A nickel saved is 6.8¢ earned...

Discussion in 'Financial Cents' started by Jonas Parker, Nov 12, 2007.

  1. Jonas Parker

    Jonas Parker Hooligan

    ... again, thanks to Jim Rawles at www.survivalblog.com

    Mass Inflation Ahead--Save Your Nickels!

    I've often mused about how fun it would be to have a time machine and travel back to the early 1960s, and go on a pre-inflation shopping spree. In that era, most used cars were less than $800, and a new-in-the box Colt .45 Automatic sold for $60. In particular, it would be great to go back and get a huge pile of rolls of then-circulating US silver dimes, quarters, and half dollars at face value. (With silver presently around $15.50 per ounce, the US 90% silver (1964 and earlier) coinage is selling wholesale at 11 times face value--that is $11,000 for a $1,000 face value bag.)
    The disappearance of 90% silver coins from circulation in the US in the mid-1960s beautifully illustrated Gresham's law - Wikipedia, the free encyclopedia: "Bad Money Drives Out Good." People quickly realized that the Debasement - Wikipedia, the free encyclopedia copper sandwich coins were bogus, so anyone with half a brain saved every pre-'65 (90% silver) coin that they could find. (This resulted in a coin shortage from 1965 to 1967, while the mint frantically played catch up, producing millions of cupronickel "clad" coins. This production was so hurried that they even skipped putting mint marks on coins from 1965 to 1967.)
    Alas, there are no time machines. But what if I were to tell you that there is a similar,albeit smaller-scale opportunity?

    Consider the lowly US five cent piece--the "nickel."

    Unlike US dimes and quarters, which stopped being made of 90% silver after 1964, the composition of a nickel has essentially been unchanged since the end of World War II. It is still a 5 gram coin that is an alloy of 75% copper and 25% nickel. (An aside: Some 1942 to 1945 five cent coins were made with 35% silver, because nickel was badly-needed for wartime industrial use. Those "War Nickels" have long since been culled from circulation, by collectors.) According to www.Coinflation.com, the 1946-2007 Nickel (with a 5 cent face value) presently a has base metal value of $0.0677413. That is 135.48% of its face value. Hence, even at today's commodities prices, you will start out with a 35% gain by amassing a stockpile of nickels.)
    The Root of the Problem
    It is inevitable that any country that issues a continually-inflated fiat paper currency will run into the problem of their coinage eventually having its base metal value exceed its face value. When this happens, it is one of those embarrassing "emperor's new clothes" moments. Unless a government takes the drastic step of lopping off a zero or two from their currency, this coinage problem is inevitable. In essence, we were robbed by our own government when silver coins were replaced with copper sandwich coins in 1965. I predict that essentially the same thing will soon to happen with nickels.
    Helicopter Ben Bernanke will inflate his way out of the current liquidity crisis. through artificial lowering of interest rates, massive injections of liquidity, and monetization of the Federal debt. That can only spell one thing: inflation, and plenty of it. Mass inflation will mean much higher commodities prices (at least from the perspective of the US currency.)
    I predict that for at least the next six months the US Mint will continues to produce nickels with the current metals composition. This is an open window of opportunity, during which time SurvivalBlog readers can salt away countless bags of nickels.
    Within just a few years, the base metal value of a nickel is likely to exceed two times ("2X") its face value. (10 cents each.) The nickel will then begin to disappear from circulation. (Gresham's law is unavoidable.) Unlike the mid-1960s experience, the missing nickels will not cause a crisis, since pennies will suffice, and most vending machines now use dimes as their smallest purchase increment. Meanwhile, most bridge tolls and toll roads have inflated so that tolls are in 25 cent increments. The demise of the nickel will hardly cause a ripple in the news.
    Unless they decide to drop the issuance of nickels entirely, the US Mint will within the next three years be forced to introduce a "new" nickel with a debased composition. It will possibly be zinc (flashed with silver) or possibly even aluminum.
    Why Not Pennies?
    You may ask, why not accumulate 95% copper (pre-1983 mint date) pennies? They already have a base metal value of 2.2 cents each. Unfortunately, pennies have two problems: confusion and bulk. They are confusing, because 95% copper pennies are now circulating side-by-sidefour times as bulky (per dollar of face value) as nickels. with 97.5% zinc pennies. They are also about
    With nickels you won't have to spend time sorting out pre-1983 varieties. At present, sorting pennies simply isn't worth your time. Although I suppose that if someone were to invent an automated density-measuring penny sorting machine, he could make a fortune. As background: The pre-1983 pennies presently have a base metal value of about $0.0226 each.) Starting in 1983, the mint switched to 97.5% zinc pennies that are just flashed with copper. Those presently have a base metal value of about $0.0071 each. Pennies are absurdly bulky and heavy to store. Nickels are also quite bulky, but are at least manageable for a small investor's storage. (Storing pennies would take a tremendous amount of space and constitute a huge weight per dollar invested.)
    The biggest advantage of nickels over pennies is that there is no date/composition confusion. At least for now, a nickel is a nickel. Even the newly-minted "large portrait" nickels have the same 75/25 cupronickel composition. But that is likely to change within just a couple of years. The US Mint cannot go on minting nickels at a loss much longer. My advice: start filling ammo cans with $2 (40 coin) rolls of nickels. (The .30 caliber size can is the perfect width for rolls of nickels. Any larger containers would be difficult to move easily. Cardboard boxes are fragile, and lack a carry handle. But ammo cans are very sturdy, have an integral handle, and they are relatively cheap and plentiful. They are available at military surplus stores and gun shows.)Right now, you are effectively getting 6.7 cent nickels for 5 cents each. (Or think of it as $135 for each $100 invested in 50 rolls of nickels.) That might not seem like much of a gain.Someday, however, when nickels are worth 4X to 8X their face value, your children will thank you for it. Consider it an investment in your children's future.
    In December of 2006, the US congress passed a law making it illegal to bulk export or melt down pennies and nickels. But once the old composition pennies and nickels have been driven out of circulation, that is likely to change. In fact, a bill now before congress would remove pre-1983 pennies from the melting ban. In any case, once the base metal value exceeds face value by about 3X, an investor's market will develop, regardless of whether or not melting is re-legalized. Count on it.
  2. Bear

    Bear Monkey+++ Founding Member Iron Monkey

    I know someone who saves nickels.... and pennies for that matter....[beer]

    Good article....
  3. zarraza

    zarraza Survivalist in training

    here's an interesting article that is right up the alley of what you are discussing

    it has caused me to stock pile pennies - as they are a "cheap investment" especially with the speculation that they may some day be worth 5x their face value!

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