Tag Archives: federal reserve

Printing Money Troubles

There is a lot of talk lately about the Fed’s quantitative easing policy. It is an indirect way of printing money, and also a huge mistake. It turns out the Fed can’t even print money the direct way without making mistakes. A new $100 bill that is harder to counterfeit has been rolling off the presses recently. 1.1 billion of them have been printed so far, at a cost of $120 million.

CNBC reports:

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.

Coincidentally, these would be the first bills to feature Timothy Geithner’s signature.

Why Government Layoffs Tripled in June

This graph from just-released Federal Reserve data caught my eye. It shows government layoffs and discharges from late 2000 through June of this year (raw data set downloadable here). Government jobs are remarkably stable. According to this BLS chart,government workers enjoy roughly three times the job security of private sector jobs. Government workers also compensated more than twice as well as the people who pay their salaries.

For most of the last decade, government workers had as small as a 1-in-200 chance of getting fired or laid off in a given month. This stability mostly held up even during recessions, which are marked as the shaded areas in the graph.

But notice the big spike that happened this June. The economy is out of recession. But times are still tough. And government deficits are at record highs. Is the sudden jump in layoffs and discharges due to government cutting spending to avoid fiscal disaster?

I’d guess not. June was when large numbers of temporary census workers finished their jobs. Still, for one shining second, I thought that Washington had come to its senses.

Financial Fiasco

I recently finished reading Swedish economist Johan Norberg‘s book about the financial crisis, aptly titled Financial Fiasco. It’s both short and informative. Six chapters and 155 pages, all of them worth reading.

The first two chapters are about the two big regulatory causes of the recession. One, monetary policy that was too easy for too long. The price system works. When the Fed messes with that price system, prices send out the wrong signals. People behave accordingly. Two, a decades-long drive to raise homeownership rates caused a lot of people to take out loans they couldn’t afford. It was only a matter of time before the consequences would come to bear.

Chapters 3 and 4 are about how the private sector reacted to the incentives regulators gave them. Let’s just say they acted badly. If people can game the system, they often will. Norberg’s criticism of overly-complicated securitized mortgage packages is both shocking and infuriating.

Chapter 5 is about how the government and private sector reacted to the crisis once the housing bubble popped. The $700 billion bailout program to reward bad behavior comes under fire.

Norberg is in top form in Chapter 6. Having looked at the causes and consequences of the crisis, now he offers a way out. One lesson is that politicians will always behave badly. “Politicians who distribute pork they cannot afford are reelected; butcher shops that sell pork they cannot afford go bankrupt. (p. 150)” Politicians are just like you and me. They go wherever their incentives lead them. We need to approach them accordingly.

The way to a full recovery is not bailouts. It is letting bad companies fail. And just as important, letting good ones prosper. “Government support for companies is thus not a way to save jobs, as politicians try to make us believe. It is a way to move jobs from good companies to bad companies.” (p. 151) In the long run, bailouts keep the economy down by keeping jobs and resources away from where they would do the most good.

Financial Fiasco has echoes of Tocqueville; a foreigner is trying to figure out how America works. Norberg, like Alexis de Tocqueville, is uncommonly perceptive. His experience living under an economy more thoroughly mixed than America’s allows him to see things that have escaped American commentators. This is extremely valuable. The fact that his book is concise, well written, and accessible to those of us who don’t have economics Ph.Ds makes it even moreso.