The Fed Has a $110 Billion Problem with New Benjamins
FED, FEDERAL RESERVE, BILL, NEW CASH, $100, TREASURY
Posted By: Eamon Javers | CNBC Washington, DC Correspondent
CNBC.com
| 07 Dec 2010 | 01:38 PM ET

A significant production problem with new high-tech $100 bills has caused government printers to shut down production of the new notes and to quarantine more than one billion of the bills in huge vaults in Fort Worth, Texas and Washington, DC, CNBC has learned.

Initially scheduled for release in February of 2011, the new bills were announced with great fanfare by officials at the Treasury Department and the Federal Reserve in April.

At the time, officials announced the new bills would incorporate sophisticated high-tech security features, including a 3-D security strip and a color-shifting image of a bell designed to foil counterfeiters.

But the production process is so complex, it has instead foiled the government printers tasked with producing billions of the new notes.

An official familiar with the situation told CNBC that 1.1 billion of the new bills have been printed, but they are unusable because of a creasing problem in which paper folds over during production, revealing a blank unlinked portion of the bill face.

A second person familiar with the situation said that at the height of the problem, as many as 30 percent of the bills rolling off the printing press included the flaw, leading to the production shut down.

The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of US currency on the planet, which a government source said is $930 billion in banknotes. For now, the unusable bills are stored in the vaults in "cash packs" of four bundles of 4,000 each, with each pack containing 16,000 bills.

Officials don’t know exactly what caused the problem. "There is something drastically wrong here," a person familiar with the situation said. "The frustration level is off the charts."

Because officials don’t know how many of the 1.1 billion bills include the flaw, they have to hold them in the massive vaults until they are able to develop a mechanized system that can sort out the usable bills from the defects.

Sorting such a huge quantity of bills by hand, the officials estimate, could take between 20 and 30 years. Using a mechanized system, they think they could sort the massive pile of bills, each of which features the familiar image of Benjamin Franklin on the face, in about one year.

The defective bills—which could number into the tens of millions, potentially representing billions of dollars in face value—will have to be shredded. American taxpayers have already spent an enormous amount of money to print the bills.

According to a person familiar with the matter, the bills are the most costly ever produced, with a per-note cost of about 12 cents—twice the cost of a conventional bill. That means the government spent about $120 million to produce bills it can’t use. On top of that, it is not yet clear how much more it will cost to sort the existing horde of hundred dollar bills.

First Bills Signed by Geithner

Officials say they remain optimistic that the majority of the 1.1 billion bills will eventually be cleared for circulation.

"A very high proportion of the notes will be fit for circulation," said Darlene Anderson of the Treasury Department. "We are working really hard to try to get a solution to the problem." Anderson said Treasury has seen encouraging results from several recent tests of the printing process. "We're trying to ensure that only the fittest of notes will enter circulation," she said.

The problem with the new hundred-dollar bills has remained largely hidden from public view, despite a press release issued by the Federal Reserve on October 1 that announced "a delay in the issue date" of the new bills and cited "a problem with sporadic creasing of the paper."

The redesigned bills are the first $100 bills to feature Treasury Secretary Tim Geithner’s signature. But to stave off a cash crunch as existing $100 bills deteriorate and can’t be replaced, the Federal Reserve has ordered renewed production of the current-design $100 bills, which feature Bush Treasury Secretary Hank Paulson's signature and do not have the new security features.

Officials say that is an important step, because there are 6.6 billion $100 notes in circulation at any given time, and they wear out quickly. Reprinting the current design bills will prevent any disruption in the global circulation of US currency.

The production of American banknotes is a convoluted process. The paper is manufactured by Crane & Company, which has continually supplied the government since 1879. Design and production of the bills is handled by the Department of Treasury and its Bureau of Engraving and Printing. But the currency is actually issued by the Federal Reserve, which is why the bills are emblazoned with the phrase "Federal Reserve Note."

The new $100 note is the latest denomination of U.S. currency to be redesigned with special anti-counterfeiting features. Treasury first introduced the redesigned $20 note in 2003 and has also redesigned the $50, $10 and $5 notes.

The government says that more than a decade of research and development went into the new security features on the redesigned $100.

