5 ms·

Meet America's Money Destroyers

44 points by acconrad 16y ago

swaits 16y ago
Not the deepest bit of journalism you'll find on our monetary system. He leaves out quite a bit; money creation other than printing, measurement (M0, M1, ...), and a complete picture on how the Fed attempts to (or believes it can) control money supply.
- h5n1 16y ago
  Although I agree that the issue of money supply is not described well here, it's not a very long article, nor is it really aiming to explain all that. I think it's fun to see the average lifespan of bills. Who'd'a thunk that most small ones are in use for less than 5 years??
  - swaits 16y ago
    I found the lifespan of each note interesting too. The rest of it was far oversimplified for my taste. But hey, I'm not everyone! :)
  - Tangurena 16y ago
    I noticed that they left out $2 bills. Many people save them for some reason (they're lucky! they're rare!) and some of the charts showing lifespans that include $2 bills show their lifespan about 10x the life of other bills.
bluedevil2k 16y ago
The big question I wanted answered and this article failed to address is the actual cost of destroying and reprinting bills. Is it trivial and something we shouldn't worry about? Does it cost tens of millions of dollars, and would there be a benefit to finding longer lasting currency solutions? I believe Switzerland uses plastic based currency which lasts much much longer.
- melling 16y ago
  How about a no currency solution? I use credit cards for most transactions over $10. There should be a way to pay for small items with no transaction fee. Real cash will last much longer and payment lines will move quicker.
  - nnutter 16y ago
    Why should there be no fee? Square has already removed the fixed portion of their fee so it is just 2.75% (not ~$0.30 + ~3%). This helps with small transactions. Eventually their competition will have to do the same.
    - dangrossman 16y ago
      Because for some products, that's most of the profit margin gone.
      - nnutter 16y ago
        3% is most of the profit margin? Really?
        dangrossman 16y ago
        http://biz.yahoo.com/p/s_qpmu.html http://biz.yahoo.com/p/s_qpmu.html
  - bluedevil2k 16y ago
    HN readers aren't your average slice of America. A large chunk uses cash for everything, and can't get even checking accounts, let alone a credit card.
    - melling 16y ago
      I didn't say the solution had to be a credit card. There are a few options. I bet most people have cell phones. A quick Google says around 17 million people don't have a checking account. You could sell pre-paid cash cards too.
chopsueyar 16y ago
Most banks have $2 bills available that appear in quite good condition considering their age, too.
cheez 16y ago
Interesting how the banks are allowed to sell "securities" to the Federal Reserve.
- wtn 16y ago
  Presumably the author meant US Treasury marketable securities, but of course The Atlantic doesn't want to intimidate its readers with more than one idea at a time. The Atlantic is a very average and annoyingly centerist publication. Tons of mildly interesting articles like this that are basically ancillary to how the world works.
- rayiner 16y ago
  It's a pretty clever idea. It's always surprising to me that technology-saavy people are so skeptical of the monetary system. Corruption aside (which undoubtedly exists), it's a neat solution to a complex real-world problem. Put simply: Money is just a level of indirection. You could have a barter-based economy based on goods and services, but you introduce money as a proxy to simplify transactions. The problem is: how much money do you have in the system? You want enough so it serves as an efficient proxy for the actual value of the goods and services. If you deviate from that amount, you're in trouble. The problem is complicated by two things: 1) the amount of goods and services which money must proxy for is constantly increasing; 2) money must proxy not just actual goods and services, but enforceable promises to provide goods and services (ie: debt). (2) is the most complicated issue to deal with, because it's highly dynamic. As society becomes more stable and secure people are willing to commit to obligations that are further in the future. There must be enough money to serve as an accurate proxy for those commitments. The fractional reserve system is actually a fairly elegant solution to this problem: money is dynamically created when loans are made, and destroyed when loans are repaid.
  - cheez 16y ago
    What bothers me personally about the system is that it is not fair. When I am forced to participate in a system, it should at least be objectively fair. One point of unfairness is that certain entities, and therefore people, are guaranteed a profit. This is not fair. I can't take loans from the central bank at 0%, why? Saving is also no longer an option. That, I feel, is unfair. We have already taken risks to create the wealth and now we have to take even more risks just to keep the value of the money. Of course, The Bernank and his successors don't have to worry, they just increase their own salaries and retirements. I actually like fiat money because it decouples resources from wealth. In an economy that increasingly depends on ideas, that is good. It's the implementation which needs an overhaul before it destroys the entire world. I'm still connecting the dots in my head.
porter 16y ago
So when the fed sells a security does the money destroyed exactly equal the money it originally created when it bought the security? Not if the bank that bought the security lent out the money from the fed. The magic of the fractional reserve banking system multiplied the money from the original security multiple times over. I don't think this article addresses this fact.
- rayiner 16y ago
  Of course it does. Eg. Fed creates $100 by buying a security X. Bank gets $100, lends it out, earns $5 in interest, has $105. Fed sells the security, destroying the $100. The Fed created $100 then destroyed $100. The $5 used to pay the interest on the security wasn't created as a result of the Fed's buying the security, it was paid with money already in the system.
deleted 16y ago
[deleted]
- T-hawk 16y ago
  From the title, I expected an article about the parasitic financial industry, which creates no wealth but slices a cut for themselves in moving it around. The title is actually inaccurate, since money is not destroyed. Nobody is $20 poorer when a bill is shredded, since it is simply replaced.
jhamburger 16y ago
I'd be more interested to hear how they prevent theft by employees of the money to be destroyed. How hard is it to steal money that nobody will ever be looking for again?
- Tangurena 16y ago
  There is a mint here in Denver, and I've chatted with some of the mint employees on the bus and light rail a few times. I'm going by memory here, so things might be a little messed up (some things they mentioned were fascinating to me at the time, others were boring and forgotten). This mint makes coins and there is no "employee discount." One of the security procedures is that you are not allowed to carry money into the facility at all. Basically, you empty your pockets at the locker room and if you have more than about $20 in cash, it has to be documented and held by the shift supervisor. All entrance and departure is through a sally port at regular times. If you're late for work, they're not letting you in. Randomly, people are stopped and searched. Finally, they take a no-mercy stance when it comes to prosecution, as theft from a US Mint has draconian penalties (like 18 years in the pen for stealing $100). Any arrests and prosecutions are covered quite well to the other employees (probably to remind them to "don't do this"). One of the thefts involved someone with one of the larger music players (it might have been a CD player) who had hollowed out part of it to be able to stash dollar coins in them, taking out about $20/day. A friend of a friend worked at one of the large megachurches in Colorado Springs. People working in the mailroom would be required to change into pocketless jumpsuits before their shift as many people mail cash to the ministry, and opening an envelope with thousands of dollars in cash was not rare. With casino-grade surveillance cameras and pocketless clothing, this made it difficult by design to pilfer cash. People worked in pairs (someone in front of you and watching you makes it hard to stuff cash down your sleeve) and the pairs were rotated (so you could not make deals with some partner).

