My $.02
by
Heather Koerner
on Mar 28, 2008 at 1:59 PM
It used to be a penny for your thoughts. Then, somewhere along the way (inflation, maybe?) it became "giving your two cents."
Come to think of it, I think I've seen several of you give your $.02 on this blog.
Well, whether it's one penny or two, it seems that our thoughts are worth even more than we thought. Thanks to the rising cost of metal, it now costs the U.S. Mint 1.7 cents to create a penny. Evidently, the Mint went $33 million in the hole in FY2006 on penny and nickel production, and $99 million in FY2007.
Congress has decided this is bad math. Two weeks ago, they held a hearing on the "Coin Modernization and Taxpayer Savings Act of 2008." (So like politicians, they couldn't just stop at "Coin Modernization.") It would give the U.S. Treasury the authority to tweak the weight and composition "of any coin whose production costs exceed its face value for five consecutive years" and would require the production of steel pennies (right now, they're copper-plated zinc) within 180 days of the bill's signing.
Of course, there is controversy. This is the government, after all. But, keep your eyes alert. You may be handling steel pennies in the foreseeable future.
And, until then, remember: Our two cents is actually worth 3.4. Nice!
1. mindlab had the following to say on Mar 28 at 2:34 PM:
Actually, this has been the case for several years, and explains why it's now illegal to melt US coinage. Some 'enterprising individual' started selling scrap zinc copper and the Department of the Treasury got curious. . .
2. Will had the following to say on Mar 28 at 2:48 PM:
While it might cost the mint 1.7 cents a penny, the actual metal value of it if melted down would only be about 0.006 cents...
Oh and just as a interesting FYI, 1909-1982 pennies were 95% copper and with copper prices on the rise, currently a penny from those years has a metal value of 2.6 cents. Don't think about hording older pennies in hopes of melting them down for double their Treasury face value though. The mint passed a law against it last year with some pretty stiff penalties.
http://money.cnn.com/2006/12/14/news/melting/index.htm
3. EKB had the following to say on Mar 28 at 3:01 PM:
I wish they would just abolish pennies and round to the nearest nickel. One cent is almost worthless, and the pennies I get in change fill up my wallet and pockets. Whenever I try to actually use them and other small coins, the time this takes understandably annoys the people behind me in line.
4. Andrew R. (aka Canadian Boy) had the following to say on Mar 28 at 4:09 PM:
I've always wondered:
a) How do they pay for the materials for which they make money? With... money? ("Thanks for giving us all that paper. Here's a small portion of the paper back with the number 100 and a dollar sign on it.")
b) How does money made in the mint enter the economy?
c) Did you hear the workers at the mint are going on strike? They're complaining about making too much money. ;)
5. Jo had the following to say on Mar 28 at 5:50 PM:
The phrase I always heard (our equivalent of 'to give your two cents') was 'to give your tuppence worth' - ie two pennies. And because of the exchange rate, two English pence is roughly twice as much as two American cents, which obviously makes my opinion twice as important as all of yours. :P
6. Ethan had the following to say on Mar 28 at 5:51 PM:
snails are slow
7. Adam T. had the following to say on Mar 28 at 6:15 PM:
b) How does money made in the mint enter the economy?
Whoa - you totally just blew my mind.
:O
8. tom had the following to say on Mar 28 at 7:14 PM:
EKB (#3)
You're right. We really don't need pennies anymore. In fact, the Treasury floated the idea a few years ago to eliminate the penny, but the congress people from the states where the copper and zinc are mined prevented the plan.
You're paying this money solely because certain congress people want to protect home state jobs. Never mind what it means for the rest of the economy.
Now we also need to eliminate the paper dollar and mint dollar coins that people will actually use. We spend vast amounts of money printing dollar bills that stay in circulation for only a short period of a few years. Once the come up with a dollar coin, they need to withdraw paper dollars from circulation and force vending machine manufacturers to make machines that accept dollar coins.
