The Federal Reserve announced yesterday that it was issuing a new counterfeit-proof $5 bill.

The government spent a good deal of money redesigning this bill as well as the $10, $20 and soon the $100 because of fears that counterfeiters ("phony money" makers in their parlance) have grown increasingly sophisticated over the years. One can only wonder how the Fed would respond to the question, “what is the problem created when “phony money” is entered into the economic system?” Is it because unwitting consumers are being "duped" into thinking the counterfeit bills have real value? Is it because the extra liquidity might lead to a loss of purchasing power of the dollar? Their answer would be revealing when placed in the context of the following chart:

At the time the Fed was created (just prior to WWI) the dollar was worth just about what it was worth when the Bill of Rights was ratified. Since then, it has lost over 95% of its purchasing power. And this is from an institution with price stability as a major objective.

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