[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                      BULLION COIN PROGRAMS OF THE


                        UNITED STATES MINT: CAN


                          THEY BE IMPROVED?

=======================================================================


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                        DOMESTIC MONETARY POLICY

                             AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 7, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-25



                  U.S. GOVERNMENT PRINTING OFFICE
66-863                    WASHINGTON : 2011
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO R. CANSECO, Texas
STEVE STIVERS, Ohio

                   Larry C. Lavender, Chief of Staff
        Subcommittee on Domestic Monetary Policy and Technology

                       RON PAUL, Texas, Chairman

WALTER B. JONES, North Carolina,     WM. LACY CLAY, Missouri, Ranking 
    Vice Chairman                        Member
FRANK D. LUCAS, Oklahoma             CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   GREGORY W. MEEKS, New York
BLAINE LUETKEMEYER, Missouri         AL GREEN, Texas
BILL HUIZENGA, Michigan              EMANUEL CLEAVER, Missouri
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
DAVID SCHWEIKERT, Arizona


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 7, 2011................................................     1
Appendix:
    April 7, 2011................................................    21

                               WITNESSES
                        Thursday, April 7, 2011

Deisher, Beth, Editor, Coin World Magazine.......................     3
Hanlon, Terence F., President, Dillon Gage Metals................     4
Hansen, Ross, Founder and CEO, Northwest Territorial Mint........     6
Nessim, Raymond, Chief Executive Officer, Manfra, Tordella & 
  Brookes, Inc...................................................     7

                                APPENDIX

Prepared statements:
    Deisher, Beth................................................    22
    Hanlon, Terence F............................................    28
    Hansen, Ross.................................................    30
    Nessim, Raymond..............................................    34

              Additional Material Submitted for the Record

Paul, Hon. Ron:
    Written statement of Michael Fuljenz, President, Universal 
      Coin & Bullion, Beaumont, Texas............................    36
Clay, Hon. William Lacy:
    Editorial from Coin World, dated January 10, 2011............    39
    Response from the U.S. Mint to information provided by 
      witnesses during the hearing...............................    40


                      BULLION COIN PROGRAMS OF THE



                        UNITED STATES MINT: CAN



                           THEY BE IMPROVED?

                              ----------                              


                        Thursday, April 7, 2011

             U.S. House of Representatives,
                  Subcommittee on Domestic Monetary
                             Policy and Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:01 a.m., in 
room 2128, Rayburn House Office Building, Hon. Ron Paul 
[chairman of the subcommittee] presiding.
    Members present: Representatives Paul, Lucas, Luetkemeyer, 
Huizenga, Hayworth, Schweikert; Clay, Maloney, and Green.
    Chairman Paul. This hearing will come to order. Without 
objection, all members' opening statements will be made a part 
of the record.
    We will now go to our opening statements.
    I am pleased to be holding this very important hearing 
examining ongoing concerns over the United States Mint's 
bullion coin programs. Given the financial difficulties of the 
last few years, and the possibility of large-scale inflation 
due to the Federal Reserve's quantitative easing programs, it 
is not surprising that many investors are rushing to purchase 
gold and silver coins. As the world's largest mint, supplying 
one of the world's largest markets for bullion coins, it is 
imperative that the Mint be able to supply the bullion market 
with an adequate quantity of coins.
    Our witnesses represent various sectors of the coin 
industry, each with a unique viewpoint, and I look forward to 
hearing their perspectives on the Mint's bullion coin programs 
and their suggestions on how to improve the Mint's efficiency, 
for planchet shortages and minting stoppages has often been 
focused on the Mint and its procedures for planchet purchases, 
coin marketing, and bullion sales.
    In a market as potentially volatile as the precious metals 
market, and given the Mint's status as a self-funding agency, 
it is understandable that the Mint does not want to store 
millions of ounces of precious metal planchets whose dollar 
values could conceivably drop by the time they are minted and 
sold. However, this uncertainty and the cyclical nature of coin 
sales makes it difficult for planchet suppliers to gauge future 
demand, meaning that they are less likely to invest in capital 
equipment to increase production.
    Thus, with a huge upswing in demand, as we have seen 
recently with Silver Eagles, the Mint is unable to source 
enough planchets and the rush to produce enough one-ounce 
planchets leads to a reduction in resources available to 
produce five-ounce planchets, proof planchets, etc.
    Silver and gold are in an unprecedented bull market right 
now, with Silver Eagles selling at a rate that, when 
annualized, would mean sales of 48 million coins this year. 
Considering that total American silver production is only 
around 40 million ounces, this would be a significant sales 
figure, making it all the more important that the Mint minimize 
disruptions.
    I look forward to the testimony of our witnesses.
    And now, I will yield for an opening statement to the 
ranking member, Mr. Clay.
    Mr. Clay. Thank you so much, Mr. Chairman, and thank you 
for holding this hearing regarding the U.S. Mint's bullion coin 
program.
    And thank you to the witnesses for appearing in front of 
this Subcommittee on Domestic Monetary Policy.
    After reading the witnesses' testimony, I look forward to 
their insight regarding those problems they have identified at 
the U.S. Mint and what corrective measures the U.S. Mint should 
make to address these problems.
    Also, I notice that no representative of the U.S. Mint is 
appearing in front of the committee for this hearing, and at 
this time, Mr. Chairman, I would like to reserve the right to 
have a comment period so that the U.S. Mint can make comments 
in regards to this hearing for the record. Thank you so much.
    Chairman Paul. Does anybody else care to make an opening 
statement?
    Okay. We will proceed to the testimony.
    I would like to welcome the panel today. I am looking 
forward to hearing their testimony.
    And without objection, your written statements will be made 
a part of the record. You will be each recognized for a 5-
minute summary of your testimony.
    I would like to go ahead now and introduce our panel. We 
have four panelists here today.
    First, we have Ms. Beth Deisher, who is in her 26th year as 
editor of Coin World, the leading publication of collectible 
coins. She is author of, ``Making the Grade: A Grading Guide to 
the Top 50 Most Widely Collected U.S. Coins.'' Ms. Deisher is 
often interviewed by the media as a coin collector 
spokesperson.
    We have, also, Mr. Terence Hanlon, president of Dillon Gage 
Metals Division, located in Dallas, Texas, one of the largest 
metals dealers in the United States and an authorized purchaser 
of the U.S. Mint. A leading expert on precious metals and gold 
coins, Mr. Hanlon has worked closely with the world's major 
mints and is called upon by gold and silver councils for market 
and product evaluations.
    We also have Mr. Ross Hansen here today. He is the founder 
and CEO of Northwest Territorial Mint, the largest private mint 
in North America and an authorized retailer of U.S. Mint 
bullion coins. Mr. Hansen has been in the precious metals 
business for 35 years, and in 2009, acquired the Medallic Art 
Company, a minting facility that used to produce silver blanks 
for the U.S. Mint.
    Mr. Raymond Nessim is CEO of Manfra, Tordella & Brookes 
Company, a precious metal wholesale distributor and authorized 
purchaser of the U.S. Mint and an official distributor for 
government mints around the world. Since the 1960s, Mr. Nessim 
has held positions with various firms managing and directing 
precious metal investment.
    Once again I would like to welcome the panel, and we will 
proceed to the first witness, Ms. Deisher.

