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mickeyman
Penny Pincher Member
Canada
243 Posts |
 Posted - 04/23/2008 : 10:50:00
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Here is an interesting take on an old problem. We can save the penny by doing away with paper money.
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Two Cents on the Penny
Daily Article | Posted on 4/21/2008 by Max Raskin
It costs money to make money. This fact is not only true for businessmen, investors, and entrepreneurs, but also for the moneymakers themselves — the Department of the Treasury.
To print bills or mint coins, the United States Mint and Bureau of Engraving and Printing must purchase all sorts of resources, including paper, ink, equipment, and metals. In the case of bills, these purchases are an insignificant fact because it takes very little to add on an extra zero to cover the costs.
Coins, however, are different. The price of the zinc required to mint pennies has been steadily increasing; according to a recent article in the New Yorker, the cost of producing a penny is now 1.7 cents — it costs nearly two pennies to make one. Producing a coin at a higher cost than the value of the coin itself is known as "negative seigniorage." This phenomenon has led many to question the continued existence of the penny and suggest it be abolished. Understanding negative seigniorage in economic terms will lead to an opposite conclusion: hundred dollar bills should be done away with.
(the article continues)
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Not all who wander are lost. |
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 04/23/2008 : 13:00:35
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There is no seignorage on paper money. Paper money is an IOU of the Federal Reserve Bank, which is an entity of the U.S. government. The FRB has U.S. government debt backing that IOU for the most part (they have some other assets but they are a small % of total assets).
So if you follow the trail, those paper dollars are only a claim against the U.S. government's ablility to tax its citizens. Printing more notes does nothing, but change U.S. treasury bills to Federal Reserve notes. That is why the U.S. government can't default on its debt. It really doesn't owe anything. All they have done is promise to give someone a different IOU for their current IOU.
They only way to remove the debt is to tax the citizens. The problem with it is if you run budget surpluses, then you are decreasing the amount of government debt (which is the real money supply--all the rest is created by banking system which makes it debt of someone else). All current money is basically an IOU from someone. That is what gives it its value. That person or entity has to get dollars to repay its debt.
That is why debt in general is inflationary and repayment/default is deflationary. Think about the only time the U.S.A had big time deflation.... 1930s. There was mass defaults from all the excesses of the 1920s. Since then....debt levels have increased and inflation was created.
If you don't want inflation, then tell your congressmen to stop spending more than they tax. That will stop it.
The federal reserve doesn't really control the money supply. Congress does by their spending. All the federal reserve does is try to control their inflation by spreading it out over time by controling interest rates.
You don't agree? Think about it this way. If Congress stopped spending more than taxed, then the Federal Reserve would be limited to creating only $10 trillion worth of Federal Reserve notes or the current amount of treasury debt. After they owned all the U.S. Treasury bills, then that is it-- they are powerless. If they started buying other debt, then the notes wouldn't be backed fully by the U.S. government. People wouldn't like that at all...their money would have credit risk then.
I think a lot of the blame that gets thrown on the Federal Reserve is really Congress's fault. Since 2000, the amount of national debt has almost doubled--that might be why the dollar started tanking. The Federal Reserve didn't spend that money.... Congress did.
-SWUSC |
`Everybody is ignorant. Only on different subjects.' Will Rogers
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." Alan Greenspan, 1966. |
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eharrison
Penny Pincher Member
USA
234 Posts |
Posted - 04/23/2008 : 23:04:32
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hmmmmm. Nice batch of mind food there.
I think next semester I will be taking more history/econ. classes and get "more edjumucated" about the nuances and specifics concerning, well our economy.
There is so much blame to go around, concerning the free fall of our currency, and yes most lies with congress. Congress is the only reason that the Federal Reserve exist in the first place, and only they can get rid of it. |
Freedom is popular
That's why I voted
Ron Paul! |
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Negative seignorage and the penny
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