There was an episode of American Greed on CNBC recently that documented a counterfeit ring in LA (BTW American Greed is a fun show!)

Some guy figured out how to use ink-jet printers and relatively ordinary newsprint to make some pretty good fakes. He distributed them through several layers of street gangs. He sold the fake $100s in bulk for about $15 each. Most bills went through a few middlemen before they hit the streets. The Feds had a hard time tracking him down, but eventually busted him.

The show gave a lot of information about how the bills were made. One trick they used to thwart the detection pens was to coat the bills with hairspray.

They were able to reproduce the watermarks to a level that a casual inspection may not detect the bill as a fake, but one feature they could not reproduce was the color-changing effect of the denomination number.