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Economics 2209 http:students.resa.netmilewski

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At first they had no backing of gold or silver, but they were declared legal tender. ... (they) modeled off the popular gold certificates. ... – PowerPoint PPT presentation

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Title: Economics 2209 http:students.resa.netmilewski


1
Economics 2/2/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Demonstration of Chapter9 and begin
    examination of money.
  • I. Administrative Stuff
  • -attendance
  • -distribution of test
  • II. Chapter9 Test
  • III. Journal 25 pt.A
  • -Read Cybernomics Spotlight p.286-287
  • 1.) What does the future of money look like?
  • 2.) What is a Smart Card?
  • II. Journal 25 pt.B
  • -notes on money

2
In the beginning
  • People traded stuff for other stuff. It was
    good, but it was inconvenient to carry around a
    bunch of heavy stuff hoping that the person you
    wanted to trade with would trade with you.
  • This was the barter economy.

3
A new medium of exchange
  • Something accepted by all parties as payment for
    goods and services
  • It included Gold, Silver, and even Salt (these
    are commodities)
  • For something to serve as money it MUST have
    value.

4
Now we use
  • Fiat money money by government decree. It is
    money because the government says it is.

5
Brief History of Fiat Money
  • In the U.S. from Revolutionary times until the
    Civil War paper currency (Fiat) was issued by
    private banks.
  • At first banks were honest and only printed
    enough notes they could reasonably back with gold
    and silver.
  • Then, problems arose.

6
  • The Bank of Milewski
  • Printed in Wyandotte, MI
  • 5.00
  • In Butter Guns We Trust

7
Problems
  • 1.) Too many currencies in circulation
  • 2.) Banks could print more money when ever they
    wanted. Temptation was there.
  • 3.) Counterfeiting

8
By the time of the Civil War
  • Congress needed money to fight the war, so the
    idea of greenbacks emerged.
  • At first they had no backing of gold or silver,
    but they were declared legal tender.
  • In 1862, the Legal Tender Act was passed and 150
    million was printed.

9
National Banks
  • Private banks that got their charter to operate
    from the Federal Government, not the state
    governments.
  • They issued a standard national currency backed
    by war bonds.
  • In 1865 Congress forced the state banks to join
    the federal system by placing a 10 tax on all
    privately printed bank notes.

10
Gold and Silver Certificates
  • Gold certificates backed by gold in the U.S.
    Treasury were originally designed to settle
    accounts between banks and were printed in large
    denominations.
  • Silver certificates paper currency backed by
    silver dollars in the U.S. Treasury.

11
Silver Certificates - 1886
  • (they) modeled off the popular gold
    certificates.
  • In reality, they were issued to prop up falling
    silver prices, because like all commodities, the
    price of silver fluctuated.
  • They were popular because people were not happy
    to carry around the bulky silver dollars being
    produced by the government.
  • For example Imaging that there were only
    pennies. Imaging how inconvenient it would be to
    go shopping.

http//images.amazon.com/images/P/B00000JS61.01.LZ
ZZZZZZ.jpg
12
Economics 2/3/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the gold standard.
  • I. Journal26pt.A
  • -Read Issues in Free Enterprise p.282-283
  • -Answer questions (1-3) p.283
  • II. Return of Chapter9 Test
  • III. Journal26pt.B
  • -notes on the gold standard
  • IV. Journal26pt.C
  • -notes Econ U.S.A. episode8 The Banking System

13
Silver Certificates - 1886
  • (they) modeled off the popular gold
    certificates.
  • In reality, they were issued to prop up falling
    silver prices, because like all commodities, the
    price of silver fluctuated.
  • They were popular because people were not happy
    to carry around the bulky silver dollars being
    produced by the government.
  • For example Imaging that there were only
    pennies. Imaging how inconvenient it would be to
    go shopping.

http//images.amazon.com/images/P/B00000JS61.01.LZ
ZZZZZZ.jpg
14
The Gold Standard
  • In 1900, Congress passed the Gold Standard Act
    which fixed the price of gold at 20.67 per
    ounce.
  • Gold standard a monetary standard under which
    the basic currency unit is equal to, and can be
    exchanged for, a specific amount of gold.
  • People still used the same types of currency
    (greenbacks, silver certificates, etc) as they
    did before, but now they could exchange them for
    gold at the Treasury.

http//www.stanleymeltzoff.com/History7.html
15
Advantages of the Gold Standard
  • People feel secure about their fiat money if they
    know they can trade it in for gold.
  • It is supposed to prevent the government from
    printing too much paper money.
  • In reality, since the chances of everyone trading
    in their fiat money for gold on the same day is
    slim, governments just maintain the appearance of
    it.

16
Disadvantages of the Gold Standard
  • 1.) If the amount of gold in the treasury does
    not grow as fast as the economy, the money supply
    can not expand and economic growth will be
    restricted.
  • 2.) If everybody trades their money in for gold,
    the nations gold reserve will disappear.
  • 3.) Since the price of gold changes dramatically
    over time, any government that tries to fix the
    price of gold has huge market pressures working
    against it.
  • 4.) Risk of Political Failure

17
Political Failure
  • Case Study Switzerland
  • In 1999, when the Swiss abandon the gold
    standard, the price they had fixed gold at was
    about 95 per ounce.
  • Since, gold was in reality 280 per ounce in
    early 1999, nobody was willing to sell the Swiss
    gold for 185 less than they could sell it to
    anybody else.
  • Additionally, the Swiss were also not willing to
    sell their gold for 95 per ounce either.

http//www.cia.gov/cia/publications/factbook/flags
/sz-flag.html
18
Political Failure
  • Case Study The United States
  • When banks began to fail in the early 1930s,
    people began to cash in their U.S. paper currency
    for gold. So did foreign countries that had U.S.
    currency.
  • Step1 With the reality of the U.S. having no
    gold, the government quit redeeming paper
    currency for gold.
  • Step2 On August 28, 1933, FDR declared a
    national emergency which required all citizens
    with more than 100 of gold or gold certificates
    to file a disclosure form with the government.

