A significant production problem with new high-tech $100 bills has caused government printers to shut down production of the new notes and to quarantine more than one billion of the bills in huge vaults in Fort Worth, Texas and Washington, CNBC has learned.Read the rest here.
Initially scheduled for release in February of 2011, the new bills were announced with great fanfare by officials at the Treasury Department and the Federal Reserve in April.
At the time, officials announced the new bills would incorporate sophisticated high-tech security features, including a 3-D security strip and a color-shifting image of a bell designed to foil counterfeiters.
But the production process is so complex, it has instead foiled the government printers tasked with producing billions of the new notes.
An official familiar with the situation told CNBC that 1.1 billion of the new bills have been printed, but they are unusable because of a creasing problem in which paper folds over during production, revealing a blank unlinked portion of the bill face.
A second person familiar with the situation said that at the height of the problem, as many as 30 percent of the bills rolling off the printing press included the flaw, leading to the production shut down.
The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of U.S. currency on the planet, which a government source said is $930 billion in banknotes. For now, the unusable bills are stored in the vaults in "cash packs" of four bundles of 4,000 each, with each pack containing 16,000 bills.
Officials don’t know exactly what caused the problem. "There is something drastically wrong here," a person familiar with the situation said. "The frustration level is off the charts."
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3 comments:
Of course, "printing money" through mechanisms like quantitative easing is very different than printing paper bills. A problem with one has really no bearing on the other.
Here's an interesting statistic (and perspective) from Bernake's interview with CBS Corp.’s “60 Minutes”, which aired yesterday:
"The Fed’s policy of purchasing Treasury securities shouldn’t be considered simply printing money, Bernanke said.
“The amount of currency in circulation is not changing,” he said. “The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying Treasury securities.”
The Fed has increased its balance sheet by expanding excess reserves at banks. The Fed reports two measures of the money supply. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M1 has risen 6.9 percent in the past year, compared to a 4.3 percent average increase since 2000, the Fed said last week."
If it's not "printing money," then presumably the Fed is using actual deposits--cash on hand--to purchase Treasuries. What I have read is that the Fed simply writes a check on itself, but I honestly don't know. I think that is part of the logic behind Ron Paul's "Audit The Fed" bill.
Also, every single check issued by the USG is ultimately presented for payment on the USG's account at the Fed. That account is currently overdrawn to the tune of $1T, and has been overdrawn, year-in-year-out, in the hundreds of billions of dollars. Are people actually purchasing an equivalent amount of newly-issued Treasuries from real savings to cover the government's yearly deficits? To the extent they're not, then the Fed is printing money every time a USG check gets honored for payment.
At the least, Bernanke presides over a non-competitive cartel that fixes the time value of money, i.e., the rate of interest. Now, if we admit that a non-competitive cartel can't set the market-clearing price for wheat (the Soviet Union tried for years), then it can't set the market-clearing price for money either. Wherever the price of money is set, either above or below the market-clearing price, certain sectors of the economy will be rewarded at the expense of others. The malinvestments pile up, as they must, and eventually economic reality asserts itself: the housing boom (e.g.) is followed by the housing bust.
Bernake isn't quoted direclty when the article says "the Fed’s policy of purchasing Treasury securities shouldn’t be considered simply printing money". There's also probably something to QE2 not being "simply printing money".
The most important fact is that M1 has not increased far beyond the average increase since 2000. That doesn't mean that MB hasn't increased far beyond that, it's just that we aren't seeing MB funds increasing the M1 supply - probably because they banks aren't actually lending it out, yet. The real issue is whether the Fed has the tools to draw liquidity out of the system once M1 starts increasing. Bernake says they have the tools, but there's no need for them now, today.
My understanding is that the Fed buys Treasuries and simply credits the account of the seller. That is, the Fed doesn't need to write a check against itself, it simply adds numbers to the sellers reserve account thus creating MB money. The Fed (or Treasury?) can also issue Treasuries as a way to borrow money, but I don't think this is the only way money can be 'created' in a financial system such as ours.
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