44 points by acconrad 16y ago

Not the deepest bit of journalism you'll find on our monetary system. He leaves out quite a bit; money creation other than printing, measurement (M0, M1, ...), and a complete picture on how the Fed attempts to (or believes it can) control money supply.

h5n1 16y ago
Although I agree that the issue of money supply is not described well here, it's not a very long article, nor is it really aiming to explain all that. I think it's fun to see the average lifespan of bills. Who'd'a thunk that most small ones are in use for less than 5 years??
- swaits 16y ago
  I found the lifespan of each note interesting too. The rest of it was far oversimplified for my taste. But hey, I'm not everyone! :)
- Tangurena 16y ago
  I noticed that they left out $2 bills. Many people save them for some reason (they're lucky! they're rare!) and some of the charts showing lifespans that include $2 bills show their lifespan about 10x the life of other bills.

bluedevil2k 16y ago

The big question I wanted answered and this article failed to address is the actual cost of destroying and reprinting bills. Is it trivial and something we shouldn't worry about? Does it cost tens of millions of dollars, and would there be a benefit to finding longer lasting currency solutions? I believe Switzerland uses plastic based currency which lasts much much longer.

melling 16y ago
How about a no currency solution? I use credit cards for most transactions over $10. There should be a way to pay for small items with no transaction fee. Real cash will last much longer and payment lines will move quicker.
- nnutter 16y ago
  Why should there be no fee? Square has already removed the fixed portion of their fee so it is just 2.75% (not ~$0.30 + ~3%). This helps with small transactions. Eventually their competition will have to do the same.
  - dangrossman 16y ago
    Because for some products, that's most of the profit margin gone.
    - nnutter 16y ago
      3% is most of the profit margin? Really?
      - dangrossman 16y ago
        http://biz.yahoo.com/p/s_qpmu.html http://biz.yahoo.com/p/s_qpmu.html
- bluedevil2k 16y ago
  HN readers aren't your average slice of America. A large chunk uses cash for everything, and can't get even checking accounts, let alone a credit card.
  - melling 16y ago
    I didn't say the solution had to be a credit card. There are a few options. I bet most people have cell phones. A quick Google says around 17 million people don't have a checking account. You could sell pre-paid cash cards too.