9. BDB had the following to say on Mar 28 at 7:14 PM:
Andrew R. (#4) wrote:
>>b) How does money made in the mint enter the economy?<<
They go from the Mint to the Federal Reserve, who then distributes them to the banks in exchange for other things (like worn-out dollar bills.)
http://www.federalreserve.gov/generalinfo/faq/faqcur.htm#8
http://en.wikipedia.org/wiki/U.S._Mint
10. Anakin Niceguy had the following to say on Mar 28 at 7:43 PM:
This is a good example of how the government defrauds us through the devaluation of money. I consider this matter a moral issue. See a good article on dishonest weights and scales, and the necessity of a fixed monetary standard here ...
http://www.lewrockwell.com/orig7/beane2.html
11. A.M.C. had the following to say on Mar 28 at 8:13 PM:
Re: EKB
>I wish they would just abolish pennies
>and round to the nearest nickel.
While I'm not against this idea in principle, we also have to consider the effect of rounding to the nearest nickel on the poor. For them, a few cents could add up...
12. Grays had the following to say on Mar 29 at 8:17 AM:
Money is basically a stupid idea. =\
13. Mike Theemling had the following to say on Mar 29 at 11:25 AM:
I agree that abolishing the penny (ironic isn't it, using the word "abolish" with Lincoln on the penny?) wouldn't be a bad idea. We would certainly have a short-term spike in inflation (because business would tend to "round up" before "rounding down" to adjust) but we'd get used to it. And most transactions now (even retail unless you are paying with cash all the time) are done electronically. Finally since most machines don't accept pennies anymore (such detection devices were based on weight and/or metallic properties) there'd be little reason to keep them around.
Interesting factoid that "steel pennies" used to be in circulating during WWII because the copper was needed.
Also I remember a 60 Minutes segments on the penny. An MIT guy did analysis on what the penny costs us and calculated that on average each American spends 2 hours dealing with pennies and thus costs us about $10 billion dollars of productivity each year (still peanuts compared to web surfing and Solitaire).
"How do they pay for the materials for which they make money? With... money? ("Thanks for giving us all that paper. Here's a small portion of the paper back with the number 100 and a dollar sign on it.")"
Ever since we (and the rest of the world) have abandoned the gold standard all currency is essentially fiat currency. It only has value because people believe it to have value. And as stated earlier, money enters circulation via the Reserve Banks (there are about a dozen of them nationwide) and they distribute that money to regular banks.
14. Dave had the following to say on Mar 29 at 1:42 PM:
Fiat money is basically a stupid idea (money with nothing of value backing it...like gold, silver, or other precious metals....) money itself was a great development which has allowed for a great diversification of labor, which allows us to make different products and/or services, and exchange them for money...(for example, without money and only bartering at work...what if I made hats and you provided food - farmer - are you really going to want to give me your food and receive a hat just so that I can eat? Probably not...perhaps I made something you didn't want at all...well with money, it doesn't matter what I produce or whether you like it or want to trade for it, because I can sell my hats to someone else who does want them...not accepting their product, which I nor you might want to trade for, instead I will be trading for their money, and then use that money to purchase your food...
Basically, without money....everyone would need to produce something everyone else needed....no luxury items, technological advances would also arise only out of necessity...and rarely. Thus, everyone would need to be self-sufficient and still a barter system would be necessary (droughts...radical weather...parties)
15. Mark had the following to say on Mar 30 at 6:30 PM:
tom,
They do mint $1 coins. Every time I put $10 worth of credit on my MBTA Charlie (subway) card with a $20 bill, I get my change in dollar coins. They're nice in concept until you take your first step and they start jingling in your pocket. Pretty handy for toll booths, though.
16. Amelia had the following to say on Mar 31 at 2:45 AM:
You Americans really need to get into line with Australia. We got rid of 1 cent coins ages ago, and $1 notes way before that (Did we ever have $1 notes? I don't even know. A coin just makes more sense). And our economy is doing pretty darn well, as far as I know (economics is boring). And with a population less than 10% the size of yours! Lessons to learned? I think so. Am I feeling somewhat superior right now? Yes. Yes I am.
