Jan 28, 2010 | CCAC, coin design, policy
My last blog entry, CCAC Dropped the Ball… AGAIN! appeared on CoinNews.net and generated an interesting response from Gary Marks, a member of the Citizens Coinage Advisory Committee. Mr. Marks writes:
As a member of the CCAC, I read Scott Barman’s article, “America the Beautiful Quarters, CCAC dropped the ball again” with great interest.
According to Berman, [sic] his opinion about the CCAC’s actions concerning the call to put Theodore Roosevelt on the obverse of “America the Beautiful Quarters” stems soley from his reading of an article entitled, “Debate rages in coin world: Theodore Roosevelt or George Washington on new quarter?”, published on January 20th.
Although he might have read the January 20th article, I was left to ponder if he might have misread or inadvertantly skipped over a part of it. His conclusions seem to suggest that he might have missed the following key sentence from the January 20th article, “Unfortunately, the change attracted no support in Congress, which initiates all changes in U.S. coins, including denominations, size, weight, metallic content and subject.” The key phase here is “the change attracted no support”.
Berman [sic] writes, “I am sure that members of the CCAC will ask that if there is no support for the design then why propose it?” The statement seems to suggest that Berman [sic] is unaware that the committee actually proposed it. But once we proposed it, it fell flat. No support materialized. Yet, Berman [sic] interprets the lack of support this way: “the CCAC wilted at the chance to refresh the sameness of the one coin’s design”. Did the CCAC wilt? I think not. We were the committee that started this discussion in the first place by making a bold recommendation! Yet, when no support materialized, the committee was faced with the option of “tilting at windmills” by trying to breathe life into an idea that was clearly and unfortunately dead, or to move on and consider doing something else to refresh the quarter obverse – like making improvements to Washington’s image. The committee is currently considering the latter.
Contrary to Berman’s [sic] interpretation of this situation, the committee did exactly what it was suppose to do – it provided independent advice based on what we thought was best for American coin design. But that advice was not taken.
Is refreshing Washington’s image an option with the same excitement as placing Roosevelt on the Quarter? Clearly not. Is it an idea that might actually have a chance of happening? Yes. Will it be an improvement over the “spagetti” [sic] haired Washington that currently exists on the quarter? Yes. On that basis alone, it is worth pursuing.
In my response to Mr. Marks, I followed up with:
I read the article correctly, Mr. Marks. I read the statement you emphasized and drew my conclusion from the statement and the information in the article.
Mr. Marks then said, “The statement seems to suggest that Berman [sic] is unaware that the committee actually proposed it. But once we proposed it, it fell flat.” How would I know that that the CCAC proposed this? Where was the reporting? Better yet, with the various directives from the President on the executive branch toward open government, then why aren’t the CCAC’s documents available on the web? What is on the web is so sparse it is difficult to understand what happened at the meetings. Maybe, if the CCAC published their materials on the web the concerned public would be able to understand what is happening without relying on the word count limitations of a non-numismatic publication.
I have heard the comment about the new design being better than Washington’s “spagetti” [sic] hair used since 1999 from another CCAC member. I am glad to know that the CCAC has coordinated its talking points on this consolation prize. Of course Washington’s spaghetti hair would not be an issue if Teddy Roosevelt appeared on the quarter’s obverse.
For the record, I have “applied” to gain access to the artwork presented to the CCAC. Unfortunately, the US Mint, which manages this process, does not recognize bloggers in the same manner as journalists and my application was denied. Therefore, if the CCAC wants me to comment on the facts, provide them to me in a timely manner. Otherwise, you are a victim of your own bureaucracy which does not change my conclusion.
I invite the CCAC, including Chairman Mitch Sanders and representatives from the US Mint, to an open discussion on the issues of open government and how that could best provide their materials to the numismatic public for a better understanding of why filtered information garners responses they do not agree with.