chopsueyar 16y ago

Most banks have $2 bills available that appear in quite good condition considering their age, too.

cheez 16y ago

Interesting how the banks are allowed to sell "securities" to the Federal Reserve.

wtn 16y ago
Presumably the author meant US Treasury marketable securities, but of course The Atlantic doesn't want to intimidate its readers with more than one idea at a time. The Atlantic is a very average and annoyingly centerist publication. Tons of mildly interesting articles like this that are basically ancillary to how the world works.
rayiner 16y ago
It's a pretty clever idea. It's always surprising to me that technology-saavy people are so skeptical of the monetary system. Corruption aside (which undoubtedly exists), it's a neat solution to a complex real-world problem. Put simply: Money is just a level of indirection. You could have a barter-based economy based on goods and services, but you introduce money as a proxy to simplify transactions. The problem is: how much money do you have in the system? You want enough so it serves as an efficient proxy for the actual value of the goods and services. If you deviate from that amount, you're in trouble. The problem is complicated by two things: 1) the amount of goods and services which money must proxy for is constantly increasing; 2) money must proxy not just actual goods and services, but enforceable promises to provide goods and services (ie: debt). (2) is the most complicated issue to deal with, because it's highly dynamic. As society becomes more stable and secure people are willing to commit to obligations that are further in the future. There must be enough money to serve as an accurate proxy for those commitments. The fractional reserve system is actually a fairly elegant solution to this problem: money is dynamically created when loans are made, and destroyed when loans are repaid.
- cheez 16y ago
  What bothers me personally about the system is that it is not fair. When I am forced to participate in a system, it should at least be objectively fair. One point of unfairness is that certain entities, and therefore people, are guaranteed a profit. This is not fair. I can't take loans from the central bank at 0%, why? Saving is also no longer an option. That, I feel, is unfair. We have already taken risks to create the wealth and now we have to take even more risks just to keep the value of the money. Of course, The Bernank and his successors don't have to worry, they just increase their own salaries and retirements. I actually like fiat money because it decouples resources from wealth. In an economy that increasingly depends on ideas, that is good. It's the implementation which needs an overhaul before it destroys the entire world. I'm still connecting the dots in my head.

porter 16y ago

So when the fed sells a security does the money destroyed exactly equal the money it originally created when it bought the security? Not if the bank that bought the security lent out the money from the fed. The magic of the fractional reserve banking system multiplied the money from the original security multiple times over. I don't think this article addresses this fact.

rayiner 16y ago
Of course it does. Eg. Fed creates $100 by buying a security X. Bank gets $100, lends it out, earns $5 in interest, has $105. Fed sells the security, destroying the $100. The Fed created $100 then destroyed $100. The $5 used to pay the interest on the security wasn't created as a result of the Fed's buying the security, it was paid with money already in the system.

deleted 16y ago

[deleted]

T-hawk 16y ago
From the title, I expected an article about the parasitic financial industry, which creates no wealth but slices a cut for themselves in moving it around. The title is actually inaccurate, since money is not destroyed. Nobody is $20 poorer when a bill is shredded, since it is simply replaced.

jhamburger 16y ago

I'd be more interested to hear how they prevent theft by employees of the money to be destroyed. How hard is it to steal money that nobody will ever be looking for again?

Tangurena 16y ago
There is a mint here in Denver, and I've chatted with some of the mint employees on the bus and light rail a few times. I'm going by memory here, so things might be a little messed up (some things they mentioned were fascinating to me at the time, others were boring and forgotten). This mint makes coins and there is no "employee discount." One of the security procedures is that you are not allowed to carry money into the facility at all. Basically, you empty your pockets at the locker room and if you have more than about $20 in cash, it has to be documented and held by the shift supervisor. All entrance and departure is through a sally port at regular times. If you're late for work, they're not letting you in. Randomly, people are stopped and searched. Finally, they take a no-mercy stance when it comes to prosecution, as theft from a US Mint has draconian penalties (like 18 years in the pen for stealing $100). Any arrests and prosecutions are covered quite well to the other employees (probably to remind them to "don't do this"). One of the thefts involved someone with one of the larger music players (it might have been a CD player) who had hollowed out part of it to be able to stash dollar coins in them, taking out about $20/day. A friend of a friend worked at one of the large megachurches in Colorado Springs. People working in the mailroom would be required to change into pocketless jumpsuits before their shift as many people mail cash to the ministry, and opening an envelope with thousands of dollars in cash was not rare. With casino-grade surveillance cameras and pocketless clothing, this made it difficult by design to pilfer cash. People worked in pairs (someone in front of you and watching you makes it hard to stuff cash down your sleeve) and the pairs were rotated (so you could not make deals with some partner).