Obama's 2011 budget proposal to debase coinage
From realcent.forumco.com:
FYI - President Obama submitted his 2011 budget proposal today. You can view it at: www.budget.gov I took a look at this site and happened to come across the following proposal on page 100 of the "Terminations, Reductions and Savings"
document. Keep in mind that President's proposals are just that
-proposals- and are not always approved by Congress or otherwise
implemented.
- - -
100 TERMINATIONS, REDUCTIONS, AND SAVINGS
OTHER SAVINGS: COINAGE MATERIAL
Department of the Treasury
The Budget proposes to provide the U.S. Mint with greater flexibility in
the material composition of coins to reduce its losses on some coins
and the production costs associated with volatile metal prices.
Justification
The Mint’s primary cost driver is the price of metal, a factor over which
it has no control. Daily spot prices of copper and zinc, the Mint’s two
main metallic materials, have fluctuated in excess of 100 percent, and
the price of nickel by 500 percent in recent years.1 This contributes
to volatile and negative margins on both the penny and nickel: in
recent years the penny has cost approximately 1.8 cents and the nickel
approximately 9 cents to produce.2 Costs have exceeded the value of
these two coins by over $100 million in prior years. Through its gains
on other coins, the Mint annually returns hundreds of millions of
dollars to the Treasury General Fund (GF) and is funded by the Mint
Public Enterprise Fund.
Greater flexibility in the composition of coinage materials could enable the Mint to utilize less expensive
metals in the minting process and substantially reduce its production
costs. Using alternative coinage materials could save $150 million
annually after an initial period of development and capital
adjustments. These savings result from increased seigniorage, or the
difference between the face value of the coin paid by the Federal
Reserve and the cost of production. Seigniorage increases the available
means of financing,
but has no direct budgetary impact. Specifically, the Budget includes provisions that authorize the
Department of the Treasury to approve alternative coinage compositions
and weights across five denominations (half dollar, quarter, dime,
nickel, and penny).
The 2011 Budget would bring the costs of coins more in-line with their face values and create a more
sustainable, cost-effective 21st Century use of materials in the
minting process. The Budget enables the Department of the Treasury to
explore, analyze, and approve new, less expensive materials for all
circulating coins based on factors that will result in the highest
quality of coin production at the most cost-effective price. Such
factors may include physical, chemical, metallurgical and technical
characteristics; material,
fabrication, minting, and distribution costs; materials availability and sources of raw materials; durability;
effects on sorting, handling, packaging and vending machines; and
resistance to counterfeiting. The added flexibility the Budget proposes
will improve the minting process and enable the Mint to mitigate the
high,
volatile costs of commodity metals.
Citations
1 Global InfoMine, Metals Prices, http://www.infomine.com/investment/metalprices/ (January 2010).
2 USA TODAY, Coins Cost More to Make than Face
Value, http://www.usatoday.com/money/2006-05-09-penny-usat_x.htm (May 2006).
FYI - President Obama submitted his 2011 budget proposal today. You can view it at: www.budget.gov I took a look at this site and happened to come across the following proposal on page 100 of the "Terminations, Reductions and Savings"
document. Keep in mind that President's proposals are just that
-proposals- and are not always approved by Congress or otherwise
implemented.
- - -
100 TERMINATIONS, REDUCTIONS, AND SAVINGS
OTHER SAVINGS: COINAGE MATERIAL
Department of the Treasury
The Budget proposes to provide the U.S. Mint with greater flexibility in
the material composition of coins to reduce its losses on some coins
and the production costs associated with volatile metal prices.
Justification
The Mint’s primary cost driver is the price of metal, a factor over which
it has no control. Daily spot prices of copper and zinc, the Mint’s two
main metallic materials, have fluctuated in excess of 100 percent, and
the price of nickel by 500 percent in recent years.1 This contributes
to volatile and negative margins on both the penny and nickel: in
recent years the penny has cost approximately 1.8 cents and the nickel
approximately 9 cents to produce.2 Costs have exceeded the value of
these two coins by over $100 million in prior years. Through its gains
on other coins, the Mint annually returns hundreds of millions of
dollars to the Treasury General Fund (GF) and is funded by the Mint
Public Enterprise Fund.