Nov 6, 2009 | coins, commemorative, policy, US Mint
As part of the restructuring of the US Mint, the area of commemorative coins have to be a significant concern. With both the classic and modern commemoratives, congress could not help itself by using commemorative coins as a form of fundraising for pet causes. While some of the beneficiaries of the funds are worthy, others have caused significant controversy. Additionally, there were commemorative programs that have lost money for the US Mint causing more losses than what has been seen in the cent and nickel.
The first reform in commemorative coinage would be that no commemorative would be struck for the sole purpose of raising money for any organization. Regardless of how worthy the organization may be, the association of the commemorative with fundraising taints the process. Thus, this proposed reform recommends that no commemorative coin may be proposed with the purpose of fundraising.
Once the commemorative coin has been approved, related groups may petition congress to attach their organization to the commemorative for fundraising purposes. If congress approves, the organization will be paid for the profits beyond the cost of manufacturing, packing, and distribution of the coin. The US Mint must be able to recover their costs before any money is distributed to the approved organization. Payments will be made quarterly after the US Mint has broken-even. As part of this plan, the US Mint holds back 5-percent of the dispersal in order cover future expenses. When the sales of the commemorative coins are complete, the US Mint’s costs will be recalculated and the remainder will be paid to the approved organization.
Before choosing an organization for fundraising, the commemorative coin must be selected. Since congress has bungled this over the years, congress should no longer select topics or how the program is to run. As part of the reformed commemorative coin laws, the congress sets parameters for how commemorative programs and leaves the decisions to the Citizens Coinage Advisory Committee. When the CCAC makes their selection, the process will be limited to something of national interest. It may be something relating to history (e.g., War of 1812), the anniversary of a government institution or program, someone of national historical significance, or a building of national importance (e.g., the Capital Building, White House). The commemorative must be something representative of the national interest.
All commemoratives will be proof strikes. There seems to be no purpose to uncirculated commemorative coins nor is there a purpose for clad commemorative. Commemorative programs may contain up to four coins with the priority being $1 silver, $10 gold, half-dollar silver, and $5 gold. In this scenario, if the commemorative program is to only have three coins, then the $5 gold coins would not be used. If the commemorative is used for a fundraiser, the US Mint will add a $5 premium for the half-dollar, $10 premium for the dollar, $25 premium for the $5 gold coin, and the $35 premium for the $10 coin.
Because it may be impossible for the egos in congress to remove themselves from the commemorative process, the law should allow that they be given the ability to vote in one commemorative program per year. As opposed to their current practice, a congressional commemorative program may specify everything except the design and where the coins will be struck. The design will be created by the CCAC and the US Mint engravers to match the theme of the program and the branch mint used to strike the coins will be selected by the US Mint in a manner to make efficient use of the facilities.
As part of the transition, any commemorative program passed by congress prior to the restructuring will be issued as required by the enacted law. However, those commemoratives will count against the one program that congress is allocated per year.
Fixing the commemorative coin program is a combination of making it relevant and removing the fundraising aspect of the programs. With the compromise of allowing congress one commemorative program a year and giving them the ability to add a controlled fundraising aspect after the fact, this should prevent commemorative coins from becoming irrelevant.
The restructuring continues next with the bullion programs.
Nov 5, 2009 | coin design, coins, policy, US Mint
Now that the US Mint has been reorganized, it is time to strengthen the product line. The US Mint’s primary product are the circulating coins that are sold to the Federal Reserve. At this moment, there should be no changes to the required denominations and composition. Although there have been recent issues with the rise in the costs of zinc and nickel that affected the seignorage of the one and five cent coins, the US Mint produces enough coins in other denominations to mitigate those losses. Business calls selling a product at or below it manufacture price is called a loss leader. As long as the US Mint is meeting its obligations to the Federal Reserve, it is not a problem for the US Mint to downgrade the cent and nickel to loss leader status.
