The history of US money 1The history of US money 1

(text + cars)(text + cars)

Mrs. WehnerMrs. Wehner

Money money money moneyMoney money money money

PortablePortableLimitedLimited

availabilityavailabilityDurableDurableDivisibleDivisibleThink PLaDD!Think PLaDD!

Worthless continentalsWorthless continentals

Our first moneyOur first money$250 million printed$250 million printedMUCH too plentifulMUCH too plentifulWorthlessWorthlessPeople did not trust government paper People did not trust government paper

moneymoney

States charter private banksStates charter private banks

Strict requirements for gold depositsStrict requirements for gold depositsPeople trusted the moneyPeople trusted the moneySome large corporations issue currencySome large corporations issue currencyFederal government only trusted for coinsFederal government only trusted for coins

Too many different currenciesToo many different currencies

As many as 30,000-40,000 different billsAs many as 30,000-40,000 different billsCounterfeiting opportunitiesCounterfeiting opportunitiesDifficult to identify the valid onesDifficult to identify the valid onesA few wildcat banks print too much moneyA few wildcat banks print too much money

Union government needsUnion government needs

Funding for warFunding for warControl over state banksControl over state banks

Greenbacks issued (1861)Greenbacks issued (1861)

Fiat moneyFiat moneyNot backed by goldNot backed by goldPoor public responsePoor public responseContinentals rememberedContinentals remembered

NBANBA

Union’s monetary full court pressUnion’s monetary full court pressNational Banking Act (1863)National Banking Act (1863)System of nationally chartered and System of nationally chartered and

inspected banksinspected banksGold certificates addedGold certificates addedCrises continue and more reform is Crises continue and more reform is

neededneeded

Gold certificates save the dayGold certificates save the day

1863—2 years after greenbacks are 1863—2 years after greenbacks are introducedintroduced

People are reassured & use the moneyPeople are reassured & use the moneyConfidence in Union gov is restoredConfidence in Union gov is restored

Not enough gold (Silver!)Not enough gold (Silver!)

Gold supply does not grow as fast as the Gold supply does not grow as fast as the economyeconomy

Financial difficulties of the 1870s so bad Financial difficulties of the 1870s so bad they result in the end of Reconstructionthey result in the end of Reconstruction

1878 silver certificates issued1878 silver certificates issued

Gold standardGold standard

Silver certificates don’t solve all problemsSilver certificates don’t solve all problemsPrice of gold fixed at $20.67 per ouncePrice of gold fixed at $20.67 per ounce

The FedThe Fed

Federal Reserve SystemFederal Reserve SystemTrue central bankTrue central bankCan lend money to banks in crisisCan lend money to banks in crisisControls US money supplyControls US money supply

Stock market crashStock market crash

One of the events that resulted from the One of the events that resulted from the factors that caused the Great Depression factors that caused the Great Depression Many banks fail due to “runs on the bank”Many banks fail due to “runs on the bank”

Many depositors lost all savingsMany depositors lost all savings

1933 and FDR1933 and FDR

Bank Holiday IDs & shuts down failing Bank Holiday IDs & shuts down failing banksbanks

Gold and gold certificates worth more than Gold and gold certificates worth more than $100 must be registered$100 must be registered

And thenAnd then

Gold and gold certificates called inGold and gold certificates called in It became illegal to own gold in ingot formIt became illegal to own gold in ingot formPrice of gold fixed againPrice of gold fixed again

this one took the metal out of our this one took the metal out of our moneymoney

Mr. Inconvertible Fiat Money of 1934 (driving a convertible)

Inconvertible fiat Inconvertible fiat

1934 Inconvertible 1934 Inconvertible Fiat Money Standard Fiat Money Standard est.est.

Money has value Money has value because the because the government says it government says it doesdoes

Paper money cannot Paper money cannot be converted into gold be converted into gold or silver or silver

Federal Reserve Federal Reserve NotesNotes

(convertible Fiat)(convertible Fiat)

FDICFDIC

Federal Deposit Insurance CorporationFederal Deposit Insurance Corporation Insured customer deposits if bank failedInsured customer deposits if bank failedFirst $2,500/person; now $250kFirst $2,500/person; now $250kFSLIC insured S&L depositorsFSLIC insured S&L depositors

this President took us off the gold this President took us off the gold exchange standard in 1971exchange standard in 1971

Now the dollar floats with all the other curren-cies

And now our gold is safe.

Banking institutions back in the dayBanking institutions back in the day

Commercial banks for Demand Deposit Commercial banks for Demand Deposit Accounts (checking accounts); interest on Accounts (checking accounts); interest on deposits limiteddeposits limited

Savings banks for savings only; no checking Savings banks for savings only; no checking until 1972 (NOW accounts—checking with until 1972 (NOW accounts—checking with interest)interest)

Savings & Loan—mortgage banks; higher Savings & Loan—mortgage banks; higher interest than commercial banksinterest than commercial banks

Credit unions—non-profit, member owned. Credit unions—non-profit, member owned. Checking acc. Called “share draft accounts”Checking acc. Called “share draft accounts”

Deregulation Deregulation

1980: removal /relaxation of government 1980: removal /relaxation of government regulations and restrictionsregulations and restrictions

No limits on commercial bank interestNo limits on commercial bank interestNo restrictions on S&L investmentsNo restrictions on S&L investments

S&L CrisisS&L Crisis

Deregulation of industry put them in general Deregulation of industry put them in general competitioncompetition

New types of investments madeNew types of investments made their old loans had very low interest rates their old loans had very low interest rates Reserve requirements (the amount of deposits Reserve requirements (the amount of deposits

an institution must hold) for S & Ls were lower an institution must hold) for S & Ls were lower than requirements for commercial banksthan requirements for commercial banks

Fewer federal inspectors = more fraud Fewer federal inspectors = more fraud opportunitiesopportunities

Poor managementPoor management

The major cause of bank failureThe major cause of bank failure

Changes in the 90sChanges in the 90s

Fewer differences among banking Fewer differences among banking institutionsinstitutions

FDIC now insures Savings & Loan fundsFDIC now insures Savings & Loan funds