     STATEMENT OF BETH DEISHER, EDITOR, COIN WORLD MAGAZINE

    Ms. Deisher. Thank you, Mr. Chairman. I would like to thank 
you and the subcommittee for inviting me to testify here today.
    During my career, I have been privileged to chronicle the 
U.S. Mint bullion coin programs from their origin in the 
research and recommendations of the Gold Commission in 1982; to 
the passage of legislation authorizing the American Eagle gold 
and silver bullion coins in 1985; to the gold bullion coin 
first-strike ceremony at West Point on September 8, 1986; and 
then through the twists and turns of the ensuing 25 years.
    Since Coin World's largest constituency is comprised of 
collectors, my testimony will articulate the view of 
collectors, who often are also investors. The quality of the 
silver, gold, and platinum bullion coins produced by the U.S. 
Mint is exceptional. However, the marketing of these coins is 
subpar and often disruptive to the marketplace.
    Most of the Mint's problems in marketing bullion coins are 
rooted in an ongoing failure to understand who its customers 
are and why they purchase the bullion coins. In my written 
testimony, I have cited a number of problems. In this short 
timeframe, I would like to emphasize solving those problems and 
making the bullion coin programs better.
    These recommendations include: The U.S. Mint should avoid 
purposely creating rarities. The U.S. Mint should spend time 
and resources to better acquaint its marketing staff with its 
various customer constituencies for bullion coin products.
    The U.S. Mint should better inform its customers as to when 
its coin products are going to be available in the marketplace. 
The U.S. Mint should mint to demand by allowing a certain 
number of days for collector versions of bullion coin products 
to be purchased and/or ordered.
    The U.S. Mint should increase bandwidth for its Web site to 
facilitate the handling of high-traffic ordering periods. The 
U.S. Mint should secure more planchet suppliers and better plan 
procurement and manufacturing so as to avoid disrupting 
profitable and popular coin programs.
    The U.S. Mint should exercise care in scheduling bullion 
coin sales so they are more evenly paced throughout the year 
and not dump into the marketplace near the end of the calendar 
year. The U.S. Mint should take a more active role in providing 
the public with consumer alerts regarding any of its products 
that might be subject to questionable marketing practices in 
the secondary market.
    The U.S. Mint should place mint marks on all of its bullion 
coins to identify the mint of manufacture. Such marks would 
preclude misrepresentation and possible fraudulent practices in 
the marketplace. We will also recommend that the U.S. Mint 
create a standard protective capsule option for housing all of 
its collector version bullion coins.
    Thank you again for the opportunity to testify, and I would 
welcome any questions that you may have.
    [The prepared statement of Ms. Deisher can be found on page 
22 of the appendix.]
    Chairman Paul. Thank you very much.
    And we will go on to Mr. Terence Hanlon. Please proceed.

 STATEMENT OF TERENCE F. HANLON, PRESIDENT, DILLON GAGE METALS

    Mr. Hanlon. Chairman Paul, Ranking Member Clay, and members 
of the subcommittee, I would like to thank the subcommittee for 
the opportunity to appear before it today to discuss the United 
States Mint's bullion coin program. It seems appropriate for 
Congress to take stock of this important program at this time, 
as 2011 marks the 25th anniversary of the introduction of the 
American Eagle bullion coins.
    Congress created the world's most successful bullion coin 
program with its passage in 1985 of the Statue of Liberty-Ellis 
Island Commemorative Coin Act and Gold Bullion Coin Act of 
1985, which authorized, respectively, the American Eagle silver 
and gold bullion coins. Since the product launched in 1986, the 
coins have become the dominant bullion coins in the global 
market for physical bullion coin investments.
    Dillon Gage Metals is one of the largest precious metals 
dealers in the United States. Our Dallas-based firm is proud of 
its affiliation with the United States Mint, as a key 
distributor of its American Eagle gold, silver, and platinum 
bullion coins. We look forward to the introduction, hopefully 
later this year, of a palladium coin to the program as a result 
of Congress' passage last December of the American Eagle 
Palladium Bullion Coin Act of 2010.
    Over the past 25 years, the Mint has produced bullion coins 
of exceptional beauty and quality. Their marketing team has 
built a strong brand for the Mint's bullion coin line of 
products which are recognized and desired the world over, and 
has established an unrivaled distribution network.
    The Mint is to be congratulated on these accomplishments. 
This is an extraordinary time for the global precious metals 
market as demand for these metals climbs and prices are at or 
near record highs. This demand can be traced back to the 
international financial crisis that began in 2007, and was 
further fueled by economic uncertainty, jittery equity markets, 
and the looming threat of inflation.
    Many investors in physical precious metals products prefer 
the size and convenience that coins offer, as well as the 
imprimatur that the national Mint provides. Overwhelmingly, 
investors choose the American Eagle bullion coins, and they do 
so for three key reasons: first, the coins weight, content, and 
purity are guaranteed by the U.S. Mint and the U.S. Government; 
second, there is a liquid market for these products because of 
an established network of authorized dealers that ensure a two-
way market; and third, the exceptional beauty and quality of 
the coins make them desirable.
    As a result, at times the Mint has exceptional demand for 
its gold and silver products, but it has at times been unable 
to keep pace with the demand due to an insufficient supply of 
coin blanks. This has led to disappointed customers and 
resulted in market share losses to other Mints' bullion 
products.
    The Mint has taken steps to address its supply difficulties 
by adding additional capacity, but it still struggles to meet 
demand, particularly for the Silver Eagle bullion coins.
    An adequate supply of blanks caused the Mint to forego 
production in 2009--correction, an inadequate supply of proof 
versions of the American Eagle gold and silver coins because of 
a requirement that gave priority to the production of bullion 
coins over proof collector coins. Fortunately, Congress 
addressed that problem with its passage of the Coin 
Modernization, Oversight, and Continuity Act of 2010, and 
provided the Mint the authority to produce collector 
uncirculated and proof American Eagles even in times of 
unprecedented demand for the bullion versions.
    The Mint also experienced problems with its rollout late 
last year of the America the Beautiful silver bullion coins. 
The problem highlighted weaknesses in the communication between 
the Mint and its authorized purchasers and the broader retail 
dealer community that the Mint relies upon to sell its products 
to consumers.
    The Mint should be encouraged to work more closely with its 
distributors and to have regular dialogue with them. In doing 
so, it will help the Mint to better gauge the market conditions 
for their products by hearing firsthand from those making the 
markets for them.
    The anticipated introduction of a palladium American Eagle 
coin this year will bring a new dimension to the Mint's bullion 
offerings. It will offer investors an attractive price point in 
relation to silver, gold, and platinum, with different supply-
demand factors for the material.
    I believe investors will welcome the Mint's resumption of 
the production of the platinum Eagle this year, which the Mint 
halted at the end of 2008. Additionally, it would be fitting to 
mark the 25th anniversary of the American Eagle program with 
production of a four-coin collector set comprised of a gold, 
silver, platinum, and palladium Eagle coin.
    Congress could give a further competitive edge to the 
American Eagle bullion products by adjusting the capital gains 
tax treatment on these investments to make them on par with 
securities. The 1981 passage of the Economic Recovery Tax Act 
created a category of collectibles within the Internal Revenue 
Code, which includes precious metals.
    This change in the Tax Code caused precious metals 
investments to be taxed at a different rate than that of 
investments in equities. As a result, current tax law imposes a 
maximum rate of 28 percent on long-term gains on precious 
metals bullion investments rather than the maximum 15 percent 
levied on securities and mutual funds. By lowering the rate, 
Congress could substantially boost the market potential for the 
American Eagles.
    Again, I want to thank the subcommittee for the opportunity 
to be before it today. I would be pleased to answer any 
questions you may have.
    [The prepared statement of Mr. Hanlon can be found on page 
28 of the appendix.]
    Chairman Paul. Thank you, Mr. Hanlon.
    We will go on to Mr. Ross Hansen now.