Numismatists are most vocal over the design of the coinage and the number of rotating series that drives up the costs to collectors. In order to add sanity to the process, there must be some rules. Thus, under this reorganization, no coin design is to last more than 25 years. The coin design can refer either to the obverse, reverse, or both, but something must be changed. This means the end of the 50 year design pattern given to the Lincoln Cent. Once the new design is settled in 2010, it must be changed by 2035. At that point, the CCAC and the US Mint will decide to redesign the entire coin or, once again, replace the reverse only.
Under this rule, the dime and half-dollar are due for design updates.
This proposal does not change the elements that are required on the coin. As described in 31 U.S.C. §5112(d)(1), “United States coins shall have the inscription ‘In God We Trust’. The obverse side of each coin shall have the inscription ‘Liberty’. The reverse side of each coin shall have the inscriptions ‘United States of America’ and ‘E Pluribus Unum’ and a designation of the value of the coin.” All other rules about design in that paragraph would be eliminated under this plan.
If the US Mint creates circulating commemoratives, there should be no more than two programs in place. One program can be a multi-coin commemorative, like the Presidential $1 Coins, and the other an annual series, such as the Native American $1 Coins. Any more than that becomes too much where the US Mint apparently cannot maintain the levels of manufacturing necessary to satisfy demands for their products. Once the circulating commemorative series is completed, the coin will undergo a final design change for the year after the program’s conclusion and remain that way for 25 years. An exemption to this rule will be to maintain the America the Beautiful Quarters Program as part of the transition.
And no more circulating commemoratives of the same coin. Either have the Presidential $1 Coin or the Native American $1 Coin, not both!
The US Mint will maintain the annual coin programs for all circulating coins. Mint Set will remain coins that have come from business strike production lines and proof coins will continue to use specially treated planchets as they do today. Additionally, the US Mint will continue to produce the Silver Proof Set except that the one-cent coins will be struck in an alloy of 95-percent copper.
Finally, it is time to make the one-dollar coin worth striking. The only way to do this is to stop producing the one-dollar Federal Reserve Note. The United States is the only “First World” country that continues to produce its unit currency in paper form. Even as the $1 FRN continues to be produced, some countries are eliminating more lower denominations to save on costs. It is time for the United States to do the same. In fact, the United States should also eliminate the $2 note.
At the end of the series, there will be an article about the paper currency and the Bureau of Engraving and Printing.
There are relatively few changes necessary for circulating coins. In the next article, we will look at the commemorative coin program.
Nov 4, 2009 | policy, US Mint
Yesterday, I called for reform in the coinage laws to remove congress from the operations of the US Mint. Before talking about coinage, the first act of reformation is a reorganization of the system. When a business is failing, the first thing they do is to reorganize. This is the purpose behind Chapter 11 of the Bankruptcy laws.
The first step to reorganization is that congress must change the coinage laws (31 U.S.C. §5112) to divide the coinage types into the four relevant types: circulating coinage, bullion, commemorative coins, and medals. Making this distinction between coinage types will clean up the laws, reduce the confusion, and make it easier for the US Mint to understand the policies it is required to implement. A byproduct of making the laws easier to understand would help the public with understanding the responsibilities of the US Mint.
Next would be to change the organizational of the US Mint. It is unfortunate that the previous administration chose to appoint a political hack as the director. Rather than being a good manager to lead the US Mint through a slow period, the current director has shown that it needs more than a political appointee to run the US Mint. Thus, the US Mint needs a Board of Directors.
The Board of Directors would be responsible for ensuring that the US Mint would maintain policies, properly managed production issues, and assisted with the design of the coinage. The Board would be the first line of defense to ensure that the US Mint is living up to its responsibilities to both its commercial client, the Federal Reserve, and the collecting community. This Board would be responsible for contacting the Treasury Inspector General or the Government Accountability Office to investigate issues with the US Mint.
