A doomed currency

[akrowne]

Re: A doomed currency

Reading the article cited for the Euro area disintegration risk, and especially looking at some of the comments posted to it, has given me considerable pause. I think my initial expectation and intuition that the Euro will survive (and in fact, be strong) is still correct.

What I found most compelling were the comments that pointed out that there are many precedents for somewhat economically disparate regions sticking together into coherent currency zones -- for example, the states in the USA. This suggests there is something more to the situation than whether one region is being "outcompeted" by the other in some particular aspect such as export manufacturing.

Typically an entire region doesn't actually lose in such arrangements, even when it might appear to; it's just that producer groups may lose out relative to consumers and corporations, or some other redistributive dynamic.

Even if there is some "interest rate mismatch," I think a critical calculation applies: does the "losing" region actually lose overall when one considers the benefits gained from more expanded trade, and liquid trade and investment?

I continue to think there is a considerable amount of force pushing inward on the Eurozone, keeping it together, even beyond the inherent benefit to the participants (and I think they all probably benefit, as explained above). It's not as if the dollar zone provides a more sound investment or trade basis, that's for sure. And goods, services, and investment, are not actually denominated in gold, as nice as gold is for long-term storage of value, so I don't see that happening as an "official" alternative.

Thus, I think the Euro will surprise by sticking together.

I think this fits into a larger thesis, based in the first place on the following observables:

1. Something is obviously needed to grease global trade and facilitate investment (currently this is the dollar).
2. A single country cannot really be trusted with control of a global-scale currency... conflict of interest (look at who pays and who benefits from US inflation and high levels of structural debt; everyone is now angry about this other than the US)
3. At least one major regional currency union has formed and appears to be growing, not shrinking (the Euro)
4. There is already talk of other regional currency unions (e.g. Asian, Persian, North American). This was until recently unthinkable; then suddenly it was said -- in many parallel instances.

Conclusions:

1. Any single country's currency is "too small" to grease global trade and facilitate investment, and one cannot be trusted, therefore it is naturally the case that more transparent, multi-country unions should be preferred
2. Regions have distance advantages that make trade economical and generally share cultural similarities, therefore the unions will naturally tend to be regionally-based.
3. There is likely some size level at which the unweildy management and poor fit of a currency to member regions' conditions limits it's size; therefore a whole-world currency is unlikely.
4. The world is likely to break from a dollar basis into an ensemble of regional currency zones, guided by regional trade and cultural ties, and competing with each other for trade and investment.

So far this thesis seems to conform to what has happened, what is happening, what appears to be on the horizon, and what would seem to be optimal based on first principles.

Oh, and I also predict that soon we will see oil bourses in a variety of currencies, not just the dollar (if the dollar even ends up being used much at all since the US is not a net exporter of crude).

[zoog]

Steel Pennies

No one's talking about confiscation. I have a fair number of silver US coins I bought in 2001 when silver was trading under $5 to prove that the U.S. Mint is not interested in confiscation. I can even use them as legal tender if you want to, but why would I? All the mint is saying is that it's no longer economical to use zinc and nickel in U.S. currency. As an interim measure, before they can get the new cheap-o coins on line in place of zinc and nickel coins, but while they still have to mint them using zinc and nickel, they are fulfilling their responsibility to tax payers by discouraging the theft of these coins. Later, when they are able to mint them out of–what, aluminum?–you will be able do whatever you want with the old zinc and nickel U.S. coins, just as you can with silver and copper coins. Melt 'em, spend 'em, hoard 'em... knock yourself out.

Most interesting to me is the inflation that is causing this to happen at this particular moment in time, and it raises an interesting question. Clearly the mint did not foresee the day when the value of zinc and nickel in coins would exceed their face value. Even if the mint starts to use aluminum, at US$1.30/lb it's still only slightly less than half the price of copper by weight, but not by volume. If the dollar falls another 80% or so they've got the same problem again. Plastic coins... that's the ticket.

I had to go digging to find this, I remembered we talked about how our coinage is costing more to make than the face value of the coins...

WASHINGTON (AP) - Further evidence that times are tough - it now costs more than a penny to make a penny. And the cost of a nickel is more than 7½ cents.

Surging prices for copper, zinc and nickel have some in Congress trying to bring back the steel-made pennies of World War II, and maybe using steel for nickels, as well.

