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Thursday, May 08, 2008

Penny Problems

The rising price of metals means that the government is losing money by making pennies and nickels - about $100 million last year alone, according to Rep. Luis Gutierrez, D-Illinois, whose subcommittee oversees the U.S. Mint.

By my calculations, it's different - but the validity of either figure depends on the accuracy of the rest of the information provided in the article.


A penny, which consists of 97.5 percent zinc and 2.5 percent copper, cost 1.26 cents to make as of Tuesday. That's down from the end of 2007, when even higher metal prices drove the penny's cost to 1.67 cents, according to the Mint. In 2007, the Mint produced 7.4 billion pennies. Even at the lower current price of 1.26 cents to produce a penny worth 1 cent, if you multiply that loss by the 7.4 billion pennies produced in 2007, that's $20,280,000 that the government is losing just by MAKING the coinage for pennies. I realize that this 1.26-cent cost is NOW, but at end of 2007 it was even more and I'm sure there were fluctuations along the way for 2007.


A nickel -- 75 percent copper and the rest nickel -- cost 7.7 cents, based on current commodity prices, according to the Mint. In 2007, the Mint produced 1.2 billion nickels. With that 2.7-cent loss, you're looking at another $32,400,000 in loss for the US Government at the hands of the US Mint. So in total, it looks like the estimate of $100 million by Gutierrez is about $47 million high, but it could be that these figures are just regarding the price of the METAL and don't take into account the cost of STRIKING these worthless coins. Upon further research, I learned that this is not the case. The costs listed in the article are indeed metal and production and shipping fees.

Other Coinage?

Luckily, not all coinage here in the United States is screwing us all over financially (after all, taxpayers pay for the government's mistakes like these). Dimes still cost a little more than 4 cents each to produce. The quarter costs a little less than 10 cents to produce. The dollar coin, which might actually have a lower approval rating than the penny (if you asked random people on the street which we should get rid of), costs only about 16 cents each to produce.

So what can we do?

Well, my first thought was that if the materials used to make pennies are worth more than a penny, the next logical step would be to melt down pennies into those two materials and sell them and profit. It should be as easy as that.

And it WAS.

The real issue is that in reality, the metal content of pennies now being produced is actually NOT more than one cent. In 1982 there was a shift in the composition of pennies from 95% copper and 5% zinc to the current 2.5% copper and 97.5% zinc, obviously due to the price of copper. With the current prices of zinc and copper, post-1982 pennies are worth (from a strictly-metal standpoint) about .7 cents each. The pre-1982 pennies are worth about 2.6 cents each. So what's to stop someone from sorting through pennies, finding all of the pre-1982 pennies and melting them to turn a 160% profit?

That's what went through the mind of Walter Luhrman of Ohio. This metallurgist created a new company, Jackson Metals, which purchased truckloads of pennies from the Federal Reserve. He developed a system to rapidly sort the pre-1982 pennies from the less-valuable post-1982 pennies. The copper pennies were melted and turned into ingots to be sold, while the zinc pennies were returned to circulation in cities where pennies were scarce, thereby saving the U.S. Mint the hassle of making fresh batches of zinc pennies to service these locations. One would think that the U.S. Mint would be happy with these results.

On December 14th, 2006, the United States Mint implemented new regulations that made the melting of pennies and nickels a crime (as well as limited the export of these coins) that has a punishment of up to a $10,000 fine and/or up to five years in prison.

So my dream of profiting as such is now gone. As I'm sure is yours, as you were no doubt rifling through your pockets or nearby change jars for pennies from before 1982 just to at least see the difference, if not scheme about profiting from these otherwise-useless bits of metal.

And the truth is that pennies are useless. So many countries have eliminated small-denomination coinage for similar reasons. New Zealand has even eliminated its five-cent coinage, not to mention reduced the size of the ten-, twenty- and fifty-cent coins. Canada also has plans to eliminate their pennies, which will lead to their plans to eliminate the five-cent pieces as well - following in New Zealand's footsteps. So why isn't the US trying to do the smart thing and rid ourselves of the accursed one-cent coin?

We tried. Several times.

In 1989, Rep. Hayes of Louisiana and Rep. Kolbe of Arizona proposed the Price Rounding Act, which would require all cash transactions to be rounded to the nearest five cents, thereby eliminating the need for one-cent coins. But of course, for every seemingly-good idea that would counteract a seemingly-bad idea already in place, there's a powerful group or lobby that became powerful by profiting from the seemingly-bad idea. In this case, it would be the Americans for Common Cents group.

The group receives its financial support from Jarden Zinc Products, which is one of the nation’s largest producers of zinc, and which has supplied the U.S. Mint with penny planchets since the copper-zinc crossover of 1982. For the non-financial power, they enlisted the services of an economics professor to claim that this "rounding" of transactions would ultimately mean the public would wind up spending more as a result of all their cash transactions, which he deemed a "rounding tax" that we all would wind up paying over time with each transaction. And once you call something a "tax", it doesn't fare well.

The Price Rounding Act was quickly killed. In July of 2001, Kolbe made a solo attempt (since Hayes had retired) to kill the penny through the Legal Tender Modernization Act. The bill itself was a failure, but it at least got some notariety thanks to the TV show "The West Wing" where it was featured in an episode and also resulted in failure.

There are only three machines in the United States that accept pennies:
1) Coin-wrapping machines that are used to get rid of pennies
2) Coinstar machines that are used to get rid of pennies
3) Automated tollbooths, but only in Illinois

Why only Illinois? Because it's the birth state of Abraham Lincoln, the man whose face resides on the obverse of the penny. (That's right, the head of a coin is the "obverse" and the tails side is the "reverse" - you may have just learned a new word!) In fact, Illinois nutjobs are some of the only proponents of keeping the penny alive, aside from the A.C.C. and their monetary sponsor, Big Zinc. Other nutjobs who are in favor of keeping the penny are groups that hold "penny drives" for charity (another way for people to get rid of pennies) and people who just plain don't like change. (I mean 'change' in the sense of nothing being different than it is right now.)

Kolbe made one final attempt in 2006 to bring down the penny, when zinc prices were at a record high and the penny's purchasing power was therefore at a record low. He was once again unsuccessful, and retired the next year. There is currently nobody in Congress left who loathes the penny enough to take up the fight.

That is why I vow that if I am elected to the Chicago City Council as an alderman in 2011 (the next election), I will do everything in my political power to fight the penny and work with elected officials next-in-command to do the same. I don't care that I live in the Abraham Lincoln birthstate - the penny is useless and it's time to take it down for good. And for the Lincoln-lovers out there - pipe down.

He's still got the freakin' $5-bill!

Do you agree that it's time to get rid of this useless coin once and for all? What are your thoughts??

(The article about the penny's current uselessness)
(An article about the history of the penny's uselessness)
(Wikipedia page on the "Cent" - the actual name for the U.S. penny)

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