To create a Board of Directors, congress would have to look no further than the current Citizens Coinage Advisory Committee. Since its inception in 2003, the CCAC was supposed to be on the front-end of the design process. Instead, the lawyers at the US Mint defined the CCAC’s role as being virtually in competition with the US Commission of Fine Arts when it comes to coin design. It is time for that to end and give the CCAC a more significant role in the process.
Under this proposal, the CCAC would be the ultimate arbitrator of everything that goes into the coin design. While I will discuss this role in the context of coin types, this means that congress will cease deciding what is to be depicted on the coins. The CCAC will be the arbitrator of this process. While this concept is new in the United States, this is the role played by similar organizations that work with the Canadian Royal Mint, Great Britian’s Royal Mint, and other worldwide mint. It is time for the United States to catch up with the rest of the world in this regard.
With the expanded role of the CCAC, the role of the CFA to be the arbitrator of the final design will not end. However, rather than be in competition, the CCAC and CFA will work together on the final design.
As part of the CCAC’s role as the US Mint’s Board of Directors, the US Mint Director and the directors of each branch mint would have an ex-officio seat on the Board and be required to provide monthly production reports and quarterly operating reports (similar to SEC Form 10-Q) for review by the CCAC. All reports would then be published by the US Mint and made available electronically via the US Mint’s website. Similarly, notes from the CCAC, including design considerations, would be made available through the CCAC’s currently useless website.
If the CCAC is to take on a more significant role in operating the US Mint, it is reasonable that they should receive a stipend. The stipend would be paid out of the Public Enterprise Fund and counted as an operating expense of the US Mint.
Speaking of accounting, as part of this reorganization, the US Mint would be required to produce their quarterly and annual reports that is in full compliance with the Federal Accounting Standards Advisory Board. Annual reports must be audited by an accredited accounting firm while it would be optional for quarterly reports to be audited.
Funding for the US Mint and its operations will be proposed by the Director and approved by the CCAC. The approved budget will be provided to the Secretary of the Treasury and submitted to congress for their final approval. The budget for the US Mint must be withdrawn exclusively from the United States Mint Public Enterprise Fund (31 U.S.C. §5136). If the Public Enterprise Fund does not have enough money sufficient to fund US Mint operations, the Secretary of the Treasury must approve the transfer of money from the general fund to the Public Enterprise Fund.
The only substantive change to the operations of the US Mint Public Enterprise Fund is how the excess money is handled. Although the wording is not clear, it appears that a reserve of “6.2415 percent of the nominal value of the coins minted” is required and that all excess is transferred to the general fund. For the reorganized US Mint, the reserve in the public enterprise fund would be 10-percent of the bureau’s total budget rounded up to the next million dollars. Also, to hedge against the problems congress creates with their annual budget battles, the budget approved by the Secretary will go into effect on October 1. During the budget process, the excess from the Public Enterprise Fund will remain in the fund until congress passes the budget.
While we are cleaning up the laws, congress needs to remove the Numismatic Public Enterprise Fund (31 U.S.C. §5134). The law that created the US Mint Public Enterprise Fund supersedes this law and is unnecessary to remain on the books.
The final aspect of the reorganization is to alter the laws that requires all metals to be purchased from United States mines and other sources. Through a labyrinth of laws, the copper, nickel, zinc, and manganese used for US circulating coinage and silver, gold, and platinum for bullion coins must be bought from US sources at the prevailing price. In other words, the US Mint cannot negotiate for discounts on the purpose of these metals as any large manufacturer would do. By doing this, congress is providing a subsidy (welfare) to the mining industries who have stemmed losses by selling to the US government. While politics will protect those mining interests, congress can authorize the US Mint to purchase coining metals from non-US sources when US sources cannot maintain sufficient supplies.
Now that the US Mint has been reorganized, the next installment will discuss improving circulating coinage.
Jul 5, 2009 | currency, economy, policy, scripophily
While the study of coins can be a lesson in history, the study of paper currency can present a lesson in economics that may be relevant today. With the state of California printing and distributing IOUs to meet its financial obligations, I am reminded of how the colonies used similar arrangements to finance the fighting of the Revolutionary War.