The bill features a blue, three dimensional security strip that pictures bells that change to 100s as the strip is tilted. The ribbon is woven into the paper, not printed on it, which is why it is the focus of speculation as a potential cause of the paper creasing problem on the printing presses. The note also features another color-shifting image, of a bell inside an inkwell. The bell shifts color from copper to green as the bill is tilted.

As part of the rollout effort for the new $100 bills, the government set up a website explaining the changes, which can be seen at this website.

After they were printed, officials discovered that some of the new bills have a vertical crease that, when the sides of the bill are pulled, unfolds and reveals a blank space on the face of the bill. At first glance, the bills appear completely printed, but they are not.

Officials have mixed views on what caused the problem, and who is responsible for it. "This is not about assigning blame," said one. But another person familiar with the matter said finger-pointing has already begun. "The Fed’s very unhappy, and the Bureau of Engraving and Printing is taking a beating unnecessarily," the person said. "Somebody has to pay for this."

http://www.cnbc.com/id/40521684/

Actually it wasn't the Gov't it was the manufacturing process. BTW GUY why are you bring up crap that happened in December of last year.

This was a Processing problem because of the new "paper" they were using. It didn't run correctly. So somehow its the gov'ts fault that a machine didn't feed the paper correctly. Perhaps we need the old tractor feed paper system. I volunteer you to tear off all the edges.

theres no way to manually check it so they either dump the money or figure some way of mechanically checking it.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

They can send me a few bundles and the kitties and I will start sorting them.

We will promise to send back all the bad ones and promptly get the good ones into circulation again.

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"Freedom is just Chaos, with better lighting." Alan Dean Foster

And just how long do you make stuff when you know you are going to have to throw it away?

The government owns the press. They spec the paper. Someone FUBAR'd it.

Want to guess?

1) Wrong specification for the paper?
2) Paper made wrong and not Q/C checked before receipt?
3) Worn or broken press
4) Press not capable of doing it without add on equipment
5) Noticed by workers but they don't have the authority to stop the press
6) No intermediate Q/C checks

After all who cares, its just the tax payers money.

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If the currency costs .12 to print,
and it can be sorted through at 10-20 per minute by hand,

Then I would say the government can save money by hiring a LOT of temporary workers to sort through it.

The Setizens have proven it is not all about how fast, but how many.

Sure a machine could be built and programmed to do it. But why not solve
at least 2 problems at once?

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Janice

No Soft^Spirit, you don't just hire "temporary workers" off the street to inspect money. For one thing, they have to have gubment background checks. Security takes forever and a day. Then you have to train them from A-Z and that takes forever. Yes, you can probably look at sheet by sheet quickly and discard most of it, and that takes little training. But you have to give them the full training package. or are you going to send "temporary workers" the message you're going to get rid of them right away once the task is done and put them in a room with zillions of dollars? Give that some thought.

Yes Skildude, this is a story from four months ago. So what? Is your brain so hopped up on internet instant stimulus that you can't handle a four month old story? It's a valid news story.

"Perhaps we need the old tractor feed paper system."

Well, at least we couldn't inflate the monetary base as quickly if that was a remedy! Any ideas why .gov no longer calculates and publishes M3 anymore? Take a wild guess.

In closing, the same centrally controlled brains behind the operation at Treasury/Fed wants to run your healthcare. Scary, huh?

No Soft^Spirit, you don't just hire "temporary workers" off the street to inspect money. For one thing, they have to have gubment background checks. Security takes forever and a day. Then you have to train them from A-Z and that takes forever. Yes, you can probably look at sheet by sheet quickly and discard most of it, and that takes little training. But you have to give them the full training package. or are you going to send "temporary workers" the message you're going to get rid of them right away once the task is done and put them in a room with zillions of dollars? Give that some thought.

Yes Skildude, this is a story from four months ago. So what? Is your brain so hopped up on internet instant stimulus that you can't handle a four month old story? It's a valid news story.

"Perhaps we need the old tractor feed paper system."

Well, at least we couldn't inflate the monetary base as quickly if that was a remedy! Any ideas why .gov no longer calculates and publishes M3 anymore? Take a wild guess.


