Posted June 10, 2021
By Byron King
Inflation’s Shadow: The U.S. Mint Ran Out of Metal
How much do you know about the U.S. Mint?
Not long ago, I asked this question to a room full of high school students.
Answers ranged from, “It prints money,” to, “I don’t know anything.”
Even the young guy who said that the Mint “prints money” wasn’t quite sure what’s involved with that function. That is, he believed that the Mint prints paper currency.
No, actually the U.S. Bureau of Engraving and Printing creates paper cash.
The Mint stamps out metal coins: pennies, nickels, dimes, etc.
It also stamps out high-end coins made of gold, silver, platinum and palladium.
And not long ago, the Mint ran out of metal.
Which is an ominous harbinger of inflation that’s already here — and yet to come.
Let’s dig into this…
Specifically, the U.S. Mint recently ran out of silver and sent out an email that said as much. The Mint said that it’s having trouble obtaining silver from metal suppliers. More on that in a moment.
But first, let’s discuss what I told the high school kids.
The U.S. Mint is an arm of the Treasury Department, responsible for stamping out coins for the U.S. economy. And there’s much revealing history here.
Congress established the Mint in 1792, shortly after the Whiskey Rebellion began in Western Pennsylvania. Farmers revolted over taxes on whiskey stills, and one big issue was that there was no official U.S. money with which to pay those taxes.
Indeed, for lack of what we consider today as money, farmers back then used jugs of whiskey as a form of currency. But the U.S. government wanted tax payments in copper and silver coins, of which there were nearly none out on the austere frontier.
Another way to say it is that money was scarce in Colonial and early Constitutional Republican America, certainly outside of seaport trading cities and towns.
In the interior of the country, often as not people bartered and traded, or conducted commerce via private notes, essentially “IOUs” and distinctly not government currency. On occasion, people used coins from Britain, Spain, France, Holland and other nations. Whatever worked, right?
Now, consider the timeline here: the U.S. Constitution was drafted in 1787 and ratified in 1788. The first Congress sat in 1789. Among its immediate acts, Congress imposed taxes to raise funds. The new U.S. government had to pay the nation’s bills, including a large amount of Revolutionary War era national debt.
So the country had national taxes but no national currency, and by 1792 people were rebelling over lack of real money.
That Whiskey Rebellion was quite an event, far more than a local matter. Typically, if it’s even taught anymore in American schools, it’s presented as a tale about quaint, hicks-in-the-sticks farmers, bent out of shape over paying taxes on their whiskey stills.
But this rebellion was far more than that. As it developed, the revolt had the potential to end the U.S. Constitutional experiment. In fact, some Whiskey rebels of Pennsylvania raised the prospect of seceding from the new United States entity and rejoining Britain, or merging with France out west, if not making a deal with Spain.
This is why President George Washington raised three state militias to march across the Alleghenies and put down the insurrection. Not paying taxes is one thing. Seceding is something else entirely.
And all of this was a big part of why Congress expeditiously set up the U.S. Mint, in Philadelphia no less, which was at the time the seat of national government, i.e., before Washington D.C. was established.
Even then, with a new Mint, U.S. coinage was rare. That is, how much output can anyone expect from a new entity that is just setting up? In the 1790s the Mint stamped out few coins, which today are quite rare and perforce exceedingly valuable.
The point to keep in mind is that early in the country’s existence, U.S. coinage was in no way common, let alone ubiquitous. For many decades after the U.S. was founded, there was little in the way of a national form of money to support exchange and commerce.
Again, keep in mind that for lack of “American” money, much early commerce was conducted via foreign specie. And this lack of U.S. coinage reflected a major problem.
That is, the U.S. was handicapped by geography and, by extension, by its bedrock geology. There just isn’t much gold and silver in the rocks of the eastern states. Yes, a small bit here and there, from Vermont to New York to Virginia. But the amounts are miniscule.
Due to scarcity of materials and logistical necessity, much early U.S. coinage (1790s to about the 1830s) was stamped out of imported metal, particularly silver coins which were made from stock that commonly originated in the mines of Mexico.
Early products of U.S. Mint: U.S. “Capped Liberty” silver half dollars.
Many other U.S. coins of the period were re-struck from coins originally minted elsewhere too, in Britain, France, etc. That is, the minters at their Philadelphia furnaces would take an existing coin from another country, weigh the metal, heat it up and stamp U.S. symbology on it.
Finally, in the 1830s the U.S. economy caught a break. Prospectors discovered gold in the western piedmont of North Carolina. And in 1835 Congress established a new U.S. Mint in Charlotte, which specialized in gold coins. The building is still there, but today it’s an art museum called (no surprise) “The Mint.”
While we’re discussing this, it’s worth mention that in 1838 Congress established another mint in New Orleans. The Queen City was (and remains) a major seaport, and at the time was the gateway for commerce across much of the South. Many a ship carrying gold and silver from Mexico and South America docked there and fed metal into those New Orleans Mint forges.
Still, throughout the 1840s and 50s American commerce was conducted via a mix of U.S. coins, plus foreign coins, and many different private bank forms of so-called “currency.” It wasn’t until 1857 that foreign coins were finally legislated out of the economy by Congress.