During the colonization of the New World, charters were granted to companies to set up businesses and trade the natural resources they found back to England and the rest of the known world. We may be more familiar with the East India Company from popular movies, the first settlement at Jamestown was colonized by the Virginia Company of London. These and other companies were originally chartered by King James I to set up trading centers on the shores of the new world to make it easy to goods back to Europe.
As the companies became successful, the English government became more interested in expanding its empire. The Royal Navy was sent to the new world to protect shipping lanes. As threats from other countries and Native Americans endangered the colonists, the King began to revoke charters to make the companies Crown colonies. Governors were install with Army garrisons at their ready to expand holdings against other nation’s settlers and to fend off Indian attacks.
Following the French and Indian War, the British government was in considerable debt. When they added the cost of keeping a regular army in the colonies, the extra expense was more than King George III wanted to endure. Beginning with the Stamp Act of 1765, Parliament tried many ways to have the colonies pay the debt and for their protection. With no representation in Parliament, the colonies began the road to independence proclaiming “No Taxation Without Representation!”
In order to maintain their control over the colonies, the King and Parliament only allowed minor, non-precious metal coins to be used for commerce in the New World. Colonist adopted by accepting silver coins from other countries as legal tender. The most common coins was the Spanish 8 Reales or Pillar Dollar. But the Pillar Dollar was not enough to fight against the powerful British Army, who was attempting to keep order.
The first currency issued in the New World was issued by the Massachusetts Bay Colony in the 1690s. Later in the eighteenth century, other colonies began to issue currency, many times surreptitiously without the knowledge of the colonial governor, to raise money. When colonial assemblies issued currency, they were issued as indented bills of credit with a plan to repay the loans.
Colonial assemblies issued two types of currency. One type of issue were indented bills of credit which were not considered legal tender but could be used to pay fees or taxes. These notes contained one or more receipts or payment slips that were redeemed at specific intervals for hard currency. Legal tender currency were allowed to circulate for commerce. Both types of notes usually were printed with a denomination, value basis for the denomination, the interest rate of return, and when the note can be redeemed for hard currency. The value basis for the denomination was usually expressed as “Bill of Exchange in London for Gold and Silver” and a rate of exchange. However, that exchange rate was different from colony to colony which made inter-colony transaction difficult. Value was also based on the trustworthiness of the colony to repay these notes.
As the Revolutionary War continued, colonial assemblies found themselves without the ability to raise enough money to pay off their currency. One way around the problem was to issue enough currency to cover the last issue plus a little more to cover current expenses. Not only did this create a big debt for the colonies, but that debt made the paper worth less than is printed value which made it difficult for the colonies to purchase supplies.
After the war, both the Continental Congress and the new states were competing with each other generate revenues and to pay off their debts. This continued until the US Constitution was ratified in 1789 and the federal government took over the minting and issuing of money. Because this demonetized the currency from each state, a compromise was made to trade the currency at the rate of 100 state dollars for one dollar of the new United States currency—which at that time was being paid in Spanish Milled Dollars.
Even though the states lost the rights to print and distribute money, they continued to have the right to issue non-legal tender bills of credit in order to raise money. These bills of credit were issued in the form of bonds that were either redeemable on the date of maturity or had a periodic payment option. Bonds are usually issued to pay for capital improvement projects. They are associated with a source of revenue that would be used to reimburse the bond holders, such as a tax. This practice continues today with every states’ debt being backed by many bond issues. And with technology, most bond issues are not printed. Rather, they electronic records noting ownership of the bonds.
The paper issued by the colonies, the Continental Congress, and the United States under the Articles of Confederation are very collectible. Aside from being a lesson in history, it is a lesson in the state of the art of printing in the colonial times and a lesson in colonial economics. Finding colonial currency is not easy, a nice collection can be awe inspiring. One such collection is in the Colonial Currency Collection at the University of Notre Dame’s Department of Special Collections.
