Penny unwise

The Los Angeles Times has an opinion piece on a proposal — yet again — to eliminate the penny, which has come to be a boondoggle:

A dollar bill, as we all know too well, is a fleeting thing. Not just because it leaves our hands so much more easily than it returns but because, as it changes hands, it wears out within about three years, and often sooner. A coin's life span, by contrast, averages 30 years. That's why several members of Congress are suggesting phasing out the dollar bill entirely and replacing it with a coin. The production savings could add up to $5.5 billion over those three decades, proponents say.

Coins are bulkier, but at least vending machines wouldn't spit them back out at us for having untidy corners or a crease here or there.

But if Congress wants to save money on money, there's no reason to stop at the dollar bill. The U.S. Treasury has been nickel-and-dimed for years on the production of nickels and, well, pennies, both of which cost more to produce than they're worth. The cost of a penny is volatile because it depends on the metals market — pennies are made of copper-plated zinc — but figures for 2010 put the price of producing 1 cent at close to 2 cents, meaning that the government loses a cent for every one it makes. With 7 billion pennies manufactured per year, that's almost $70 million lost annually.

I really like posts about money. And the penny is something I've long wondered about, including yesterday when Target handed me $9.94 in cash and coin for a shirt I returned.

It makes sense to retire the penny (the LAT article notes that this is done at US military bases such as Yongsan Garrison, where I'm completely happy with the situation), but I think the nickel is still valuable enough to keep it going. If anything, making the dime the smallest denomination of money might cause a creeping-up of perceived cheapness. What costs a dollar now — a hundred pennies — would be only ten dimes, maybe even with no second decimal place, and that psychological change might make some retailers offer things that are now $1 for an increased price of $1.2 or $1.3. This will have a push effect from below, causing prices in general to creep upward.

Mark my words, it will be a future installment on the Freakanomics podcast.

And if the nickel is that expensive to make, let's make them out of whatever we're making the pennies that will no longer be around. We'll call them "zincs" and we can grind them up and make tea when we feel a cold coming on.

As for dollar coins as a solution, we have tried that and it's been kinda sorta a failure. Sure, the Susan B. Anthony dollars looked remarkably similar to quarters (darn you, GW and your girlish locks!), but the Sacajawea dollars were cool-looking, distinctive, and practical. Yet you hardly see them around. Maybe if there were no paper-based Washingtons at all, it would be different (but it would probably lead to increased demand for $2 bills).

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China tosses the US down the A-hole

Now that the debt ceiling "crisis" is over, we all thought the US dodged a bullet with its credit rating being downgraded. Welp, we thought wrong:

Although the United States narrowly avoided an unprecedented default following congressional approval of a last-minute compromise plan to raise the debt ceiling, China's leading credit rating agency Wednesday downgraded U.S. sovereign debt after putting it on negative watch last month.

The Dagong Global Credit Rating Company, which lowered the United States to A+ last November after the U.S. Federal Reserve decided to continue loosening its monetary policy, announced a further downgrade to A, indicating heightened doubts over Washington's long-term ability to repay its debts.

It said the gloomy assessment -- much lower than the AAA ratings given by the so-called "big three" Western agencies Moody's, Fitch, and Standard and Poor's -- was inevitable given the level of market concern generated by the stalemate between Democrats and Republicans over the debt ceiling.

"The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States' declining ability to repay its debts," Dagong Chairman Guan Jianzhong told CNN.

"The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals," he said.
Ironically, Dagong's move could hurt not just the United States but also China, the largest foreign owner of U.S. debt with holdings worth almost $1.2 trillion.

I've long been saying that the debt ceiling “crisis” is a completely manufactured one. Yes, there is a serious problem with the national debt and the current deficit (not the same thing, by the way), but the August 2 deadline itself was a completely manufactured crisis under the complete control of the people holding the gun to the head of the American people and the economy (i.e., the GOP leadership).

In short, there was never any real chance that that default was going to occur, and China knows that. This is nothing but a political move, designed to poke the US in the eye for various things (e.g., allowing the Dalai Lama to visit, criticism about China's abysmal human rights, etc.) and domestic consumption (i.e., see how bad things get when you have a full-blown democratically elected republic?).

The US should seriously consider revisiting demands that China properly value its currency (i.e., let it appreciate to its natural value) and consider retaliation if it doesn't. If anyone's going to let the US economy go down in flames, it's going to be Americans, dammit! (And yeah, I do partly blame the Republicans for this one, as they've acted as if their dangerous gambit would have no consequences.)