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US Pennies To Be Worth Five Cents?
Z-MaxX writes to point out Reuters coverage following up on last month's news that the US Mint has made it illegal to melt or export US coins in bulk, since the value of their constituent metals — in the case of pennies and nickels — now exceeds their face value. The new story quotes Francois Velde, senior economist at the Federal Reserve Bank of Chicago, who thinks the new rules will not be enough — he believes that determined speculators are already piling up pennies. Velde suggests "rebasing" the penny to be worth five cents. Quoting Velde: "These factors suggest that, sooner or later, the penny will join the farthing (one-quarter of a penny) and the hapenny (one-half of a penny) in coin museums."
Does this mean if I buy something priced at $1.96, I have to pay $2.00 because I won't be able to make exactly $1.96?
didn't they start taking them out of circulation when there value was getting close to the cost of the raw materials, rather than waiting untill after the fact?
If information wants to be free, why does my internet connection cost so much?
Just stop making pennies and let the public melt them down - that way the Mint won't have to deal with disposing of them and they'll be put to some better use (recycle! or something) ... but that's just my 10 cents
Weird how you focus on this topsy-turvy.
The U.S. is suffering inflation. It's not that the cost of metal is increasing, it's that the value of your currency is falling. Fast.
This week it very, very, nearly reached £1 = $2 for the first time in my lifetime.
You REALLY NEED TO WORRY ABOUT THIS INFLATION, not the value of the metal in your coins.
I'm definitely for dropping the penny. I'm not sure about the nickel... That's a bit much, I think.
As for the dollars becoming coins... I can agree with $1 bills being coins, but I think $5 is too much. I can't say 'Oh well, I lost $5. I won't even bother to look for it.' A $1... I'd still look for it, but I wouldn't be heartbroken if it disappeared. That's what happens to coins. They get dropped. Bills don't get dropped because they are easy to put in a wallet. (If you suggest a coin wallet, I'll slap you. That'd be huge with the number of $1s I carry for the vending machine.)
Pennies, I never look for it they drop. Dimes I usually look for.
"If you make people think they're thinking, they'll love you; But if you really make them think, they'll hate you." - DM
You stopped short of the "bitter reality". Not everyone here has studied economics, so you're going to have to spell it out for them:
:\
When inflation hits a certain point, your currency becomes worth next to nothing, salaries fail to keep up, mortgages are too high (those real estate deals people are so happy about making cash off of...), and we fall into a deep depression. Happened in the early 90's, happened when the tech bubble popped, and the parent is talking about us being on the verge of it happening again.
It's a lousy hole to dig yourself out of, because it's a cycle that no one knows exactly how to break. It just seems to take time (and lots of it) for values to fight their way close enough back to equilibrium and life goes on.
It makes me sick every time I see articles about people flipping real-estate. They HAVE to know properties are over-valued. They just have to. With each sale, the next owner expects the property to either keep its value or go up. When people are flipping properties so quickly, everything has a sale price higher than its actual value. Here in St. Louis, the impact of it has already started to take hold: no one is buying. The market will only bear so much insanity.
As for the mints running money like mad, he's mostly right. For each dollar in circulation, the less each dollar is actually worth. The catch there is circulation. I know many older bills have been coming out of circulation, but I don't know at what rate, so I can't start jumping up and down at that point just yet, but he may very well be right. So we're over-valuing the land we live on, we over-value our money. We're in debt up to our eyeballs to other nations, and we're fighting a war with no clear-cut objective for victory or retreat. Without any bias toward or against our president, we are nearing par with Vietnam, the difference here I have to say is that our body count is not anywhere near the same (thank goodness!) and there is no draft.
Those who study economics have to realize something here too: all of our really serious depressions in the past have been resolved by wars. War creates jobs. War stirs the economy, makes individuals wealthy. Morality aside, each time we've gotten into a bind, a war has bailed us out. This may very well be the first time that *while* at war, this is happening. A war won't bail us out this time (or at least, we'd all best pray it doesn't, because if it does, it means we as a country p*ssed off the rest of the world and they come here to set us straight).
It really is sad to see. I bought my first home 3 years ago. I *thought* the value was a bit high, and managed to buy it just short of what it was appraised at, and was praying my wife and I didn't become too screwed by the real-estate market bombing. Here's to hoping.
Karma: Chameleon (mostly due to the fact that you come and go).