The State of California is in serious economic trouble. Their fiscal year began on July 1 without a budget and a significant deficit between the government’s income and their legal obligations to provide services to the citizens of California. Governor Arnold Schwarzenegger declared a fiscal emergency and order the printing of IOUs to pay state debt obligations. Initially, 28,750 IOUs worth $53.3 million will be issued mainly for personal income tax refunds. The IOUs will carry a 3.75-percent interest rate redeemable by October 2 or earlier if a budget agreement is reached.
The financial term for the IOUs are “registered warrants.” For the citizens receiving these IOUs, most of California’s in-state and nationally-owned banks said that they will accept the IOUs as deposits for a limited time.
California last issued IOUs in 1992 during a similar budget crisis.
Records of the how many of the IOUs were redeemed do not seem to be publicly available and I did not find an auction record for the paper issued in 1992. However, it stands to reason that the paper IOUs will be highly collectible. Opportunists have been using online classified websites to offer to purchase these warrants as souvenirs (see an ad).
Although registered warrants are not legal tender, people may elect to trade and barter these IOUs for goods, services, and even legal tender money. We can only wonder if the paper will become more valuable as a collectibles as the Zimbabwe notes after their government devalued Zimbabwean Dollar because of hyperinflation. That ball is in the court of the California legislature. But they will make interesting collectibles.
Feb 19, 2009 | policy, US Mint
Last November, I wrote an open letter to then President-elect Barack Obama about his choice to be Director of the US Mint. In that letter, I asked for someone more qualified than the current director.
Earlier this month, David Ganz wrote an article describing his experiences with Mint directors and his suggestion as to the qualifications for the next Mint director. According to Ganz, the successful Mint directors in recent history has had the following qualifications (quoting from his article):
- Are political, most typically on a national level (consistent with the President’s policies)
- Have a working relationship with either the Treasury secretary, the President or both
- Are good listeners
- Hear their own bureaucracy but reach out to other sectors
- Don’t necessarily have technical knowledge but are quick studies
- Have an entrepreneur’s spirit
- Aren’t lemmings
- Speak enthusiastically to the various segments of the Mint’s constituency
- Come from various segments of society
- Work well with members of Congress (both sides of the aisle)
- Understands what staff’s role actually is.
- Know were the buck stops
Ganz concludes that, “[none] of this definitely says who should be the next Mint director. But this list surely defines who is unlikely to be successful by type and experience.”
I hope the president and his staff has read these comments and finds a proper director for the US Mint.
Feb 11, 2009 | policy, US Mint
Apparently, the management at the US Mint has blog posts like mine that talks about the cost of precious metal products and the their liberal return policy. Today, following a week where the prices were adjusted upward, the Mint announced a new return policy. The return policy has been reduced from 30-days to seven days.
Considering that the Mint’s pricing policy for precious metals changes weekly, it makes business sense to change the return policy to match. The seven day period starts from the day your package is delivered, which can be obtained from the package tracking information from the carrier used. Returned items must be postmarked within seven days of delivery.
So how can the Mint get a policy right and wrong at the same time? When the bureaucrats change the policy for all collectibles and not just bullion. According to the press release:
Rather than have two separate return policies – seven days for numismatic products containing gold and platinum coins and 30 days for other numismatic products – the United States Mint elected to implement a uniform seven-day policy for all numismatic products. This gives customers consistency and clarity when purchasing its products.
BULL FEATHERS! (I have to keep it clean!)
We live in a world where merchants have different return policies. Go into any big-box electronics store and look at their return policy—14 days for computers, 21 days for other electronics, and don’t open that software or music if you want to return it. Other stores have special sales that are not returnable and then there others who will take anything back.
Coin and metals dealers also have separate return policies for bullion and numismatic products. In fact, some dealers have different policies for graded and non-graded numismatic products.
