
Meet America's Money Destroyers - acconrad
http://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/
======
swaits
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
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??

~~~
Tangurena
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.

------
jhamburger
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
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).

------
bluedevil2k
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
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.

~~~
bluedevil2k
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.

~~~
muhfuhkuh
"A large chunk uses cash for everything, and can't get even checking accounts"

If you mean day laborers or migrant workers, I've seen first-hand some
employers now pay them with rechargeable AmEx or Visa cash/gift cards like
Green Dot. Keeps the shift supervisor from having to carry conspicuous wads of
cash around, and it's directly deposited on their card at the end of the
shift, so no need for lineups.

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

------
porter
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
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.

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

~~~
rayiner
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
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.

