M6 is the name of my new index. This isn't the best name, but I can't think of anything better at the moment. It is my M5 index, plus the market cap of the Global 30 companies. It has four components: M2, the debt held by the public, less Treasuries owned by the Fed, plus the Global 30 market cap. (I subtract Treasuries owned by the Fed so they aren't counted twice. Otherwise those would be included in both M2 and the debt held by the public).
At first, it seems like just a collection of random numbers. But it represents first of all, a portfolio that a prudent wealth person might own. About 37% in cash, 40% in bonds and 23% in stocks. Actually a wealthy person wouldn't have that much in cash, but they might if they were really risk-adverse, plus consider that this "cash" is M2, which keeps going up at 5-10%/year, so it is getting interest.
I want it to represent an expanded view of money supply. Money is not just the coins in your pocket and the Federal Reserve notes in your wallet. It also includes the money in your checking account. And US T-bills that you own that are as good as cash. It also includes stocks in massive companies that you own, that are easily sold for cash.
Note that I am including only the Global 30 stocks for several reasons. If the Fed (or the Social Security Trust Fund) were to buy stocks, which they might some day, these would be the ones they would most likely buy. Also these are all too big too fail companies. They will all be around, in one form or another, in 100 years. And the newly created money goes mostly into the stock market.
It shows my theory of money. Where does money come from? First, intrinsic money, coins. Second, private banks create it through loans. Third, the government creates it by issuing debt. Fourth, the Federal Reserve creates it by buying things besides government debt. Fifth, the stock market creates it.
It don't want to overstate its importance, it is just a number. My baseline is 9/30/2013. I don't want to go back before that as it is too much work, but somebody could if this is a useful tool.
| M6 as of 9/30/13 |
|
|
|
| M2 |
10,880.8 |
| Public Debt |
11,976.3 |
| Less Fed Treasuries |
-2,076.9 |
| Global 30 Market Cap |
6,409.2 |
|
27,189.4 |
I think I will update this at least quarterly going forward. I will do the comparison for 12/31/13 in a few day when I get some more data. I think it will be very interesting.
The M6 number should never go down. If it does, everyone freaks out. If there is a stock market crash, then that means we are in a recession and deficit spending will increase in an attempt to compensate. (Note that stocks are only 23% of the total so even a 20% drop won't have that big of an effect on the total).
This shows something else. The US is a half-capitalistic, half-socialistic country. Everyone agrees that we want the capitalist side to succeed - jobs are good. But when the capitalist side isn't working (a recession) that is when the socialist side kicks in.
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Update: I revised the Global 30 Market Cap as of 9/30/13 to be 6,327.8 with the addition of Facebook and the removal of PetroChina. This changes M6 as of 9/30/13 to 27,108.0.
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Update 2: With the other changes (G30 stocks at 6,154.6) , the total is now 26,934.8 as of 9/30/13.