Greater flexibility in the composition of coinage materials could enable the Mint to utilize less expensive
metals in the minting process and substantially reduce its production
costs. Using alternative coinage materials could save $150 million
annually after an initial period of development and capital
adjustments. These savings result from increased seigniorage, or the
difference between the face value of the coin paid by the Federal
Reserve and the cost of production. Seigniorage increases the available
means of financing,
but has no direct budgetary impact. Specifically, the Budget includes provisions that authorize the
Department of the Treasury to approve alternative coinage compositions
and weights across five denominations (half dollar, quarter, dime,
nickel, and penny).
The 2011 Budget would bring the costs of coins more in-line with their face values and create a more
sustainable, cost-effective 21st Century use of materials in the
minting process. The Budget enables the Department of the Treasury to
explore, analyze, and approve new, less expensive materials for all
circulating coins based on factors that will result in the highest
quality of coin production at the most cost-effective price. Such
factors may include physical, chemical, metallurgical and technical
characteristics; material,
fabrication, minting, and distribution costs; materials availability and sources of raw materials; durability;
effects on sorting, handling, packaging and vending machines; and
resistance to counterfeiting. The added flexibility the Budget proposes
will improve the minting process and enable the Mint to mitigate the
high,
volatile costs of commodity metals.
Citations
1 Global InfoMine, Metals Prices, http://www.infomine.com/investment/metalprices/ (January 2010).
2 USA TODAY, Coins Cost More to Make than Face
Value, http://www.usatoday.com/money/2006-05-09-penny-usat_x.htm (May 2006).
Views: 33
Replies to This Discussion
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Permalink Reply by Lureuin on -
Since when has copper been 1 of the top 2 metals used in US coinage? 1982 to be exact. Whoever came up with that one should lose their job for not checking the facts. Nickel is the only real loser still being used. I have no problem with them stopping the use of nickel; I'll still call it a "nickel"
I don't think cents can be made for less than a cent no matter what material is used. That's why they want to do away with the penny altogether, which makes good business sense to me. As for the cost of making a coin being more than it's value, they need to stop that leak in the dam. This problem isn't new: http://www.usatoday.com/money/2006-05-09-penny-usat_x.htm
The real problem that needs to be done away with is mentioned in the 2nd main paragraph; The Federal Reserve.
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Permalink Reply by Buffalo on -
Actually they are right about copper. With the exception of the Cent, they are all 75% or more copper. They will probably change all of them to whatever the cheapest thing they can find is. Compositions from the US Mint site:
Cent 97.5% Zn, 2.5% Cu
Nickel 25% Ni, 75% Cu
Dime 8.33% Ni, 91.67% Cu
Quarter 8.33% Ni, 91.67% Cu
Half 8.33% Ni, 91.67% Cu
Dollar 88.5% Cu, 6% Zn, 3.5% Mn, 2% Ni
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Permalink Reply by Steve W on -
I have no "political dog" in this fight. Make the coins out of anything that works properly and saves money. Save the copper to wire houses. Two years ago thieves were stealing the conduit from uncompleted homes just to sell scrap copper in our area.
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Permalink Reply by Lureuin on
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Thanks Buff- I stand corrected. I thought zinc was #1 and nickel #2. Why would we be still using so much copper? Cupro-nickel is only necessary if you want to protect the coins from sea-water. Time to switch to aluminum or steel, or even plastic.
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Permalink Reply by Buffalo on
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My guess is they will go to some kind of plated steel. Maybe a mild steel core so it will be relatively easy to strike with a more durable thin outer shell. They do have a valid point- when the cost to produce a coin exceeds the value of the coin, it seems pretty silly to keep producing them that way for circulation.
In my area Steve, copper theft is still going on. I remember a couple of years ago a rash of older residential and commercial A/C systems being stolen, apparently for the value of the copper in the coils and tubing. Recently employees of a business in this area were arrested for stealing copper. If I remember right it was a utility company or maybe one of their contractors, but it was a large amount of copper over a period of time.
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Permalink Reply by True Money on -
The correct answer to this specific problem is to simply stop the production of currency for an extended period of time. Allow the economy to correct itself. The greedy need to be brought to reality and everyone needs to take a step back. That is the only way to solve the problem. Ask yourself this question. How did our relatives survive for generations before us? They survived day-by-day to try and save a cent or two for future use. Today, our society is spending money it does not have and then files bankruptcy to erase the debt. This is the problem we have. The cost of producing these coins has increased as a result of our country's inability to accept responsibility and solve problems.