"If we continue minting coins with the current metal content, with each new penny and nickel we issue, we will also be contributing to our national debt by almost as much as the coin is worth," said Rep. Luis Gutierrez, D-Ill., who chairs the House panel that oversees the U.S. Mint.

Copper and nickel prices have tripled since 2003 and the price of zinc has quadrupled, said Gutierrez.

A penny, which consists of 97.5 percent zinc and 2.5 percent copper, cost 1.26 cents to make as of Tuesday. And a nickel - 75 percent copper and the rest nickel - cost 7.7 cents, based on current commodity prices, according to the Mint.

That's down from the end of the 2007, when even higher metal prices drove the penny's cost to 1.67 cents, according to the Mint. The cost of making a nickel then was nearly a dime.

Gutierrez estimated that striking the two coins at costs well above their face value set the Treasury and taxpayers back about $100 million last year alone.

A lousy deal, lawmakers concluded as the House moved toward a vote Tuesday that directs the Treasury secretary to "prescribe" - suggest - a new, more economical composition of the nickel and the penny.

Unsaid in the legislation is the Constitution's delegation of power to Congress "to coin money (and) regulate the value thereof."
.
.
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Other coins still cost less than their face value, according to the Mint. The dime costs a little over 4 cents to make, while the quarter costs almost 10 cents. The dollar coin, meanwhile, costs about 16 cents to make, according to the Mint.

AP link

[FRED]

Re: Steel Pennies

I had to go digging to find this, I remembered we talked about how our coinage is costing more to make than the face value of the coins...



AP link

The US mint can get together with the Fed to solve the problem by devaluing a nickel to the purchasing power of a penny, take pennies out of circulation and make nickels out of aluminum. Problem solved!

[jimmygu3]

ChangeCard

The US mint can get together with the Fed to solve the problem by devaluing a nickel to the purchasing power of a penny, take pennies out of circulation and make nickels out of aluminum. Problem solved!

Just had an odd idea. Kill the physical penny and issue a federal "ChangeCard", that holds a small amount of change. Stores could accept and credit back pennies of change to and from the card using existing mag-stripe readers. So in a cash transaction for $11.72, you can choose to round up to $11.75 with traditional bills & coins and be done with it, or you can pay $11.70 and slide your ChangeCard for the extra 2 cents. If you don't have any credit on your card, you can pay $11.75 and get the $.03 change put back on your card, or pay $12 and have the $.28 put on your card. You could choose to pay cash for things (as I do) but never worry about loose change.

A merchant without the ability to accept ChangeCard will have to either have pennies to give for change or round the purchase price down in the customer's favor. Plastic pennies might be necessary initially.

The nickel meanwhile will be made of zinc and nickel (plastic won't work in vending machines) until it's time to put it out to pasture, at which point ChangeCards will be used to cover those as well. Finally, when a dollar buys a single piece of candy, all coins can be eliminated.

Cards would initially be available free with no credit on them, but would eventually require a nominal fee to help cover costs and prevent people from tossing them when they are out of credit. The cards could be either plastic or paper (like London Underground cards).

What do you think?

Jimmy

[goldisliberty]

Re: A doomed currency

Not bad...however if this happens, expect that the system which is introduced will merely be CashLessSociety 1.0 with the cards provisioned for a rapid transition to CLS 2.0 in which you are physically "chipped," and your financial identity and account of bonars are entirely and utterly controlled.

First, states such as NY, are getting ready to implement their "Enhanced Drivers License" Program, which introduces a license with an embedded RFID chip, similar to the new US Passports. How long until FRNs disappear and how long until the words of Ben Franklin, "...a republic if you can keep it," resonate in all our heads?

Mobil SpeedPass, new credit cards with proximity chips with which one merely 'waves' the card past a point-of-sale reader (rather than 'swiping') all point to a sheeple-conditioning program.

Wild guess: the dollar's purchasing power's date with the dustbin of history is in a race with the elimination of printed dollars and a total loss of anonymity. Doen't some anonymity = some freedom?

Ray Bradbury: "By the pricking of my thumb...SOMETHING WICKED THIS WAY COMES."

;)

[jimmygu3]

Re: A doomed currency

Not bad...however if this happens, expect that the system which is introduced will merely be CashLessSociety 1.0 with the cards provisioned for a rapid transition to CLS 2.0 in which you are physically "chipped," and your financial identity and account of bonars are entirely and utterly controlled.