19
The U.S. Gold
  • Step3 In 1934, the U.S. government fixed the
    price of gold at 35 per ounce.
  • Step4 The U.S. then confiscated all the
    privately owned gold and the U.S. quit exchanging
    fiat currency for gold.
  • This in effect took the U.S. off the gold
    standard.
  • The U.S. continued to fix the price of gold at
    35 per ounce until 1971.

20
Inconvertible Fiat Money Standard
  • Inconvertible Fiat Money Standard a monetary
    standard under which the fiat money cannot be
    converted to gold or silver.
  • Now, the government manages the money supply
    under the Federal Reserve system.

21
Economics 2/4/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the U.S. Mint.
  • I. Journal27pt.A
  • -Read Profiles in Economics p.291
  • -Answer question 1 p.291
  • II. Journal27pt.B
  • -notes on Greshams Law
  • III. Modern Marvels The U.S. Mint
  • -Answer questions while watching the film

22
Greshams Law
  • Thomas Gresham, was a financial advisor to
    Englands Queen Elizabeth I.
  • He said that bad money tends to drive good money
    out of circulation.
  • Good money currency where the metallic value of
    the coin is higher than the face value
  • Bad money - currency where the metallic value of
    the coin is lower than the face value
  • This occurred in 1965, when the U.S. took the
    silver out of the coins it minted. Those with
    copper and nickel bases stayed in circulation.
    Those with silver were hoarded.

23
Economics 2/5/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the Federal Reserve Bank.
  • I. Administrative Stuff
  • -attendance
  • -calendar
  • II. Journal28pt.A
  • -Read The Global Economy p.297
  • -Answer questions (1-2) p.297
  • III. Journal28pt.B
  • -notes on the Fed

24
Calendar
  • Next week No School Friday February 13th
  • No School Monday February 16th
  • ACT Practice Test Tuesday 2/17 Wednesday 2/18
  • If you take the ACT practice test on Wednesday
    2/18 you will take the Ch12 Test on Tuesday
    2/17
  • If you take the ACT practice test on Tuesday 2/17
    you will take the Ch12 Test on Wednesday 2/18.

25
The Federal Reserve - 1913
  • The United States 1st true central bank
  • All federal banks were required to join and all
    state banks were eligible to be members.
  • All members own shares of stock in the system
    making the Fed privately owned, but it is
    publicly controlled.
  • The President appoints the Feds Board of
    Governors and the Chairman. All appointments are
    approved by Congress (checks balances)

26
The Great Depression ?
  • Despite reforms like the Federal Reserve, many
    banks were not sound.
  • Deposits were not insured and runs were common.
    Millions of people lost all of their money.
    (Including my Great-Grandfather)
  • March 5, 1933 Bank Holiday. FDR ordered all
    banks to close until legislation could be passed
    to make banks stronger.

27
FDIC
  • The Banking Act of 1933 (The Glass-Steagall
    Act)
  • Main point of the Act was the FDIC Federal
    Deposit Insurance Corporation.
  • The FDIC insured depositors up to 2500. It is
    now 100,000 (250,000 October 2008).
  • Today the FDIC aggressively pursues ways to
    protect consumers from fraudulent banks.
  • Both symbols from
  • http//www.fdic.gov/regulations/resources/signage/
    index.html

28
Other Depository Institutions
  • Commercial Banks for businesses and had the
    power to issue checking accounts
  • Thrift Institutions accepted deposits of small
    investors but didnt have the power to issue
    checking accounts until the mid-1970s
  • Mutual Savings Bank owned and operated only for
    the benefit of their depositors.
  • Page 303

29
SL and Credit Unions
  • Savings and Loans a depository institution that
    invests a majority of their funds in mortgages.
    They were regulated by the Federal Home Loan Bank
    Board
  • Credit Unions non-profit service that is owned
    and operated for the benefit of its members.

30
Economics 2/6/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the Role of the Fed.
  • I. Journal29pt.A
  • -Film Federal Reserve The Eye of the Storm
  • -Answer questions (1-8) on the film
  • II. Journal29pt.B
  • -notes on non-bank financial institutions
  • III. Mindjogger
  • -video quiz on Chapter11

31
The Federal Reserve The Eye of the Storm
  • 1.) What do people want most in a bank?
  • 2.) What do banks do with the money people
    deposit in them?
  • 3.) What happens when a bank has more money than
    it needs?
  • 4.) What emergency economic action did the Fed
    take in 1992?
  • 5.) What is Fed-Wire?
  • 6.) What was a run on a bank?
  • 7.) How do banks fail today?
  • 8.) In what ways does the Fed ensure that banks
    dont fail today?

32
Nonbank financial institutions
  • Another important group of financial
    intermediaries includes
  • nonbank financial institutionsnondepository
    institutions that channel savings to borrowers.
  • Finance companies, life insurance companies,
    pension funds, and real estate investment trusts
    are examples of nonbank financial institutions.
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