Until the early 20th century, with a few interruptions for wars and national panics, silver and gold freely circulated in the US. The dollar was "good as gold" and for most of this time any citizen could exchange their paper currency in exchange for silver and gold.
In 1933, the government declared that the paper currency was no longer backed by gold and refused to redeem paper dollars for gold from private citizens. In 1970, President Nixon "closed the gold window" and informed foreign central banks that they could no longer exchange paper dollars for gold, either.
And just last week, the US Treasury issued a proclamation banning melting or exports of pennies and nickels. This remarkable initiative is yet another indication of how far the US dollar has been debased.
Simply put, the announcement is an official acknowledgment that the dollar’s value has fallen so far that the metal content of the lowest denomination coins the Treasury produces is worth more than its face value. The coins are worth more melted down for than they are in circulation.
It’s not hard to understand why the Treasury took this action. According to the U.S. Mint, based on current metals prices, the value of the metal in a nickel is now 6.99 cents, while the penny’s metal is worth 1.12 cents. And that’s a zinc penny…copper pennies, with a substantially higher melt value, haven’t been minted since 1982. The Mint also long ago took the nickel out of nickels–they’re now made of copper.
If you have the space to store them, you could do a lot worse in your investment strategy than by collecting pennies and nickels—especially nickels, now worth 40% more than their face value—until they disappear from circulation entirely.
When they do disappear, and the Mint replaces them with steel nickels (which could happen in early 2007), it will be proof again of "Gresham’s Law," a maxim of Sir Thomas Gresham, the 16th century financial wizard who rescued three successive British monarchs from financial ruin. Gresham observed that when there are two forms of money which the law requires to be respected as having the same value, the money with the highest intrinsic value will stop circulating.
That’s exactly what’s I’m predicting will now happen. Just watch–and collect, while you can still obtain copper nickels and zinc pennies for their face value.