In closing, the same centrally controlled brains behind the operation at Treasury/Fed wants to run your healthcare. Scary, huh?

Nope Guy its just old news. Heck I remember discussing at work and having a good laugh about it for about 10 minutes the day after it was reported. Like I said it really isn't a matter of gov't not working properly. It's using a new paper that was assumed to be the same or similar enough in nature to run on the machines correctly as other papers had done in the past. IIRC this is a mostly automated system so unless a new roll of paper is needed or more ink is required then it just runs on its own.

Much like your Newpaper prints. They check the print it if looks good they go with it. It's pretty clear that someone should have been watching the finished product a bit more closely but when you are printing millions of copies an hour its not always that easy.

At least nobody died because of the screw up.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

background checks are easy for most of us. They can scan for cash at customs locations, no reason they can not nor do not at the mint.

A lot of training? "Here is what you are looking for. This is bad, this is good. Any questions and please ask."

People can do this a lot more efficiently than machines.

And inventory is easy enough. "here are 10,000 bills. Sort good and bad, and we expect 10,000 leaving or we have a long talk".

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Janice

the problem is that there is a warehouse full of these bills. the bad bills were noticed when someone sat down and inspected a few bills. Not sure how they noticed the problem however they'd have to manually pull on opposite corners of each bill. This is time consuming. They estimated that it would take 20-30 years to actually inspect all the bills manually. This is unlikely to be the way to inspect them.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

the problem is that there is a warehouse full of these bills. the bad bills were noticed when someone sat down and inspected a few bills. Not sure how they noticed the problem however they'd have to manually pull on opposite corners of each bill. This is time consuming. They estimated that it would take 20-30 years to actually inspect all the bills manually. This is unlikely to be the way to inspect them.

20-30 years for how many people? double it and it is 10-15 years. double that it is 5-7.5 years. Just like distributed computing, distributed sorting has massive power potential.

People need jobs folks, humans detected the fault that the machine made, humans can sort them. This is not complicated. They have humans sorting through galaxies.

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Janice

Uh huh. Background checks are easy? Do you know what's involved in a background check for the federal reserve or treasury or whoever? What is involved? Please educate us all. This is like "distributed computing"?

This isn't 10,000 bills. It's 11,000,000 bills. I'm not even sure of the sheet size. Usually 32 notes per sheet, but who knows in this case.

What exactly do you do for a living? I'd really like to know. Your perspective on work and problem solving is "different" to say the least.

But hey, according to the article, "the frustration level is off the charts", but you have all the answers. Can you explain exactly what training is needed? You seem to know so much about this. How many people would it take given the number of sheets? Can the building even handle that many extra workers? Occupancy regulations? OSHA regs? What budget will the new temporary hires be paid from? What do their quals have to be? How will security be handled? Parking for all these new temporary workers? What checks exactly will they have to undergo?

Is 12 cents per note cheaper or more expensive than all these things mentioned above plus more? Please let me in on the details, because I'd like to know.

Is it more efficient to destroy the entire run with sufficient witnesses, find and fix the problem in printing and get on with it?

I'm not an expert by any means. Educate me.

This isn't 10,000 bills. It's 11,000,000 bills. I'm not even sure of the sheet size. Usually 32 notes per sheet, but who knows in this case.

I got the impression from the article they had been cut down from the sheets into individual bills.

You are correct about the background security checks, but forgot to mention the high security, e.g. Ft. Knox, office space needed to lay out $1 trillion dollars. Might take a couple of years to put up the buildings once the land is located.

Some problems don't scale well. You learn this in the school of hard knocks.

Finally there is the end of job issue. Once the inspection is done you are going to fire all these workers at once. Just like when the census ends. Big drag on the economy.

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No, they'll never be fired. They're gubment workers. They'll just slow up to one sheet inspected per hour!

SEIU! SEIU! SEIU! Si se puede!

This isn't 10,000 bills. It's 11,000,000 bills. I'm not even sure of the sheet size. Usually 32 notes per sheet, but who knows in this case.

I got the impression from the article they had been cut down from the sheets into individual bills.

