What is inflation you may ask? Rather than explain using complicated economic terms and charts I will show you first hand. Allow us to take a time machine back to the year 1960. A used car costs close to $800, a gallon of gas $0.31, a gallon of milk $0.49, and the cost of a new home was a mere $16,000. Reach into anyone’s pocket at that time and you will find something very different than you would today…Real Money. Quarter’s and dime’s were both made of 90% silver. By today’s current silver prices ($16.50 / oz) a single quarter would be worth about $3.00 and a dime would be about $1.20. Now just imagine if you could return to today’s time with a pocket full of 1960’s quarters and dimes.
Inflation and Fiat Money
So what happened between 1960 and today? Long ago our nation decided to stop the practice of backing our dollars with gold, silver, and precious metals, known as the “Gold Standard”. Instead they issued money which was backed only by our governments charming smile and word of honor. This is known as “Fiat Money”, our currency has value because everyone believes in it and is backed by the government. However our country’s love of the printing press over the years had increased the total money in circulation. Therefore continuously decreasing the value of our dollars, and silently taxing away the wealth of its citizens.
Since coins are different from paper money, in that they are made with metals that have real world value, it becomes inevitable that the cost of the materials to make the coin exceeds value of the coin itself. This is the reason that silver coins were replaced with copper coins, and copper coins were replaced with zinc. As recently as 1982 the cost of minting the 90% copper penny became too expensive as a result our new pennies are 97.5% zinc. A pre-1982 penny a worth about 2.5 cents and climbing.
Gresham’s Law
The reason why you have never seen a silver quarter or dime given to you as change at the store is known as “Gresham’s Law”. Bad Money Drives Out Good. Currently pre-1982 pennies are still circulated regularly, but only at a rate of about 15 per roll (15/50). As soon as a person realizes that when placed side-by-side one penny is worth more than twice the other, they will choose to keep the more valuable one and pass on the worthless one to the next person. As a result higher concentrations of bad money is circulated.
Since the 2008 credit crisis began our government’s spending addiction has gone out of control. Trillions of new dollars has flooded the market, and the value of our dollar is once again in decline. One easy way to judge the value of a dollar is by the price of gold, and this week the price of gold shot up over $1000 per ounce. (4 quarters = 1 ounce) Once again it may become necessary to debase the value of our coins as our current Nickel which has remained unchanged since 1945 has a precious metal value of $0.05 (75% copper 25% nickel) but costs $0.08 to make. With skyrocketing inflation and metal prices our treasury will be forced to issue a new composition for the nickel which will be worth much less than the ones today.
Within a few years time our nickel may go the way of the penny. Where its real value may exceed the face value by 2-3 times. Following Gresham’s Law the old nickels will be systematically pulled from circulation and once they are a trader’s market will emerge. You can even see this principle being applied on websites like eBay and Penny Bullion, where you can purchase bulk copper pennies for roughly 2.5 face value.
Advantages of Nickels over Pennies
While a copper penny is already worth about 2.5 times face value and a modern nickel is only worth 1x face value (Quarters and Dimes are both worth about .15x face value) there are several advantages of collecting nickels. First it is much easier to acquire nickels than it is copper pennies. You may walk into any bank and simply ask for 20 dollars worth of nickels and that is what you will receive. If you were to ask for 20 dollars in pennies you would receive a random mix or both copper pennies and modern zinc pennies. Once you had returned home you would have to sort by hand through hundreds of pennies, and out of your 20 dollars worth of pennies you would only receive about 6 dollars in copper pennies.
The second advantage of nickels over pennies is they are easier to store. Would you rather have 200 dollars in pennies or 200 dollars in nickels filling up your closet. By volume this would be quite a considerable difference. Also while pennies are made of 90% copper, nickels are 75% copper and 25% nickel. So they are also subject to increases in the price of the nickel market. In the future the value of a nickel may far exceed that of the penny.
Allocation of Wealth
The goal is to protect your money against the coming tidal wave of inflation and if possible to make a profit. Therefore if you can afford it your primary assets should be in Gold and Silver. Now if you are poor like me, or you have extra money around then you should consider investing in a small stockpile of nickels. Now that you have this information you should know better than throwing out your pennies and nickels, because they are NOT worthless. I’ll give you a nickel and next year you give me 3 nickels. That’s a deal I’ll take anyday.
Conclusion
The spectre of inflation has been haunting the American people for a long time. In the darkness of night grows ever stronger. Do not be fooled by the slick words of our politicians, the wealth and savings of our country is being looted from within. Many people have been warning of a possible collapse of the dollar in total. In the days to come you must be wise, and use your cunning. Save and scrape every penny, nickel, and silver dollar you can get your hands on. In this way you will come out ahead. You can watch as the population en masse panics as their worthless paper dollars struggle to buy little at all.
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