Archive for the 'Monetary Policy' 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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Bernanke: No Way to Run a Railroad

Oct 04 2011 Published by under Congress,Monetary Policy

Today I had the opportunity to attend a hearing by the Joint Economic Committee with number two on my list of heros: Ben Bernanke.  It’s rumored that Mr. Bernanke wears red socks, a rumor that inspired my own collection of colorful socks.  And no, it is not a rumor that I dressed as him for Halloween a couple years back.  In any case, it was exciting to see and hear him in person.

While Mr. Bernanke answered most questions with surprising frankness, he dodged other questions that only served to put an exclamation at the end of his overall point: this is “no way to run a railroad”.

Mr. Bernanke confirmed our greatest fears: the current condition of the US economy (and the Euro crisis for that matter) is a political problem, not an economic one.  He reiterated that US debt was downgraded because of political brinkmanship, not from concerns about the US long-term growth.  One Member asked, what can Congress do? Mr. Bernanke’s reply: short-term fiscal stimulus, medium-term deficit reduction, and clarity about policies; the continuous threat of government shutdown… it’s no way to run a railroad.

Is Congress truly that dysfunctional?  If so, how has it come to this and what can be done about it?  What is clear, according to Mr. Bernanke, is that if Congress does not get its house in order, it will be the economy that suffers.





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