By saying that the new policy “gives customers consistency and clarity” the US Mint is either patronizing, covering up for their own deficiencies, or showing disrespect for their fine employees telling them that they cannot handle a variable policy. If the Mint believes that the public cannot understand a variable return policy, then they are underestimating their buying public. And considering that Deputy Director Andrew Brunhart has a history of employee discontent from when he was General Manager of the Washington Suburban Sanitary Commission (WSSC), it is possible he does not trust the Mint workers.
A more plausible explanation is that the US Mint may not be able to implement a variable return policy because of technology and contractual issues. Since the US Mint entered into a contract with a new fulfillment provider, the order management system may not be able to handle the new requirement. After all, the contract was negotiated with the requirement of the one 30-day return policy. It is possible that the contract and the technology used by the contractor cannot implement the requirement. Rather than issuing a change request so that the tools meet the requirement, the US Mint is allowing the tool to dictate the requirement.
While I do not expect the US Mint to tell the truth, even though the administration it serves has declared a policy of transparency, I did not expect the US Mint to issue a press release with a shallow and patronizing statement as part of its policy driver.
I know that President Obama has serious issues to deal with, but the US Mint is a profitable enterprise that may be on the brink of imploding and needs attention. The president’s team must consider leadership change very soon before the implosion.
Jan 31, 2009 | policy, US Mint
After I posted the article Ultra High Price Gouging With No Relief, an anonymous commenter accused me of having a “a low opinion the of the people there and don’t give them any credit.” It was an article that was critical of the US Mint and its policies, I was not directing criticism to the people who work for the Mint but those who run the bureau.
First, let me say that unequivocally, I have tremendous respect for all government workers. I live in the Washington, DC metropolitan area and work with the government on various levels, I know how hard the career government employees work and the pressure of working with what seems like undue regulations in their job. I have seen those with commercial experience not do well in this tightly controlled atmosphere of a government job. But when I explain this to friends and relatives who do not have my insights, I am laughed at for being too close to the situation. I fully understand the environment working for the federal government and I have a lot of respect the work they do and their service to this nation.
My low opinion of the US Mint, and other areas of the federal government, is reserved for the appointees and some high-level special pay executives who set the policies the rest of the bureau has to implement. With the problems of the Mint in the last year, I have questioned Director Edmund Moy’s ethics and his policies. I have also been critical of the hiring of Andy Brunhart as Associate Director after his less than stellar job at the Washington Suburban Sanitary Commission. With the Mint failures of the past year, both men deserve a tremendous amount of criticism for the work it appears they have not done.
Until Moy is replaced by someone more competent, I will continue to criticize him and the policies of the US Mint. Remember, this criticism is being levied against Moy, Brunhart, and the other bureaucrats. I am not criticizing the hard working employees of the bureau.
To my anonymous commenter, I apologize for making it sound like I was indicting the entire bureau for the problems caused by the bureaucrats who deserve the criticism. If you would like to talk further, you can send me a private email note and I would be happy to discuss this further.
Jan 26, 2009 | gold, policy, US Mint
Throughout the second half of 2008, the US Mint has had problems with the supply of gold coins for the collector and investor market. Gold American Eagle and Buffalo coins were is short supply causing the US Mint to suspend and limit gold sales before changing the pricing policy of all precious metal products. Could the US Mint be trying to discourage gold ownership?
Michael Zielinski, author of Coin Update and Mint News Blog, writes about this on the Seeking Alpha blog. Zielinski tracks the actions taken by the US Mint and their explanation for the actions noting that “the consequence of each action has been to limit or discourage gold ownership.”
Zielinski notes that the US Mint will be lowering the number of gold options by eliminating fractional issues and suspending the American Buffalo issue altogether.
“Whether or not it was the US Mint’s intention, every significant action they have taken since August has either limited gold availability, eliminated gold product options, or increased the cost of acquiring gold,” Zielinski writes. “Has it all just been a consequence of surging global demand for gold, supply chain mismanagement, and bad timing for policy decisions? Or is there something else going on here?”
