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Economics 5508 http:students.resa.netmilewski

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... Revolutionary times until the Civil War paper currency (Fiat) was ... the Civil War ... cia/publications/factbook/flags/sz-flag.html. Political Failure ... – PowerPoint PPT presentation

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Title: Economics 5508 http:students.resa.netmilewski


1
Economics 5/5/08 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine where money comes from.
  • I. Journal30pt.A
  • -Read Cybernomics Spotlight p.286-287
  • 1.) What does the future of money look like?
  • 2.) What is a Smart Card?
  • II. Journal30pt.B
  • -notes on money
  • III. Homework Due Thursday 5/8/08
  • 1.) Read Chapter 11 section1 p.284-290
  • -Answer questions (3-6) p.290
  • 2.) Read Chapter 11 section2 p.292-298
  • -Answer questions (3-6) p.298
  • NOTICE Journals Due Thursday!!!

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
Economics 5/6/08 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine Money and Banking.
  • I. Administrative Stuff
  • -Attendance
  • II. Guided Readings
  • -Complete the following Guided Readings due at
    the end of class
  • 1.) Chapter11 section1
  • 2.) Chapter11 section2
  • 3.) Chapter11 section3
  • 4.) Chapter12 section1
  • III. Homework Due Thursday 5/8/08
  • 1.) Read Chapter 11 section1 p.284-290
  • -Answer questions (3-6) p.290
  • 2.) Read Chapter 11 section2 p.292-298
  • -Answer questions (3-6) p.298
  • NOTICE Journals Due Thursday!!

11
Economics 5/7/08 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the gold standard.
  • I. Journal31pt.A
  • -Read Issues in Free Enterprise p.282-283
  • -Answer questions (1-3) p.283
  • II. Journal31pt.B
  • -notes on the gold standard
  • III. Journal31pt.C
  • -notes Econ U.S.A. episode8 The Banking
    System
  • IV. Homework Due Tomorrow!!!
  • 1.) Read Chapter 11 section1 p.284-290
  • -Answer questions (3-6) p.290
  • 2.) Read Chapter 11 section2 p.292-298
  • -Answer questions (3-6) p.298
  • NOTICE Journals 23-31 Due Tomorrow!!

12
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.

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.
  • With the reality of the U.S. having no gold, the
    government quit redeeming paper currency for
    gold.
  • 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
  • In 1934, the U.S. government fixed the price of
    gold at 35 per ounce.
  • 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 5/8/08 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the role of the U.S. Mint
  • I. Administrative Stuff
  • -Attendance
  • -Journals 23-31 Due!
  • II. Modern Marvels The U.S. Mint
  • -questions on film about the U.S. Mint

22
Economics 5/9/08 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the role of Foreign Trade
  • I. Administrative Stuff
  • -Attendance
  • II. Commanding Heights
  • -questions on film about the U.S. Mint
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