CoinWeek Podcast #45: Can the U.S. Mint Compete in the Current Coin Climate & The 2016 Election’s Effect on Gold
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This week, CoinWeek editor Charles Morgan talks with 2012 Harry Forman National Coin Dealer of the Award winner Patrick Heller about the recently convened U.S. Mint Stakeholder’s forum, the surprising decline in U.S. sales revenue in recent years, and whether a radical change in the structure of the Mint as a business and the laws surrounding the production of collector coins needs to change in order to reverse the Mint’s fortunes. We also talk about the 2016 presidential election and why we haven’t seen real gains in the gold market in recent months.
The following is a transcript of Charles and Pat’s discussion:
Charles Morgan: Hi Pat, this is Charles from CoinWeek. Thanks for joining me on the CoinWeek Podcast.
Pat Heller: Oh, thank you, Charles.
CM: So Pat, the last time I saw you was two weeks ago when we were at the United States Mint’s stakeholder’s forum. What was your takeaway from that event?
PH: I was a little bit suspicious because sometimes a bureaucracy will have made a decision on what they are going to be doing and they hold an event like this to provide cover to pretend it wasn’t all their planning… but the impression I got and with the other I talked is that the people at the U.S. Mint really were seeking legitimate outside feedback on how they do things, which is a positive thing. They started out the program explaining the history of the Mint, how the National Numismatic Collection came to be formed at the Smithsonian, and in the process pointed out some of the constraints they have, such as a lot of authorizing legislation for coins specifying the weight and purity of coins and sometimes even the designs, so there are limitations on how much flexibility they have. But once we had that background, they broke us up into groups to talk about different smaller picture issues and reconvened to go through what each of us had come up with on particular subjects, so there was a lot of good stuff raised.
One of the thing I was a little concerned about is that where the U.S. Mint is trying to sell primarily to the ultimate collectors, there is a natural conflict of when it sells to coin dealers – does it charge the same price as the public pays, which would discourage dealers from wanting to buy products and resell them? Or does it discount them to dealers and possibly run the risk as has happened with some discount programs in the past, where dealers then price the products below what the Mint is charging and potential take customers away from the U.S. Mint? That was an issue that wasn’t really brought up at all.
CM: Which working group were you in?
PH: The one I would have picked if I had to do it myself would be on getting youth interested in collecting. I have a lot of ideas on that. I have done a lot of work in that very issue. So, we had a very high caliber of people. We had Kim Kiick, the Executive Director of the American Numismatic Association; Mary Burleson, President of Whitman Publishing; Dr. [Ellen] Feingold, who is a curator at the Smithsonian of the National Numismatic Collection; a couple of dealers, an internet coin dealer and a collector, so… we had a lot of different perspectives there.
CM: As a coin dealer, obviously, the Mint is asking you for your advice on how they can better compete against you. It seems to me that the Mint is doing a fine job already of competing against the traditional rare coin market. Wouldn’t you say?
PH: There is that kind of conflict as well. Most collectors, just about all of them, in fact, have a limit on how much they can spend, and if you are spending a certain part of that budget or maybe even all of that budget buying from the U.S. Mint direct that leaves less for other coin dealers. So there is the potential that some coin dealers may knock buying merchandise from the U.S. Mint in order to try to get more customers to shop with them.
That can be influenced if you have a situation such as has happened now where I’d say the majority of U.S. Mint issues in the last 20 years, numismatic issues, are now trading for below their issue price. So that would make it easier for coin dealers to knock buying new issues as they come out… and the ones that have gone up in price have not gone up by enough to offset what has fallen on the other pieces.
CM: As a coin dealer do you find that you have a pretty good predictive sense about which Mint products are going to perform versus which ones are not going to perform?
PH: About two-thirds of the time we get it. When the Buffalo dollar came out 15 years ago, I predicted that it would be an extremely fast sell out and in fact it was. There are other products that, for instance, the America the Beautiful series of quarters have not been anywhere near as popular as the Statehood Quarter series, which I saw back at the beginning at the current series of quarters. On the other hand, the sudden sell out of the U.S. Mint’s medal just a month or so ago totally caught me by surprise.
CM: Well, I would say about the America the beautiful quarter program, I don’t see where the surprise would have been on that because you had, first of all, the Presidential dollar series not being as popular as the State Quarters series and the State Quarters series itself not being as popular as it was when it launched in 1999 by the time it came to an end.
