is unethical for any man to tax another man's house for his social
agenda. Friends don't do that, but enemies will." ~John Taft
March 19, 2018
Time to give up on the cent and nickel
Wall Street Journal devotes an entire March 19th page to the recurring
question of whether the U.S. Mint should continue manufacturing
one-cent and five-cent coins at a financial loss.
Writing in favor of dumping these minor coins is Henry Aaron: "No
U.S. coin has ever been as worthless as the penny or nickel.
Until 1950 the penny had a purchasing power greater than today's
dime. Until 1974 the nickel had purchasing power greater than the
quarter does today."
Note: The popular use of the word "penny" is a holdover from Colonial days when the English penny circulated in the United States. When the U.S. created the half-cent and cent coins in the late 18th century the cent was about the size of the English penny and the name easily transferred to the new cent. But the U.S. Mint has never manufactured a coin called "penny."
support of continuing the cent and nickel Dr. Jay Zagorsky points out
that, overall, the mint makes forty-five cents for every face-value
dollar of coins it ships. He notes that it cost 1.8 cents to make a
one-cent coin in 2017, and 6.6 cents to make a nickel...but he
considers these to be "loss leaders" and worth continuing.
Until 1857 the half-cent coin circulated in the U.S. When
Congress discontinued it there was a howl of protest from many citizens
who worried the merchants would round prices UP to the nearest cent. As
it turned out this minor coin vanished into history without unsettling
Decades of inflation have had a predictable effect on currency. Dropping the cent and nickel from production would save a considerable sum. It would also relieve the citizenry from the bother of stashing their minor coins in jars, cans, and bureau drawers
The Dilemma (Part I)
The great middle class has been knocked
on its ass
soon - The Dilemma, Part II)
of national debt.
Having been born with a genetic aversion to taking on debt that's impossible to repay we believe reckless borrowing is not only dangerous for individuals but nations as well. We may be entirely wrong. Perhaps it IS possible to borrow oneself rich...but history shows no examples of such a scheme working out successfully.
faces NO official debt ceiling at the present time. The
borrowing limit has been suspended until March 1, 2019.
On September 8th the public debt topped $20 trillion for the first
time. Last Thursday it exceeded $21 trillion.
How willing are future generations to shoulder this monstrous debt
obligation? No one knows. They aren't thinking about
it. But they will when they realixe former Colorado governor
Richard Lamm was right when he said, "It's Christmas in reverse. We get
the presents and send the kids the bill!"
Don't Abolish Cash.
Writing in the Friday Wall Street Journal Joseph Sternberg claims the present "War Against Cash" thwarts modern monetary policy, which is being promoted by policy makers and certain pundits and academics. They have made the case that circulating cash leads to nefarious activity by criminals and can be eliminated because so much daily financial activity is handled electronically.
Shouldn't the consumer have a say in all this? Must every transaction be tracked through the innards of computers? If a person happens to have a couple of $20.00 bills in his/her pocket why should should they be prevented from spending them anonymously as is now legal. If one wants to slip into a liquor store on a Friday afternoon and purchase some adult beverages for the weekend they may be asked to show proof of age but their identity does not have to be recorded on a computer. Under present rules no crime is committed by making such purchases with cash.
Moreover, the promoters of cashlessness hate the idea of cash causing a zero level on interest rates. They would prefer that negative interest rates be permitted,"when necessary", to tax bank account holders for saving their money.If they were allowed to pull their savings out in cash to avoid the penalty the banks would be hit by people transferring their cash assets to mattresses and other places of concealment (which don't charge interest).
We all have a ringside seat as the "War on Cash" continues.
"Since 1914" would be more accurate. The Fed did not begin operation until then.
We often point out that the purchasing power of the 1914 U.S. dollar has now plunged to less than a nickel after more than a century of supervision by the Federal Reserve System. How long it will take the Fed to drive the value of the dollar to zero is anybody's guess, particularly since it must respond to the machinations of a political body that has little common sense when it comes to spending the people's money. (Congress.)
This caught our eye yesterday:
“What we really have is a case of the monetary Wizard of Oz. There is nothing behind the Eccles Building curtain except a posse of essentially incompetent economic kibitzers who spend 90% of the time slamming the same old 'buy' key on the Fed’s digital printing press, while falsely claiming credit for the inherent growth propensity of private capitalism.” SHOOTING OUR FEET
defense of the Fed it should be said that its original mandate
was simpler than it is now. Although Federal Reserve notes
were legal tender each note carried the printed promise it could be
redeemed at will in "lawful money." That promise vanished in late
1963. Nor did many people notice the switch of circulating coins
from 90 percent silver prior to 1965 to the base metal of 1965 to the
present day. No one cared that the composition of the lowly cent
was switched in October 1982 from mostly copper to mostly zinc with a
thin veneer of copper. These actions were approved by
Congress further muddied the job for the Fed when it conferred upon it
the responsibility for maintaining a vibrant economy and a high rate of
employment. This meant it must do everything in its power to
prevent deflationary recessions. By debasing the dollar the job
has become nearly impossible.