The correct solution to this problem would be to force the use of coins on society. End the production of the worthless paper/cloth currency that is being rejected at many establishments for at least 5 to 10 years. The paper/cloth currency has an average life of approximately 9 months in circulation. A coin has an average life of roughly 35 to 40 years in circulation. Once establishments take strong lessons from others like Aldi by rejecting credit cards, then our market will correct itself and prices will decrease.
I know many of you think I am crazy. Look at the overall picture. What is better, solving the problem today or delaying it for a worse reality tomorrow?
-True Money!
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Permalink Reply by Steve W on
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Money,
The problem with your solution is that it has no relationship to the current world. This is especially true as it relates to electronic business transactions. That has become a huge part of the modern economy. Nobody is going to use coins to order from Amazon!
We have some real responsibility issues in current American society, but we cannot turn the clock back to 1850 to solve them. I wish I knew what could be done to prevent Wall Street fraud, sub prime mortgages, credit default swaps, government deficits, and unemployment. But alas I have no answers here. However, technology has taken us down a road and we are not turning back to the ancient practice of "hard money".
As I see it, the major future of modern coins is with the collector and the parking meter!
True Money said:The correct answer to this specific problem is to simply stop the production of currency for an extended period of time. Allow the economy to correct itself. The greedy need to be brought to reality and everyone needs to take a step back. That is the only way to solve the problem. Ask yourself this question. How did our relatives survive for generations before us? They survived day-by-day to try and save a cent or two for future use. Today, our society is spending money it does not have and then files bankruptcy to erase the debt. This is the problem we have. The cost of producing these coins has increased as a result of our country's inability to accept responsibility and solve problems.
The correct solution to this problem would be to force the use of coins on society. End the production of the worthless paper/cloth currency that is being rejected at many establishments for at least 5 to 10 years. The paper/cloth currency has an average life of approximately 9 months in circulation. A coin has an average life of roughly 35 to 40 years in circulation. Once establishments take strong lessons from others like Aldi by rejecting credit cards, then our market will correct itself and prices will decrease.
I know many of you think I am crazy. Look at the overall picture. What is better, solving the problem today or delaying it for a worse reality tomorrow?
-True Money!
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Permalink Reply by Buffalo on
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TM, I do agree that solutions need to be found, and that currently many problems are basically being allowed to continue with the apparent idea that everything will be wonderful again when the economy recovers. This seems to be based on "faith in the future" as much as anything, with little clear explanation of exactly how that is to happen. Recent predictions based on this proposed budget indicate $1+ trillion dollar per year increases to the national debt for at least the next three years, and a total debt that could exceed $20 trillion by 2020. So, yes, solutions need to be found soon.
With regard to stopping the production of currency and the use of credit cards. The use of currency in face to face transactions makes up a relatively small part of total transactions in the US. I spent many years in retail management. It is true that cash was used more often in certain areas than others, but overall it was very rare that it would reach 10% of total receipts even in those areas. I agree that eliminating the dollar bill in favor of the coin would be a long term savings, but it is certainly a drop in the bucket in the big picture.
How would rejecting the use of credit cards cause our market to correct itself and prices to drop? I could see a slightly lower cost of doing business due to merchants not having to pay the fees to the credit card companies for these transactions, but are you thinking of something else that would cause this to "correct" our markets?
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Permalink Reply by True Money on
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Electronic business transactions is the culprit that I was eluding to. This is the unnecessary middleman. All of this has a severe affect on myself as well. I work for an airline and my mom works for a bank. This practice of charging businesses for sales with the use of credit cards is how banks make money. The consumer does not directly notice this practice as a specific charge as it is passed along to you by the seller in the form of higher prices. This 6% to 15% or more charged by the banks and credit card companies plus the 25 cent to 50 cent transaction fee supplies money to other programs. How can a bank/credit card company issue skymiles and cash back bonuses? The higher percentage rates charged to the vendor for the sale of a good or service contributes to these programs. At my airline alone, there are literally hundreds of millions of dollars of skymiles left unclaimed and expire every year. This helps the bottom line of any airline participating in such programs.
