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Copyright 2012 by John T. Reed
When I was researching my book How to Protect Your Life Savings from Hyperinflation & Depression
in 2009 and 2010, it occurred to me that it would be great if there were circulating coins that contained metal that was worth as much as their face value. Such a hard asset would be the perfect one to hedge against monetary instability (inflation or defation) risk. It can’t go down in value because it has the words “five cents” engraved on it in the case of a nickel. But it can go up in value because the metal in it would rise in value with inlfation.
Searching on the Internet to see if there was such a coin or coins. I found coinflation.com. It covers coins of many nations. Lo and behold, there were two circulating coins that met my criteria right here in the U.S.: the penny and the nickel. The link I just gave you goes to a web page where the coins are ranked by “Metal % of Denomination.”
Number one on the list is U.S. pennies from before 1983. On 1/9/12, they were worth 223.77% of their face value. Number 2 is the U.S. nickel which is worth 103.54% of its face value.
The #3 is not bad either—U.S. pennies made after 1982 are worth 49.73% of their face value. After that, the other circulating coins are too unattractive. The best is 1965-to-current dimes which are worth 19.13% of their face value. Those are not very good inflation hedges because they have, in effect, a 100% - 19.13% = 80.87% deductble as inflation insurance.
Pre-1965 dimes, quarters, and half dollars are worth about 21 times their face value, but they no longer circulate. You can buy them from coin dealers. They are called junk silver.
Anyway, when I saw that nickels and pennies were close to the perfect monetary instability hedge, I told my wife to henceforth give me all her pennies and nickels, which she did. Furthermore, whenever I go to my bank, I buy rolls of nickels.
The first chapter of Michael Lewis’s book Boomerang tells of a shrewd Wall Street investor who bought $2.3 million worth of nickels recently. Federal Reserve delivered them on pallets to him. Why did he buy all those nickels? He discovered the same thing I did about their melt-value-to-face-value ratio.
A 2007 law makes it illegal to melt or export U.S. pennies from before 1983 or U.S. nickels. I expect that law will be repealed once they pull them from circulation, as they did with junk silver back in the 1960s. Also, it is not illegal to sell nickels or pre-1983 pennies, only to melt or export them.
Lately, I find myself telling readers about the increasing number of signs of inflation and the usual government restrictions that accompany it coming closer.
Saw one today. When I made a bank deposit, I asked for some rolls of nickels. “We are out of them” the teller said. “Why does everyone want nickels all of a sudden?”
Because of my book and stories in the Wall Street Journal and elsewhere in the last two years.
So buy ’em while you still can. They are probably about to disappear.
To read more about other things you should have been doing, get my book How to Protect Your Life Savings from Hyperinflation & Depression.
People will no longer nickel and dime you. They won’t even penny and dime you. Henceforth, they will only dime and dime you.
Those who cannot remember the past [bouts of hyperinflation] are condemned to repeat [them]. George Santayana 1863
John T. Reed