Monday, July 25, 2011

Senator to Throw Away Half a Billion Dollars in Taxpayer Money To Repeal Presidential Dollars

The idea seemed pretty good at the time. Produce a series of Presidential dollar coins at 32 cents apiece and sell them to the public for $1.

It's called seigniorage and it is simply defined as the difference between the "value" of money versus the cost to produce it.

At 68 cents per coin, the seigniorage for Presidential and Sacagawea coins is pretty large. With well over a billion dollar coins currently sitting in government vaults, we are talking about well over half a billion dollars in seigniorage.

Just Too Heavy for our Pockets

However, seigniorage means nothing if the government can't get those coins into circulation and that's where the problem lies. People aren't using the coins and banks aren't ordering them. People prefer the dollar bill in their pockets.

So the coins produced are being stored in Federal Reserve vaults. The Federal Reserve is planning to spend hundreds of millions of dollars just to build new vaults to store more of the coins.

Apparently Congress has just figured out that the Presidential dollar program is not going well and Senator David Vitter, R-La, introduced a bill last week to repeal the 2005 Presidential Dollar Coin Act. If Senator Vitter gets his way, we may never see a John F. Kennedy or Ronald Reagan Presidential dollar coin.

Now I believe this is a mistake and any Congressman who voted for the 2005 Act and who now votes for the repeal needs to be sacked in the next election.

Why? Because they are being idiots twice.

Presidential Dollars Doomed from the Start

First, we all knew that the dollars coins would fail and never circulate. It comes as no real surprise that the coins would simply pile up in storage.

Other countries have successfully introduced their versions of the dollar coin and have given us a blueprint on how to do it.

Just look to the north and you can see that Canada not only has the "Loonie" (1 dollar coin), but also the "Twoonie" (2 dollar coin). But we doomed our dollar coin from the start by not following their's and other countries's examples.

What did we do different?

We didn't kill the dollar bill. Old habits die hard and the only way to make the American people accept the dollar coin is to remove the dollar bill. The Susan B. Anthony dollar taught us that, and the Sacagawea dollar hammered the point home.

Half a Billion Taxpayer Dollars in the Trash

Second, we now have over half a billion dollars in seigniorage going to waste, and storage costs quickly eating away at that seigniorage. So what does Senator Vitter and others that support his bill want to do?

They want to throw in the towel half way into the program and forfeit all that seigniorage already produced. Since the coins will certainly never circulate if the program ends, then we definitely won't get that half a billion dollars. We'll either melt the coins or keep paying storage costs.

The Solution is Quite Simple

It seems to me that their is a much simpler solution. One that finally has the U.S. Taxpayer benefiting from all that seigniorage and gets rid of all those pesky storage costs.

Oh, people will gripe for a little while like they did in Canada . . . and in Great Britain . . . and in Australia . . . and in all the other countries where this solution has been tried. But in the end, those countries succeeded where the U.S. has failed.

The solution is really quite simple. Keep the dollar coin and cancel the dollar bill. The existing coins will circulate and you will reap the half a billion in seigniorage that has already been produced, not to mention future seigniorage. And this doesn't even take into account the savings that a recent GAO report says we will save by replacing the dollar bill with the dollar coin. According to the GAO report, the savings could amount to some $5.5 billion. 

And while as a coin collector I like the new shield reverse penny, you might as well throw it out too. I hear it costs almost 2 cents to make just one, and we made billions of them last year. Now that's seigniorage we can do without.