     STATEMENT OF ROSS HANSEN, FOUNDER AND CEO, NORTHWEST 
                        TERRITORIAL MINT

    Mr. Hansen. Thank you.
    Chairman Paul, Ranking Member Clay, and members of the 
committee, my name is Ross Hansen, and I am founder and CEO of 
Northwest Territorial Mint. I have personally been in the 
precious metals business industry for 35 years, and I founded 
Northwest Territorial Mint in 1984 as a full-service integrated 
Mint.
    We are the largest non-governmental mint in North America, 
and we not only produce our own brand of bullion products but 
we are also a retailer of a number of different governmental 
bullion products, including being an authorized retailer of the 
United States Mint bullion coins.
    Two years ago, I acquired Medallic Art Company, which was, 
at one time, a primary producer of silver blanks for the U.S. 
Mint. And in full disclosure, my company makes a number of 
challenge coins for all levels of military, many government 
agencies, including numerous Members of Congress. Because of my 
experience in the private sector, I have been asked to testify 
before this committee regarding the bullion coin program of the 
U.S. Mint.
    As you may know, the U.S. Mint began its program in 1986, 
but it has only been in the last 3 years that demand for the 
silver American Eagle bullion coins has exploded to 
unprecedented levels. Many social and economic factors have 
contributed to this dramatic increase in demand, not the least 
of which is the public's perception of an imploding U.S. 
dollar.
    In recent years, the U.S. Mint has been often been unable 
to meet the increasing demand for its bullion products. The 
frequent shortage of these products has led to the following 
problems: one, the premium charged by the authorized U.S. Mint 
distributors have fluctuated wildly; two, sales have been lost, 
which decreases the amount of revenue to the U.S. Mint; three, 
the bullion programs of foreign governments have been allowed 
to penetrate into the U.S. market; and four, the production 
problems have created a widely held negative perception of the 
U.S. Mint.
    The cause of the Mint's inability to make enough bullion 
products to satisfy demand can be traced directly to its supply 
chain, specifically its supplies of silver blanks. For example, 
up until recently the United States Mint was using a single 
source for its silver blanks. This single source had known 
limitations in its production capacity and could not expand its 
production to meet the Mint's needs.
    Rather than working to develop a domestic pool of vendors 
for these raw materials, the U.S. Mint has contracted with the 
Perth Mint in Australia--half a world away--to make up the 
shortage. Any business would recognize that this adds to the 
cost of the material and transportation, and significantly 
increases the length of delivery.
    I am not here today to merely point out the obvious 
shortcomings of a program for which I have a high regard. 
Instead, I would like to see the American Eagle bullion program 
continue to grow and succeed.
    For this to happen, I offer the following solutions for 
your consideration: One, the U.S. Mint should create an 
industry advisory group comprised of experienced minting 
industry professionals who are intimately familiar with the 
material and processes employed by both government and private 
mints. This group should include suppliers of both the 
equipment and raw materials that are used by the industry. This 
group would be distinct from an existing advisory group that 
deals with coin design issues; the group I am proposing would 
help with coin production issues.
    Two, the U.S. Mint should engage in an aggressive vendor 
development program to assure that it has multiple domestic 
suppliers to meet the Mint's growing needs. Three, as part of 
the vendor selection the U.S. Mint should ensure that its 
vendors have an elastic capacity, that is, they both have the 
ability to expand production and supply blanks as needed. Four, 
the U.S. Mint should maintain a larger inventory of bullion 
blanks and finished coins in order to better respond to surges 
in demand for its product.
    And five, the U.S. Mint needs a change in attitude. They 
often have displayed an attitude, which used to be attributed 
to the phone company, of, ``we don't care--we don't have to.'' 
Their attitude towards vendors and authorized purchasers is 
often described as surly and arrogant.
    It is my opinion that these recommendations, if 
implemented, could help to make a good program into an 
excellent one that would fill its congressional mandate to 
produce high-quality bullion products in sufficient quantities 
to meet the demands of an ever-changing market.
    Thank you for letting me share my thoughts with you.
    [The prepared statement of Mr. Hansen can be found on page 
30 of the appendix.]
    Chairman Paul. I thank the gentleman.
    We will now go to Mr. Nessim.

 STATEMENT OF RAYMOND NESSIM, CHIEF EXECUTIVE OFFICER, MANFRA, 
                    TORDELLA & BROOKES, INC.

