The media, blogs, and pundits who do not read government reports beyond the executive summary have shown their lack of journalistic credibility over the latest report from the Government Accountability Office titled Alternative Scenarios Suggest Different Benefits and Losses from Replacing the $1 Note with a $1 Coin (GAO-12-307 [PDF] published February 15, 2012).
The latest tome from the GAO is a followup to GAO-11-281, Replacing the $1 Note with a $1 Coin Would Provide a Financial Benefit to the Government published almost a year ago. It was a report produced for the Senate Committee on Banking, Housing and Urban Affairs and addressed to Sens. Richard Shelby (R-AL), Bob Casey (D-PA), and Tom Harkin (D-IA) after being asked to analyze the cost differences to the government using a dollar coin over the dollar note. In that report, the GAO estimated that replacing the note with a coin will save an estimated $5.5 billion over the 30 year lifetime of a coin.
Rather than accepting that report, Sen. Scott Brown (R-MA) used his position as the Ranking Member of the Senate Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, commissioned the GAO to rework the report under different condition. Sen. Brown asked the GAO not to add seigniorage to the calculation, reduce the report to cover ten years, and calculate the a one-to-one replacement rather than the 1.5 coins to one note replacement used in the 2011 report.
Seigniorage is the profit the U.S. Mint and the Bureau of Engraving and Printing earns on producing their products. It is calculated by the difference between the cost of producing the money versus its face value, which is what the Federal Reserve pays for that money. For example, the BEP reports that it costs 7½ cents to print one note. When they sell a one dollar Federal Reserve Note to the Federal Reserve, the BEP collects 92½ cents for that transaction. By law, both the U.S. Mint and BEP deposit seigniorage into their respective Public Enterprise Funds (see 31 U.S.C. § 5136 for the U.S. Mint and 31 U.S.C. § 5142 for the BEP). Both laws require the Secretary of the Treasury to deposit excess over what is needed for operations into the General Fund. Not only are these bureaus manufacturing money, they earn money that is deposited for the general use of the government.
Seigniorage is an important factor in the operations of the money manufacturing operations of the U.S. Mint and BEP which is why it is important in the analysis of any bill introduced in congress. This analysis is performed by the Congressional Budget Office. When the economists of the CBO to reads a bill and determine its effect the country’s budget, they are supposed to take every aspect of the bill into consideration. Since all coin-related bills requires the U.S. Mint to deposit its profit in their Public Enterprise Fund, calculating the effect that seigniorage has is required. If fact, when the CBO analyzed the Presidential $1 Coin Act of 2005, the “CBO estimates that replacing the Golden Dollar with the $1 Presidential coin would increase seigniorage by about $280 million over the 2006-2015 period.”
What Sen. Brown asked the CBO to do is to figure out what would happen if the U.S. Mint was to produce more coins but not count their profit what would the effect be. The answer is not based in any reality because if you do not count the profit (seigniorage) you are only telling part of the story. Basically, Senator Brown is asking to the CBO to use the sin of omission in an attempt to justify his policy position.
Remember, Senator Scott Brown is the junior senator from Massachusetts where the Dalton-based Crane & Co. is the sole supplier of currency paper to the Bureau of Engraving and Printing. Brown, who is completing the term of the late Senator Ted Kennedy, would never have been appointed the Ranking Member of any subcommittee as a freshman member except that he is a Republican who won a long standing Democratic seat. Brown is currently locked in a heated campaign against Elizabeth Warren (D) for the 2012 election.
It is clear that Sen. Brown changed the parameters of the original GAO report (GAO-11-281) as a way to stop attempts to replace the paper note with coin to use in his campaign for his senate seat as a favor to Crane & Co. Unfortunately, the media outlets who covered the release of this report has chosen to read the executive summary and skipped Page 1 that begins “Dear Senator Brown.”