The Penny vs The Dollar

April 8, 2017

Image result for pennyThe move is on again to get rid of the Penny from US Government official coin production.

Sen John McCain is sponsoring the Bill because currently, it costs around 4 cents to make a Penny. This is even though Copper prices today are down significantly over recent highs. Besides, the Penny was gutted many years ago, leaving almost zero copper in the coin anyway.

I expect that this round of Penny Pinching will come to naught just as past efforts have. Prior efforts were fought vigorously – and successfully – by the Illinois delegations in Congress. Remember that Lincoln, whose face appears on the Penny, is a state hero in Illinois.

OK, so if we are not likely to stop losing money on minting Pennies by stopping the minting of Pennies, how else can we achieve this worthy (if not monumental) goal? As you might expect, I have a suggestion.

Let’s start with the reason that production of the Penny costs more than the face value of the Penny. In 1913, during a poorly attended – Christmas Holiday – session of Congress, the Federal Reserve (the FED) was created. Since that time, the money supply has increased a couple of hundred times (that’s NOT hundred percent!).

With all that supply of legally counterfeited new Dollars, the value of each of those Paper Dollars has plummeted. Each Dollar today has the purchasing power of about 2 cents compared to a 1913 Dollar – and that’s even after 100+ years of innovation and productivity growth, which should have boosted the Dollar’s value over 10 times.

So, how does this relate to the Penny’s production costs? As the Dollar has lost value, the apparent costs go up. It takes more of those depreciating Dollars to make a Penny. What used to cost less than a tenth of a Penny to make, now costs 4 cents to produce, even with the cost cutting measure of removing most of the copper.

In numerous other countries – and even here in the US a couple of times – when prices have risen (Dollar has fallen) too much, they just cut off a bunch of zeroes – they revalue the currency. I think it is long past time to do a “reverse split” on the Dollar.

While it may be politically impossible to do a 1 for 100 call-in of current Dollars, I believe that a 1 for 10 revaluation would be quite doable.

Liberals could be sold on the idea if the current coins were kept. An old Penny would be 100th the value of a new, 10 times as valuable Dollar – the value of a Penny would go up by 10 times! Poor people proportionately have more US coins than rich people, so they would benefit more than the rich.

Conservatives would like the idea because it would expose the FED as a wealth stealing institution. And, that it stops losses in making the Penny – and the Nickel which costs about 14 cents to make – is an added bonus toward fiscal responsibility (not that it would go very far toward balancing the budget).

In the Grand Scheme of things, revaluing the Penny won’t make much difference. Prices will be cut roughly by 10 times, but there will be 1/10th as many Dollars. Wages would fall by 10 times, and the lower number of Dollars in the paycheck could buy the same amount at the new lower prices.

Tax rates and other numbers linked to the Dollar would be adjusted, and after the initial confusion, things would settle back in much as they are today – except without one of those zeroes in the money denomination vs value.

Still, it would be a way to stop minting Pennies and Nickels for more than the face value of the coins.

Robert (Bob)  Shapiro is self-taught in Austrian Economics and has consulted briefly for the governments of Mexico, Greece, Portugal and Spain. He has traded Gold & Silver and their stocks since 1970. Bob Shapiro’s blog is http://us-issues.com

Gold weakens on global cues and lackustre demand