Unload coins in tough times?

The overall economy has an impact on supply and demand for numismatic and precious metals products. When there is a general sense of prosperity, there is greater demand for discretionary items, which are items beyond what is needed for everyday physical survival.

If times are tough, demand for discretionary items tends to decline. Also, assets that can be sold to raise cash flow will tend to be unloaded.

A prime example of the impact of both sides of the market cycles comes from Michigan. Because of the large number of high paying automotive jobs in Michigan decades ago, the state was home to a disproportionately large number of coin collectors. When the domestic auto and truck industry lost ground to foreign competitors, hitting Michigan’s economy especially hard, a large number of the state’s collectors became net sellers.

The American general public makes judgments about their financial circumstances on the basis of their individual experiences and also on their overall expectations about the U.S. economy. Therefore, the perceptions about the state of the economy can affect supply and demand for numismatics and precious metals.

I have long suspected that reports about the state of the U.S. economy have been misleading. Invariably, it seems to me that the distortion in such reports is tilted toward whatever would achieve the better result for the benefit of the U.S. government, not necessarily for the general public.

This concept has received a significant endorsement from former Federal Reserve Bank Governor Kevin Warsh. In a July 14 interview on CNBC’s Squawk Box program, Warsh stated that he found the Fed’s decision-making process since late last year to be “a bit puzzling.”

He also stated, “It is not obvious what their strategy is. I know they say they’re data dependent. I don’t know exactly what that means. They look to me asset price dependent, more than they look data dependent.”

The point of Warsh’s interview is that instead of responding to economic data, he thinks the federal government is taking actions on the basis of what will prop up U.S. stock prices. U.S. stock indices are considered by many people to represent the state of the overall economy, leading the general public to make their spending decisions (including for numismatics and precious metals) on the basis of these limited indicators.

Later in the interview Warsh said, “The bad news is the real side of the economy in the U.S. deteriorated since September. Quarterly earnings will now be down six quarters in a row. That’s the first time that’s happened outside a recession.”

In the seven-minute interview, which can be viewed here, Warsh advocates measures that he recommends that the Federal Reserve Bank and its Federal Open Market Committee take, but does not seem to be optimistic that these will be implemented.

Normally, people who have held positions of political power such as being a Federal Reserve Bank governor would never admit publicly that politicians are misleading the public. When such admissions are made, that is usually a sign that conditions are far worse than even what is being exposed. In essence, Warsh’s comments are a huge negative indicator for the state of the overall U.S. economy, the U.S. dollar, and the U.S. government.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Other commentaries are available at Coin Week. His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing.