Sunday, December 23, 2012

Fed introduces serrated edges on banknotes

Fed introduces serrated (or reeding) edges on banknotes to prevent counterfeiting.

Bernanke supported the new tactic against debasing US currency, “It is essential that our paper money is not debased. Cutting off the ends of paper notes and taping those little bits together to make new notes will increase the money supply and lead to inflation. This should put an end to the practice.” In a statement issued earlier Geithner, the US Treasury Secretary, agreed; “People will now be confident they will be receiving the full amount of paper they are entitled to by law”.

Markets reactions were mixed. The dollar surged compared to a basket of foreign currencies and the difference between nominally denominated and inflation protected interest rates decreased. Both indicate that inflationary expectations decreased. However, both the Dow Jones Industrial Average and S&P 500 declined upon hearing the news.

Some economists are against the measure. Krugman wrote in his blog “This is the last thing we need right now. What we need to do is increase inflationary expectations to get people spending money again. This will only exacerbate liquidity trap we are already in.” Krugman then added “Why doesn’t anyone listen to me?!”

This is the most recent excursion into uncharted territory ever since the “Great Recession” began. Previous unconventional methods have included Quantitative Easing 1, Quantitative Easing 2, and Quantitative Easing infinity.