Monday, December 6, 2010

The printing presses have broken down; how will we inflate the currency now?

This just in. A recent printing run, in hundred dollar bills, has substantial defects that make many of the notes unusable. How big of a printing run? Just $110 billion worth. From CNBC:
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 US 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."
Because officials don’t know how many of the 1.1 billion bills include the flaw, they have to hold them in the massive vaults until they are able to develop a mechanized system that can sort out the usable bills from the defects.
Sorting such a huge quantity of bills by hand, the officials estimate, could take between 20 and 30 years. Using a mechanized system, they think they could sort the massive pile of bills, each of which features the familiar image of Benjamin Franklin on the face, in about one year. [Emphasis added.]
The total cost of producing the bad bills was $120 million, excluding whatever it will take to sort the good from the bad. The unusable bills will have to be burned; frankly, it might be cheaper to just burn the entire print run, compared with sorting over 1.1 billion items of currency.

Apparently, during this print run of 1.1 billion, no one checked at the beginning/middle for quality control. A private firm that operated like this would be out of business. With almost a third of the prints unusable, I can't imagine many repeat customers... other than the federal government.

Kidding aside, this poses some tangible problems for the Federal Reserve, whose strategy has depended on getting currency flowing in the economy. With at least a year's delay before this money will actually be reaching consumers' hands, it complicates monetary policy. Facing an already Herculean task of managing market perceptions and signals, having this additional lag between action and effect could make the results of Fed decisions even more difficult to anticipate.

1 comment:

  1. Ya ya ya you are very right, em extremely agree with you, govt should take care for the ending results and must consider the outcomes of this because this will change the whole picture of economy;s future.