Fed Misprints $110 Billion in New $100 notes

It was the "bill of the future". The new American $100 bill had 3D security ribbons and threads. Microprint text and watermark images were disguised across its surface. And the numbers changed color depending on the light and viewing angle. Lauded to the press in April, the bill was so sophisticated that no counterfeiter could hope to reliably print it.

The only problem, though, was that apparently the U.S. government couldn't reliably print it either. During the initial printing run, a flaw in the printing process was encountered, which led to a layer of the paper folding over after inking, revealing an uninked portion.

Approximately 30 percent of the the approximately $366B USD printed, or roughly $110B USD worth of bills, carry the flaw. That's a whopping 1.1 billion botched bills.

This is ironic since it's been the general belief that the US should raise the money supply, to keep inflation at a steady rate...and they misprint $110 billion of it in the process.

Fed Adopts Political Tactics on Critics

Apart from the political content, the article mentions that the Fed chairman Ben S. Bernanke plans to spur the economic recovery by lowering interest rates through buying $600 Billions of governmental bonds. I think this is a solid real life example of the effect of monetary policy that we learned in our IS-LM and Aggregate Demand Curves. Increase in Money supply- in this case through buying $600 Billion of governmental securities by the Fed- shifts the LM curve to the right. This increase in supply of money provides a new IS-LM equilibrium with lower interest rate, which eventually boosts up Investments and Output. Given our understanding of the IS-LM and Aggregate Demand curve, I think Mr. Bernanke's plan to revive the economic recovery through buying of governmental bonds should work unless there are shocks, such as huge increase in expected inflation and/or huge rise in Price level.

Three Reasons Why We Are Not Going To Become Japan

This short article touches on the notion that the economy of the United States is showing some resemblances to Japan's economy in that the same kind of double-dip recession that Japan went through about 20 years ago. A double-dip recession is a recession followed by a short-term recovery, followed by another recession. In Japan's case, they suffered two bubbles in the real estate and equity markets that put prices at ridiculous levels and completely out of proportion. The Imperial Palace in Tokyo, which is near 5 miles around, was valued the same as the State of California. That one instance, although not your run-of-the-mill home in Japan, shows the magnitude of the spike in prices. The United States had a bubble in prices in 2007, but nowhere near that proportion, and really only effected the commercial real estate market. Japan suffered a heavy deflationary period also because they have an essentially mono-cultural society. A younger, more culturally diverse work force that the United States boasts creates industrial growth, and also huge foreign investments. But, probably the most important reason the US economy won't be plagued with huge deflation like Japan's was is the US monetary policy. Japan's economy really dropped the ball and didn't realize how serious their issues were, and were too slow to cut rates before it was too late. The Fed, starting in 2008, has aggressively been working on cutting rates and getting on smaller, struggling banks to raise some capital before they step in and take it over. This has kept everything relatively "in check" and is going through the necessary steps to repair the US economy.

I feel that the US economy will eventually recover and that the Fed is taking the necessary steps to make sure that we don't go through a huge period of outrageous deflation like Japan did. Things may not happen for some time, but small steps in the right direction are much more favorable than several steps back like Japan had to face.