Secretary of the Treasury Geithner just sent Senate Majority Leader Harry Reid a letter.
Noting that in 5 days the US will again have hit the debt ceiling, Secretary Geithner explains that actually, we might have an extra 2 months. In an appendix to his letter, he outlines 4 types of “extraordinary measures” that will let us avoid a debt default for awhile. He adds though, that he is not sure how long he can stretch it because of the uncertainty created by the current negotiations over tax increases and spending cuts. (Ironically, no Congressional tax and spending deal means more time to get a new ceiling.)
Where is the debt ceiling? $16.394 trillion.
Where were we on December 26th? $16.027 trillion.
In 1917, Congress decided it could not keep track of every U.S. loan. So, to maintain some control over national finance, they said, “We will decide the maximum amount the U.S. can borrow.” And, from that day onward, whenever necessary, they voted to increase how much the U.S. could borrow. Since 1962, the U.S. Congress has raised its debt ceiling 76 times.
Sources and Resources: Here is Secretary Geithner’s letter and the Treasury Department daily update of US debt totals. For some debt history, John Steele Gordon’s Hamilton’s Blessing The Extraordinary Life and Times of the National Debt is wonderful. Also, this CNN article and these these econlife posts, Debt Ceiling 101 and Looking at the Debt Ceiling, provide some background and some of the above history.
Posted by: adminEcon
Tags: Alexander Hamilton, debt ceiling, deficit, federal budget, federal debt, fiscal cliff, Harry Reid, John Boehner, Nancy Pelosi, recession, Second Liberty Bond Act, Timothy Geithner, treasury
Because cost is up and use is down, the Royal Canadian Mint stopped producing pennies and, during the fall, will stop distributing those that exist.
Should we also eliminate the penny?
Pennies are expensive. At 2 1/2 cents a piece, making and distributing them lost the Treasury $60.2 million last year. Proposals, though, for a cheaper coin, have always generated a flap. When, to save money, President Reagan proposed diminishing the copper in a penny in 1981, the uproar included a suit from the Copper and Brass Fabricator’s Council. However, the switch did take place and today’s penny is 97.5% zinc and 2.5% copper.
Now, we are debating whether to eliminate the penny, create a cheaper one, or do nothing. A penny phase-out has some people worrying that rounding up prices will be inflationary. Others say charities will raise less. And some just like Abraham Lincoln. You can see that the arguments are not really convincing and yet all Congress has done is ask the Mint if it can make a less expensive small coin. Perhaps, tradition is the real reason that many of us feel penny loyalty.
My bottom line: Eliminating the penny might not be necessary. Soon it might no longer have the basic characteristics of money:
- It is accepted as a medium of exchange. For example, you and I are willing to use the commodity in a supermarket. A peso or a tie is not a medium of exchange in the United States.
- It is a unit of value. We all know how much purchasing power a penny represents but not necessarily the yen.
- It is a store of value. We all like our money to retain its purchasing power if we do not spend it immediately.
My sources were this Huffington Post article, this NY Times article, an excellent New Yorker Magazine discussion from David Owen, and this from a Canadian newspaper.
Just an interesting post script: In 2001, the NYSE did the reverse. Replacing fractions with decimals, the trading price included pennies. For example, instead of 50 1/8, the price of a stock had to be expressed as $50.12 or $50.13.