The last time I went to payoff my credit card balance the teller wanted me to upgrade to a credit card offering such cash back bonuses. She looked extremely surprised when I declined. Why should I pay more for something than necessary and be taxed on it, receive a $12 cash back bonus that is considered taxable income and places me in a higher tax bracket in which I have to pay $50 more in taxes ($38 loss)? Interest from savings and checking accounts create identical effects on taxes. Why participate in any of these programs? Personally, I want to reduce all of my taxes. When you look at the tax picture, we are taxed in over 40 different ways that we don't consider everyday. These range from the taxes on interest to taxes on petroleum and gasoline. The only taxes that people think about or are aware of are the income taxes, property taxes, and sales taxes that we visually see. These credit card companies work the same way.
So, when I said "Take a step back", that means to re-evaluate how you spend money or choose to spend money. Do we continue to use credit cards that increase prices across the board and cost you more in the end, or do we discontinue the use of credit cards, get taxed less, and allow you more money to spend?
-True Money!
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Permalink Reply by Buffalo on
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Good points for those fortunate enough to be able to pay for all needs all the time with their own funds. Unfortunately, with the economy in the shape it's in, this is not true for many people. Many rely on credit cards or other "loans" to either meet emergency expenses or more routinely, depending on their circumstances at the time. I agree this is not a good thing to do long term, but the fact is many are in that situation whatever the reasons might be. It is simply not realistic that many of these people can avoid any use of credit, and all of the various fees and expenses involved. Reducing or eliminating funding sources would also have the effect of reducing consumer spending, which in turn lowers revenues for those providing goods and services. Less revenue can and often does mean businesses are forced to cut back, reducing hours or eliminating workers or entire business operations. Lost jobs and hours mean a further reduction in wages and therefore disposal income. Lost businesses mean not only a loss of worker's incomes but also tax revenues and the contribution it formerly made to the economy. The point to all that is that these issues are complex and one aspect cannot be evaluated as an isolated factor without considering other ramifications. Yes, better choices can often be made by consumers, but options available to some are not available to all.
Personally, I would say I dislike the massive increase in US debt, both National and individual, as much as anyone. I still think that actions which would drastically reduce spending at the consumer level would currently do more harm than good. The negative effect on the economy and it's recovery would in my opinion outweigh any benefits until the economy has recovered significantly from where it is now.
True Money said:Electronic business transactions is the culprit that I was eluding to. This is the unnecessary middleman. All of this has a severe affect on myself as well. I work for an airline and my mom works for a bank. This practice of charging businesses for sales with the use of credit cards is how banks make money. The consumer does not directly notice this practice as a specific charge as it is passed along to you by the seller in the form of higher prices. This 6% to 15% or more charged by the banks and credit card companies plus the 25 cent to 50 cent transaction fee supplies money to other programs. How can a bank/credit card company issue skymiles and cash back bonuses? The higher percentage rates charged to the vendor for the sale of a good or service contributes to these programs. At my airline alone, there are literally hundreds of millions of dollars of skymiles left unclaimed and expire every year. This helps the bottom line of any airline participating in such programs.
The last time I went to payoff my credit card balance the teller wanted me to upgrade to a credit card offering such cash back bonuses. She looked extremely surprised when I declined. Why should I pay more for something than necessary and be taxed on it, receive a $12 cash back bonus that is considered taxable income and places me in a higher tax bracket in which I have to pay $50 more in taxes ($38 loss)? Interest from savings and checking accounts create identical effects on taxes. Why participate in any of these programs? Personally, I want to reduce all of my taxes. When you look at the tax picture, we are taxed in over 40 different ways that we don't consider everyday. These range from the taxes on interest to taxes on petroleum and gasoline. The only taxes that people think about or are aware of are the income taxes, property taxes, and sales taxes that we visually see. These credit card companies work the same way.
So, when I said "Take a step back", that means to re-evaluate how you spend money or choose to spend money. Do we continue to use credit cards that increase prices across the board and cost you more in the end, or do we discontinue the use of credit cards, get taxed less, and allow you more money to spend?
-True Money!
