Almost everyone I know is “collecting” these new state quarters. Does the U.S. Mint care? Are they going to come on t.v. and request people to put the quarters BACK. And doesn’t taking all this money out of circulation affect the economy somehow?
On a related note, how does the U.S. Mint pay its bills? In cash? 
Lisa, who ran screaming out of Economics 101.
Oh crap! I thought I was in General Questions!
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my guess is not so many quarters will be collected and ost of them will go back into circulation soon so the effect will be negligible.
However, to answer your question on a more general level, for the same reason that printing money causes inflation, taking money out of circulation has the opposite effect.
Governments routinely try some tricks like (a)issuing new bills and coins and invalidating old ones (many of the old are never redeemed in time), (b) issuing special “collectors” bills and coins in the hope people will hoard them, © issuing “collectors” stamps also in the hope people will buy them. By doing any of these things you are essentially giving money to the government for nothing.
Imagine if all those dollar bills abroad were never redeemed. You buy stuff from Japan and give them a piece of paper which entitles them to get something back from you. Now if they burn the piece of paper… you got your stuff for free.
Well, I hate doing “ditto” posts, but sailor’s right.
Hoarding quarters will reduce the money supply, which, in turn, will raise the cost of money (ie, reduce inflation.) But the Gross Domestic Product of the US last year was $9,256,150,000,000.00. We’d better get busy if we want to make a dent.
Lisa, FWIW, I did better in math and physics. I didn’t get economics until my teacher put up a graph that I could make assumptions and put numbers to.
Thank god, now I can sleep tonight instead of lying awake fretting over the massive jar o’ pennies we’ve collected in our house.
I heard that people are hoarding those Sacagawea dollars, and that’s a bigger problem.
This is from the FAQ section about the state quarters at the USMint site.
So they are anticipating double to triple the demand for the quarters and are loving it.
Jim
I’m soooo confused. How does the government make money from printing it?
I understand the concept of recession. I mean, there’s a finite supply of money out there, so producing more devalues what is already there.
But how does the government profit from printing more money? How do you profit from anything unless you “sell” it to someone? Or is “selling” it correlated to the prime rate set by Alan Greenspan?
And how do they go about putting new money into circulation? Exchange the old stuff for the new stuff? Rent a helicopter and drop bags full of the stuff throughout the United States?
I know, I know, my husband is a stock broker and he’s tried to explain futures and options to me. He finally threw up his hands and said that that part of my brain was missing.
PunditLisa asked:
Well, the coins cost 5c to make and people are willing to give the government more than that to get them, since they are confident that they can be used in exchange or as a store of value.
I take it that in your next paragraph you meant “inflation” rather than “recession”.
How do they put money into circulation? Usually they deliver it to banks, who then give it to people when they withdraw cash.
Curiously, your helicopter example is used by Milton Friedman in his exposition of the theory of inflation. Reality is a little less dramatic.
picmr
sailor:
No you didn’t. You’re still out the piece of paper. I think that what you meant to say is “Suppose you write someone a check to buy something. You get the product, but they never cash the check. You’ve now gotten the product for free.”
picmr:
What do you mean, they “deliver” the money to banks? Do they just drop the money off? “Hey, would you like several million dollars just for being a bank?” “Sure!”
While I can see how hoarding the money will decrease inflation, the issuance of the money itself will cause inflation. So if the government is producing more money in anticipation of hoarding, then is there any net effect? Soimetime when I have more time, I’m going to have to sit down and think about this for a while.
Most money is not currency, it exists as entries in balance sheets. Banks keep only enough currency to service the liquidity demands of their customers. This is because currency is expensive to hold, since it has a zero yield.
When banks need more, they cash in some government securities (or draw on accounts notionally kept at the Fed for prudential purposes) and the Fed pays them in currency.
Or, keeping it real simple, the bank takes worn notes to the Fed, who exchange 'em for nice crisp/ shiny stuff.
picmr
Aha! (<—the exclamation, not the poster.) That I understand! However, since the Mint will produce 3 billion of those new quarters, are you saying that the banks will turn in 3 billion “old” coins? If not, surely they don’t “give” them to the bank!
On a related note, what the heck does the Mint do with all that old money? I sure hope they recycle…
I apologize for my utter, complete ignorance in this matter. If it was up to me, we’d still be trading pigs for a nice bolt of cotton. THAT I understand.
I said >>You buy stuff from Japan and give them a piece of paper which entitles them to get something back from you. Now if they burn the piece of paper… you got your stuff for free.
TheRyan says: >> No you didn’t. You’re still out the piece of paper. I think that what you meant to say is “Suppose you write someone a check to buy something. You get the product, but they never cash the check. You’ve now gotten the product for free.”
Your example is correct but it is not what I meant. My example was poorly worded. In “you got your stuff for free” I did not mean you but the USA as a country in the same sense that it would revalue the rest of the dollars in circulation.
From the Big Guy:
How much money is there? With the U.S. borrowing so much, why aren’t we broke?
In this article, Cecil explains that the Treasury makes as much currency as the public can use. There is no effect on the economy from an excess of currency. But (and this is a big ‘but’), currency is a small part of the actual money in circulation.
By the way, I believe the Mint recycles coins, but they mostly burn bills. Though I’ve seen finely shredded currency sold as a fun alternative to styrofoam peanuts in gift packages.
People who have big jars of pennies: Doesn’t a
grocery store near you have a Coinstar machine?
This is a great invention where you put all the
(unwrapped) coins in and get a chit to exchange
for money.
It’s getting pennies back into circulation!
Annie, great idea, but I’m gonna go out on a limb here and say that those who collect pennies in jars are probably not the type willing to fork out the 7% fee Coinstar takes for this service…
7%? In my area (NJ/NYC) it’s 9%! Still easier than
taking the time to count them and wrap them. I
think that at least half of the people with jars
full of coins don’t want to do that, so taking
them to a CoinStar where you put in the loose
coins in a blessing (and very fun to do!)
Isn’t cashing in miscelleneous coin as easy as bringing it to a Bank/Credit union to which you belong, and they run it through a coin counter and pay you out cash for it? I’ve never had to do any of that silly wrapping-up of coins…and I have cashed in $40 or $50 in coin at a time.
Another option is to bring the coin to a nearby casino (I think most metropolitan areas have a casino nearby). They generally have the equipment necessary to take care of this coin, and will exchange it for free in the hopes that you’ll drop some of it in the machines or tables. They either re-wrap the coin and sell it again (in the case of nickels and quarters) or bag it up and sell it to the bank.
An interesting side-note: When I worked as a cashier at casinos, if someone brought in rolled coin (unless it was from our own casino) I needed to break the rolls open, and dump them into the counter. This served two purposes: 1. It made sure someone wasn’t shorting rolls, and 2. It made sure that coin going out from our cage wasn’t advertising for a casino down the freeway.
mm
I never understood why people accumulate change at home. I just get rid of it as it comes in.
This is particularly true of small/poor countries (in Africa and the Balkans in particular, from my experience). You’d be surprised how many Elvis/Beatles/Marilyn/Princess Di postage stamps come from, say, Tanzania. Why? $$$ in the bank for that country’s postal service, whcih probably sells as many of these stamps to foreign collectors as it does to local letter-senders (if not more).
As for the Quarters, I’m saving two of each (the P & D issues), which means I’ll withhold $25 from circulation over the span of 10 years. Doesn’t seem like much in the grand scheme of things…