Money, Money, Money (1983)

[Music] Kodak, a high technology company with diversified products and a commitment to community service, brings you this edition of Screen News Digest. October 1929, after the most spectacular rise in its history, the stock market crashes. The nation and the entire world are plunged into the Great Depression. By 1933, 12 million Americans are unemployed. November 1982, the stock market hits an all-time high. [Music] During that same month, 12 million Americans are out of work, almost equaling the number of unemployed during the Great Depression. Can it happen again? Are we doomed to ride an economic roller coaster plunging wildly between inflation, recession, and depression? No one has the answer. But the beginning of understanding begins with an understanding of money, what it is and how it works. For today, more than ever, understanding money is essential to understanding the world and how it works. [Music] Money, money, money. It's been called the root of all evil. But in fact, it's the root of all things in our modern world. For money is the glue that holds us together as a society. It's a medium of exchange that enables us to pay the rent and buy the groceries. Money also is the means by which we can measure the value of many different things with a single yard stick or standard. Thus, we can compare the cost of an automobile and a bicycle and measure their worth in terms of the hours we must work to buy one or the other. Those purchases provide producers with the money to pay workers, suppliers, taxes, and other expenses. In this way, money circulates throughout the economy. Much of that money flows through the nation's banks and other financial institutions. Without the legal authority to print money, banks can nonetheless actually create money by making loans that add new dollars to the borrower's account. That money then becomes home mortgages, business loans, wages, new cars, and so on. And as money circulates, it eventually comes back to pay for the loans that started the cycle. And finally, money is confidence. Faith in the institution that has issued it. That faith has too often been shaken in the past. The problem was that until only recently, 1913, in fact, almost anyone could print money. Local banks, the post office, even railroads and canal companies. During the middle of the last century, 15,000 different kinds of bills were issued by almost as many different institutions. If the institution went under or its money was not accepted by another bank, it was worthless. This made for periodic money panics as people scrambled to change paper for gold or other items of value. The system came crashing down in the great panic of 1907. Wall Street shook and several banks across the nation folded. This in the midst of economic prosperity. [Applause] Out of this turmoil came a plan to create a single national money that would be as reliable as the United States itself. On December 23rd, 1913, President Woodrow Wilson signed a law giving the power to regulate money, once the exclusive province of the Congress, to a central bank. It was to be called the Federal Reserve. The Federal Reserve system consists of a nationwide network of 12 reserve banks supervised by a board of governors headquartered in Washington, DC. Board members are appointed for terms of 14 years in order to insulate them from day-to-day political pressures. The Fed regulates the overall banking system, distributes currency and coin and pays the government's bills, but its most important job is to provide the American economy with money and credit to be charged for insurance unless they even know they're being charged for it. Government fiscal policy in the form of taxes, spending, and other actions affect the economy dramatically. The Fed attempts to adjust the money supply to accommodate the government's fiscal policy and worldwide economic conditions to the needs of a healthy economy by regulating the amount of money available for bank loans and investments. The decisions made by the Fed affect every American and ultimately the economy of the entire world. The actual decisions to stimulate or hold back the money supply are made by the governors and reserve bank presidents who form the Federal Open Market Committee. One means of control is to raise or lower the percentage of reserves against deposits that banks must keep in their own vaults or on deposit with the Federal Reserve Bank in their district. By raising the percentage of reserves, the Fed reduces the bank's ability to create money by making loans. Lowering the reserve requirements increases the bank's ability to create money. Banks can also borrow money from the Fed. This money is lent at special discount rates. By raising or lowering the discount rate, the Fed in effect increases or decreases the bank's ability to make loans. But the Fed's most effective means of controlling the total amount of money and credit in the economy is by buying and selling government securities. At the New York Fed trading room, government securities worth hundreds of billions of dollars are traded. >> Okay. Looking for offerings of all coupon issues for Thursday's delivery. We want the propositions back by 1:00. Okay, let's go. Sure. I'm looking for offerings and also issues like >> when the Fed buys securities, its payments ultimately add funds to the nation's banks. Conversely, every security sold takes money from a bank, thereby decreasing the amount it has to lend. >> 3178. More money available will stimulate the economy. But when too much money enters the system and too many dollars start chasing too few goods and services, the result can be inflation. Too much demand fuels production and speculation, and the entire economic engine eventually overheats and