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Permalink Reply by Steve W on
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The point that Buff is making is that our current situation defies simple solutions. Credit card transactions are a key component in the modern economy. If such credit were suddenly withdrawn you would see a return to the 1930s. We would have a full fledged depression and you, an airline employee, would probably be one of the first to go. My whole family has been involved with North West Airlines for over 40 years and I know how vulnerable that business can be!
On an individual basis, your approach to limiting the use of plastic has merit. One needs to be very careful about deficit spending of any type. However, many people and small businesses are not in a position to proceed without easy credit. International trade and e-commerce depend on electronic transactions for the velocity of their business. We are not going back to the Sears Catalog and paper checks.
The problems that started this exchange remain unsolved because they are deeply imbeded in the culture of current American society. People want the benefits and they would rather not pay! It is just as easy as that. We have two wars for which we have yet to make the first payment. Everyone talks patriotism and national security until the government asks for the tax dollars to pay. When they ask you get a Tea Party response. (Taxed Enough Already) Everyone wants quality schools,but they are horrified to find out that such schools require property taxes. In both cases the tax man must turn to those with financial means because you cannot get blood out of a rock. Oh No! The simple solution is to spend less and tax more and this can only be done when the economy has recovered. Nobody knows when that might be?
Actually, fiscal prudence on an individual basis might actually be bad for the economy and hurt national recovery.
Buffalo said:Good points for those fortunate enough to be able to pay for all needs all the time with their own funds. Unfortunately, with the economy in the shape it's in, this is not true for many people. Many rely on credit cards or other "loans" to either meet emergency expenses or more routinely, depending on their circumstances at the time. I agree this is not a good thing to do long term, but the fact is many are in that situation whatever the reasons might be. It is simply not realistic that many of these people can avoid any use of credit, and all of the various fees and expenses involved. Reducing or eliminating funding sources would also have the effect of reducing consumer spending, which in turn lowers revenues for those providing goods and services. Less revenue can and often does mean businesses are forced to cut back, reducing hours or eliminating workers or entire business operations. Lost jobs and hours mean a further reduction in wages and therefore disposal income. Lost businesses mean not only a loss of worker's incomes but also tax revenues and the contribution it formerly made to the economy. The point to all that is that these issues are complex and one aspect cannot be evaluated as an isolated factor without considering other ramifications. Yes, better choices can often be made by consumers, but options available to some are not available to all.
Personally, I would say I dislike the massive increase in US debt, both National and individual, as much as anyone. I still think that actions which would drastically reduce spending at the consumer level would currently do more harm than good. The negative effect on the economy and it's recovery would in my opinion outweigh any benefits until the economy has recovered significantly from where it is now. True Money said:Electronic business transactions is the culprit that I was eluding to. This is the unnecessary middleman. All of this has a severe affect on myself as well. I work for an airline and my mom works for a bank. This practice of charging businesses for sales with the use of credit cards is how banks make money. The consumer does not directly notice this practice as a specific charge as it is passed along to you by the seller in the form of higher prices. This 6% to 15% or more charged by the banks and credit card companies plus the 25 cent to 50 cent transaction fee supplies money to other programs. How can a bank/credit card company issue skymiles and cash back bonuses? The higher percentage rates charged to the vendor for the sale of a good or service contributes to these programs. At my airline alone, there are literally hundreds of millions of dollars of skymiles left unclaimed and expire every year. This helps the bottom line of any airline participating in such programs.
The last time I went to payoff my credit card balance the teller wanted me to upgrade to a credit card offering such cash back bonuses. She looked extremely surprised when I declined. Why should I pay more for something than necessary and be taxed on it, receive a $12 cash back bonus that is considered taxable income and places me in a higher tax bracket in which I have to pay $50 more in taxes ($38 loss)? Interest from savings and checking accounts create identical effects on taxes. Why participate in any of these programs? Personally, I want to reduce all of my taxes. When you look at the tax picture, we are taxed in over 40 different ways that we don't consider everyday. These range from the taxes on interest to taxes on petroleum and gasoline. The only taxes that people think about or are aware of are the income taxes, property taxes, and sales taxes that we visually see. These credit card companies work the same way.
So, when I said "Take a step back", that means to re-evaluate how you spend money or choose to spend money. Do we continue to use credit cards that increase prices across the board and cost you more in the end, or do we discontinue the use of credit cards, get taxed less, and allow you more money to spend?
-True Money!
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