T-Bills are Greenbacks

T-Bills are Treasury securities that mature in one year or less.  The current rate of interest on them is 0.06 for 1 month to 0.14 for 1 year.  The supply of them is about $1.7 trillion as of Feb. 2013.

Greenbacks were United States Notes issued directly by the US Treasury to pay for the Civil War.  The total issued were $447 million. They circulated interchangeably with Federal Reserve Notes until 1971 when no new United States Notes were placed into circulation.  They are still valid as legal tender however, and there are $239 million still outstanding, probably all in the hands of collectors.

Now T-Bills aren't quite like cash.  You can't hold them in your hand and you can't take them to the store to buy things. And while ownership can theoretically be transferred, it isn't easy.  Instead, money market mutual funds with attached checking accounts are used.  When you write a check, your balance is reduced but the owner of the T-bill remains the same. The money market would have to daily buy or sell T-bills as needed.

A wealthy person could open up their own money market mutual fund with an attached checking account at a bank, and then buy or sell T-bills as needed.  The advantage would be less risk on large deposits, and a slightly higher interest rate.  If he invested in longer term notes, there would be slightly higher interest, but more interest rate risk as well.

So my point is that they function like cash, but require a little more work.  The reason they are like greenbacks is that they are completely outside the Federal Reserve System and issued directly by the Treasury.

Why do we care?  Because of inflation.  It is worth monitoring them to see how the balances change.  So, for example, in December 2007, before all the craziness started, the balance of T-Bills was about $1.0 trillion.  So that is an increase of 70% in 5 years.  If hyper-inflation starts, this is where I would expect it to begin.  By the way the amount of T-Bills outstanding as of January 2013 was $1.605 trillion.  So they increased 6% in one month.  That sounds like inflation to me.

So how about a measurement of M1+T-Bills and see how it changes over time?