(Note: That ban on foreign currency contributed in its own way to the Civil War, because it reinforced many people’s sentiments about Northern economic dominance over the South.)
Mints or no, America’s first true monetary windfall came in California in 1848 with the gold discovery at Sutter’s Mill. Finally, the country had some serious “money” — because gold is money — coming down out of the hills.
Add in the discovery of Nevada’s Comstock Lode in 1859. This kicked off a “silver rush” to match the previous decade’s California Gold Rush, and the U.S. economy was beginning to liquefy with serious amounts of precious metal money.
Then came the Civil War, 1861-65, and as no less than Sun Tzu noted about 2,600 years ago, “wars cost much silver.”
Fortunately for President Abraham Lincoln and the North, California and Nevada were there to supply money straight from the mines, with which to fight the war. In a fascinating, mostly forgotten historical aside, no less than Tsar Alexander II of Russia sent part of his navy to defend the U.S. Mint at San Francisco during those troubled times. We discussed it here.
The Civil War was a monetary disaster for the U.S.
Despite the gold and silver from California and Nevada, the country ran out of money with which to pay its bills. The U.S. began issuing “greenback” paper currency, a long tale for another time.
Fortunately for the monetary fate of the nation, the U.S. covers half a continent, much of which is filled with mineralized areas, particularly out West. The 1860s through 1920s were a long era of prospecting, discovery and mining, particularly for gold and silver, as well as many other metals.
For many of those above-noted decades, members of Congress and Senators from out West promoted coinage that used metals mined in their states, namely gold and silver. It led to a political debate over the concept of “bimetallism,” and that too is another story for another time.
But it does bring us back to the U.S. Mint, which stamped out vast numbers of gold and silver coins in the second half of the 19th Century and well into the 20th Century.
Among those coins was the famous “Morgan” silver dollar. It was designed by an engraver named George Morgan, hence the name. The Mint issued this coin between 1878 and 1904, with a special issuance in 1921.
U.S. Mint, 1921 Morgan silver dollar.
Well, here it is 2021 and obviously, that’s 100 years since the last of the Morgans.
So the people who run the U.S. Mint decided to issue a special 2021 commemorative of the century-old coin. The idea is to release a series of limited editions.
One of these commemorative Morgans has the “CC” mark, representing the old Carson City, Nev. Mint. Here’s the U.S. Mint ad.
And the other commemorative Morgan has the “O” mark, representing the old New Orleans Mint. Here’s that ad.
Both of these coins went on sale at noon on May 24.
And the entire allowance was sold out within 20 minutes. Indeed, traffic was so heavy that the servers crashed at the Mint.
That’s two different coins, at mint runs of 175,000, or a total of 350,000 coins.
Note that each coin contains 0.858 troy ounces of .999 silver. The balance is copper. So it’s not even an ounce of precious metal. And the Mint priced these commemoratives at $85 each, which is over three times the spot price of silver.
And it all sold out within 20 minutes!
Now, an outsider might just think that this 2021 commemorative Morgan must be a big thing amongst coin collectors. Lots of people them. And that’s true, as far as it goes.
But then the Mint sent out an email stating that it’s having problems meeting demand due to a “global silver shortage.”
Then a few days later, on June 4 the Mint sent out a correction, stating:
“The United States Mint … is being impacted by silver blank shortages among its suppliers. The demand for many of our bullion and numismatic products is at record heights and increasingly outpacing the supply of silver blanks available through our suppliers.”
So it’s not a global silver shortage, it’s “silver blank” shortages from suppliers. And demand is “increasingly outpacing the supply.”
Now, wait a minute… That’s an explanation that fails to explain.
The fact is that the U.S. Mint is among the largest users of silver in the world. It has large supply contracts with the largest silver refiners in the sector. And contracts with the Mint specify that it (the Mint) is number one for allocation in the event of tightening supply chains.
That is, the U.S. Mint is at the top of the list for silver supplies from refiners. And yet, it’s telling the world that it can’t obtain sufficient metal to meet demand.
This is not to say that there’s no silver. No, it’s not all gone. Silver miners are mining and refiners are refining.
You can still buy silver bullion, bullion coins, old bags of “junk” silver (pre-1964 U.S. coins for example) at many sites online. There’s a range of places to obtain silver. But it’s pricey, and getting pricier, especially the “markups” above the official spot price.
The main takeaway here is that the Mint shortage of silver reflects the shadow of a new cycle of inflation that has already begun. And this inflation is breaking out wide open.
Doubtless, you see inflation every day; at the supermarket, the hardware store, the lumber yard, the auto dealer, in housing prices and much more.
In essence, the dollar is losing purchasing power, more and more, faster and faster.
The other side of this phenomenon is that people are converting more and more of those paper and electronic dollars they control into something real, into hard precious metal.
Yes, a nice, shiny 2021 Morgan silver dollar might be a nice collector’s item. But the fact that the Mint sold out of 350,000 of them in 20 minutes is astonishing.
And then the fact that the Mint came right out and stated that it can’t obtain raw material is beyond worrisome.
Inflation is here. It’s about to explode. And the consequences will be seismic.
On that note, I rest my case.
That’s all for now… Thank you for subscribing and reading.
Managing Editor, Rich Retirement Letter
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