US Treasury to Debase Coins

So policies of inflationism will not be restricted to the US Federal Reserve. The US Treasury as producer and minter of coins, proposes to join the FED by resorting to an age old trick of clipping or shaving the contents of the coin—or debasement—in the pretext of budgetary savings.

Here is the Wall Street Journal Blog (bold emphasis mine)

Geithner, in written testimony prepared for the House Committee on Appropriations, said a good portion of next year’s savings at Treasury will come from changing the composition of U.S. coins to more cost-effective materials.

“Currently, the costs of making the penny and the nickel are more than twice the face value of each of those coins,” Geithner said in his remarks.

The cost of making pennies and nickels are about twice the face value of the coins–2.4 cents for a penny and 11.2 cents for a nickel, the Treasury Department said earlier this month. Rising commodity prices have driven higher production costs. The Mint said it used 16,365 tons of copper, 2,311 tons of nickel and 11,844 tons of zinc to produce all coins in fiscal year 2011.

Changing the makeup of coins and improving the efficiency of currency production will save more than $75 million in the next fiscal year. In addition, the suspension of presidential dollar coin production, announced in December, will save another $50 million.

In reality, debasement is currency devaluation or inflationism, albeit in an archaic sense.

The great Professor Ludwig von Mises wrote (highlights mine)

Mintage has long been a prerogative of the rulers of the country. However, this government activity had originally no objective other than the stamping and certifying of weights and measures. The authority's stamp placed upon a piece of metal was supposed to certify its weight and fineness. When later princes resorted to substituting baser and cheaper metals for a part of the precious metals while retaining the customary face and name of the coins, they did it furtively and in full awareness of the fact that they were engaged in a fraudulent attempt to cheat the public. As soon as people found out these artifices, the debased coins were dealt with at a discount as against the old better ones. The governments reacted by resorting to compulsion and coercion. They made it illegal to discriminate in trade and in the settlement of deferred payments between "good" money and "bad" money and decreed maximum prices in terms of "bad" money. However, the result obtained was not that which the governments aimed at. Their decrees failed to stop the process which adjusted commodity prices (in terms of the debased currency) to the actual state of the money relation. Moreover, the effects appeared which Gresham's law describes.

Here is a visual of coins and currency in circulation in the US…

you can see the original graphics here, although the chart has been based on 2009 data.

My further comments:

Compared to the past where debasement of coins had been conducted surreptitiously by kings, the US Treasury like the Federal Reserve, has been, and will be doing this unreservedly.

As one would observe, whether the US Federal Reserve or the US Treasury, inflationism has been inherent to the actions of political agents

The public will hoard current coins which will spontaneously vanish from circulation as new debased coins will circulate. This is the Gresham’s Law at work.

As testament, hedge fund manager Kyle Bass has reportedly accumulated $1 million dollars worth of 20 million (5 cent coins) nickels.

More people will be looking for old coins as alternative path to preserve wealth. This comes amidst political actions to redistribute wealth for the benefit of politicians and at the expense of the public via rampant inflationism.