Monday, December 06, 2010

Printing Press for the $100 Bill is Broken

Insert your own government spending joke, then proceed to this link:
As a metaphor for our troubled economic and financial era -- and the government's stumbling response -- this one's hard to beat. You can't stimulate the economy via the money supply, after all, if you can't print the money correctly.

Because of a problem with the presses, the federal government has shut down production of its flashy new $100 bills, and has quarantined more than 1 billion of them -- more than 10 percent of all existing U.S. cash -- in a vault in Fort Worth, Texas, reports CNBC.

I await an Austrian response on whether or not a interrupted printing process is good or bad in ABCT. My guess is that, unless its permanently broken (and only then in ABCT), this is a bad turn of events under any theory of the business cycle.

1 comment:

Will Luther said...

The money creation process is very interesting. First, the Fed places an annual order with the Treasury. "We need X notes by Y date." Then the Treasury prints them up and ships them to the Fed. These notes are then monetized by the Fed, whenever the Fed sees fit.

My understanding is that note production contributes little--if at all--to inflation. This process is basically just to get old, worn notes out of circulation. It is more or less a one-for-one swap.

Increases in the money supply come in the form of account entries--it is the keyboard, not the printing press that is the true culprit.

PLEASE CORRECT ME IF I AM WRONG, AS I'VE BEEN LOOKING FOR A GOOD SOURCE ON THE WHOLE PROCESS

With respect to optimal monetary policy and business cycles, I'd say Austrians are split. Rothbardians hold that any (fixed) supply of money is ideal--just let prices adjust. Other Austrians concerned with monetary equilibrium (White, Selgin, Horwitz, and myself) would prefer the money supply expand and contract to offset changes in money demand. If such a task is feasible, it would insure that the loan rate of interest equals the Wicksellian natural rate, and thereby deter Austrian-style business cycles from getting off the ground.

Steve Horwitz and I make this distinction in our recent working paper.