OK, OK, Jeez. I'm worried, OK? If I promise to worry, will you quit yelling at me?
Actually, you're referring to the dollar/pound exchange rate, not necessarily inflation in the US. Since most goods and services purchased in the US are denominated in dollars, not pounds, the relative strength of the pound has little to do with prices in the US. In fact, consumer and manufacturer price inflation is pretty low.
British products may be more expensive in America, but this only really affects the price of my cheesy comestibles. That's not trivial, but I can make do with less. In the meantime, you should take advantage of the situation and purchase cheaper US goods. I wish I could recommend a visit here to you, but ever since the "Department of Homeland Security" was created this country has had all the charm of a prison camp.
Exchange rates are rather volatile. When I was visiting Canada on vacation in Fall 2000, the USD:CAD exchange was 0.65 USD per CAD. Canadians I talked to were concerned about two things: that their currency was going to become worthless and that it looked like a bloodthirsty Texas redneck might get elected US president. At least their currency rebounded.
I am not a crackpot.
Getting rid of $1 and $5 bills is madness! Think of how it would affect the adult entertainment industry! You can't stuff a $1 coin in a G-string.
and if you say any cost is unacceptable, then you really aren't in mental acceptance of the obvious shortcomings of current us currency. any minimal cost involved in a changeover will be greatly overshadowed by the cost gains due to currency with a superior design: efficiency, ease of use, etc. but that you don't seem to give much weight to these factors brings me to point
#2. this argument baffles me. that the us currency must always look the way it does is a sort of mindset i can't comprehend. why is this so important to you? doesn't functionality and intelligent design trump sentimentality and nostalgia? it doesn't even make sense from a point of view of a traditionalist: look at how different us currency is from the 1800s. what did you say?: "There is a certain elegance and history to the look of the bills, which was established centuries ago." excuse me, what are you smoking? centuries ago? you need to familiarize yourself with the history of american currency to a level that a casual elementary school coin collector already grasps
you could be saying that the us needs to be conservative about its currency since its so important to the world economy. well that's completely wrong. #1: the euro has only been around for a few years and is already supplanting the dollar as the de facto currency for reserves/ exchange on the international market. so much for the value of tradition. and #2: counterfeiting, especially the extremely good north korean kind is an argument for a radical redesign in the interest of preserving the hegemony of the american dollar in international exchange. in other words, you have it completely backwards: international confidence in the dollar is served by radically changing its design, and is undermined by allowing it to stay the same, in its easily counterfeited form (for the excellent north korean forgers). recent changes to the $50, $20, and $10 in fact is exactly because of this kind of counterfeiting. too bad the us mint only considered counterfeiting, and not ease of use, in their recent redesigns (and so much for your vending machines can never change argument too right?)
i really don't understand sentimentality and nostalgia as the prime motivating factor when it comes to currency. frankly, who the f*** cares what the currency looks like? usability, a concept a website populated with techies should easily grasp, trumps all. or at least this concept should trump all, but it obviously doesn't with you. the concept that seems to trump all in your mind is inertia. i frankly don't understand how your thinking on the subject has any value. sentimentality and nostalgia are completely useless subjects on the topic
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
I was going to lay down a thick bed of sarcasm here, but instead I'll just ask you to consider the surveillance, privacy, economic, and tax implications of replacing a fungible, untraceable medium of exchange (cash) with one that's inextricably linked to your identity, records every transaction as an inherent part of the transaction, and can be watched in real-time from anywhere on the planet.
Reality has a conservative bias: it conserves mass, energy, momentum...
the equating of the look and the feel of the american dollar and its "heft" is just a subconcious connection that depends upon factors going on in your emotions, not in any intrinsic value to the actual design or look or feel of the bill. pick up a roman coin and you will think "gee, nice old coin" and thats it. but a germanic tribesman from roman times though would pick up the same coin and fell the "heft" you are talking about, because he equates that coin with the dominant military and economic machine of his time in his mind. same with you
you have no such equating going on in your mind about the roman coin. and that same germanic tribesman, upon seeing an american dollar, would not feel the "heft" you speak of either. he'd just think it was pretty paper, and probably wipe his ass with it. so the design of the dollar itself is not what gives you the feeling you get when you see it, it is your own mind. therefore, the design of the dollar can be changed, and 20-30 years from now, assuming the usa remains a strong country, a younger canadian tha yourself would feel the same "heft" you speak of, no matter what fruity colors a new radically different dollar would sport
i remember picking up a nazi coin in a friend's collection of coins when i was a teenager, and the thing had menace. i thought it was evil. it definitely had "heft" in my mind. but in actuality, it was quite worn and light weight and cheap looking, since the nazis needed all of their valuable metals for their war efforts. in essence, there was nothing intrinsic about the design of the nazi coin that gave it the "heft" i felt... in fact, it was quite cheap in design. my feeling about it was all psychological, and it all went on in my mind, and that feeling depended completely upon factors that had nothing whatsoever to do witht he actual look and feel of the coin itself. same with your feelings and the american dollar
in short, your canadian currency is superior to american currency. simply because its more usable than ours. and that concept completely trumps your weird psychological feeling of "heft" that you speak of
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
Horseshit. Inflation has exactly one root cause - the use of fiat ("non-specie") currency.
