The idea that the US Mint has a legal obligation to mint and issue bullion coins in quantities sufficient to meet public demand is one that I have seen mentioned every time the US Mint puts its bullion coins on allocation. While originally true, it is no longer the case.
Until recently I had accepted the US Mint had this legal requirement, as when I was discussing Ted Butler’s theory that JP Morgan “is exploiting a loophole in the law that requires the Mint to produce to whatever the demand might be”. However, I was prompted to have a closer look at the law when reading the recent open letter by Bix Weir to the US Mint, available at SilverSeek.com Another Smoking Gun: US Silver Eagle Allocation Conspiracy (Pro Tip: it helps your credibility if you address a letter to the right person – Edmond Moy resigned as Director of the US Mint in 2011, as a quick Wikipedia check would have confirmed).
United States Code Title 31 Chapter 51 Sec. 5112 says in Subsec. (e) and (i) that “the Secretary shall mint and issue … in qualities and quantities that the Secretary determines are sufficient to meet public demand” (my emphasis). It appears that these subsections were amended by the Coin Modernization, Oversight, and Continuity Act of 2010 in December 2010 replacing the non-discretionary word “quantities” with “qualities and quantities that the Secretary of the Treasury determines are”, which in my opinion gives the Secretary discretion on how many coins to make to meet demand. As it is difficult to forecast demand for a product driven by volatile precious metal prices this would mean that shortages would occur when demand spikes.
While Bix argues that the revised wording has no ambiguity and “there are no provisions in the law for the Treasury Secretary to stop sales or ration silver coins. The ONLY determinate of the Secretary in the law is that he MUST supply sufficient coins to meet public demand”, it would seem that the amendment was specifically made in response to the cancellation of the 2009 Proof Silver Eagle to give the US Mint the ability to strike proof versions of bullion coins “even if full demand for the bullion version of the coin remained unmet” (see this article for more details).
Additionally, the concept of “demand” only makes sense in respect of a time period. The fact that there is no time period mentioned in the law would mean that those proposing that the US Mint must never stop sales or ration are saying that the US Mint has to supply as and when demanded, that is, on a day to day basis. This leads to the absurd position that the US Mint would have to hold tens of millions of coins in stock, as it is possible that on any day there could be such an amount of orders placed. Indeed, this probably wouldn’t even be enough as it is impossible to know what may be demand on any day thus there is no level of stock would guarantee to protect the US Mint from breaking the law.
I would argue that the fact that the law makes no reference to a time period would mean that any court asked to rule on this wording would apply the standard that would apply to a privately run business. Privately run business do not spend massive amounts of money on building production capacity to meet temporary spikes that would otherwise sit idle, as that is uneconomic and would lead to the eventual bankruptcy of the business (see here for an explanation of these issues). Therefore I think it is likely that a court would come up with the more commercially sensible interpretation that the US Mint is required to make coins to meet the Secretary’s (and thus their) reasonable forecasts of demand.
The fact that the US Mint did ration coin sales prior to the amendment would imply that it had legal advice along these lines that it was not obligated to stockpile massive quantities of coin blanks or finished coins to cover any possible level of demand. With the amended wording it would seem that position is probably even safer.
As a side note, I noticed the following clause in Sec. 5116 (my emphasis) “With the approval of the President, the Secretary of the Treasury may — buy and sell gold in the way, in amounts, at rates, and on conditions the Secretary considers most advantageous to the public interest“. How to determine what is in the “public interest”? Possibly Federal Reserve International Finance Discussion Paper #582 from 1997 will be (has been?) considered, which determined that “there is a gain in total welfare” if the US Government sold all of its gold immediately with the following winners and losers (in billions of 1997 dollars):
- Government Revenue +$342b
- Depletion Users +$49b
- Service Users +$149b
- Private Aboveground Stock Owners -$102b
- Mine Owners -$70
Oh well, if it is for the greater good …
