Washington solved a 3.69-cent problem in the middle of a $100+ oil shock. And soon the Fed will likely charge you more for every dollar.
Congress congratulated itself for solving the penny problem, but what about the source of the problem - inflation?
On Monday the House voted, without a single objection, to permanently stop making the penny. On Wednesday at 2 p.m. Eastern, the Federal Reserve is expected to raise interest rates for the first time since July 2023.
Two unrelated stories, told at two different volumes.
First the government let its smallest unit of money become worthless. Then it held a vote to congratulate itself on noticing. Now the central bank will charge you more for every dollar that survived.
Nobody planned this. That is the part worth your attention.
Cause of death: Us
The penny did not die of natural causes. It was inflated to death.
Every coin America has ever abolished, from the half-cent in 1857 forward, died the same way. The price level rose until the coin could no longer buy anything, at which point minting it became a charitable donation to the zinc industry. Inflation is the serial killer here. The U.S. Mint just signed the paperwork.
Get the facts straight, because half of Monday's coverage had them backward. The House passed H.R. 10167, the Common Cents Act, which orders the Treasury to cease penny production for general circulation and keeps every existing penny as legal tender.
It is a bill, not a law. And the traffic is running the other direction from what you have been told. The Senate already passed its own version, S. 1525, which has been sitting at the House desk since Aug. 10. Two chambers, two vehicles, one bill they have not yet agreed on.
The funeral itself happened 10 months ago. The Mint struck its final circulating pennies on Nov. 12, 2025, each one costing 3.69 cents to produce, leaving roughly 300 billion of them in jars, couches and the ashtrays of America.
So Monday was Congress showing up to the burial with the death certificate. Ten months late, but with excellent penmanship.
The rounding rules are almost touching in their precision. Cash totals ending in 1, 2, 6, or 7 may round down, totals ending in 3, 4, 8, or 9 may round up, cards stay exact to the cent, and nothing in the act requires anyone to round at all.
One provision does bite. If your employer pays you in cash and chooses to round, the rounding must go up.
A government that cannot pass a budget has now legislated the fate of four pennies.
The next coin is already on the table
Here is the provision nobody covered, and it is the tell.
The same bill authorizes the Mint to make the nickel out of cheaper stuff, an inner layer of zinc wrapped in nickel, subject to testing that it actually lowers the cost. Congress buried the next denomination's problem in the paperwork of the last one.
Then it went further. Section 6 writes the procedure for discontinuing the next circulating coin: 60 days' notice to the banking committees, a phaseout plan, a briefing.
That is not a coin bill. That is an assembly line for coin bills, and Congress just installed it.
Wednesday, same killer
Which brings us to the Fed, because the force that killed the penny is the reason the committee meets this week with a loaded gun on the table.
The August consumer price index came in at 3.4% year over year, with the monthly pace quadrupled from July. The European Central Bank moved first, raising its three key rates by a quarter-percentage point on Sept. 10 and blaming the Iran war out loud. Economists expect the same from Fed Chair Kevin Warsh, taking the federal-funds target to 3.75% to 4.00%, with at least one more to follow.
Warsh told you this was coming at Jackson Hole, when he flipped the Fed's default from hold unless the data forces a move to raise unless the data makes it unnecessary.
Understand what he is about to do. The Fed historically avoids moving rates in the weeks before a midterm election, and the president is threatening trade partners over the Fed's refusal to cut rates.
Warsh is going to hike anyway, into a midterm, against the White House. That is the story, not the penny.
The part of the inflation story that has a navy
Now the harder question. Where is this inflation actually coming from?
The serious case against me says it is broad. Northeastern University's William Dickens argues the pressure runs well past one-off energy and tariff shocks, and that the real danger is 1970s-style expectations getting baked into how companies price and workers bargain. If he is right, rates are exactly the tool.
He may be right about the mechanism. But he is looking at the wrong ignition source.
As I detailed on Sunday, three geographic chokepoints are on fire at once. The Strait of Hormuz, which moved 20 million barrels of oil a day before the war, saw zero commodity vessels transit on Sunday. Saudi Arabia's East-West Pipeline, the kingdom's only export route that bypasses Hormuz, went offline Thursday due to drones launched from Iraq. And Yemen's Houthis just seized Perim Island in the Bab el-Mandeb, which means the backup to the backup now belongs to a militia that can read hull numbers with binoculars.
Brent (BRN00) opened Monday at $107.51. Diesel set a record above $6 a gallon. The 10-year Treasury yield BX:TMUBMUSD10Y has climbed this week above 5%.
Expectations do not get anchored in a vacuum. They get anchored to the diesel price, and the diesel price is set by whoever controls the water.
Can a rate hike produce one additional barrel of crude? Can it reopen a strait or repair a pipeline? The Fed will hike regardless, because credibility is the only commodity a central bank manufactures, and the bond market is checking the label.
A $56 million victory lap around a $2 trillion hole
Now do the arithmetic Washington would prefer you skip.
Killing the penny saves about $56 million a year. The federal deficit through 11 months of fiscal 2026 is $1.97 trillion. The penny savings come to 0.003% of it.
That is not a rounding error. A rounding error would be bigger.
I am not against killing the penny. Killing the penny is the correct call, 30 years late. I am against the victory lap.
And the lap is not the worst of it. Treasury Secretary Scott Bessent has spent the year calling this inflation transitory and blaming the war, the same word that ended the last Treasury secretary's credibility. Meanwhile, with the midterms 50 days out and gas at $4.29 a gallon, the Trump administration is floating $5,000 checks to every American adult, a plan to fight inflation by printing 258 million reasons for more of it.
One hand holds the fire hose. The other pours the kerosene.
Both hands belong to the same government.
Three things to watch, none of them a penny
Watch the pipeline, not the podium. Riyadh's stored crude at Yanbu covers five to seven days, a clock that runs out roughly when Warsh reaches the microphone, and a restart announcement takes $5 off Brent.
Watch diesel, not gasoline. Diesel is embedded in trucking, farming and everything on a shelf, and it hits corporate margins months before it hits your receipts.
Watch whether Treasurys still rescue stocks. If the Fed hikes and the 10-year yield holds near 5% with oil (CL00) above $100, the flight-to-safety trade is broken, and defensive means cash-flow and pricing power, not long-duration paper with a distinguished name.
The penny died the honest way. Of inflation, in public, with a paper trail.
And it took an act of Congress to admit what the price level had already decided.
That is the real lesson of the week, and it has nothing to do with coins. A currency is never debased in the hearing. The hearing is where the debasement gets acknowledged, years late, under fluorescent lights, by the people who presided over it.
The penny got its vote Monday.
The dollar gets its hearing Wednesday at 2 p.m.
Charlie Garcia is founder and a managing partner of R360, a peer-to-peer organization for individuals and families with a net worth of $100 million or more. His Capital Mischief Substack covers financial markets and geopolitics. Follow him on X here.
-Charlie Garcia
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