Dear Jim:
I enjoy and appreciate your site. I am concerned about the gentlemen [TRK, who stated in a recently-posted e-mail that he is] amassing tons of copper pennies. I understand his desire to hedge against inflation, but it seems risky to do so with a $60,000 investment in copper pennies. I didn’t want to see your readers get wiped out by following his bad advice.
Let’s remember, you can’t fill your belly with pennies, nor can you bandage your wounds with them. While pennies are certainly tangible, preparedness is all about useful tangibles. Beans, bullets, Band-Aids. Preparedness is first about having the immediate means of [preserving] life on hand, second about having the knowledge and means to adapt to changes, and third, about protecting what you have. (Which might include your monetary wealth, including protecting it from inflation).
First lesson: What this gentleman is doing is last priority. You can do without money, you can’t do without food for your family or the means to provide it in the future. Let’s give him the benefit of the doubt and assume he has his priorities already squared away.
The Problems With Pennies
The Government has made bulk melting down coins illegal [, per] 31 USC 5111 allows the Secretary of the Treasury to prohibit melting of coins (which he has). The penalty for violation of it is five years in federal prison. I realize that the prepper, TRK, said nothing about melting them down, but, see my next point:
Which is more likely?: The entire US will come to a rapid, screeching halt, or the prepper will have an unexpected event happen in his life: the loss of a job, an illness, et cetera.
If something happened (which it always does), and he needed the to cash out his notional gains into real cash, the only place he could really do it would be a scrap metal shop – and they’re not going to buy his pennies if the penalty is 5 years in the clink.
So, if he needs the money, he’s going to have to cash the coins in at face value. Actually, probably a discount to face value, because no bank is going to accept tons of pennies, he’ll have to find some way to get paper money.
If he was able to cash out, he’d wouldn’t be “assured” of getting what he paid for them as he suggests. He’d take a full body punch of inflation. If, as he says, inflation runs at 20% a year, and he has to cash out after five years, he would have lost 80% of his “face value”. His $60,000 would only purchase $12,000 worth of goods [in real terms].
Okay, you say, I’ll melt it myself and deliver the melted down metal to a scrap metal shop. No good. Copper melts at 1,984 degrees F. No big deal if you’re melting one or one hundred pennies, but if your melting over 14 million pennies, like someone who has 40 tons of pennies would have to, it’s gonna take quite a bit of time and energy, as well as specialized equipment.
Miscalculation of Future Value
The prepper in question may assume that, in the future “after the collapse,” copper will be worth more than it is now. Is that necessarily true? In the event of a wholesale collapse, who exactly, will be buying copper? Further, he assumes a global market. But, in a collapse, he will only be able to sell to buyers near where he lives, and they will determine the value of his copper. Since copper can’t be eaten, and, as a soft metal, it isn’t good for machining or armoring or the like, he’d be damned lucky to be able to sell it at any price.
While copper isn’t an unlimited resource, it is fairly abundant and is easily recycled. In a collapse, it will have near zero value. Long term, it’s value is still likely to be lower than it is today, a time when China’s overheated economy is driving up prices from equilibrium.
The uncertainty of the future value of copper puts this prepper and his family in significant jeopardy. He can’t count on his copper to provide for his family in a crisis.
The Bartering Boondoggle
Again, in a collapse situation, copper is also worthless for bartering. First, it will be difficult to convince people that your pennies are 95% copper. Yes, the date indicates that, but they only have your word to take. There is no Internet that they can consult to ascertain the veracity of your story. So, your probably out of luck. People have jars of pennies lying around their houses.
More importantly, copper isn’t gold or silver. I might very well sell you a dozen head of cattle for such and such amount of silver (or gold), but not for copper. The reason is familiarity. People are familiar with silver and gold as money. They know it’s worth. They know that they will be able to trade it to someone else for what they need. It has a deeply-ingrained cultural acceptance, even in this age of credit cards and toilet-paper money.
Not so with copper. People are familiar with it (if at all) as plumbing and wiring. There’s no impression of worth, no trust that it can be exchanged for other goods and services. Further, people have no way to value copper, absent a global market, and, as as the dozen head of cattle example suggests, even if they would accept copper, it’s far to bulky for large-value transactions.
So, as we’ve seen,
1. Copper is not a survival prep
2. It is far more likely that you’ll need access to your money than it is that the country will quickly and immediately collapse
3. Copper will be [in a collapse] probably worth pennies on the dollar. (Heh, heh)
4. Copper doesn’t have barter value
I’m sorry to have to tear apart this scheme so thoroughly, but people could get hurt by following TRK’s example. I envy the author’s creativity and zeal for fighting back against the evils of inflation, but this is not the way to do it.
[As you’ve stressed in SurvivalBlog many times:] Beans, bullets, band aids first, then tools and knowledge for future employment. Last priority is protecting your assets. Readers should remember that you may need your money sooner rather than later, so it’s not wise to lock up all you have in “survival” assets. You still need cash, money in the bank, T-bills, even stocks. Land is a great investment, but only at a good price and only if it’s only a relatively small percentage of your wealth.
If there’s an overall lesson here, it may be that we must prepare for the absence of collapse, just as we prepare for other eventualities.
Miscellaneous errata from the author’s letter:
His math assumes that all 20 tons is copper. 5% is zinc which is worth only $.78 per pound. The real problem would be separating the zinc from the copper if you had to melt it down yourself. Also, I don’t know if scrap metal shops might refuse pennies for similar reasons (in addition to the illegality).
A semi-truck load is 40 tons, not 20 tons. That is gross weight, so total payload capacity is less. Also this is a DOT rule, and carriers obviously load whatever they want.
Note: 20 tons is about 14.5 million pennies. That is an amazing figure. – Tom A
Jim:
See this law reference: Five Cent and One Cent Coin Regulations
[The current Federal law states:]
“Except as specifically authorized by the Secretary of the Treasury (or designee) or as otherwise provided in this part, no person shall export, melt, or treat:
(a) Any 5-cent coin of the United States; or
(b) Any one-cent coin of the United States.”
Regards, – PNG
JWR Replies: Your concerns are well-founded. In my piece about saving nickels, I make the same point: The U.S. Treasury ban on melting 1-cent and 5-cent coins went into effect in April of 2007. So it is indeed currently illegal for any “person” in the US to melt penny and nickel coins. It is also illegal to export more than $100 face value of pennies of nickels. (This intended to thwart salvage coin melting overseas, outside of US jurisdiction.) There is, however, a bill before the US Congress that would mandate the issuance of copper-plated steel pennies and that will likely result in the eventual rescission of the the penny and nickel melting ban. The bill, H.R. 5512, was authored by Congressman Zack Space, of Ohio. Space’s bill has already passed in in the House, and will most likely pass in the Senate and be enacted, but there are no guarantees.
At this juncture, I should repeat a couple of important provisos: Any speculative investing should be seen as a potential total loss, and hence should never account for more than 5% of one’s net worth. And, as I’ve stated dozens of times, any such investing should be pursued only after getting your key logistics, tools, training, and retreat property squared away, and only after eliminating all of your debts. These constraints put this sort of investing outside the reach of 95% of the SurvivalBlog readers. Sure, I advise going ahead and collecting a few rolls of nickels, but don’t go hog wild in amassing copper pennies and nickels as a primary hedge against inflation. That would be a foolish venture.