Mass Inflation Ahead – Save Your Nickels!
by James Wesley, Rawles
by James Wesley, Rawles
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.)
of 90% silver coins from circulation in the US in the mid-1960s
beautifully illustrated Gresham's
Law: "Bad Money Drives Out Good." People quickly realized
that the debased
copper sandwich coins were bogus, so anyone with half a brain saved
(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.)
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 1946–2008 Nickel (with a 5 cent face value) recently had a base
metal value of $0.0677413. That was 135.48% of its face value. (In
recent months, with the recession, and a decline in industrial demand
for copper, the base metal value of a nickel has dropped. But even
at today's commodities prices, you will start out
with a 10% gain by amassing a stockpile of nickels.)
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 the 1960s. I predict
that essentially the same thing will soon to happen with nickels.
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
until perhaps 2010, the US Mint will continue 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
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.
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.
You may ask,
why not accumulate 95% copper (pre-1983 mint date) pennies? They
already seen a spike in their base metal value to 2.2 cents each.
But unfortunately, pennies have two problems: confusion and bulk.
They are confusing, because 95% copper pennies are now circulating
side-by-side with 97.5% zinc pennies.
They are also about four times as bulky (per dollar of face
value) as nickels.
you won't have to spend time sorting out pre-1983 varieties. At
present, visually date 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 recently had 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 only about $0.0071 each.
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.)
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 military surplus 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.) The current difference between a nickel's
base metal value and its face value is fairly smal, but trust me,
it will grow! Someday, 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.
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.
if Uncle Sam Decides to Drop a Zero?
noted in SurvivalBlog, inflation
of the US dollar has been chronic, cumulative, and insidious.
So much so that turns of phrase from old movies like "penny
candy" and "its your nickel" (to describe the cost
of a call on a pay phone) now seem quaint and outdated. When inflation
goes on long enough, the number of digits required to express a
price grows too large. (As has been seen with the Italian lira,
dollar, and countless other currencies. One whitewash solution
to chronic inflation that several other nations have chosen is dropping
one, two, or even three zeros from their currency, in an overnight
revaluation, with a mandatory paper currency exchange. The history
of the past century has shown that when doing so, most governments
re-issue only new paper currency, but leave the old coinage
in circulation, at the same face value. (Because the sheer
logistics of a coinage swap would be daunting.) Typically, this
leaves the holders of coinage as the unexpected beneficiaries of
a 10X, 100X.or even 1,000 gain of the value of their coins. Governments
just assume that most citizens just have a couple of pocketfuls
of coins at any given time. So if this were to happen while you
are sitting on a pile of nickels, you will make a handsome profit.
You could merely spend your saved nickels in the new currency regime.
To Build Your Pile of Nickels
How can you
amass a big pile-o-nickels? Obviously just saving the few that you
normally receive as pocket change is insufficient. Here are some
1.) If you
live in a state with nickel slot machine gambling (such as Nevada
or New Jersey), or near an Indian tribal casino with nickel slots,
go to a casino frequently and buy $50 in nickels at a time. Do your
best to look like a gambler when doing so, by carrying a plastic
change bucket with a few nickels in the bottom.
nickels in rolls
from your friendly local bank teller. Most "retail"
banks are already accustomed to handing over rolls of coins to private
depositors because of collector demand for statehood commemorative
quarters and the new presidential dollar coins. Ask for
$20 or $30 of nickels in rolls each time that you visit to do your
normal banking deposits or withdrawals. It is best to ask
for new "wrapped" (fresh Federal Reserve Bank issue) rolls.
This way, you might have the chance of getting rolls with valuable
minting errors such as "double die" strikes. These
are usually noticed and publicized a few months after the fact,
and can be quite valuable. You will also be assured that you are
getting full 40 coin rolls. (Getting shorted with 38 or 39 coin
rolls is possible with hand-rolled coins.) If the tellers ask why
you want so many, you can honestly tell them: "I'm working
on a collection for my children." (You need not tell them
how large a collection it is!)
3.) If you
live in or near an urban area and you operate a business, you can
effectively "buy" rolled coinage from your commercial
bank. (They generally will not do any business with anyone unless
they have an account.) It might be worth your while to on paper
start a side business with "Vending Service" in its
name, and have business cards and stationary printed up in that
name. Have that "DBA"
business entity name added to your commercial bank account. At a
high-volume commercial bank you could conceivably buy hundreds or
even thousands of dollars worth of nickels on the pretense of stocking
change for a vending business. Depending on your relationship with
the bank, they may waive any fees if you ask for a few rolls of
coins. Be advised, however, that if you ask for any significant
quantity at one time, they will probably charge you a premium. (Down
in the small print of your account contract, there is probably wording
something like this: "Coin Issued Per Roll: .03 Currency
Issued Per $100: .08" Before you cry "foul,"
be aware that the Federal Reserve actually charges your
bank a small premium when they obtain wrapped rolls of coins. (Most
folks have held to the convenient fiction that a paper dollar was
the same as a dollar in change. Obviously, it isn't.) In effect,
your commercial banker will just be passing along this cost to you.
Unless they charge you a heavy fee, don't worry
about it. Ten years from now, when a $2 roll of nickel is worth
$16, you'll be laughing about how you obtained $4,000 face value
in nickels at just a small fraction over their face value.
4.) If you
know someone that has a machine vending business, offer to buy all
of their excess nickels once every month or two, by offering a small
5.) If you
operate a "mom and pop" retail business with a walk-in
clientele, put up a small sign next to your cash register that reads:
"WANTED: Rolls of nickels for my collection. I pay
$2.25 per 40 coin ($2) roll, regardless of year!"
Once the nickel shortage develops (as it inevitably will), you should
raise you premium gradually, to keep a steady stream of coin rolls
is posted, I'm sure that I'm going to get plenty of ridicule, accusing
me of "hoarding." So be it. Let me preemptively state
that I realize that money tied up in coins will not benefit from
the interest that a bank deposit would earn. But foregoing interest
is not a major concern. Why? Because I think that it is a fairly
safe bet that commodity price inflation will outstrip the prevailing
interest rates for at least the next five years. In five years,
the circulating nickel as we now know it, will be history,
and it will be treated with nearly the same reverence that we now
give to pre-'65 silver coinage.
We saw what
happened when clad copper dimes, quarters and half dollars were
introduced in 1965. We should learn from history. Something comparable
will very likely soon to happen with nickels. You, as a SurvivalBlog.com
reader, are now armed with that knowledge. You can and should benefit
from it, before Uncle Sugar performs his
next sleight of hand trick and starts passing off silver-plated
zinc tokens as "nickels."
Wesley, Rawles is a former U.S. Army Intelligence officer and a
noted author and lecturer on survival and preparedness topics. He
is the author of Patriots:
A Novel of Survival in the Coming Collapse and is the editor
the popular daily web journal for prepared individuals living in
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