The history of US money 1 (text + cars) Mrs. Wehner

Money money money money Portable Portable Limited Limited availability availability Durable Durable Divisible Divisible Think PLaDD! Think PLaDD!

Worthless continentals Our first money Our first money $250 million printed $250 million printed MUCH too plentiful MUCH too plentiful Worthless Worthless People did not trust government paper money People did not trust government paper money

States charter private banks Strict requirements for gold deposits Strict requirements for gold deposits People trusted the money People trusted the money Some large corporations issue currency Some large corporations issue currency Federal government only trusted for coins Federal government only trusted for coins

Too many different currencies As many as 30,000-40,000 different bills As many as 30,000-40,000 different bills Counterfeiting opportunities Counterfeiting opportunities Difficult to identify the valid ones Difficult to identify the valid ones A few wildcat banks print too much money A few wildcat banks print too much money

Union government needs Funding for war Funding for war Control over state banks Control over state banks

Greenbacks issued (1861) Fiat money Fiat money Not backed by gold Not backed by gold Poor public response Poor public response Continentals remembered Continentals remembered

NBA Union’s monetary full court press Union’s monetary full court press National Banking Act (1863) National Banking Act (1863) System of nationally chartered and inspected banks System of nationally chartered and inspected banks Gold certificates added Gold certificates added Crises continue and more reform is needed Crises continue and more reform is needed

Gold certificates save the day 1863—2 years after greenbacks are introduced 1863—2 years after greenbacks are introduced People are reassured & use the money People are reassured & use the money Confidence in Union gov is restored Confidence in Union gov is restored

Not enough gold (Silver!) Gold supply does not grow as fast as the economy Gold supply does not grow as fast as the economy Financial difficulties of the 1870s so bad they result in the end of Reconstruction Financial difficulties of the 1870s so bad they result in the end of Reconstruction 1878 silver certificates issued 1878 silver certificates issued

Gold standard Silver certificates don’t solve all problems Silver certificates don’t solve all problems Price of gold fixed at $20.67 per ounce Price of gold fixed at $20.67 per ounce

The Fed Federal Reserve System Federal Reserve System True central bank True central bank Can lend money to banks in crisis Can lend money to banks in crisis Controls US money supply Controls US money supply

Stock market crash One of the events that resulted from the factors that caused the Great Depression Many banks fail due to “runs on the bank” One of the events that resulted from the factors that caused the Great Depression Many banks fail due to “runs on the bank” Many depositors lost all savings Many depositors lost all savings

1933 and FDR Bank Holiday IDs & shuts down failing banks Bank Holiday IDs & shuts down failing banks Gold and gold certificates worth more than $100 must be registered Gold and gold certificates worth more than $100 must be registered

And then Gold and gold certificates called in Gold and gold certificates called in It became illegal to own gold in ingot form It became illegal to own gold in ingot form Price of gold fixed again Price of gold fixed again

this one took the metal out of our money Mr. Inconvertible Fiat Money of 1934 (driving a convertible)

Inconvertible fiat 1934 Inconvertible Fiat Money Standard est Inconvertible Fiat Money Standard est. Money has value because the government says it does Money has value because the government says it does Paper money cannot be converted into gold or silver Paper money cannot be converted into gold or silver Federal Reserve Notes Federal Reserve Notes

(convertible Fiat)

FDIC Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation Insured customer deposits if bank failed Insured customer deposits if bank failed First $2,500/person; now $250k First $2,500/person; now $250k FSLIC insured S&L depositors FSLIC insured S&L depositors

this President took us off the gold exchange standard in 1971 Now the dollar floats with all the other curren- cies And now our gold is safe.

Banking institutions back in the day Commercial banks for Demand Deposit Accounts (checking accounts); interest on deposits limited Commercial banks for Demand Deposit Accounts (checking accounts); interest on deposits limited Savings banks for savings only; no checking until 1972 (NOW accounts—checking with interest) Savings banks for savings only; no checking until 1972 (NOW accounts—checking with interest) Savings & Loan—mortgage banks; higher interest than commercial banks Savings & Loan—mortgage banks; higher interest than commercial banks Credit unions—non-profit, member owned. Checking acc. Called “share draft accounts” Credit unions—non-profit, member owned. Checking acc. Called “share draft accounts”

Deregulation 1980: removal /relaxation of government regulations and restrictions 1980: removal /relaxation of government regulations and restrictions No limits on commercial bank interest No limits on commercial bank interest No restrictions on S&L investments No restrictions on S&L investments

S&L Crisis Deregulation of industry put them in general competition Deregulation of industry put them in general competition New types of investments made New 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 an institution must hold) for S & Ls were lower than requirements for commercial banks Reserve requirements (the amount of deposits an institution must hold) for S & Ls were lower than requirements for commercial banks Fewer federal inspectors = more fraud opportunities Fewer federal inspectors = more fraud opportunities

Poor management The major cause of bank failure The major cause of bank failure

Changes in the 90s Fewer differences among banking institutions Fewer differences among banking institutions FDIC now insures Savings & Loan funds FDIC now insures Savings & Loan funds