PH: That is correct. As was mentioned at the Numismatic forum in Philadelphia, a series of coins that goes on for 10 or 11 years turns off some people because you have grandparents who say, “I don’t know if I’m going to live long enough to finish this series, so maybe I won’t collect it.” And you might have a child interested in collecting the series, who thinks, “well gee, five years or 10 years from now I’m going to have a totally different [set of] interests and station in life, so I’m not willing to commit to that long a project.” If you had a series of coins that went maybe three to five years, you might have more popular interest.
But I think another problem with the America the Beautiful series is that people don’t know when their particular states issues are going to come out off the top of their head. With the Statehood quarter series, it started with the original 13 states in the order they ratified the Constitution and then it went by when the states joined the Union. And most everybody will know when their state joined the Union and about some idea about the sequence when they would arrive, whereas in Michigan, where my company is, in particular, it has, it honors in 2018 Pictured Rocks National Lakeshore. The America the Beautiful series of coins is issued in the chronological order in which the very sites that are honored were federally recognized. And until I found out the information, when they announced this series, I wouldn’t have had any idea of when Pictured Rocks became a national lakeshore.
CM: So put on your predictor hat for a moment and lets look at 2017 U.S. Mint numismatic releases, at least the ones that we are aware of the details of at the moment. Hit or Miss: The Lions Clubs International Commemorative Coin Program?
PH: Uh, I think it will do reasonably well, just because there have been a lot of Lions Clubs Members and their Seeing Eye Dog and Collecting Eye Glasses programs have enough impact on the public that it will get that. I don’t think it will be as popular as the Boy Scouts program was or run away popular ones like the Buffalo dollar issue.
CM: Hit or Miss: The Boys Town Commemorative Coin Program.
PH: That one I think will not be as popular as the Lions [Clubs] one. It will be so-so. Part of the problem with that is that over the years, Boys Town did such good fundraising that they basically become just about fully endowed and have disappeared from the fundraising markets in the past few decades. So, the number of younger collectors who have even heard of Boys Town is quite small and its just not going to be as popular as the baseball coins were a few years back, or again the Buffalo dollar, which is one of the prime examples of a successful commemorative coin program.
CM: And what would you say about the 2017 Liberty gold coin?
PH: That will sell relatively well because it will have a high intrinsic value, so even though you pay a significant premium for it, people will still in the back of their mind think, “Well, gee, if the price of gold goes up $500, that’s more likely than if the price of gold goes down $500.” They won’t just be buying that coin, they are thinking that they are buying the gold that’s in it. So I think that will sell reasonably well. I don’t think it will be quite as popular as the reproduction of the High Relief Saint-Gaudens coin that came out a couple of years ago, but it will still do well.
CM: Well the difference between the three programs is that the gold program is the only one where the Mint has any say about the motif, the mintage, and the way that the program is going to be marketed. And it seems to me that the big hurdle that the Mint has is that if the only place that it has any leeway or latitude when it comes to creating its own original concepts are high value precious metals coins, then it is essentially shutting out the mainstream collector. And those collectors are pretty much at the mercy of the parochial interest of Congress at the rate of one or two coin programs per year.
PH: Uh huh, that makes sense to me.
CM: So I was struck by the fact that the United States Mint’s sales numbers have been in a pretty sharp decline over the past few years. Still a significant chunk of money that is being taken out of the rare coin industry and spent on modern coins, though?
PH: Yes it is, in the hundreds of millions of dollars. I’m not surprised to see that the half ounce gold Presidential First Lady mintages declined sharply after the first year or so. It’s just another example of a long series that takes up a good chunk of a collector’s budget. And how long do you want to keep getting each issue as it comes out, unless you are really thinking that that’s a way to acquire the gold content?
The other issues are, well… in 1983, when the Olympic dollar came out and in 1982, the Washington half dollar commemorative, or the gold commemoratives from the 1984 Olympics. When they all came out, it was like “This is a brand new product.” When you had the reproduction of the High Relief Saint-Gaudens a few years back, that was a new product. But, when you go back to the well with so many products that are like what has been done before you do get some collector fatigue and it makes none of them seem as special as the very first issue did.
That actually is fairly common when the United States has had a new coin series come out, you have a very large number of the first year of issue coins saved–such as the 1909 Lincoln cents, the 1946 Roosevelt dimes, the 1964 Kennedy half dollars, the 1892 Barber coinage. They tend to have a much higher percentage of nice specimens surviving because people saved it in the first year, compared to what was saved in subsequent years. Even though the commemoratives change from year to year, it used to be that the themes might have been more distinctive. I don’t think anyone would argue that the Lions Clubs International or Boys Town commemoratives equate in significance with the Bicentennial of the Constitution or the 100th Anniversary of the Statute of Liberty. So, you have a little bit of fatigue and a little bit of the subjects not being as dramatic as they were in earlier issues.
