Ron Paul: We Cannot Even Maintain the Zinc Standard

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The US Mint has had trouble keeping up with precious metal coin
demand for most of this year, and it now appears the investigation
into why that’s the case may also consider the economics of
penny and nickel production.

The US House Subcommittee on Domestic Monetary Policy has been
looking into why there are backlogs at the Mint, especially with
proof and uncirculated coins, and what can be done to improve the
production process.

For quite some time it’s been easy to find disclaimers such
as this
on the US Mint website: “Due to the continued,
sustained demand for American Eagle Gold Bullion Coins, 2009-dated
American Eagle Gold Proof Coins were not produced.” The bullion
coins are made available through authorized dealers and not directly
through the Mint.

Mineweb has more details:

“[Director of the U.S. Mint Edmond] Moy told the subcommittee
uncertainty surrounding traditional investments and inflation
concerns ‘drove investor demand for bullion precious metals
in all forms to exceptional highs in 2009.’

“As a result, the agency did not mint and issue what Moy
called ‘the very popular’ American Eagle One-Ounce Proof
Gold and One-Ounce Proof Silver Coins in 2009.

“Although bullion coin demand seemed to be subsiding earlier
this year, in May, the Mint experienced an increase in orders
for silver bullion coins to over 3.6 million coins. In fiscal
year 2009, bullion coins sales reached an all-time high of $1.7
billion, nearly 80% above the sales of fiscal year 2008.”

The Chairman of the Subcommittee, Congressman Melvin Watt (D-NC),
is interested in diverting some of the precious metal coin blanks
allocated for bullion coin production to supplement needs for numismatic
coin production.

Separately, Director Moy also griped that, “with regard to
the one-cent and five-cent coins, never before has the nation spent
more to mint and issue a circulating coin than its legal value.
This problem is needlessly wasting hundreds of millions of dollars.”

Dr. Ron Paul (R-TX) disagrees with the Watt and Moy perspectives
because the Mint should not be gaining any additional power to decide
the metal makeup of coins in circulation. Here is his language verbatim,
again from the Mineweb article:

“We could not maintain the gold standard nor the silver
standard. We could not maintain the copper standard, and now we
cannot even maintain the zinc standard,” Paul noted. “Paper
money inevitably breeds inflation and destroys the value of currency.”

Moy brings up a valid point. The US is spending more to produce
pennies and nickels than they are worth. However, Dr. Paul recognizes
the greater problem is the eroding value of US legal tender, one
that isn’t showing any signs of abating. You can read more
details in Mineweb coverage of bullion
and coin dealers calling for an investigation into the US coin blanks
supply.

July
28, 2010

Rocky Vega is a regular
contributor to The Daily
Reckoning
. Previously, he was founding publisher of UrbanTurf
and RFID Update, which he operated from Brazil, Chile, and
Puerto Rico, and associate publisher of FierceFinance. He
specialized in direct marketing at MBI, facilitated MIT Sloan School
of Management programs, and has been featured on CBS. Vega graduated
with honors from Harvard University, where he was on the board of
Let's Go Publications and directed business programs involving McKinsey,
Goldman Sachs, and Harvard Business School faculty. He is also enrolled
at the Stockholm School of Economics.

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