17. kaj had the following to say on Mar 31 at 11:12 AM:
Re: Comment #16:
When I was in Australia five years ago, I was pretty impressed with how Aussies had figured out the whole rounding thing with no one-cent coins.
And I was even more impressed that nearly everywhere I went, GST (the Australian equivalent of sales tax) was already included in the price of nearly everything. The price one saw was the price one paid!
Some of my Aussie mates who did make it to the States complained how all the US currency looked alike.
(For Americans, Australian banknotes are not only different colo(u)rs, they are also different sizes, with the $5 bill being the shortest and the $100 being the longest)
18. Christina (in green) had the following to say on Mar 31 at 12:03 PM:
Kaj,
Where the different color thing wouldn't bother me, my perfectionist nature cringes at the thought of having pieces of paper in many differing sizes stacked together in my wallet...
I think I'd have a serious OCD moment on that one...
19. BDB had the following to say on Mar 31 at 12:29 PM:
Dave (#14) wrote:
>>and still a barter system would be necessary (droughts...radical weather...parties)<<
I can see the cable TV commercial now: come get a new Chevy Malibu - only 300 chickens down and 50 chickens a month!
Christina (in green) #18 wrote:
>>I think I'd have a serious OCD moment on that one...<<
Ha! I can see the headline now: American engineer hospitalized after counting money in Paris...
But seriously, now that I think about it, when purchasing a new wallet recently, I saw one tht specifically mentioned that it was the right size to handle both European and American currency - I don't know when I'm going to Europe but I figured - plan ahead!
20. Alex C. had the following to say on Apr 1 at 1:07 PM:
replying to Dave in post 14: I'd be interested to hear you explain why you believe fiat money is a stupid idea.
My feelings probably don't have too much economic backing (societies have, after all, survived for quit a long time using commodity and representative money) but I've always thought fiat money made the most sense because it makes sure (at least in most cases) that what your using as money isn't valued in and of itself. I don't want money because of its own value; I don't want to eat it, or smoke it, or look at it, I want it so I can exchange it with someone else for something I will use. It always seemed to me that if you had money based on some standard, or full out commodity money, you could have the risk of "consuming" your money supply, since some people would want your currency (be it Gold, Silver, large rocks, cigarettes, or whatever) for its own use, rather than as a medium of exchange.
Fiat money of course has the risk of hyperinflation, if the goverment decides to go crazy with the printing presses, but setting money to a standard like gold has its own difficulties, mainly that it takes a lot more effort to maintain the money supply. We'd have to invest more productive effort into finding gold or other precious metals in order to increase or maintain the money supply, and finding a large amount of it would still cause inflation. Plus, allowing the supply of gold to remain constant or decrease at certain points could run the risk of "deflation", which some economists would argue is just as problematic. From what I learned in my classes, the risk of deflation was the main reason we went off the Bretton Woods system of Gold in the early 70s' (the economy was growing quickly, but the supply of gold was stagnating)
I read the "Dishonest Scales" article linked to in post 10, but I don't think its very convincing. I'd really like to know where he did his research for the article because it seems rather hard to believe for me, and I think I found one big mistake; he's trying to equate the "value" of gold to the "value" of weights and measures like feet, pounds, gallons, etc. which can't be done. The "value" of gold is related to the supply of gold, and changes, just as the price of any other commodity changes based on supply and demand. The "values" of weights and measures are not subject to the same forces as prices. And his assertion that we never had inflation until 1913 is extremely hard to take seriously. Inflation is possible even with a gold standard, just increase the supply of gold faster than the growth of the economy. Also, his article seems to be about the problem of going off the gold standard, and points to the creation of the central bank after WW1, but we were still on the gold standard, in accordance with the Brenton Woods system, until the early 70's, as I mentioned above. Maybe his article should have focused more on Fed, instead of all the stuff about gold and measures.