    Mr. Nessim. Mr. Chairman, members of the committee, the 
subject matter being bullion coin programs of the United States 
with a question, can they be improved, the answer to the 
question will always be yes, they can be improved. Established 
measurable goals can always be improved by means of flexibility 
and transparency.
    Silver Eagles recent short-term supply probably is caused 
by domestic fabrication capacity of silver blanks. This issue 
may be addressed by extending some flexibility to U.S. blank 
fabricators in order to help them invest in additional capital 
equipment for increased capacity, maybe flexibility simply in 
the form of a minimum quantity order guarantee per annum for a 
certain period of time.
    With regard to the America the Beautiful silver coins, the 
issue was not that of distribution but rather that of supply. 
The United States Mint has effectively built up great 
anticipation for the new 2010 silver America the Beautiful set.
    Expectations were that the Mint would mint sufficient 
quantities to satisfy potential public demand. Instead, the 
Mint announced only in December of 2010 that they were able to 
fabricate only 33,000 sets.
    As wholesale distributors, the day we were notified of our 
allocation we proceeded to sell part of our allocation to 
several retail dealers, as we normally do. Later that same day, 
or maybe the following day, we were informed by the Mint that 
allocations were cancelled and that they will relaunch, and 
accept orders on December 10th.
    The smaller-than-expected mintage prompted some retail 
dealers to offer these coins on their Web sites to the retail 
public at very high prices. We had to cancel our sales 
agreements, which placed us in a very embarrassing predicament.
    To protect the U.S. public from potential price gouging, 
the U.S. Mint issued new directives on December 9, 2010, to the 
A.P.s requiring them to: make available for sale directly to 
the retail public all their allocations; limit profit margin to 
no higher than 10 percent; enforce a limit on coin design and 
sales for each household; and not sell any such coins to either 
their own company officers or employees.
    Despite the problems which this has caused, we consider, in 
our opinion, that the Mint has done the right thing and made 
the right decision. These directives created three problems for 
us, namely: one, the risk of being accused of price fixing; 
two, not being able to hedge the silver content of our 
purchase, which is our norm, consequently being left exposed to 
price risk decline; and three, as wholesale distributors we 
were not adequately equipped at the time to sell one coin of 
each design for each household.
    Under the circumstances, the Mint acted promptly, 
decisively, and did what it had to do to counteract delayed 
production and limited mintage.
    If there are any lessons to be learned from this experience 
with reference to, ``can they be improved,'' maybe providing 
A.P.s with reasonable price notice change or mintage problems; 
minimizing surprises by means of regular, open, transparent 
communications with the A.P.s regarding marketing plans, 
fabrication, or minting obstacles, or any other difficulties; 
and allowing the Mint more flexibility by lifting some 
legislative restrictions, allowing them to operate a little bit 
more like a commercial entity.
    In conclusion, and in our opinion, the current middle 
management of the Mint, be it bullion, procurement, precious 
metals, contracting, production, or manufacturing consists of 
very experienced, qualified, and dedicated individuals. What 
appears to be void in our experience is a senior chief 
executive with sufficient authority to act and report to a 
political appointee and to a board of directors comprised of a 
cross section of specialists with commercial experience, U.S. 
blank fabricators, and U.S. authorized purchasers.
    Thank you.
    [The prepared statement of Mr. Nessim can be found on page 
34 of the appendix.]
    Chairman Paul. I thank the panel.
    And I will now yield myself 5 minutes for questions.
    First, I would like to mention that one of the reasons I 
think we are here today and we are concerned, is because we 
have a shortage of coins and there is a high demand, and the 
Mint hasn't been able to keep up. That seems to be the major 
problem.
    And then the questions raised are how things are 
distributed and how things are managed, and what is the 
responsibility of the Mint? But in many ways, what we are 
talking about here is a reflection of what we are doing to our 
money. This shortage is a consequence of the debasement of a 
currency.
    Of course, there was a time when there was a fixed exchange 
rate between the paper and the coinage when the coins had 
actual value, gold or silver. And in the 1930s--in 1933, of 
course, there was a devaluation of major proportions and it 
went from--a dollar went from one-twentieth of an ounce of gold 
to one-thirty-fifth of an ounce of gold, and then gold was made 
illegal and it was fixed for a long, long time.
    In the 1970s, we had two fixed devaluations: one, it went 
one-thirty-fifth of an ounce to one-thirty-eighth of an ounce 
of gold; and then it was refined 2 years later in 1973 to one-
forty-second of an ounce of gold. And then after that, the 
debasement of the currencies went to the marketplace as gold 
was legalized.
    So we have had steady debasement of the currency, and now, 
as some of you have already mentioned, the economy has a lot to 
do with--people are worried and concerned about how they 
preserve their wealth. So there has been a high demand for 
silver and gold to the point where now there are shortages.
    The problem is a technical problem on how to deal with 
this, but ultimately, if you had a sound currency, this would 
be a non-event; it would be a non-problem. But right now, when 
you think about the debasement of the currency, it has been 
horrendous. One-twentieth of an ounce of gold to one-forty-
second of an ounce of gold. That is a huge debasement of our 
currency, and people are struggling and just wondering, what do 
you do when a government does this to its money?
    But anyway, I would like to see it facilitated, that people 
can handle--help take care of themselves because before 1976, 
it was illegal to do this, to actually buy coins and buy gold 
coins, and you went to jail if you bought a gold coin.
    But I do want to ask a general question to the panel: If 
you would, I know you have touched on this already, but just if 
you could briefly explain to us the distribution network--how 
does it work from the time the Mint does something and until I 
can go get a coin in my pocket? Would one of you volunteer and 
describe to me exactly how that works?
    Mr. Hanlon?
    Mr. Hanlon. Yes, I would be happy to.
    The Mint has authorized purchasers, of which we are one. So 
the product comes from the Mint to us, as an authorized 
purchaser, and we have the responsibility of making a two-way 
market, both providing that product to dealers who are 
providing the product directly to the retail customer. And as 
well, we have a responsibility to make a buy-back that is 
reasonable so the spread between the bid and the ask is a 
reasonable number, a close number so it also maintains a liquid 
market.
    So it takes three steps. It comes to the authorized 
purchaser. We then distribute to the dealer--sometimes a 
wholesaler who will distribute it one more time.
    But normally, we are selling to the dealer who is providing 
that product to the customer. That ranges from coin dealers, 
banks, brokerage houses, pawn shops. It is a fairly liquid 
market at this point.
