Seriously, it clogs my brain. I know I make sensible financial decisions in most cases, but those decisions require extraordinary amounts of time and effort and attention that get diverted from other important things. Click here for more.
Last time around I wrote about the Canadian loonies and toonies, and how much sense they make. On this visit I learned that Canada made another sensible currency decision: it’s eliminated the penny.
Last year the Canadian government decided to get rid of the penny, and the Canadian mint produced the last ones. This past February the last shipment of pennies was sent into circulation. As with the phase-out of paper $1s and $2s, the mint will collect pennies as they arrive and remove them from circulation. Click here for more.
I’m tired of hearing people say, “The Federal budget should be run the way my family runs its budget!” Often followed by, “If my family doesn’t have the money to buy something, we tighten the belt until we do. The Federal government should do the same thing!”
That’s a great argument, but a crappy policy.
These days, people are twigging out over debt for one of two reasons. It either suits their political desires – maybe they want a terrible economy as long as a Democrat is in the White House?! Do ya think?! – or they keep thinking of government debt in terms of personal debt.
Personal finances and government finances are two different critters. You and I make our money from external sources, and then spend our money on external parties. Money comes in from outside (our jobs), and it flows to the outside (our expenses). But the Federal government doesn’t roll like that. A government makes money from itself and spends money on itself. As a result, what’s good for our family pocketbooks is completely different from what’s good for the nation’s pocketbook.
Slashing spending won’t actually reduce debt. Because when the economy is depressed, that slashing also reduces income. Government is like a husband who works for his wife, and buys merch only from his wife. There are no other sources of income and no other expenses. What happens when the husband needs to spend less? The wife receives less money from his purchases. This means she has to cut his salary. This means he has to reduce his spending further. So the cuts create a vicious cycle. Lather. Rinse. Repeat.
Hey Greece, how’s that belt-tightening workin’ out for you?
Even though they claim the Democrats do this (projection much?), Republicans are the ones who spend like drunken sailors when they’re in charge. But that doesn’t mean we should slash spending now. That just means we shouldn’t trust Republicans with the checkbook.
The US constantly pays off debt and issues new debt. And the word on the street is that the market wants LOTS more debt. We’re at incredibly low interest rates. Inflation-protected debt is literally paying a negative interest rate. Give the US government $100, get back $98, and investors are still buying it up. If people stop wanting to buy our debt, there would be large problems as we’d have to pay out higher yields. But the market loves American debt so much that they’re willing to lose money to buy it.
So no, we shouldn’t run the Federal budget the way we run our family budget. What we need to do is prime the pump. Spend more now, incur more debt, stimulate the economy. Then once the economy is humming along nicely, we cut spending when we can absorb the cuts.
(Inspired by the good folks at Democratic Underground.)
I pondered why the US Mint doesn’t make a serious effort to follow suit. Well, I don’t know if anyone at the Mint reads this blog, but get a load of this from manufacturing.net:
American consumers have shown about as much appetite for the $1 coin as kids do their spinach. They may not know what’s best for them either. Congressional auditors say doing away with dollar bills entirely and replacing them with dollar coins could save taxpayers some $4.4 billion over the next 30 years.
The latest projection from the Government Accountability Office on the potential savings from switching to dollar coins entirely comes as lawmakers begin exploring new ways for the government to save money by changing the money itself.
The GAO’s Lorelei St. James told the House Financial Services panel it would take several years for the benefits of switching from paper bills to dollar coins to catch up with the cost of making the change. Equipment would have to be bought or overhauled and more coins would have to be produced upfront to replace bills as they are taken out of circulation.But over the years, the savings would begin to accrue, she said, largely because a $1 coin could stay in circulation for 30 years while paper bills have to be replaced every four or five years on average.
“We continue to believe that replacing the note with a coin is likely to provide a financial benefit to the government,” said St. James, who added that such a change would work only if the note was completely eliminated and the public educated about the benefits of the switch.
Philip Diehl, former director of the Mint, said there was a huge demand for the Sacagawea dollar coin when production began in 2001, but as time wore on, people stayed with what they knew best.
“We’ve never bitten the bullet to remove the $1 bill as every other Western economy has done,” Diehl said. “If you did, it would have the same success the Canadians have had.”
Beverly Lepine, chief operating officer of the Royal Canadian Mint, said her country loves its “Loonie,” the nickname for the $1 coin that includes an image of a loon on the back. The switch went over so well that the country also went to a $2 coin called the “Toonie.”
Rep. Bill Huizenga, R-Mich., affirmed that Canadians have embraced their dollar coins. “I don’t know anyone who would go back to the $1 and $2 bills,” he said.
Canada doesn’t print paper dollars anymore. Instead in 1987 they introduced a $1 coin called the “loonie” because there’s an engraving of a loon on it. In 1996 they added a $2 coin called the “toonie.” The $1 and $2 banknotes were pulled from circulation to force the switch; no one I asked has seen either for years.
Loonies and toonies are such a brilliant idea that it’s a puzzle why the US government hasn’t followed suit. Or, maybe it’s not a puzzle. We still print $1 and $2 bills: we tried to introduce a $1 coin but it never really caught on. It’s a shame because the use of loonies and toonies saves the Canadian government a lot of money. Paper bills wear out and need replacement about every two years; coins can last 20 years or longer.
(The US government could have made the $1 Susan B. Anthony coin a success if they did what the Canadians did: simply stopped printing new $1 bills and collected the ones that came their way.)
When the $2 coin was introduced, several surveys were conducted to determine what to call it. The coin bears (ha ha!) an engraving of a bear, so one of the suggestions was “bearie.” Other suggestions were the “deuce,” the “doubloon” (my favorite), and the “doubloonie.” The opposite side of the coin has an engraving of Queen Elizabeth, so another suggestion was to call it the “moonie.” Why? Because it portrays the Queen, with a bear behind.
Not surprisingly, “toonie” won out.
From the blog How To Spot A Canadian:
Some would say it should be spelled “two-nie,” like the number two, but that might bring legitimacy to the strangely named currency, so instead it’s named “toonie.” It could be worse. They could have spelled it “2nie” like “2Pac” if they were aiming to capture the gangsta rap feel of the mid-90s when the coin was released… So if you’re trying to determine if someone is Canadian, ask them if they have change for a five. If they whip out a combination of loonies and toonies, they’re Canadian. If they start fumbling through bills, they’re American. If they give you two nickels and a dime, they either can’t do math or they’re ripping you off. If that’s the case you’ll need to conduct further testing to find out if they’re Canadian.