Letter Re: Base Metal Coins as an Inflation and Currency Revaluation Hedge

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Dear Mr. Rawles,
I have read your five page article Mass Inflation Ahead - - Save Your Nickels.  You stated that: "...should Uncle Sam decide to devaluate our present fiat currency, holders of piles of nickels will typically make them unexpected beneficiaries of a 10X, 100X or even 1,000X gain of the purchasing power of their coins."  You went further to say that "Governments just assume that most citizens just have a couple of pocketfuls of coins at any given time.  So if a currency swap were to happen while you are sitting on a big pile of nickels, then you would make a handsome profit.   To 'cash in', one could merely spend his saved nickels in the new currency regime."
 
I happen to be sitting on a bunch of brilliant circulated post-1964 quarters and new dollars (Sacagawea and Presidential) purchased directly from the U.S. Mint for numismatic investing purposes.  Will I equally benefit from a currency swap as well or that just applies to nickels or other coins whose base metal contents make it worth more than its face value?   Would my survival techniques and instincts be better served  if I convert these coin holdings and buy nickels or 90% silver coins?  Thank you! - Nestor

JWR Replies: You only have two ways to gain with your quarters and "Golden Dollars": numismatically (which is marginal, unless they are Mint State 69+ uncirculated) and in the event of a formal currency swap. (Dropping one or two zeroes from the dollar.)

The problem is that the base metal value of most post-1964 coinage other than pennies and nickels is pitiful.  According to Coinflation.com, a quarter's base metal is worth 19.84% of its face value while a "Golden Dollar" is only worth 6.12% of its face value. But nickels are already worth more than their face value (presently 105.34%), so you stand to gain even if there isn't a currency revaluation. Inflation--whether gradual or sharp--in the long term will make the currently-circulating nickels worth multiples of their face value. So nickels have three different avenues for appreciating value.

I do indeed recommend trading in your post-1964 quarters and dollar coins for boxes of nickels or for a smaller quantity of pre-1965 silver quarters. Ideally, you should have some of both.

Note that because of the laborious sorting required, I do not recommend stockpiling pre-1982 pennies. That, to my mind, is an exercise suitable only for retirees that have a lot of time on their hands, strong backs, and lots of secure storage space. (Pennies are much more bulky than nickels, per dollar invested.)

FWIW, I predict that a newspaper headline in 2013 or 2014 will read: "Where Have All The Nickels Gone?" Once a substantial portion of our populace realizes their relative value, nickels will be swept out of circulation in just a few months. It takes the Generally Dumb Public (GDP) to catch on to these changes. But Gresham's Law is inescapable. Get your nickels now, before the inevitable Greshamization occurs. I don't casually throw around terms like "inescapable", "inevitable", and "inexorable". With Federal indebtedness spiking, and expected to continue to spike, mass inflation cannot be avoided. (They certainly can't tax their way out of the debt. The National Debt is now $15.1 trillion, and your family's share is about $659,000.)

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This page contains a single entry by Jim Rawles published on December 11, 2011 3:06 PM.

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