    Chairman Paul. Is there a buy-back arrangement with the 
Mint, or once you buy them, they are yours?
    Mr. Hanlon. No. The Mint strictly sells--
    Chairman Paul. Right.
    Mr. Hanlon. --they do not buy back.
    Chairman Paul. Okay. Another quick question: Right now I 
understand that I can't go to the Mint and buy bullion coins. 
Would there be anything wrong with that?
    Mr. Hanlon. The Mint is not capable of handling that. First 
of all, they can't handle a two-way market because they would 
have to hedge their position, which they have absolutely no 
experience or knowledge in.
    It would be overwhelming, actually, for the Mint to take 
that position. The spreads would be too wide if they did get 
involved in it.
    Yes, it would be wrong.
    Chairman Paul. But they still sell proof sets. Is that 
correct--the Mint?
    Mr. Hanlon. The Mint still sells--
    Chairman Paul. To individuals.
    Mr. Hanlon. --numismatic products to individuals, yes.
    Chairman Paul. Okay. My time has expired.
    I yield to the ranking member, Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    Ms. Deisher, in your December 20, 2010, editorial in Coin 
World, you called on Chairman Paul and members of this 
subcommittee to review the Mint's handling of the five-ounce 
silver bullion coin program. In that editorial you noted that 
the 2010 production numbers were significantly lower than the 
net worth that authorized purchasers had anticipated.
    You wrote that such low mintages will produce a speculating 
frenzy smacking of contrived rarity, and it is incumbent upon 
the U.S. Mint to produce sufficient bullion coinage to satisfy 
demand. So I am sensitive to the fact that the U.S. Mint fell 
short in that respect.
    However, I was pleased to see in Mr. Nessim's written 
testimony that in his view, the U.S. Mint took appropriate 
mitigatory actions to address the very speculating frenzy you 
referred to. While I would hope we can find a way for the U.S. 
Mint to address the supply issues, I am pleased that the Mint 
took action to protect the U.S. public from potential price 
gouging, which Mr. Nessim described as the right direction.
    I would also welcome any suggestions from the witnesses as 
to how we can ensure that the Mint is able to supply investor 
and collector demand.
    Finally, in fairness to the U.S. Mint, I would like to ask 
for unanimous consent to enter into the record an op-ed from 
former U.S. Mint Director Ed Moy that gives the U.S. Mint's 
perspective on this--
    Chairman Paul. Without objection, it is so ordered.
    Mr. Clay. Thank you.
    Ms. Deisher, in your written testimony you recommend that 
the U.S. Mint should take a more active role in providing the 
public with consumer alerts regarding any of its products that 
may be subject to questionable marketing practices in the 
marketplace. Can you give me an example of the type of 
questionable marketing you refer to and how you think the U.S. 
Mint should address it?
    Ms. Deisher. One of the ongoing problems that we have seen 
is the secondary market making products of what they call 
first-strikes. The U.S. Mint has said they do not keep track of 
the first coin struck. What they do is put tracking numbers and 
information on packaging slips, and these go to the grading 
services, and the grading services are looking at the low 
numbers saying, ``Aha, this is the first coin struck.''
    In the collector market, that is the magic thing, to have a 
first coin struck. What we are seeing in the market--and you 
see it on the cable television programs all the time--they are 
asking huge premiums and saying, ``These are the first coins 
struck,'' when in fact, they are not.
    The Mint issued a consumer alert, one in 2006. This 
continues to be a problem. In fact, there was a civil suit 
against one of the grading services in Florida and that company 
settled out of court and paid quite a bit of money.
    But other services continue to do this and many people pay 
huge premiums for something that is not. We would like to see 
the Mint be more proactive and make the public aware that there 
is no way that they know if the coin is the first one struck or 
not. This is one of the areas that we feel the Mint could be 
much more proactive.
    Mr. Clay. I am sorry.
    What is your opinion on limiting the newest coin to one 
household--to one purchase per household? Is that effective, 
or--
    Ms. Deisher. What it does is encourage speculation. For 
instance, in the America the Beautiful, they limited the 
bullion product to 33,000.
    This is a pattern we have seen with virtually every new 
product. They will have some type of limitation because the 
market has built up a great enthusiasm. Whether it is a 
production problem or whatever, there is a limited quantity.
    And therefore, speculators go in and only if you have one 
per household, but I can assure you, probably on the Mint's 
mailing list and some of these people who were told to sell 
them like that, the dog in the house had an address, the cat in 
the house, and every cousin in town had an address. There are 
ways to get around that. These artificial, one-per-household 
things don't work.
    So the solution is to work ahead of time to understand what 
market demand could be. I have to tell you that we follow 
virtually every world mint that produces coins. We don't see 
this problem in any other mint.
    Mr. Clay. Thank you.
    Thank you.
    Chairman Paul. I yield 5 minutes to Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Hansen, I am just kind of curious: Can you tell me just 
how volatile the market is, and if we oversupply it, is that 
going to have an effect on it? Can we oversupply it based on 
demand? Can you just give us a little educational background on 
it?
    Mr. Hansen. On some of the collector coins, yes, it can be 
oversupplied. And we have seen that.
    On the bullion market, the bullion market is a very 
volatile market. All of us dealers can attest that it depends 
on what is happening in the financial markets. Our sales can 
fluctuate wildly.
    But if the U.S. Mint carries a larger inventory, it can 
help with some of the supply shock.
    Mr. Luetkemeyer. Who would bear the cost of that increased 
supply or inventory?
    Mr. Hansen. The U.S. Mint is actually quite profitable when 
it comes to making their bullion products. And if there was any 
additional cost, it would be quickly made up by the increase in 
profits.
    Mr. Luetkemeyer. So they just pass the cost on, is what you 
are saying?
    Mr. Hansen. Right. The U.S. Mint, in my best estimate, 
loses about a--about a third of their sales are lost because 
they can't supply to demand. And the small increase in 
production would give substantially more sales--
    Mr. Luetkemeyer. Okay.
    Mr. Hansen. --which would then provide the profits to 
afford that.
    Mr. Luetkemeyer. Okay.
    Mr. Hanlon, in your testimony you talk about perhaps 
changing the tax rate from 28 percent on collectibles, which 
include precious metals, down to 15 percent, which is there for 
the securities and mutual funds. Can you tell me, how much 
would this increase demand? How much kind of a cost would this 
be to the government? Tell me what you think would happen here 
if we did this.
    Mr. Hanlon. As far as the Mint is concerned, it would 
benefit greatly because there are multiple people who would 
love to purchase precious metals as an alternative investment 
to standard securities, so it is--
    Mr. Luetkemeyer. So if you did this perhaps would the 
demand for the product go up 10 percent, 40 percent?
    Mr. Hanlon. In today's conditions, I would say 30 percent 
to 50 percent would be very realistic.
