Motley Fool on melting cents
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Forgive me if it's been posted 'afore:
Melt a Penny, Go to Jail By Brian Lawler
Tue Dec 19, 11:42 AM ET
It appears that car manufacturers such as Ford (NYSE: F - News) or aluminum producers such as Alcoa (NYSE: AA - News) aren't the only ones affected by soaring commodities prices. With the price of commodities such as the zinc and nickel used to produce pennies and nickels rising so much so that the coins are worth more in scrap metal than their face value, the United States Mint has passed new regulations making it illegal to melt the coins.
Commodity prices have gone through the roof this past year. Aluminum prices gained 37% in the third quarter alone, causing Alcoa's revenues to rise 19%. So, clearly, any producer selling commodities to the market, as Alcoa does, is feeling pretty good in 2006, whereas companies (or government agencies) relying on commodities in the production of its goods are hurting now. Not only did the Mint make it illegal to melt the coins, but if the regulations hold, traveling abroad with more than $5 of pennies and nickels with you will now be punishable by up to five years in prison. These rules have been implemented because it costs the Mint approximately $0.015 to produce every penny because of the rising commodity prices, and the Mint wants to prevent shortages of the coins in circulation.
This isn't the first time in history when it's been more profitable to melt money than to use it to facilitate economic transactions. In the 1920s, as a result of the crushing debt incurred in World War I, the German government printed more than the equivalent of trillions of dollars. This caused inflation on the magnitude of more than 300% in some months and gave rise to the idea of the "shoe leather costs" of inflation -- workers would get paid multiple times in a day and then run to spend their cash before prices rose again. Eventually, paper money became so worthless in Germany that it was cheaper to burn it for heat than to use it to pay for firewood.
Obviously, this situation in the U.S. is a little different, since it is commodity price inflation, rather than overall rising prices in the economy, that is causing some to resort to melting money. Inflation in commodities usually causes producer prices to increase, such as earlier in the year, when a number of the car manufacturers announced price hikes to make up for rising steel prices. So commodities such as the oft-mentioned value of a barrel of oil or steel are worth watching and often act as a harbinger of future economy-wide consumer-price inflation.
Fool contributor Brian Lawler used to love squashing coins on the railroad tracks behind his house. He does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
http://news.yahoo.com/s/fool/20061219/bs_fool_fool/116654296513
Melt a Penny, Go to Jail By Brian Lawler
Tue Dec 19, 11:42 AM ET
It appears that car manufacturers such as Ford (NYSE: F - News) or aluminum producers such as Alcoa (NYSE: AA - News) aren't the only ones affected by soaring commodities prices. With the price of commodities such as the zinc and nickel used to produce pennies and nickels rising so much so that the coins are worth more in scrap metal than their face value, the United States Mint has passed new regulations making it illegal to melt the coins.
Commodity prices have gone through the roof this past year. Aluminum prices gained 37% in the third quarter alone, causing Alcoa's revenues to rise 19%. So, clearly, any producer selling commodities to the market, as Alcoa does, is feeling pretty good in 2006, whereas companies (or government agencies) relying on commodities in the production of its goods are hurting now. Not only did the Mint make it illegal to melt the coins, but if the regulations hold, traveling abroad with more than $5 of pennies and nickels with you will now be punishable by up to five years in prison. These rules have been implemented because it costs the Mint approximately $0.015 to produce every penny because of the rising commodity prices, and the Mint wants to prevent shortages of the coins in circulation.
This isn't the first time in history when it's been more profitable to melt money than to use it to facilitate economic transactions. In the 1920s, as a result of the crushing debt incurred in World War I, the German government printed more than the equivalent of trillions of dollars. This caused inflation on the magnitude of more than 300% in some months and gave rise to the idea of the "shoe leather costs" of inflation -- workers would get paid multiple times in a day and then run to spend their cash before prices rose again. Eventually, paper money became so worthless in Germany that it was cheaper to burn it for heat than to use it to pay for firewood.
Obviously, this situation in the U.S. is a little different, since it is commodity price inflation, rather than overall rising prices in the economy, that is causing some to resort to melting money. Inflation in commodities usually causes producer prices to increase, such as earlier in the year, when a number of the car manufacturers announced price hikes to make up for rising steel prices. So commodities such as the oft-mentioned value of a barrel of oil or steel are worth watching and often act as a harbinger of future economy-wide consumer-price inflation.
Fool contributor Brian Lawler used to love squashing coins on the railroad tracks behind his house. He does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
http://news.yahoo.com/s/fool/20061219/bs_fool_fool/116654296513
We are like children who look at print and see a serpent in the last letter but one, and a sword in the last.
--Severian the Lame
--Severian the Lame
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Comments
Proud recipient of two "You Suck" awards
I believe I read that in school like 18 years ago.
Had a 1918 2 mark note that I had bought for about the same. Grandfather said he'd work all day long for one of those.
Unfortunately he never made it to the States except to visit us.
Man how times have changed.
Ike Specialist
Finest Toned Ike I've Ever Seen, been looking since 1986
after her arrival the bank sent her a letter advising her to transfer her funds to foreign currency
and gold because of the rapidly increasing inflation. She didn't want to be bothered by such
things at the time so ignored it. A year later she got another letter telling her that her entire
account was used to buy the postage stamp on that letter.
In 1946 the entire Hungarian economy was worth some 6 quadrillion Pengos which was equiva-
lent to less than $30 US.