More Coin Madness

I was in LA over New Year’s, and I realized at some point that all of the coins had changed. The pennies used to have the Lincoln memorial on them, now it’s a shield. Nickels used to have a profile of Jefferson, now it’s a portrait. The Quarters used to have an Eagle on the back, now it’s all the state quarters. I suppose dimes are the same.

Maybe I just don’t handle US money enough, but the dollar coins I got in LA were completely foreign to me. When I was a kid dollar coins were silver colored and had Susan B. Anthony on them, and around 2000 they changed to gold colored with Sacajawea on them. I was buying a plate of chicken wings. Wing Stop. Super good. Try the Honey Barbecue. And when the girl gave me my change she handed me 4 brass coins and said, “are these ok?”

What an interesting question. It’s money isn’t it? Do people turn down money? Is there some doubt about the value of the money? It’s like the Federal Reserve magic wasn’t working yet, and she wasn’t confident it was real money yet. So I replied with the only honest answer, “Of course, I’m legally obligated to accept it.” I wondered if she knew that, but it’s the truth if you think about. Here I am accepting these brass circles that I’d never seen before because I know whoever I give them to will also be legally obligated to accept them. No concern for real value.

You’ve probably seen these. They have the Statue of Liberty on the back, and dead presidents on the front. In this case a John Quincy Adams, a Martin Van Buren and two Andrew Jacksons. They’ve apparently been making them since 2007, but I never noticed.
Of all the dead give aways that government money is a magic show I think the minting of coins is most obvious. There’s two stories in the news recently that are both old, but they’ve been made new again for some reason. One, that pennies and nickels both cost more to manufacture than they’re worth, and the other a proposal to solve the debt crisis by minting trillion dollar platinum coins. But put them together, and I’m ready to predict the next move in US coinage.

To some extent the expiration of the penny and the nickel is inevitable. They’re currently spending 4.8 cents to manufacture each penny and 16.2 cents on each nickel, and they claim this is because of “inflated” metal prices, but the real value of the metals involved has stayed about the same compared to other commodities. It’s the purchasing power of the coins that’s crashing right along side the dollar. They have delayed retiring the smaller coins by debasing the metal, but they’re already about as cheap as they can get. The nickel is now mostly copper, and the penny is now mostly zinc.

Only the government could lose money by minting money, but the penny and nickel have cost more to produce they they were worth for the last seven years, and in 2011 the Mint reported losing $187.7 Million minting these coins. According to US Treasury Secretary Tim Giethner, they intend to begin phasing out the penny and nickel coins from circulation this month.

What this means is that eventually merchants will need to round all transactions to the nearest ten cents. I saw this while I was in Saudi Arabia. A dollar is worth about 3.75 Saudi Riyals (SAR), but as far as coins go Saudi only has the Halala, a half Riyal coin. Basically a 50 cent piece except it’s worth about 7 cents. All the prices in the grocery were like normal, but when you rang them up the cashier rounded to the nearest Halala, and if they happened to round up they’d throw in a pack of chewing gum to keep the customer happy, whether they asked for it or not.

At the other end of the monetary spectrum, the trillion dollar platinum coin is back in the news, this time thanks to Rep. Jerrol Nadler, although he’s got it exactly backwards, which is just depressing. He said, “There is specific statutory authority that says that the Federal Reserve can mint any non-gold or silver coin in any denomination, so all you do is you tell the Federal Reserve to make a platinum coin for one trillion dollars, and then you deposit it in the Treasury account, and you pay your bills.”

What he doesn’t seem to realize is that asking the Federal Reserve to mint money creates debt. What he meant to say, or at least what everyone else who’s put forward this imbecilic proposal have said, is that the Treasury will mint a one trillion dollar platinum coin and deposit it with the Federal Reserve to pay off it’s debt. But who cares. It’s all imaginary anyway. When pressed if he was serious he insisted “It sounds silly but it’s absolutely legal.” Because that’s just what we need… silly legal policy. He continued, “It gets around this artificial debt-ceiling thing which has no economic justification.” So, clearly he has no economic education.

I have said for a long time, to much derision, that in a rational monetary system dollar denominations would be coins and cents would come in bills. This is simply dictated by the fact that coins cost more to produce that printed paper. But monetarists, in their eagerness to make something out of nothing have always got it backwards. It’s vindicating to see economic reality imposing itself on them.

Here’s my prediction. I don’t believe trillion dollar coin in going to happen. It’s too grotesque. It’s an admission of the utter failure of the monetary system. It also draws too much attention. When they come up with the sneaky manipulation that will further delay the inevitable collapse of the currency, they’ll want to avoid drawing attention to it. Maybe even launch a distraction at the same time.

When the penny and the nickel go I predict they’ll roll out a new dime, because it is the last coin that hasn’t changed recently, and if it’s going to be the new penny it’s going to need a face-lift. They boast that dime currently costs 9.2 cents to mint, but that won’t stay viable for long, so they’ll change the composition when they change it. It’s currently 92% copper and 8% nickel, not a shred of the original silver, but just to be safe they’ll probably put some zinc in there when it changes.

Now, while they’ve got us distracted with the new low end coin, I predict they’ll roll out a new high end coin. It won’t be the trillion dollar monstrosity, but it might be a five dollar coin, or maybe even a $500 coin. Something reasonable but obscure, so the new dime can seize all the headlines and we’ll all vaguely know this new coin exists, but won’t see it in circulation very much. Meanwhile, quietly in the background, they’ll be trying to make enough money from it’s minting to keep the system afloat a little longer.

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