    Mr. Luetkemeyer. Okay. That begs the question, then, 
because one of the problems we have right now is that obviously 
the Mint can't keep up with the demand as it is, so how would 
it keep up with the demand in your scenario, if you increased 
the tax benefits?
    Mr. Hanlon. That would include all the precious metals, 
specifically gold and silver. But platinum and palladium have 
gained a lot of attention because of their continued liquidity 
in the market. The fact that the U.S. Mint offers any product 
makes it that much more popular, makes it that much more 
liquid.
    But if you take the ETFs--the exchange traded funds--for 
instance, and you see the amount of money that has been 
invested in that as an alternative investment to securities, it 
is a massive number. That number in itself, I believe, would be 
doubled as well if the capital gains tax benefit were applied 
to that, which it should be. It is ludicrous, actually, that it 
is not.
    Mr. Luetkemeyer. Okay.
    Mr. Nessim, very quickly, in your testimony you indicated 
that the Mint, whenever they are selling the bullion to 
authorized purchasers, they limit your profit margin to 10 
percent. Is that correct?
    Mr. Nessim. No. This was only applicable to the America the 
Beautiful silver five-ounce coins.
    Mr. Luetkemeyer. Okay. But they are limiting your profit on 
that particular issue?
    Mr. Nessim. Yes, correct.
    Mr. Luetkemeyer. But the other issues, other coins that 
they Mint, there is no limit on the profit?
    Mr. Nessim. No. They are limiting the profit on the America 
the Beautiful simply because we are requested to sell directly 
to the public, which--
    Mr. Luetkemeyer. Okay.
    Mr. Nessim. --they never do on the other bullion coins.
    Mr. Luetkemeyer. Very good.
    I am about running out of time here, but I just have one 
quick question: How does our Mint activities and our coinage 
compare to other foreign countries? Apparently, there are other 
foreign mints that you are competing against, or working with, 
or selling other products. Can you give us a gauge on that?
    Mr. Nessim. Yes, they are excellent. They produce more than 
any other mint. The quality is excellent. The other mints 
produce a very good quality, but the U.S. Mint is by far the 
largest fabricator of coins.
    Mr. Luetkemeyer. Okay. Thank you.
    I see my time is about up. Thank you, Mr. Chairman.
    Chairman Paul. Thank you.
    I yield 5 minutes to Mr. Green, from Texas.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the witnesses for appearing.
    Also, I thank the ranking member for his great work in 
helping us with these issues.
    Members and witnesses, excuse me. Let me ask a question 
about the platinum blanks and the half-dollar silver proof 
blanks. Is it true that the only manufacturer for these 
products is in Australia?
    Mr. Hansen. I can best address that--
    Mr. Green. Yes, sir.
    Mr. Hansen. --as the only manufacturer here. No, there are 
a number of manufacturers that could be--it could be done here 
in the United States. The U.S. Mint just hasn't sought them 
out.
    Mr. Green. If I may, let me--thank you for that, but rather 
than get to that point--and we may get there--the question 
really has to do with what is currently the circumstance. Is it 
currently the circumstance that this is the case?
    Mr. Hansen. I believe that is correct.
    Mr. Green. Only Australia. And I think you were about to 
indicate that it could be done within the United States, 
notwithstanding the fact that it is not being done within the 
United States. Is this correct?
    Mr. Hansen. That is correct, sir.
    Mr. Green. Okay. Now, is it true that until about 1981, we 
did have a presence in the marketplace with these products? 
Does anybody happen to remember about when it occurred?
    Mr. Hansen. Are you saying the U.S. Mint was producing its 
own blanks?
    Mr. Green. That we had the blanks for the platinum blanks 
and the half-dollar silver proof blanks. Isn't it about 1981 
when we used to do this?
    Yes, ma'am?
    Ms. Deisher. The American Eagle bullion coin program was 
not created until 1986, and silver was taken out of American 
circulated coinage in 1965. So the U.S. Mint's refineries in 
silver planchet production really ended in the 1960s.
    It was not until the bullion program was created, actually 
in December of 1985 and they--it took them a year to gear up. 
But no precious metals coinage had been produced by the U.S. 
Mint, or struck by the U.S. Mint, during that interim.
    Mr. Green. How do you account for the absence of a U.S. 
company in the marketplace with these blanks?
    Mr. Hanlon. Could I help address that, Mr. Green?
    Mr. Green. If I may, the lady may have an opinion that I am 
interested in. I will give each of you an opportunity. I would 
like to hear the lady's opinion.
    Ms. Deisher. I am not sure I understand your question. Are 
you referring to the bullion blanks--
    Mr. Green. Right now, we have an Australian company that 
produces the platinum blanks and the half-dollar silver proof 
blanks.
    Ms. Deisher. Yes.
    Mr. Green. We don't have an American company that is doing 
it.
    Ms. Deisher. We are aware that there are American companies 
capable of doing it, but--
    Mr. Green. I understand, but--
    Ms. Deisher. --we do not know--
    Mr. Green. I understand. Okay. If your answer is that you 
don't know, I accept it.
    Ms. Deisher. We have asked the United States Mint and we 
have not gotten a clear answer.
    Mr. Green. So you don't have an opinion as to why?
    Ms. Deisher. I do not.
    Mr. Green. Okay.
    Let's move to the question now. It really is, why is it 
that it is not being done in the United States? I understand we 
have the capacity and we are capable, but tell me why.
    Yes, sir?
    Mr. Nessim. May I answer?
    Mr. Green. No, the gentleman who is next in line.
    Mr. Nessim. Oh, I am sorry.
    Mr. Green. I am going down the line. I am sorry.
    Mr. Hanlon. Ray and I feel--from the same perspective, and 
I believe that the answer is that the specifications for 
actually making the blanks for platinum coins or the silver or 
the gold are fairly stringent, and that creates an issue, 
according to the Mint, for those who are willing to meet those 
specifications in exchange for the profit that is made on that 
particular product.
    Mr. Green. Because the yellow light is on, let me go to the 
next person.
    Can you give me a brief response there? You were going to 
give one earlier.
    Mr. Hansen. As the only manufacturer here, I can just tell 
you simply, the U.S. Mint has not been responsive to requests 
from my company or others to do the blanks. They don't develop 
their vendors within the United States.
    Mr. Green. There are some who contend that this goes back 
to budget cuts in 1981. Is there any connection to the budget 
cuts in 1981? Does anybody see any connection?
    Mr. Hansen. No, sir.
    Mr. Green. Okay.
    The next gentleman, please?
    Mr. Nessim. I believe it is a matter of economics. Our 
parent company is a fabricator of blanks, and we have proposed 
and offered and sent samples to the U.S. Mint of our blanks. 
Their specs are very high and their prices are very 
advantageous, meaning they would shop around and get the best 
possible price, and from an economic standpoint, if it makes 
more sense to bring it in from Australia or anywhere else as 
compared to manufacturing them here it should be done.
    Chairman Paul. Your time has expired.
    Mr. Green. My time is expired. Thank you.
    Chairman Paul. I yield 5 minutes to Mr. Lucas, from 
Oklahoma.
    Mr. Lucas. Thank you, Mr. Chairman.
    Ms. Deisher, let's run and gun here a little bit in this 5-