You are correct about the background security checks, but forgot to mention the high security, e.g. Ft. Knox, office space needed to lay out $1 trillion dollars. Might take a couple of years to put up the buildings once the land is located.

Some problems don't scale well. You learn this in the school of hard knocks.

Finally there is the end of job issue. Once the inspection is done you are going to fire all these workers at once. Just like when the census ends. Big drag on the economy.

If you hire them for term, at the end of the term they expect to need to find other forms of support. No surprises makes for a fair contract.

Yes, there of course would need to be security. It could be done even at the mint. I suspect they have enough security.

The numbers? well each person should be able to sort X amount per day. Take a stack of mixed bills. 1's and 5's for example. How long does it take you to sort the 1's to 1 pile, and the 5's to the other? You know what you are looking for. Same thing with a massive stack of the same errors. Good pile, bad pile. Good pile goes through a bill counter, and sent out to circulation.
Bad pile, put it through a bill counter and dispose per treasury methods. Again.. this is not rocket science.

The most efficient way to build a pyramid is with heavy machinery. But if you have to wait 5,000 years to get one, people can do it.

This is real simple, and other than our PC's doing the work, the exact same principle as SETI.

And hopefully by the time the project ends, the economy will be in better shape.

Keith: Is it cheaper or more expensive? Well let us take a cost of $20/hr. For non-trained(coming in the door) a reasonable random figure to throw out there. I have no doubt someone could sort through them at a rate of 20 per minute.. but let us suppose the standard would be 10 per minute. Less than that might earn a talking to, a warning, and eventually a trip out of the door.

10X60X8=4800 per day($480,000 worth).
320 days per year=$153,600,000 sorted per person.

Cost(using the $20 including benefits, temp workers seldom have much but.. sure ought to cover most of it) $20X8=160.00/day Labor .03 per bill.

Sure cheaper than shreading and re-printing at .12 per bill.

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Janice

lets not forget that once they've been check they probably need rechecking and then recounting and then repacking. then you get to recount the ones that are to be destroyed. its an accounting nightmare.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

lets not forget that once they've been check they probably need rechecking and then recounting and then repacking. then you get to recount the ones that are to be destroyed. its an accounting nightmare.

No more so than if the step was left out at the mint.

Granted, you do not want to subcontract this to China.

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Janice

The mint?! You naiveté is showing. The mint makes coins.

I'll assume you meant to type The Bureau of Printing and Engraving.

Do you know how much presently empty floor space is available? Do you know how much floor space each person to be put to this task will require, desk, chair, storage cabinets for the bills, required aisle width for emergency evacuation? How much additional locker room space will be required? (Yes, strip searches are required!)

Now how many times can you double the number of people at the task?

BTW where did you come up with 320 work days in a year? Most places use 260 (52 * 5) as the number but that is a bit high because it doesn't account for holidays or vacation.

As to how to estimate the numbers, usually the standard starts with how many movements a worker has to do to complete the task. That is an unknown as of now. Any estimator can tell you how long a movement takes and how much it costs per movement.

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While you figure this up, remember those bills all have serial numbers on them. Good or bad someone will have to write that serial number down, someone else will have to type it into a computer ...

Heck of a lot faster for a computer to OCR the serial number.

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good catch on the number of days. However it does not change the count per day.
just 10 per minute would be 4800 bills per day.

That is still .03 each at a labor expense of 20/hr. (well, .03333333~)

write down the serial numbers? not hardly. Destroyed ones get scanned out and killed, good get scanned and sent out as good, same as normal procedure.

All the additional labor would need to do is check for defect. One specific defect.

Hopefully in the mean time someone can fix the process so it is not a permanent position.

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Janice

Jesus, my head is throbbing. There are lots of assumptions taking place here!

Take the palates and throw them into the fire.

I've got 20/hour, random figures,

"I have no doubt someone could sort through them at a rate of 20 per minute"

WHERE?????

Maybe the defect is miniscule? I dunno?

Jesus, you're giving me a headache. Is this a remote control SETI stroke induction by forums device??????????

There are a lot of liberties being taken in this thread!

as we trundle down this road, WHAT DEFECT? We haven't even defined the problem.

"hopefully"? Are you kidding me?