Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Liberty means responsibility. That is why most men dread it.”     George Bernard Shaw

July 20, 2011

Government: Shows A Loss While Selling Money

by Brad Warbiany

I was passed this story by a relative, and thought it was absolutely genius:

Would you take advantage of a federal loophole that gives you a free first-class flight anywhere on Earth?

That’s what hundreds — possibly thousands — of shrewd travel enthusiasts are doing, in light of a 2005 law that unwittingly created a weird case of supply and demand.

The law intended to push more $1 coins into circulation. Dollar coins are cheaper for the U.S. Mint to maintain because coins don’t need to be replaced as often as the $1 bill.

The U.S. Mint sells the coins at face value, using taxpayer money to cover shipping and handling costs. If you want to buy $1,000 in coins, you simply pay $1,000 on your credit card and wait for the shipment to arrive in the mail.

Credit card rewards enthusiasts leapt at the program. They use a simple strategy: Purchase coins. Wait for coins to arrive in mail. Deposit. Use deposit to pay credit card. Repeat.

Brilliant! It’s a bit of a hassle, but no more of a hassle than dealing with the TSA. At least if you’re in the middle of a government groping, you can bask in the solace that your flight is free.

Now, some may suggest that taxpayers paying the shipping & handling is worth it if the coins are making it into circulation, given that the coins themselves are a better deal for the US Mint. So what happens to those coins?

A spokesman for the U.S. Mint calls this an “abuse.” Depositing the coins directly in a bank doesn’t put the coins in circulation. The banks simply send that money back to the Federal Reserve — often still clad in its original U.S. Mint packaging.

Yep. The government doesn’t have the balls to discontinue the dollar bill, so they set up a “voluntary” (& subsidized through packing/shipping costs) circular trade that does nothing but increase costs on all aspects of our system and doesn’t even manage to put the coins in circulation.

Well done, Washington!

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4 Comments

  1. I suggest Megan McArdle add this to her list of reasons why the government is too big to fail.

    Comment by tkc — July 20, 2011 @ 10:44 am
  2. Treasury Minting costs per dollar approx. 26 cents: Retail fees for reward cards 3.5 cents.
    Debt monetized by minting, approx. 70 cents per dollar less shipping.
    If they can sell all of them, and they might if word gets around. Storing them is the Federal Reserves problem.

    Comment by Will — July 20, 2011 @ 7:12 pm
  3. Sorry, 26 cents may only be material costs.I have not found a clear total with overhead. They were having trouble selling all the dollar coins that Congress ordered them to mint.

    Comment by Will — July 20, 2011 @ 7:26 pm
  4. It’s even worse. The credit card people, and various intermediary firms, get a slice of the customer’s $1000, so the treasury is collecting less than the face value of the coins.

    Comment by Allan Pratt — July 21, 2011 @ 8:33 am

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