minute timeline we have. Would you explain to the committee in 
the briefest of terms your comments about why mint marks are 
important not just to collector coins but bullion coins, and 
why for 2,000 years mint marks have been important?
    Ms. Deisher. Yes, sir. It shows the mint of origin, and 
sometimes there are unequal productions at the facilities so it 
could possibly create a rarity, but the reason I went to this, 
especially with the new coin programs coming on and the 
additional silver, is the problem that I identified on the 
packaging and the likelihood that secondary market could abuse 
this also. So it is very important and it was historically the 
case that the U.S. Mint always identify--or pretty much 
identified, especially in its precious metals, its gold and 
silver coinage--
    Mr. Lucas. As have most mints for 2,000 years.
    Ms. Deisher. Yes.
    Mr. Lucas. Second question: The Mint's Web site. You 
comment about the bandwidth. I assume that means the ability 
for people in these rushed periods to get online.
    From your investigations as a reporter, what kind of 
capacity do you think the Mint has and what kind of demand, at 
key points, have they had? What is the ratio in their present 
configuration?
    Ms. Deisher. It is my understanding they are working to 
increase that, but I can tell you, every time there is a new 
collector product offered, and you go to the Web site, people 
sit there for hours trying to get in and you can't. And then 
you call on the phone and you are backed up.
    I don't know what their peak capacities are, but what 
happens--I know of instances where people will pay people 
sitting at home to sit there for hours and hours and hours to 
try to get in to buy products. And this is ongoing. This has 
been happening--I remember in 2007, and it was horrendous for 
the First Spouse programs.
    Mr. Lucas. So it is not just a one-time anomaly.
    Ms. Deisher. No.
    Mr. Lucas. It is a regular problem in peak order periods.
    Would you touch on the effect--the entire panel has 
discussed this 33,000 coin issue and starting and stopping it. 
From your perspective, not only as a reporter but in a business 
that sells advertising and watches these various enterprises, 
could you give us a little insight in the economic impact that 
this start-stop-sputter situation in this particular case had 
on real world businesses?
    Ms. Deisher. I would like to submit for the record comments 
of one of our advertisers, Mr. Mike Folgens, and he very 
clearly talks about how you have to place advertising months in 
advance. He lost several hundred thousand dollars in the 
anticipation it would be business as usual trying to get 
advertising placed in our publication and others.
    When the Mint Director had been talking about how they 
expected 100,000 of these sets to be produced--and this was in 
July--it wasn't until December that we learned there were going 
to be 33,000. Of course, that created a frenzy in the market.
    They have another 27,000 blanks that they have decided to 
make into a collector product. This same thing is going to 
happen in probably 6 weeks and it will be actually a greater 
problem because of the low mintages.
    These kinds of things--from a collector perspective, if you 
can't start at the beginning of a program, you are discouraged 
from ever participating in it again. It is a pattern that we 
have seen over and over where somehow there is a limited 
mintage set up for the beginning of a program, there is wild 
speculation, and then people just get discouraged and stop 
buying the product on the collector side.
    Mr. Lucas. Could you touch for a moment on the Mint model? 
And then I have a question for the rest of the panel.
    Historically, in 1792 the Mint was set up. You brought your 
precious metals in, you paid a small fee, and they turned it 
into the appropriate coins of your request. And then we went 
away from--I guess the term would be free coinage--to a process 
where the Mint was a government enterprise stamping out things, 
meeting demand as requested by the Treasury.
    Now, in recent years we have changed that business model 
again to a more business-oriented model, correct?
    Ms. Deisher. Right.
    Mr. Lucas. Part of the proceeds go into the revolving fund. 
Would you offer any observations you might have on how going 
from the previous model where whatever they did did not benefit 
their operating fund to a model now where the more products 
moved there a benefit to the direct--to the Mint's fund itself? 
Could you expand on any of that?
    Ms. Deisher. Certainly, the model that came into play in 
the mid-1990s is much more efficient and I think it gives the 
Mint flexibility to plan. Where we see a failure is to plan to 
avoid the crisis management type things.
    It might need some refinement. It is definitely the kind of 
model in today's world.
    Mr. Lucas. If the chairman will tolerate me just a little 
bit more, the old lament from the 1980s prior was they didn't 
want to do anything. Now the lament is because of the different 
model, they want to do so many things that the typical 
collector might not be able to buy all of the options they 
offer. Is that a fair observation from the folks in the 
country?
    Ms. Deisher. That is a fair observation. When I did an 
editorial back about 7 years ago, if you purchased one of 
everything the U.S. Mint produced that year, it would have cost 
$3,000.
    Mr. Lucas. Impossible for most--
    Ms. Deisher. We did the same analysis this year and it was 
over $10,000, and because they are not producing platinum 
that--it would be even higher if they had those. So to be a 
complete collector today is--collectors are really priced out. 
You have to select a series if you want to be complete. You 
can't be a completist today.
    Mr. Lucas. I appreciate the chairman's indulgence on time.
    Chairman Paul. I thank the gentleman.
    And without objection, the statement Ms. Deisher referenced 
will be placed into the record.
    Ms. Deisher. Thank you, sir.
    Chairman Paul. And now, I would like to yield 5 minutes to 
the gentlelady from New York, Mrs. Maloney.
    Mrs. Maloney. I thank the chairman for yielding and for 
holding this hearing.
    We certainly want to have high-quality coins produced, but 
on the panel, I believe we have only one person from the 
private sector, Mr. Hansen, who is working in this area. So I 
would like to--and I understand in your testimony you came out 
and said things that you thought the qualifications or demands 
were too onerous.
    So I would like to ask you, what are the factors you would 
encourage Congress to consider in creating any future bullion 
coin program? You cited ensuring sufficient blank suppliers so 
that one coin program's production does not affect the supply 
of blanks for another coin program. Are there other 
recommendations that you would like to speak to that you 
believe would be an improvement on the part of government?
    Mr. Hansen. Mrs. Maloney, I believe that the onerous 
comment about the blank quality was made by Mr. Nessim, not 
myself. But the U.S. Mint does have high standards for their 
blanks. We have always met those standards. The standards are 
really not that onerous.
    The U.S. Mint has a very arbitrary system of accepting 
blanks, and in the past when we have supplied blanks to the 
U.S. Mint, we never had any problems with quality, but it has 
been used as a weapon to kind of limit the suppliers. The U.S. 
Mint kind of has it in their mind who they want to supply 
blanks.
    The problem isn't with the quality issue. The problem is 
the U.S. Mint just recognizing that they need more than one 