Horseshit. Gold has no more innate worth than any other currency. Not to mention that you can be proven wrong by example, namely that inflation was quite well known in economies in the past that HAD NO PAPER MONEY.
Long-term, productivity increases force prices down, not up.
That's quite correct, which is why you see inflation in recessions quite often.
Why is it worth less? Because the man behind the curtain has printed a few trillion copies of the dollars in your pocket, and handed them out to his best friends, making yours worth less/worthless. Wasn't that nice of him?
This is an incredibly simplistic view of things, and still doesn't go back far enough to the root problems of macroeconomics. The problem isn't some clown with a printing press (unless he's as dumb as Germany was between the wars; that's how they paid off their war debt and screwed their economy). The problem is that more money is coming out of banks and being spent than is being saved during an economic downturn, at the same time that fewer goods are being produced. This increases prices. Note that this effect would be the same regardless of whether the currency is digital, paper, gold, or cowrie shells. It doesn't matter a bit. This is something I'll never successfully pound through the heads of the gold nuts who have absolutely no grasp of economics.
The dangers of fiat currency are legion and well-known of old; we were warned, well in advance, that the establishment of a fiat currency provides limitless, subtle, and inevitably abused powers to its wielders. We're still being warned, today. Few listen, even as the signs of such abuse are evident.
This naive approach forgets that any currency, by definition, is NOT something of innate value. EVERY currency is a fiat currency. Go study the gold/silver fights in England of a few hundred years ago; that was the man foisting a gold standard on the populace to keep money at a denomination they couldn't afford, thereby disempowering the poor. Any currency can be wielded as a weapon by those in power. Also, if gold wasn't accepted as a type of currency, what the hell would you do with it? Make rings, for God's sake? That gold you're hoarding is only worth a damned thing if someone comes around and buys it from you. So it's still a fiat currency as much as anything else. Who says it's worth anything? Only those with a false sense of security who feel that a bit of metal will serve as their security blanket. And what happens if people decide they don't want it? It's not useful at all on its own outside of the semiconductor and jewelry industry. What do you do then?
If the shit really hits the fan, the only worthwhile currency will be food, so I suggest you cash in your hoard of gold and invest in baked beans and twinkies, those things last forever.
Allow me to expand on my concerns:
1) Now all people with whom I wish to conduct transactions need to be capable of accepting electronic money. I've bought several used cars in private sales from people who were unable to accept Visa. The possibility exists of introducing generally-available third parties who can mediate the transaction (as PayPal already does, obviously), but that introduces a new cost to the transaction that is not necessarily matched for either party: there's no benefit to me or the seller individually (though you could argue we derive an indirect benefit from the society-wide benefits).
2) All those transactions are now taxed. While some would view this as a good thing, an awful lot of transactions are performed currently that are not taxed, and, in my view, should not be. For example, I helped a friend paint his house a couple years back, and he paid me $100 (plus beer and pizza). I felt no ethical or moral obligation to pay income tax on that money, much less the taxes involved in being a seller of a good or service.
3) There are privacy concerns, as well. For example, who wants to tip a stripper with a credit card? How will she accept the money without disrupting the show? Even if the logistical hurdles are overcome, who wants that particular transaction recorded in a master government database? Or, more personally, who wants that transaction recorded in a place his wife can see it (as would be mandated under some states' financial regulations regarding marriage)? While you can make a case that these sorts of transactions shouldn't happen in the first place, I think such an argument ignores human nature - not to mention that even if true, since when is it government's job to curtail legal activities?