Please read Zielinski’s full article at Seeking Alpha.
Jan 25, 2009 | gold, policy, US Mint
If you have been watching the US Mint this week, you may have noticed that the 2009 Ultra High Relief Saint Gaudens Double Eagle started to sell on January 22, 2009.
With a limit of one coin per household, the catalog page advises “Orders will be processed on a first-in, first-out basis, and could potentially take up to six to nine months to complete based on gold blank availability.” (emphasis added) They further explain that the Mint will not charge your credit card until your order ships. This means that the coin could cost more than the current $1,189.00 price. With the changing price of gold and that the first coins will not be available until February 6, 2009.
According to the new precious metals pricing policy, the price of gold products will be adjusted based on the Thursday AM London Fix price. Since the price of gold on Thursday, January 22 was $847.75 per ounce, the current price of the coins will not change on Monday. However, the Friday AM Fix was $873.00 per ounce and the PM close was $875.75. If the price does not come down, the coin’s price could rise to $1,239.00 before one coin is delivered.
As a consumer, when I purchase a product, even if it is backordered, I am locked into the price at the time of the order. Even if the backordered item takes three months to fulfill, my price is guaranteed. In fact, if the price goes down many vendors will adjust the price to the new lower price. This is the definition of customer service.
The US Mint, being run by a bureaucrat, opens sales at one price that has the potential (based on current market conditions) to rise before the first coin is delivered two week later.
An opposing argument will be the fluctuating price of gold and market conditions. However, the Ultra High Relief coin is being sold as a collectible item, not as bullion. It is understandable if bullion changes based on market conditions, not for collectibles. Further, as the price of silver fluctuates, the Mint does not adjust the price of American Silver Eagle Proof or the annual silver sets when the spot price of silver changes. Did the Mint lower the price of silver products after the price plummeted from $20 per ounce?
Another reason that the Mint should not be adjusting the prices of collectible coins once ordered by the consumer is that the Mint has variability built in to the price. At the bottom of the new pricing tables is a note that says “cost of metal 71%-74%, cost to manufacture (including overhead) 11% – 14%, and margin 15%.” How does the cost of manufacture change so variably as the price changes?
After writing computer programs for many types of business, I had taken business courses to understand how business works. In the basic business courses I learned that when analyzing the overhead, most of the costs are fixed. Variable costs do not vary greatly with maybe the exception of the costs of energy. However, most of the variable costs are not based on a percentage of the costs. Overhead usually comes from fixed costs, such as facilities, machinery, labor, etc. Variable costs are based on the cost to produce a unit of the item. These variable costs include energy and material costs. However, the Mint is already saying that 71-74 percent of the price is based on the cost of the metal. So what are the variable costs in coin manufacture?
Let’s look at the numbers. Assuming an 11-percent cost of overhead at the low-end of the the Mint’s price range, the Mint is saying that when the price of gold is $800 per ounce, the cost to manufacture is $122. But when the price of gold rises to $900 per ounce, the cost to manufacture is $133. Considering that the variable cost of the metal is calculated separately, why does it cost the Mint $11 more to make this coins when the price of gold rises by $100?
Does it make sense that the US Mint can fix the cost of the manufacture of billions of Lincoln cents and complain that it they cost more than face value to manufacture but they cannot nail down the cost of a coin that will have significantly less population?
The formal notice of the price change was published in the Federal Register Volume 74, Number 3, pages 493-496 (GPO Access: [text] [PDF]). The notice does not explain the rationale for the percentages used nor does it fully explain the cost of manufacture.
I will be asking my representatives in congress to ask the Mint to justify their pricing. I may also submit a Freedom Of Information Act (FOIA) request as well. I will report what information I gather. In the mean time, maybe President Obama’s administration should review my suggestion as to how to pick a new Mint director.
Loading ...