Mass Inflation Ahead–Save Your Nickels!

I’ve often mused about how fun it would be to have a time machine. I would 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.)

Bad Money Drives Out Good

The disappearance 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 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.

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.”

The composition of a nickel hasn’t changed 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

Any country that issues a continually-inflated fiat paper currency will run into a problem: Their coins will develop a base metal value that exceeds their face value. This is almost inevitable. 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.

The Federal Reserve will inflate their 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 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 or boxes of nickels.

Nary a Ripple

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-side with 97.5% zinc pennies. They are also about four times as bulky (per dollar of face value) as nickels.

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.) 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.)

Too Bulky and Heavy!

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.)

Return On Investment

Right now, you are effectively getting Nickels worth 6.7 cent 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. That will change once the old composition pennies and nickels are driven out of circulation. In fact, a bill now before congress would remove pre-1983 pennies from the melting ban. Once the base metal value exceeds face value by about 3X, an investor’s market will surely develop.

What if Uncle Sam Decides to Drop a Zero?

As previously noted in SurvivalBlog, inflation of the US dollar has been chronic, cumulative, and insidious. Have you hear the turns of phrase “penny candy” and “its your nickel” (to describe the cost of a call on a pay phone). They 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, the Zimbabwean 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:  Most governments re-issue only new paper currency. But they leave the old coinage in circulation, at the same face value. (This is because the sheer logistics of a coinage swap would be daunting.)

Typically, currency revaluation exchanges leave 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 would make a handsome profit. You could merely spend your saved nickels in the new currency regime.

How 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 possibilities. Some of these will work even after Uncle Same announces the discontinuation of minting Nickels:

  • If you live in a state with nickel slot machine gambling?  (Such as Nevada or New Jersey). Or do you live near an Indian tribal casino with nickel slots?  Then go to a casino frequently. There, buy $50 in nickels at a time. Do your best to look like a gambler when doing so. Carry a plastic change bucket with a few nickels in the bottom.
  • Obtain nickels in rolls from your friendly local bank teller. 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. 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!)
  • 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 premium.
  • Say you operate a “mom and pop” retail business with a walk-in clientele. Just put up a small sign next to your cash register. Have it read: “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 coming in.

Commodity price inflation will outstrip the prevailing interest rates for at least the next five years. The circulating Nickel as we now know it will be history in five years. It will be treated with nearly the same reverence that we now give to pre-’65 silver coinage.

Learn From History

In 1965, teh U.S. Mint began to produce clad copper dimes, quarters and half dollars. That caught most Americans by surprise. 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”. – James Wesley, Rawles — Editor of survivalblog.com

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