supplier and they just need to open it up. And they should be 
made in the United States, not overseas, if we are providing 
American jobs.
    Mrs. Maloney. Let's do it. Thank you.
    Oh, I think I still have some more time.
    Chairman Paul. Yes, you do.
    Mrs. Maloney. Oh, I have some more time. Okay, great.
    Mr. Hansen. And if I could just make one more comment on 
it, Medallic Art Company made a substantial investment of many 
millions of dollars before I acquired them in getting ready to 
supply the blanks for the U.S. Mint, which they had done for 
many years, and they were just universally rejected and no 
logical reason was ever given. They were just basically told, 
``Thank you, but no.''
    One reason I acquired the company is because the previous 
owner had no market for the products, and if the U.S. Mint had 
accepted us as a blank supplier, we wouldn't be sitting here 
today. We could supply all the blanks the U.S. Mint would ever 
need.
    Mrs. Maloney. But then when you got the business, you got 
them to accept your blanks, right?
    Mr. Hansen. No.
    Mrs. Maloney. Really?
    Mr. Hansen. In fact, I have had many discussions with the 
previous Mint Director, told him I could supply him with 
blanks. He just smiled and said, ``Oh, okay,'' and I asked him 
if he would like to come out and tour our facilities and there 
was just a deadpan response.
    Mrs. Maloney. So how many companies are supplying the 
blanks now in America?
    Mr. Hansen. There is one primary supplier, which is a 
company in Coeur d'Alene, Idaho. They recently added a second 
one in the United States, which is in Rhode Island. But the two 
major suppliers are Idaho, and also the Perth Mint in 
Australia.
    Mrs. Maloney. Australia?
    Mr. Hansen. Australia.
    Mrs. Maloney. Why are we giving preference to Australia?
    Mr. Hansen. That is a question directed to the U.S. Mint.
    Mrs. Maloney. And when they don't--they don't have 
competitive bidding? They don't have--they just say no to you? 
They just say you can't do it and they don't give you any 
reason?
    Mr. Hansen. That is correct.
    Mrs. Maloney. Mr. Chairman, I think we should inquire why 
and see if we can have a competitive bidding to get the best 
product at the best price.
    And Mr. Nessim, it was your statement that you thought that 
the standard was too high, if you want to explain that.
    Mr. Nessim. No. It is not too high. It is high, but it 
should be high and it is comparable to other major mints.
    Mrs. Maloney. Well then, if I could ask you, Mr. Hansen, if 
you can't sell your blanks to the U.S. Government, who are you 
selling them to?
    Mr. Hansen. We have our own line of products and we have 
about 250 people who work at the Mint and we make a lot of 
products for Congress, too, and the U.S. military. And we have 
a very active secondary market. We actually compete with the 
U.S. Mint and we also sell their products.
    Mrs. Maloney. My time has expired.
    Chairman Paul. I thank the gentlelady.
    And I will go on to Mr. Schweikert, from Arizona.
    Mr. Schweikert. Thank you, Mr. Chairman.
    And this one may be a little slightly off topic, but for 
those of you who also sell larger numbers of product, out of 
curiosity: Do you buy hedges on the cost of your commodities? 
That is for--
    Mr. Nessim. What is the question again, please?
    Mr. Schweikert. Buying a hedge. So let's say you are about 
to order--
    Mr. Nessim. Yes. We do hedge.
    Mr. Hanlon. Yes. Hedging is part of the procedure, the 
policy, the business of carrying bullion products, and the 
whole purpose of hedging, of course, is that we don't play the 
market, we aren't speculating. So it is an additional cost 
involved in trading of precious metals, specifically the U.S. 
Mint bullion coins, in this case.
    Mr. Schweikert. Mr. Chairman, then the second part of the 
question is, how do you buy a hedge if you are not completely 
sure about how much product you are going to be acquiring?
    Mr. Nessim. When we know exactly what we are going to buy 
we hedge that exact--
    Mr. Schweikert. Okay. So you are hedging actually once you 
know what inventory you are going--
    Mr. Nessim. Otherwise you cannot hedge, yes.
    Mr. Hanlon. Sir, the point of the hedge in the respect of 
buying the product is that you buy products to have live so you 
can provide immediate delivery. So you do know the number of 
ounces that you are purchasing and that is the same number that 
you are hedging. In other words, you are taking the opposite 
position in the market against your long position and so the 
hedge is a number that you always do know.
    Mr. Schweikert. Mr. Chairman, part of the question was more 
based--I was concerned that you were having a fulfillment issue 
of product after time you had already hedged your risk.
    Mr. Nessim. My point in my testimony was that we were 
informed on the silver five-ounce coins. We were informed of 
our allocation on one day and then the following day we were 
told that this is cancelled.
    Mr. Schweikert. Okay. You beat me back to my notes, so--but 
that was an anomaly that happened?
    Mr. Nessim. Correct. It never happened before.
    Mr. Schweikert. Okay. Is there anything else you would want 
someone like me to know about how you do those mechanics?
    Mr. Nessim. It is not really significant for that 
particular purpose, really. It is our problem of hedging or 
underhedging, but it has nothing to do with improving the 
Mint's performance, no.
    Mr. Schweikert. Okay.
    Mr. Chairman, thank you. That was actually the question I 
had. I yield back any time I have.
    Chairman Paul. Does the gentlelady from New York care for 5 
minutes?
    Dr. Hayworth. Mr. Chairman, I yield back my time at 
present. Thank you, sir.
    Chairman Paul. Okay. Thank you.
    Mrs. Maloney, would you care to follow up with another 
question? If so, I will yield to you.
    Mrs. Maloney. Yes, I would.
    I was interested, because we are facing a job crisis here 
in America; we need to employ Americans. And so I was curious--
although Australia is a wonderful ally, a wonderful country--
why we are doing that.
    And I was told that while Gold Corporation in Australia 
supplies several different precious metal blanks, they are the 
only supplier of platinum blanks and half-dollar silver proof 
blanks. So if American companies can't supply what they are 
supplying, then there is a reason why they are going there.
    So I would like to ask you, Mr. Hansen, why you or other 
suppliers here in America are not making that available to the 
Mint?
    Mr. Hansen. We have offered. We are qualified to make--and 
there are a number of manufacturers in the United States that 
can make blanks, both platinum blanks and silver blanks.
    I asked this question directly of the former Director of 
the Mint and he said it was not a priority for them. They said 
that this is a global marketplace, and that they source 
globally, and really their priority was not to source in the 
United States. That was the explanation that was given to me.
    Mrs. Maloney. Thank you. I wanted to clarify that.
    Thank you.
    Chairman Paul. If there are no other questions, this 
hearing is adjourned. The Chair notes that some members may 
have additional questions for this panel which they may wish to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for members to submit written questions 
to these witnesses and to place their responses in the record.
    [Whereupon, at 11:06 a.m., the hearing was adjourned.]


                            A P P E N D I X



                             April 7, 2011


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