Thursday, June 27, 2013

Penny Joke

What did one penny say to the other? Let's get together and make some cents.

It's too bad that pennies make no sense at all! OK, I'm sure back in the 1920's they had value, but seriously, why do we still have them?  You used to be able to by a hundred 16-penny nails for 16¢, now you can only by 3 or 4 for that amount.  Penny candy now costs a quarter or more.  Even a piece of paper costs more than a cent. They cost at least 2¢, and that's only if you can get a ream for $10.  The only thing less than a penny are staples, and who only wants 1 staple?  Seriously, anything you find out there, that as a single unit, costs less than a penny is sold in bulk where you buy hundreds or thousands at once anyway, and thus have to pay $5 or $10 for them anyway.  So let's stop with them.  But until they're gone, I guess we have to keep as many of them in circulation so the mint doesn't have to make as many as they have, throwing the taxpayers money down the drain.  Maybe we should all tell our congress members to get rid of the penny for us.

Monday, June 24, 2013

Penny Hoarding

It's interesting that the number of penny hoarders has increased so much.  More and more people are hoarding the pre-1982 pennies for their copper content.  The post-1982 pennies made with zinc are not worth the trouble yet.  But if you're a penny hoarder, you've got to buy hundreds and hundreds of dollars of pennies from local banks, then unroll them and sort through and pull out the mostly copper ones, and then re-wrap the zinc ones and turn them back into the bank.  With the price of copper making these little discs worth more than their face value in metal content, you'd think this was a good investment.  Unfortunately, the government has made it illegal to melt down any coins. So then you may think that maybe there are some coin collectors out there who'll pay a premium for them? Nope. There are very few "special" pennies worth more than a penny to a collector, and after buying thousands and thousands of dollars worth of pennies you might come across 1.  Or maybe you'll think, when pennies are discontinued their value will increase? Nope.  They'll still be worth a penny, even to collectors.  There is basically only one thing that makes a coin valuable to collectors; scarcity.  Does anybody really think that we have a scarcity of pennies?  Even pre-1982 ones?  Even if we got rid of the penny tomorrow, the pennies collected by penny hoarders will not appreciate in value during their lifetime or their children's or their grandchildren's.  And guess what else?  They'll never be able to melt them down legally for their metal content.  Just because something doesn't circulate, doesn't mean it's not legal tender.  And hopefully they're not waiting for the government to collapse, because then they get hosed from the other side.  Maybe one day they will realize and say to themselves, "Hey, as a taxpayer, I'm paying the government more than 2 pennies so they can make 1!"  Now, I have no problem with coin collectors collecting their coins.  They can do whatever they want with their time and money.  It's the hoarders that completely disrupt the natural coin circulation, or worse, the people that throw the coins away, that are costing the US taxpayers so much money.  Not only did they just throw away the more than 2 cents it cost per penny to make in tax dollars, we have to pay for the government to replace it, so that they can throw it away again.  Please, please, please...don't throw away your coins or remove them permanently from circulation by hoarding.  It's costing us all billions and billions of dollars.
I have a proposal for all.  If you don't like spending coins, then collect them in a jar and then every few months, go into your bank and deposit them into the little coin counter.  In 30 seconds, all the coins will be counted and you can take your receipt and deposit it (usually the full amount without fee) into your bank account.   If everyone will do this, then at least the mint won't keep spewing out so many pennies.  We will have reduced the negative seigniorage by a huge margin.

Thursday, June 20, 2013

So what coins should we have in circulation?

I've been thinking about this for years now.  What coins and bills would be the most beneficial for US citizens to have in circulation?  Let's get down to the nitty gritty here. Despite its nostalgia, the penny has outlived its usefulness for at least 50 years.  Since it wasn't dropped in the sixties, then at least there should have been a public outcry 30 years ago, when the cost of minting the penny exceeded its face value.  But there wasn't.  Instead they made it out of cheaper materials. Then the same thing happened again almost 10 years ago. Now the penny costs more than twice its face value to mint. Why are we kicking this dead horse and then dragging it through the mud? The penny should be put out of its misery!