Reuters News: "Healthcare costs slipped 0.1 percent in February after advancing 0.4 percent in the prior month. Prices for hospital care fell 0.5 percent and the cost of prescription medication declined 0.4 percent.
"The cost of doctor visits rose 0.2 percent. Apparel prices continued to march higher, rising 1.5 percent in February after surging 1.7 percent in January. The cost of motor vehicle insurance rose 1.7 percent last month.
"Prices of new motor vehicles fell 0.5 percent, the biggest drop since August 2009, after slipping 0.1 percent in January."
The Federal Reserve Open Market Committee meets next week and will be
reviewing the apparent slowdown in the rise of the general price
level. Make no mistake. Rising prices are a CONSEQUENCE of
money inflation generated by huge federal budget deficits. Congress now
perpetually promotes price inflation through its policy of spending
money it doesn have. It borrows it. The Fed monetizes much
of the debt by creating dollars from thin air. In our lifetime we have
seen the price of a nickel cup of restaurant coffee rise to $2.00 or
If the politicians ignite a Venezuelan style inflation that restaurant
cup of coffee could rise to $20.00 and higher. That would be a
result of hyperinflation. It's unlikely the U.S. will let it go that
far, but it's within the realm of possibility. People will
consent to almost anything if it prevents dreaded deflation.
Some gloom-and-doom prognosticators warn of an eventual deflationary
depression. That's possible if something isn't done to repair the
damage that's being done to the dollar. But how to generate some
interest in the subject?
In late 2008 our staff curmudgeon wrote:
"In a letter to Thomas Cooper, Jefferson said, 'Our whole country is so fascinated by this Jack-lantern wealth [it] will not stop short of its total and fatal explosion.'
"Franklin Roosevelt began removing the dollar from its moorings in 1933. Richard Nixon finished the job in 1971. From a monetary unit based on something of intrinsic value we're now doing business with 'money' backed by nothing of value. We're about to be punished for allowing it to happen.
"Let's talk about restoring the United States to a system of honest money! Surely there's still a market for honesty." JACK-LANTERN WEALTH (Nov. 19, 2008)
economists have been trained to believe that the U.S. Constitution is
quite irrelevant when it comes to defining the U.S. dollar. But
the fact is that the founding document of 1787 (ratified 1789) has
never been amended with respect to its definition of money. That
section of the Constitution has been abandoned, to be sure, and no
court in the land will examine the question. In fact, anyone even
suggesting that a return to the dollar mandated by the Constiution is
considered a "looney tune" who doesn't understand that the Age of
Inflation has been a very good thing and that even discussing a return
to sound money is a foolish waste of time.
The fact remains, humankind rely on a set means of measuring everything
in their lives....weight, distance, time. height, etc....but measure
their exchange of goods and services with a monetary unit that has no
reliable dimension whatever. The problem is - should the dollar
be something of actual value and relative scarcity, or an IOU (evidence
of debt) created at will from nothing? A secondary question is,
"Can the Age of Inflation last indefinitely or must it come to a
grinding halt, ending an era of material abundance?"
cannot compete with hoax and rumor.
Associated Press dispatch confirms our suspicion. False
information on social media travels six times faster than the truth and
reaches far more people. Researchers at the Massachusetts
Institute of Technology (MIT) examined more than 126,000 stories
tweeted between 2006 and 2015 and found that "fake news" sped through
Twitter "further, faster, deeper and and more broadly than the truth in
all categories of information."
Twitter officials say they are trying to do something about, while
Facebook announced this week it was entering into an agreement with the
Associated Press to identify and debunk false and misleading stories
that are expected to surface in the runup to the mid-term elections in
The late showman P.T. Barnum believed that "a sucker is born every
minute." That may not be far from the truth in this age of
abundant electronic means of personal communication. Rumor
and innuendo once traveled in slow motion across the backyard fence and
neighborhood saloons, but now almost anyone can post gossip and heresay
on social media and have it read by hundreds or thousands before 24
hours have passed.
A sad consequence of the trend is that established print and broadcast journalists too often weave material from social media into their reports, frequently crossing the line from "news" to "gossip."
Jonathan Swift remarked long ago, "Truth
cannot compete with hoax and rumor." Can't argue
Household debt totalled more than $13 trillion at
the end of 2017, according to the N.Y. Fed' Reserve bank. The
graph above plainly shows that the lion's share of the debt is tied up
in mortgages. Auto loans and credit card debt add to the debt
burden, and student loans indebtedness has recently exceeded a trillion
dollars, most of it guaranteed by government.