4) Truly illicit transactions become impossible to conduct in money. This sounds like a good thing (who wants to make heroin easier to purchase?), but I don't believe it would be. The transactions would still occur (if waiving most of your Constitutional rights isn't enough of a disincentive, I sincerely doubt lack of cash would be), but now they'd be in some more chaotic barter system. I suspect this would lead to increased violence.
4a) Moreover, the economic impact of that might be significant. How much construction, cleaning, and other menial labor is paid for under the table? I suspect rather a lot. I also recall finding out that the drug trade is Florida's second- or third-largest industry. Whether or not this is a good thing, suddenly taking that out of the economy would have potentially disastrous effects.
The most important thing, here, is I don't think society as a whole will, in the foreseeable future, shift over to an entirely electronic monetary system. Even if the US government goes for it, I strongly suspect there would be sudden, widespread adoption of non-fiat fungible currency, á la the liberty dollar for all the reasons I've already stated.
Of course, it's entirely possible I've just proved your point: the government should get out of the business of selling currency, and shift to an entirely electronic system. Then let the free market decide what kind of currency it wants to use.
Hrm.
Reality has a conservative bias: it conserves mass, energy, momentum...
Your grasp of macroeconomics is remarkably weak. We live in a world where more goods are being made every day, as China and India rev up their production. Go to your local car dealer, and look at the inventory piled up on his lot. Yet we have inflation, which is actually far higher than the government's posted CPI. (Government and business love to keep the CPI low, as it lets them avoid cost-of-living-adjustments.) Why? Because there is too much money being created, thanks to the US deficits and the fractional banking system.
Your statements contradict each other and fail to account for the fact that they take place at different timescales. We live in a world in which more goods are being made every *decade*. However, on a year to year basis, the GDP is quite capable of going down, which is a definition of recession/depression. If you're not aware of this,then you're not in a position to question anyone's understanding of macroeconomics. Second, while India and China do ramp up their production, that hardly helps our GDP, does it? Third, what the hell this has to do with money being created no one knows. If we were creating extra money, we wouldn't have the deficit but we would have more inflation. Instead, we have incredibly low inflation (check the numbers, it's below 4%), and a high deficit. So, through your line of reasoning using actual evidence that does exist, we should be printing more money. Fractional banking doesn't have that much to do with inflation, but if done wrong, results in banking disasters like teh S&L crisis in the 80s. This hasn't happened lately, so your evidence is woefully out of date.
Look at Great Britain from the end of the Napoleonic wars to WWI - a span of roughly 100 years, during which Britain was on a bimetalic standard of gold and silver. It cost 2p to mail a letter when Victoria ascended to the throne; it cost 2p when she died 75 years later. That's price stability. I paid C$3,500 for a Honda Civic in 1975; 30 years later, when presumably it should have moved way down the cost curve, it costs $15,000 for a base model. That's monetary inflation
Your examples are extremely weak, and the aggregate inflation in Britain over that period was not 0% regardless of what they chose to charge for a stamp. Your Civic example works out to under 5% inflation annually which is quite in the healthy range and fails to account for the fact that the 2005 model is a far better car than the 1975; the real rate of inflation on cars (assuming the same product in 1975 and 2005) is far less than 5% and quite likely would be negative if it were legal to sell a vintage 1975 car today. So again, your point is moot. There's no inflation there.
As for why gold should be used, it has many unique qualities. First, it makes pretty, shiny things that ladies have liked for thousands of years. So ladies want it. Men have learned that if they give ladies pretty, shiny things, they can get sex. So men want it. Gold is not too abundant, so scarcity makes it desirable. Gold is perfectly fungible - one gram of gold in China is exactly the same as a gram of gold in Burkina Faso. (Diamonds, for example, are also pretty shiny things that ladies like, but they don't function well as a currency because clarity, colour, flaws, etc. mean your 1 carat gem might not be worth as much as my 1 carat stone.) Gold is easily divisible into smaller amounts to facilitate smaller transactions, while retaining its value. (Gemstones lose much of their worth as they become smaller; check out the difference between the cost of a 1 carat solitaire at your local jeweler, versus a ring with "1 carat total weight" of teeny tiny diamond chips.) Gold, unlike copper or silver, doesn't tarnish easily.
Lame. The love of ladies for baubles is not enough to sustain a real economy in a time of crisis, which is the only time that any sort of paper economy would fail. If the revolution comes, metaphorically speaking, no one will care how much gold you have. Scarcity doesn't make a