The nickel is suffering the same fate as the penny.  It costs more than twice its face value to mint. We should have gotten rid of the nickel at least 30 years ago. But we didn't.  Instead we're burdened with two completely worthless and useless coins.  But if you ditch the penny and the nickel, now you have a bit of a dilemma.  You now have to round everything to the nearest 10 cents, but we have a 25 cent coin, not a 20 cent coin like many other countries, and since the quarter is a multiple of 5 and not 10, you'll have to get rid of one other coin when you get rid of the nickel.  You have basically three options: (1) drop the quarter and force the gigantic half dollar back into circulation despite its limited utility (it won't fit in most coin slots) and perhaps end up having to redesign it because nobody wants to count out or receive 9 dimes as change, (2) drop the quarter and create a new 20 cent coin to replace it, or (3) drop the dime and keep the quarter and round all transactions to the nearest 1/4 of a dollar. The easiest by far is #3, because there will be no coin changes or redesigns and people can continue to use coins they are familiar with. Therefore, if the nickel is useless, the dime becomes obsolete as well.

Now, do we drop the quarter, half dollar, and dollar coin as well?  Just do away with the mint altogether?  I don't think so.  I believe coins still have their usefulness in limited quantities.  So we should probably keep the quarter at least.  The half dollar and dollar don't circulate well now, so unless something changes, the only coin in wide circulation would be the quarter.

We also have the dollar-coin/dollar-bill dilemma to deal with as well.  If we are making the money producing entities more efficient, then we need to get rid of one of these. We can see from the last fifty years that they do not circulate together.  We need one or the other. The most logical in my mind is to drop the bill and let the coin replace it. That way the quarter can have a friend.

So, what is my proposal?  It's simple. Congress should vote to immediately remove the lowest denomination coin (1¢) and bill ($1) from production and distribution. They should also recommend that business begin using the $2 bill and put it in the slot that use to hold the $1 bills.  This will appease the coin haters, since they'll have much fewer coins in their pocket with the $2 bill in regular circulation.

Next, Congress should put in motion to be accomplished within the next 5 years to remove the nickel (5¢) and dime (10¢) and the $2 bill from circulation, and start minting a $2 coin instead (one that's much smaller than the $1 coin).  They should also reduce the size of the half dollar so that it can circulate as well.  This will give us four coins; a $0.25, a much smaller $0.50, a $1, and a small $2.  We'll have 5 bills as well; a $5, a $10, a $20, a $50, and a $100.  This is what the circulation numbers show will work.  You'll have a significantly lighter pocket, with coins which you will actually spend, and your wallet won't be full of ones! (Don't you hate it, when all you have is a bunch of useless $1 bills in your wallet?) You feel rich, but in reality, you're not.

So Congress, let's get moving.  You're already 50 years behind.  Let's not make it 60 or 70. Unfortunately, this advice has fallen on deaf ears for a long time and I'm probably just beating a dead horse.

Tuesday, June 18, 2013

Why do we have so many pennies?

We have a lot of pennies compared to the other coin denominations.  Why do we need so many?  Well, there is a simple reason.  For each step up in denomination there is a multiplication factor.  So you need 5 pennies to make 1 nickel, you need 2 nickels to make 1 dime, you need 2.5 dimes to make 1 quarter, and you need 4 quarters to make 1 dollar.  This multiplication factor tells you the approximate proportion of a certain coin you'll need in comparison to the others.  So in an ideal world, for every 10 pennies they mint, they should mint 4 nickels, 5 dimes, and 8 quarters.  As you can see, I'm only factoring in the most widely circulating coins.  Obviously if the half dollar circulated the same as the others, we'd only need half the number of quarters.  This presumes that one denomination of coin lasts (or stays in circulation) just as long as any other denomination.  If the dime, for example, was not as resilient a coin as the others, or got lost more frequently (and thus was removed from circulation) we would see the mint making a lot more dimes than necessary to replace the ones that were taken out of circulation.
Of course, this doesn't happen with the dime quite as much as it happens with the penny.  That's why 60 to 70% of the coins coming out of the mint are pennies, instead of 37% as would be the case in ideal circumstances.  The mint has to keep up with the demand! The penny is the only coin in circulation that doesn't circulate!  Retailers get pennies from their banks in order to keep pennies in their registers so they can give them out as change.  So the banks have to get more pennies from the mint so they can supply the retailers.  And what do we do with the pennies when we receive them as change?  Do we use them to purchase other goods?  Do we deposit them in our bank accounts?  The numbers say that we don't.  The numbers don't lie.  Those pennies end up in sofas, drawers, piggy banks, or landfills...and never return to circulation. So the mint keeps cranking them out, due to this false demand.
The penny lovers think that getting rid of the penny will enforce a rounding tax on the consumers and cost Americans billions of dollars.  Actually the reverse is probably true.  Instead of flushing the billions of dollars in pennies down the proverbial toilet, instead we would actually spend or save it!  That is putting billions and billions of dollars back into our pockets!

