Wasting a mint at the US Mint

"The only thing more shocking than the waste in this video is the fact that the report came from the MSM" - American Glob blog.



Short course: The US Mint, in compliance with a 2005 statute, spends $600,000 per day to make presidential dollars that are immediately placed into storage, not circulation. The Mint spends millions of dollars just transporting the dollar coins to storage and is about to spend another potful of money to build another warehouse.

The coins, of course, are made of an alloy of base metals and are therefore worthless in themselves.

The solution, ISTM, is to get the Mint out of making coins in denominations higher than 25 cents unless they are made of silver or gold proportional to their face value.

Fine silver or gold US Mint coins sell out completely. Example: in 2008 the Mint was authorized to strike and sell 2009-dated Ultra-High Relief Gold Eagle coins of one ounce of .999 pure gold. But the authorization did not continue after a specified run to be completed in 2009 - there were no 2010 coins or later.

These were collector, bullion coins denominated at $50 and are legal tender. Needless to say, the Mint did not sell them for $50! Spot gold was just under $1,000 then, and the coins sold for a premium above that. (I bought one, the limit per household, for $1,280 in February 2009, and it still sits in my lockbox. You can buy one on eBay if you wish, but gold spots now at almost $1,800.)

If the government wants dollar coins to circulate, it needs to make them with a dollar's worth of silver. That means that the government would have to take steps to stabilize the price of silver (leaving high-profit sales of gold coins as collectibles). Should the Mint buy silver every month or so at the spot price? Of course not; that would not stabilize silver's price.

But say the Mint was to strike a billion silver-alloy dollars. The government could announce it would buy silver at $30 per ounce, which is about where silver's spot was earlier this month. That would be a purchase 33,333,333.3 ounces, so that each dollar contained 1/30th ounce of silver. (The days of the one-ounce silver dollar being worth a dollar are gone forever.) This would stabilize the value of the dollar immediately and people would take them off the Mint's hands - no warehousing required.

Of course, there are some issues:

1. If the Mint is to buy silver at $30/ounce, what will it use for payment? Can't use silver for obvious reasons. Paper dollars? Why would a silver refiner take paper dollars to hand over silver metal that will be converted to hard dollars? (It would make sense in this way: paper money can be electronically transferred so that actual printed dollars need not actually change hands, but hard money can't.)

2. Silver has production costs that are incurred regardless of the spot price or the government's prospective price. A fixed buying price may depress rather than increase raw production of silver ore.

This highlights the difficulty of moving to gold- or silver-backed dollars that most hard-money advocates overlook.