numerous degrees of “moneyness”, thus confusing liquidity with money (money is the “yardstick” by which the liquidity of all other assets is measured).

The definitions also ignore the fact that some liquid assets (time deposits) have a direct one-to-one relationship to the volume of demand deposits (DDs), while others affect only the velocity of DDs. The former requires direct regulation; the latter simply is important data for the Fed to use in regulating the money supply.

And obviously, no money supply figure standing alone is adequate as a “guide post” to monetary policy.

Even so, what went for M2 went for M3. And M2 erroneously includes MMFs in its definition. MMFs are the customer’s of the commercial banks. They are financial intermediaries.

Monetary savings are never transferred from the commercial banks to the financial intermediaries; rather are monetary savings always transferred through the financial intermediaries.

Whether the public saves or dis-saves, chooses to hold their savings in the commercial banks or to transfer them to intermediary institutions will not, per se, alter the total assets or liabilities of the commercial banks; nor alter the forms of these assets or liabilities.

Financial intermediaries (MMFs) lend existing money which has been saved, and all of these savings originate outside the intermediaries.

The utilization of these loan-funds, or the activation of monetary savings by these financial intermediaries, is captured thru the velocity of their deposits (bank debits/withdrawls), not thru the volume of their demand deposits.

I.e., from the standpoint of the economy, MMF deposits never leave the CB system. And the growth of the MMFs is prima facie evidence that existing funds/savings have already been spent/invested (transferred) by their owners/savers to borrowers. I.e., this represents a double counting.

Even now, M3 is meaningless. Though at some point, under this ACT, our means-of-payment money supply will eventually evolve and approximate M-3.