You must be the change you wish to see in the world. ~ Mahatma Gandhi
You might have missed this, but on February 3, when a virus wasn’t an all too central part of our attention, the US Mint in Philadelphia issued its newest US quarter-dollar coin. This coin, shown below, displays our very first President, George Washington, who has continuously appeared on our quarters since 1932 – no term limits for quarters apparently. Our newest quarter celebrates American Samoa on the relief (back side), which features a mother fruit bat and her pup hanging upside down. Aren’t you numismatists now excited?
So start swimming across the
Pacific to Samoa – it’s only 4,805 miles from here – and lend assistance to
these threatened fruit bats. The Philadelphia Mint is no penny ante or mere
nickel and dime operation; it usually produces 13.5 billion coins every year
that represent 1.2% of the nation’s money supply. This spring, there were close
to $48 billion worth of coins circulating. But the Mint’s production of coin
has decreased due to measures put in place to protect its employees from the
virus.
There are not enough quarters, or
as I’ll refer to them here, Georges. Just like TP and paper
towels, the coronavirus is now blamed for a shortage of quarters. This shortage
isn’t the result of more young people playing coin games like deadbox or tinks,
like I used to in grade school.
Only 70-90nm in size, roughly one-hundredth
as large as a human red blood cell, the coronavirus has been blamed for
aggravating virtually every shortage, inequity and malady.[1]
The covid-19 pandemic is everywhere. The word pandemic, first used in
the mid-1600s when the Great Plagues of Europe were killing 20% to 50% of the
population, comes from the Greek pan demos (all people). In a viral variant of
Parkinson’s Law that cannot be masked; the coronavirus has inevitably expanded
so as to fill the time available for everyone’s fears and opinions. And, of
course, it’s far from over.
The only comparable, politically mesmerizing
event I remember is the 1973-74 Oil Embargo when suddenly, and belatedly, we realized
that oil was a vital ingredient for a vast spread of economic activity and whose
supply was no longer guaranteed. This embargo incented some economists to develop a
BTU theory of value which measured a good’s worth based on how many BTUs (of then
very scarce oil) were required to produce it. Thankfully, a covid theory of
value hasn’t evolved, yet. Has it?
Nevertheless, as everyone knows
from personal experience, the coronavirus has extensively changed our behavior.
These behavioral changes include how much we’ve been spending and how we’ve
been paying for purchased items. Paying for stuff requires some sort of money,
which for economists like me leads to talking about “types” of money and the
money supply. The US money supply is managed by the Federal Reserve Bank (the
Fed), our nation’s central bank.
Simply put, the larger our money
supply the more spending happens. The more spending that occurs the higher our
GDP. The Fed has demonstratively supported keeping the US economy relatively
afloat during the covid crisis. Over the past year, the Fed has increased the
money supply by nearly $1.5 trillion dollars, an amazing 38.5% growth rate. That
is a whole bunch of dollars, and Georges. It’s also a prime example of big-time
expansionary monetary (money supply) policy. In July, retail sales slightly
increased (1.2%) for the third straight month, after significantly dropping earlier
in the year.
There are several types of money,
including cash (like Georges and dollars), credit and debit cards, checks, and
zeros and ones (digital money). With the exception of cash, most monetary
transactions end up as zeros and ones in your (or someone else’s) account.
There’s more money circulating,
courtesy of the Fed, but Georges and other change are in tight supply. Because
of the apparent shortage, the Fed has rationed coin supplies to banks across
the country. That’s not necessarily a large macro issue because coins aren’t
used in many high-value non-digital purchases. Federal Reserve research
indicates coins and cash are used only in about 12% of purchases costing $100
or more. Such transactions thus don’t provide much change, which is not the
same as what Mr. Gandhi was referring to at the beginning of this blog post.
But coins and other cash are used
for 49% of payments below $10. That’s why laundromat operators are wondering
where George is. Laundromats are quarter kings because their washers and dryers
require them to operate, as you probably remember.
There are about 29,500 coin-laundries
in the US, generating nearly $5 billion in annual gross revenue. It costs the typical
laundromat customer about 8 quarters to wash her/his clothes and about the same
to dry them. Some laundromats charge less (6 quarters), some more (16
quarters).
Most laundromats provide on-site change
machines for their customers so they can use the washers and dryers. The
stores’ owners/operators thus need a steady, substantial supply of Georges.
That’s becoming more challenging. Charles, a laundromat owner, drives to six
banks in his city every morning in search of Georges. The banks now each limit
him to no more than $120 worth (480 quarters). Most recently, he’s been running
low on Georges, which is bad for his business: no quarters, no washing or
drying.
He and other small business-people
believe the coronavirus has somehow blocked coins from circulating in the
economy. Many non-essential businesses remain closed, perhaps with their
unemptied register tills on the premises. People are making fewer shopping
trips, and depending on the store type, buying less per visit. That is happening,
but it’s not just the supply of Georges and other cash that may have shrunk
because of the virus, it’s also their velocity.
Money velocity is an economic term
that measures the rate (speed) at which money is exchanged for goods or
services in the economy. It’s the rapidity at which people and firms spend
their money. Unlike driving on the Interstate, money velocity has no regulated
speed limit, it depends on the size of nation’s macroeconomic output (GDP),
relative to the size of the money supply.
US money velocity has lessened
over time. From the beginning of 2020 through June 30, money velocity dropped 23%, a big reduction.
Velocity is at its lowest in 60 years. Lower money velocity means each dollar
(and quarter) is not being used as often to buy things. This lower demand for
purchasing items produces lower GDP. The US real (inflation-adjusted) GDP
dropped 9.5% from the first to the second quarter of 2020.
Despite the Fed’s successful
efforts to increase the overall money supply, money velocity has significantly
dropped as has the supply of coins. Lower velocity mitigates some of the effects of the money supply's increase. Georges and other cash are being used less to
purchase of goods and services.
Where’s George when we need him?
[1]
The media has taken to multiplying the pandemics we’re facing, so hardly anything
is left out of its realm: witness media sightings of the fashion pandemic, the
housing pandemic, the wildfire pandemic, the Great Barrier Reef pandemic, the schools' laptop pandemic…
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