CM: And it basically beckons the issue that coin collectors are essentially being asked to subsidize these special interest programs – and that this is how our commemorative program is being used – instead of being used to promote major touchstones of American history and culture. And it seems to me that there is very little that is being offered to collectors – or the public – at reasonable prices that would compel them to take a real interest in numismatics or American history for that matter… and I don’t think that, unless the United States Mint can convince the Treasury Department to take up the issue and convince Congress to reform our coinage laws, that in the long run the Mint will be able to compete in an increasingly global and technologically innovative collector coin market.
PH: It’s kind of gotten like that. The mints around the world… the Royal Canadian Mint, the Perth Mint, and even the Australian Mint is getting in the act. There’s a private company called the New Zealand Mint… and that’s just the tip of the companies that produce stuff, or will make coins to order.
They don’t even, necessarily have to put their own country’s name on it.
The Perth Mint makes a lot of coins for countries like Cook Islands or Niue… just to come out with a theme. In the case of the New Zealand Mint, there silver coins pretty much, are struck in the United States. They were never in New Zealand. And these operations are nimble, they are focused on selling a lot of material and making a profit and they’re well-run businesses. If they weren’t, they wouldn’t succeed. And when you have a bureaucratic organization, such as the U.S. Mint is, it’s hard to compete in that environment and survive. And the U.S. Mint is sort of driven by “The government needs us to provide coinage for the U.S. economy and then this is just an adjunct to it,” rather than saying, “We’re in the business to provide a product that people want to acquire that we can make and sell at a profit.” It’s just a totally different approach and I agree with what you said. The U.S. Mint is just not set up to be a successful competitor.
CM: Do you think the right way for the Mint to go is to become a public corporation, where essentially they produce coins for the government for commercial use and then their mission is to turn a profit for themselves by making and selling numismatic and bullion coins – with enough latitude from Congress that they can invent new denominations and configurations, so that they can compete with the world mints, which at this point are pretty much able to create whatever their marketing department dreams up?
PH: I think that would be an improvement. It’s still not a total cure. In the case of the Royal Canadian Mint, what they do stretches beyond just manufacturing product. They have a secure vault, as mints will have, and they’ve worked out arrangements with private companies that can sell certificates that say there is gold, or platinum, or silver stored at the Royal Canadian Mint. That’s an operation that a government mint doesn’t really need to do, but the Royal Canadian Mint does it. And that’s something far away from what the U.S. Mint does. The Royal Canadian Mint is a Crown Corporation, it officially runs its own operation even though its owned 100% by the Canadian government. You can argue whether its part of the government, or not. Some months ago it was announced that the Dutch government wasn’t looking to sell its mint, presumably into private ownership. That could, I’m not sure anything happened there, but if that happened, seeing what happens to this Mint in private hands could shed a little more light on the value of privatizing minting operations.
CM: Well, I can tell you based on the sessions that I sat in on at the World Mint Director’s Conference, is that the Mint’s are very, very concerned about the obsolescence of the lowest denominations of coinage and the theory is that the volume of all of the coins struck in the world could go down by as much as 50% if the 1 euro cent, the 1 cent, and even the five-cent coins of most developed world coin producing countries that still produce them are phased out. And the big problem that they are running into is multi-pronged. One, people in the developed world are now switching to digital payments. And two, the currency lobby has successfully maintained their foothold in the market with low denomination notes, and with the development of polymer notes, the lifespan of currency is increasing. We’ve seen in our own country in the 1979 attempt to introduce the Susan B. Anthony dollar, that the only way to get Americans to circulate the one-dollar coin with any regularity, would be to eliminate the $1 Federal Reserve Note. The United States government conducted an experiment doing just that, by withdrawing the $1 bill from its distribution to Portland, Oregon and instead shipping in ample amounts of $1 coins and $2 bills. The $2 bill circulated, but only when the $1 bill was not available. Likewise the $1 Susan B. Anthony coin circulated. But as soon as the $1 bill returned, the $2 bill and the coin saw sharp declines in use. And this was an experiment that was conducted almost 40 years ago. A dollar coin and a $2 bill have much less purchasing power today.
PH: …Yeah, as long as you have a one dollar bill and a two dollar bills, the coins just won’t circulate. You have a definite shift to less use of cash in commerce. The latest information that I see is that about 75% of transactions in Germany are settled in cash payments. In the Netherlands, it’s about 40%. In the United States, its down to about 10% of transactions that are paid in cash and the rest are in checks or some form of electronic payment, and in Sweden, it’s down to about 2% of transactions being paid in cash. So cash as a medium of exchange is on the way out.