Thursday, June 13, 2013

Lower case "o"

So here is a little known fact about the Lincoln Memorial Pennies.  Above the Lincoln Memorial it says "THE UNITED STATES oF AMERICA" with a small "o" in "oF".  All other Lincoln Pennies have the country's name in all caps except for the last design for the 2009 pennies, which has "of" all in lower case and everything else capitalized.  Why did they do it? I don't know, but it wasn't a mistake, it was designed that way.  I guess you'll have to get inside the head of the guy who did it.  He did borrow the idea from the pre-Kennedy half dollar coins in circulation at the time, which also had a small "o" on them.  But who knows why they thought it was a good idea?

Tuesday, June 11, 2013

Mega Penny Project

There is a website from Kokogiak Media called the Mega Penny Project which shows you just how big a stack of millions and billions of pennies would be.  It's actually pretty cool.  I wouldn't mind having 1 quintillion pennies (electronic ones of course) in my bank account.

Thursday, June 6, 2013

Compelling Reasons to Hang on to the Penny

The penny lovers have a friend down in sunny Florida.  An article from April 2012 in the Sunshine State News pleads for the US to not follow in the footsteps of Canada.  And though she mentions that there have been several attempts in the last 10 years to get rid of it, the debate has been going much longer than that.  In the late 70's and early 80's we were having the same problems as we are now, with the penny costing too much to make.  That's why in 1982 they stopped making a mostly-copper penny and switched to a mostly-zinc penny, drastically reducing the material cost for the one cent coin.  The debate started decades before that, but this was the point that it began to gain momentum.  As we move forward though, if they do change the material content of the penny, what will they use instead?  Steel? Canada's penny was made of steel and it cost too much for them.  Aluminum? I put aluminum in my recycle bin, I don't spend it.  Plastic? I can already get plastic money at the toy store.  Seriously, the material options for the penny are dwindling rapidly, but the loss on minting the penny needs to stop, I believe.

She does bring up the UK's decimalization 40+ years ago.  Now I realize there was some inflationary situations back then, but it wasn't due to the decimalization.  It was because the Pound lost its status as the world's reserve currency and was replaced by the all powerful US Dollar. After 20 plus years of adjusting to the new economic status, their inflation has been under control. If the US were to remove the penny, there would be no change, conversion or adjustment needed at all.  Retailers wouldn't change just because there is no more penny. Retailers adjust prices for one reason: to stay in business.  Overall, I think the article produced the desired effect.

As a bonus, have a laugh here.

Monday, June 3, 2013

US Government and the Penny

So what is the current status of the penny, you ask?  Well, let me tell you.  In December 2010, The Coin Modernization, Oversight, and Continuity Act was passed so that the Treasury could research using alternative (this means less expensive) materials to make the penny.  They were given 2 years to accomplish whatever it was they were going to do.  The mint reported in December 2012 that they needed more time.  So basically what happened is that they were given MORE money, and they didn't do anything with it that they were supposed to do.  Will there be any follow up on this?  Well, they have another 2 years to file another report.  This could take a while.

Another law that currently affects the penny is the Prohibition on Exportation, Melting, or Treatment of 5-Cent and One-Cent Coins passed in 2007. This law makes it illegal for anyone to take anymore than a nominal amount of change out of the country, and also makes it illegal to melt pennies down for their composite metal content. I guess they don't want anyone to take the money that the mint is throwing away by producing the penny in the first place.