Archive for the 'Executive' Category

The Hidden Cost of Saving Pennies

Nov 25 2011 Published by under Executive,Monetary Policy

Do you remember the last time you were handed pennies as [part] of a handful of coins when breaking a bill?  Do you remember what you did with them?  They may have ended up at the bottom of your purse, or in your pants pocket, or perhaps stuffed in the seat cushions of your car.  Or like many pennies, they find their way to a large coin jar collecting more dust than interest.

No one would blame you.  Pennies are the most worthless coin ever minted in the US.  Over the years, the persistent gnawing of inflation has erodes the value of currency.  They are not even worth the metal they are made of.  In fact, since it costs about two cents for a penny to be made, the seignorage (the “profit” made from selling currency at face value) is a negative one cent for each penny.  In other words, while the US Mint usually makes money on selling currency, it lost $28 million to produce four trillion pennies in 2010.   So why does the US Mint keep making more of them?

One reason is that people don’t use them.  That is, once a penny is received as change, it tends to disappear from the money supply (and perhaps reappear rattling around a clothes dryer or vacuum cleaner).  With so many pennies sitting unused in jars, boxes, or drawers, the US Mint must produce more so that stores can continue giving change denominated to the nearest 100th of a dollar.

So do your duty and either use the pennies you have, use a credit card, or tell your cashier to keep the change.

Update: For fiscal year 2012, the government spent nearly half a billion dollars to produce pennies and nickles (which cost about ten cents to mint and distribute).  Please, think of the future of this country and refuse change.

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Why Can’t We Wait?

Nov 01 2011 Published by under Congress,Executive

This week, President Obama changed his mantra from “pass this bill” to “we can’t wait”.  He pushed through new rules to help both underwater homeowners and students burdened by debt in an effort to make something happen.  Now these new rules will likely only make a very small difference (only Fannie/Freddie mortgages will qualify and there was already a 15% discretionary income cap available to most student debt), but this change in mantra signals a huge shift in how the Executive branch intends to operate.

Obama’s Presidency has so far been characterized as “leading from behind”, in effect prodding at Congress to do what it ought.  But “pass this bill” seems to have been the last friendly prod.  “We can’t wait” coupled with the new rules is the opening shot in what may become an Executive power grab.

Historically there has been a power struggle between all three branches of government, with Congress generally holding most of the power.  Through most of the 19th century, a person had more power and influence as a senator rather than a president.  But in times of national crisis, the Executive has seized considerable power, most notably Lincoln during the Civil War and FDR during the Great Depression and WWII.  Since FDR, there has been a very palpable power struggle between the Executive and Congress with power flowing much more freely than it had prior.  Does the current Great Recession require greater intervention from the Executive, and if so, what are Mr. Obama’s intentions for gathering the power necessary?

It seems he’s testing the waters.  While some argued that Mr. Obama should have seized power during the debt ceiling crisis (including former President Clinton), he did not yet seem ready or willing to do so.  But Congress has still been unresponsive in any substantial measure  and the brinksmanship still remains on the forefront.  So keep an eye out for the Executive Order power play and populist appeals.  Will Mr. Obama consolidate enough power from Congress to enact his strategy for combating the Great Recession or will Congress fire back and fend off the incursion?

For now, it will be like watching two great defensive sports teams: lots of parrying and dodging, but if a strike should occur, it could be game changing.  I, for one, can’t wait.

 

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