collapses. This was the case in 1929 when the overinflated American economy and the stock market which fueled it crashed. By the end of the year, banks all over the country were closing their doors as frightened people clamorred to reclaim their savings. Factories cut back production. Businesses found themselves without customers unfolded. Millions of people lost their jobs. And a chain reaction brought the entire economy crashing down. By 1932, 25% of the American workforce was unemployed. and one in every six people were on relief. To fight its way out of the Great Depression, the nation turned to new leaders, electing Franklin Delano Roosevelt president in 1932. >> That the only thing we have to fear is fear itself. Nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. This great nation will endure as it has endured, will revive and will prosper. >> By pumping government money into public works and a variety of other measures, Americans were put back to work, production increased, and the economy improved. But it was the outbreak of war in Europe in 1939 that gave the American economy its greatest push. America became the arsenal of democracy, supplying the allies with the weapons of war and in the process put millions of Americans back to work. Recovery was complete and the Great Depression finally ended. Today, the economy is far more complicated, but the basic rules of supply and demand have not changed. And even as we deposit our money in banks for safekeeping and to earn interest, banks put their excess cash into the bank. In this case, the Federal Reserve Bank of New York. Each coin and bill is carefully processed. For one of the Fed's major jobs is to supply the country with an adequate supply of currency and coin. During the week of October 27th, 1982, for example, there was a little more than $130 billion in coin and currency, actual cash, floating around the nation. Still, the coins we feed video games or the paper money we pay out for goods and services, represents less than 1/3 of the nation's basic money supply. For that same week in October, Americans had more than $330 billion in their checking account balances. >> That'll be $137.60 with tax. >> Oh, fine. I'll pay with the check >> for the year. That will add up to more than 35 billion checks written for the staggering sum of over $30 trillion. How does it work? If you wrote a check for a new stereo, the store owner deposited it in his bank. It then joined one of the more than 53 million checks the Fed clearing centers receive each day from local banks. Rent checks, paychecks, dividend checks from all over the nation are sorted and resorted at speeds as high as 2,000 a minute. It's all in the numbers. Those strangelooking symbols are printed in magnetic ink so they can be read by machines. The numbers are codes which signal which bank to charge. But even the increasingly powerful computers that have been brought online to handle the flood of checks can barely keep up with the torrent. For in the last 10 years, the use of checks has almost doubled. And so a new means of transferring money by electronic impulse has been developed. At the Fed's transfer center in Co Pepper, Virginia, more than $120 billion each day is transferred at the speed of light. [Music] And even this system is in the process of change. The way we handle money in the future is the subject of much study by bankers such as Robert Hutchinson, vice president, manufacturers handover trust. Greater proportion of transactions will over time be conducted using plastic cards which may access a credit line that the customer has at his bank or in other cases that can be used to automatically access a checking account or a savings account. I think the use of the automated teller machine itself will in the future be greatly enhanced as we go down the road. retirement services will be added to this credit lines and and even access to various types of investments that the customer could get from his institution. But probably the the area that's going to have the biggest impact is the newest area in financial services at home banking. As this particular new development becomes widespread, customers will be able to sit in front of their TV screens with a special instruction pad or a computer keyboard to initiate payments from his account directly to the merchant or even directly to third parties, relatives, friends, etc. In addition to that, customers will also be able to access their account information, information such as balances that they're maintaining in their checking or savings account. They'll be also able to automatically apply for loans without ever having to go into the bank. And as a result, the banking industry will probably disappear and be replaced by what we're calling the financial services industry. and consumers will be able to get all their financial needs met by just using one institution. Those needs would include traditional products like checking and savings, time deposit accounts, but also such things as money market funds, stocks, insurance, a full range of services, virtually a financial supermarket. That's what we see coming in the 1980s. No matter its future form, whether a blip on a screen or a blob of ink on a bill, all forms of money are merely symbols. They have value only if they can be exchanged for goods and services and act as a store of value. And as money becomes increasingly abstract, the problem of maintaining the world's faith in it becomes even more complex. How well the Fed does its job and how well the world's economy performs may well determine how well we live tomorrow. For money in all its varied forms is indeed the root of all in a modern industrial society. This edition of Screen News Digest was brought to you by Eastman Kodak Company.