Debt, judiciously used, can be a very useful tool. Economists
from every part of the political spectrum are agreed on that. The
question is - how large can it grow before it collapses? As far as the
public debt is concerned Congress has stponed debate on that for a
year. There's talk of eliminating a debt ceiling altogether and
let Washinton run whatever budget deficits are necessary to
revive economic good times and keep them going as long as possible.
Unfortunately, spending beyond one's income invariably leads to
Now, why would anyone want to aspire to THAT?
"In order to plug the gaps from its soaring deficits, the Treasury
Department expects to borrow nearly $1 trillion this fiscal year.
Black is quoting the U.S. Treasury Department's own projections.
At some point, however, lenders realize that buying government debts
isn't a very good deal. We recall patriotically lending the
federal government $18.75 for the war effort in the 1940s. The
face value of the war bond was $25.00 when cashed in several years
later. Upon cashing in the bond we got $25.00, as promised, but it would not buy the equivalent of the
$18.75 we paid. Inflation had done it's usual dirty
is still gnawing away at the dollar, although at a relatively slower
rate. But history clearly shows there has never been a
long-running episode of money infation that did not end.
One modern example is the chaotic economy of Venezuela.
The accumulation of national debt did not top $1 trillion until
1982. Ten years later it was $4 trillion. Now it is $20.4
trillion and will stay at that level for a year because Congress
postponed dealing with adjusting the official debt ceiling until March,
2019. Debating it in advance of the mid-term elections could
upset several apple carts. Meanwhile, the Treasury Department will
continue borrowing as needed under a continuing resolution.
We've come to accept the fallacy that a government entity can constantly spend money it doesn't have without a negative effect. It can't. We all feel the consequences when we see consumer prices constantly inching up. Inflation also diminishes the desire to save. Why put a dollar away at an interest rate of 1 percent or less when the price inflation rate is 3 percent or more?
Can the problem be fixed? Sure - but not until politicians face
up to the fact that government cannot borrow itself wealthy.
Operating with constant budget deficits only puts the heavy weight of
debt onto the shoulders of rising generations. They'll be really
furious when they realize what's happening.
If Social Security and Medicare are not sustainable for the long haul, what's the solution?
It's a sticky question no one really wants to think about. The FICA tax is paid by employees and employers and the employee is entitled to a monthly benefit upon reaching his or her 60s. Many people sign up for the early payment at age 62, accepting the lower monthly payout on the basis that waiting until nearly 67 for the full entitlement involves a certain risk. Some people opt to wait until age 70 and reap a slightly higher monthly payment for their patience.
Now that Baby Boomers are piling in at the rate of some 10,000 a day the numbers in the Social Security Trust Fund are getting a bit dicey. Recall that most of the fund consists of IOU's...the bonds Congress puts into the fund so it can use the cash for other purposes.
Economist Martin Feldstein says Social Security and Medicare contribute heavily to America's "debt disease" and are projected to increase budget deficits over the next decade if something isn't done to rein in some of these heavy outlays. One method he suggests is raising the age level to 70 for receiving full benefits. He notes that the average American lifespan has increased by three years since the last time any adjustment to the official retirement age was made in 1983. This would surely raise a howl, but something must be done to at least slow the demand on the system.
The idea of setting the Social Security elegibility age at 65 came from Germany. Chancellor Bismark inquired into the lifespan of average Germans and discovered it was about 65 years. So that's the age level he chose for launching his popular program for old-age state subsidy. Franklin Roosevelt's advisors recommended that age when the U.S. Social Security system was devised in the 1930s.
It's a very good deal for oldsters. In our own case we found we got back everything we and our empoloyers had paid in about seven years after we signed up, adjusted for inflation. Since then we have been living directly ourt of the FICA taxes beomg paid by present workers and their employers.
We'd like to see some of the chatterboxes on television take up the subject. But they're too engrossed at the moment trying to disable the Trump presidency.
The Age of Inflation
Venezuela is teaching the world right now that "a little inflation" can
run out of control and become a horridly destructive monster. The
history books are filled with such disasters, yet we persist in
believing the politicians and bankers when they say that price
inflation of, say, two or three percent per anum is very good for the
Well, it isn't. Expecially when you're trying to set aside a little
money accumulation to support your retirement in old age.
Analyst Doug Casey puts it like this:
heard that central banks are trying to create a little bit of inflation
because, they say, 'A little bit of inflation is good.' No, even a
little bit of inflation is deadly poisonous. For two reasons: It
creates the business cycle. And it destroys the value of savings.
Saving is the basis of capital creation.
In the past century money inflation has driven the purchasing power of the U.S. dollar from $1.00 to less than 5¢. The popular delusion that destroying the buying power of currency is a healthy economic trend is a growing mystery. We'd like to hear some bright people discuss it in a public forum.