CM: Well again, you know, the thing about cash for anyone who thinks it is going to go away, I point him or her to Singapore and their attempt to go cashless. Once the tsunami affected that country and their infrastructure went down, there was no way to pay for goods or services, and that is what happens when you go cashless and there’s a crisis. So, I think physical money will always be a safeguard method of payment. But I do agree, I can’t remember the last time that I pulled money out of my bank account, in order to have it in my wallet to spend it on things. This is something that I haven’t done for quite a long time.
PH: I carry about 80% less cash in my wallet than I would 10 years ago.
CM: I wanted to ask you a question about precious metals. When bullion was really running up about five or six years ago, there was an obvious undercurrent of anger and fear of the government’s policies surrounding TARP, the debt ceiling, the feeling that the Obama administration was running up the deficit, maybe just the sense that there was no end to the federal government’s profligate spending and that many Americans were losing faith in the government’s ability to actually do anything done. And given that this year’s election cycle has been divisive, and frankly, downright frightening, shouldn’t we have seen a surge in the prices of precious metals? I mean, what’s been happening in this country, with the election, with Russia, with the Middle East… it’s been a gold hawker’s dream scenario. Hasn’t it?
PH: Well, the governments, collectively, have a decided interest in people perceiving their paper money issues to be holding a value, if that perception goes away, the government loses the ability… for deficit spending, or to be able to borrow at low interest rates and that would severely restrict their operating flexibility. So, when you have times of uncertainty, there are people who do want to go to assets that are safe havens, and gold and silver, for thousands of years, there have been such assets. If you have surreptitious trading, this is surreptitious, meaning that it’s not publicly acknowledged, or people don’t realize its going on. For instance, gold reserves in central banks, are secretly leased onto the market to give the impression of a larger gold supply then the physical market trading would tell you. That can hold down prices.
So… on days where you see a significant drop in paper asset markets, like the stock markets, or if currencies fall. It’s not unusual, where you also have the price of gold and silver falling at the same time. Some of that could be people are getting margin calls on leveraged investments and they are selling other investments to get cash flow to cover their margin calls. But you could also have prices being manipulated or suppressed behind the scenes so that people don’t cash out their paper assets and flee to the safety of gold and silver. The information that gets declassified over time and released has confirmed that the U.S. government has manipulated gold prices going back to the 1930s and right up into, at least into the 1970s… at a time when it was publicly saying it wasn’t manipulating the markets. And yes, it actually was. And there’s no real reason to think that the government just suddenly stopped doing that at a time when continuing to hold down gold and silver prices would work to its own financial benefit.
CM: So which of the two possible 45th Presidential administrations do you think would be better for gold and silver for current stake holders in those commodities?
PH: In the long term, I don’t think either one of them will be good for the economy of for freedom in the country or government debt. So in the long term I do expect to see significantly higher gold and silver prices because they will hold their value. What really would be happening is that the value of the U.S. dollar is going down as opposed to gold and silver appreciating. I would not be surprised if Donald Trump were elected the next president and he’s not the favorite of the Wall Street interests, that you might see a lot of negative financial news happen in the paper asset markets, right after the election is over, right before Trump even assumes the Oath of Office, where if Clinton becomes the next President, I expect more of the same that we are seeing now, where there seems to be a consistent effort to hold the Dow Jones Industrial Average, for instance, above 18,000 points.
This trading range has been remarkably quiet the last several months, even though the news has been sometimes very good and sometimes very bad. In a non-managed market, you would have seen more fluctuation in that index. But those are both short-term things, where even though if you have a President Clinton, it might look like the financial markets for stocks, bonds, and currency are doing ok. That’s not going to persist, because in the latest government financial statements, for instance, for September 2015 fiscal year, it disclosed 41.5 trillion dollar deficit in social insurance programs that is above and beyond the federal debt. And that’s the net present value, that’s not adding up future payments. It’s discounting it by the interest rate and those are amounts that there’s just not enough wealth in the United States to pay off. So at some point the dollar will either have to be depreciated to be pretty much worthless to pay off this debt, or these obligations aren’t going to be paid. You could have some of both, but you are going to have one or the other, or both. There’s no third way to get out of that. And whichever of those happens, precious metals would be a wonderful thing to have as part of your assets.
CM: So you are saying in the long run, you’re bullish on the precious metals markets?
CM: Ok, Pat. I appreciate your insights into the U.S. Mint forum, its 2017 new coin releases, and the precious metals market. Good luck trying to not lose your mind over the course of the next two weeks as we trudge through this train wreck of an election cycle.
PH: We live in interesting times.
CM: The apocryphal old Chinese curse.
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