First, states such as NY, are getting ready to implement their "Enhanced Drivers License" Program, which introduces a license with an embedded RFID chip, similar to the new US Passports. How long until FRNs disappear and how long until the words of Ben Franklin, "...a republic if you can keep it," resonate in all our heads?

Mobil SpeedPass, new credit cards with proximity chips with which one merely 'waves' the card past a point-of-sale reader (rather than 'swiping') all point to a sheeple-conditioning program.

Wild guess: the dollar's purchasing power's date with the dustbin of history is in a race with the elimination of printed dollars and a total loss of anonymity. Doen't some anonymity = some freedom?

Ray Bradbury: "By the pricking of my thumb...SOMETHING WICKED THIS WAY COMES."

;)

Yeah, the whole RFID thing has the potential to usher in Big Brother.

In the plan I outlined, the cards would hold only small amounts of money and would not be linked to any one person, only a unique ID# for the card itself. Kind of like a gift card from a store.

[FRED]

Re: Steel Pennies

I had to go digging to find this, I remembered we talked about how our coinage is costing more to make than the face value of the coins...



AP link

Finally hit the mainstream press:

The price of a penny stirs calls for steel

[ocelotl]

Re: Steel Pennies

Finally hit the mainstream press:

The price of a penny stirs calls for steel

Historically here in Mexico, the lack of use of the lesser denominations is what takes them out of the circulation. In colonial times, when the octal spanish system was introduced to Mexico, the Maradevis were thrown to the streets and nobody wanted them. After that, and until decimalization, the smallest used coin were the quarters of a real, roughly 1/32 of the original 24.44 grams of pure silver 0.9027 peso. Decimalization introduced the cent. Until 1949, Mexican cent was roughly the same size as American one and had the same amount of copper, ever after, the unit was debased until the last ones were issued in the early 1970's. Mexican inflation of the 1970's and 80's effectively made the subsequent denominations worthless some times before they were further debased or get costlier than facial value.

As far as I remember, by the time I got to elementary school, the "quintos" or "chepitas" were just a curiosity since they could not buy anything, and almost no one really wanted them, later were the "maicitos", the smallest coins that I have handled ever, since I just didn't know the 1970-73 cents. Curiously, higher values took longer to dissapear since they covered a need. Until the 1985 earthquake, 20 cent coins were still used even when they had no use apart of the by then subsidized public telephones. Same goes for the first steel pesos when they were used just for the Ruta 100 buses until the demise of the network, same history goes for the 5, 10 and 20 pesos coins of the 80's.

After replacing the old pesos with the new pesos, the denominations used were reissued in the new coinage. Needless to say that the first coin to be withdrawn was the new "quinto", after it became worthless due to the 1994 default. By now, even when their cost is not way larger than its face value, 10 and 20 cents coins are despised by now, but that's because of a rounding campaign that the large store chains are implementing.

Logic behind all of this and the point where I wanted to get is about the fondness of people for the coinage they know. At inflation times when it is inevitable to debase continually the currency, people tend to get rid of the lesser valued coins simply because alone they get worthless due to inflation.

On january last year, I had to go to take a course to Ottawa, and had to be there for 4 days. Didn't bring with me USD, just MXN, and had not much issues exchanging them, just had to pay a commission that I could have avoided if I changed my pesos to CND before leaving, but that's another history. During the time I was up there, many of the small transactions I did were in cash, mainly food and transportation, and got back with some change. On one occasion, I asked the people about the presence of the cent, and they told me that even when by itself is worthless, it served to keep fairness to the commerce. In my opinion, it only serves to give the illusion of a lesser price, since some price announced in roundy or tiny ".99" can be taken to be rounded mentally to the lower unit instead of to the higher, that would be correct.

In accounting practice, there should be not an issue to keep the cents, to avoid over or under rounding, but in practice, prices expressed to single cent units are just not practical. Dumping cents from everyday commerce would lead to a system that is both more fair and less cumbersome for the consumer and the mint.

But that is just only my personal opinion.

[sadsack]

Re: Steel Pennies

Historically here in Mexico, the lack of use of the lesser denominations is what takes them out of the circulation. In colonial times, when the octal spanish system was introduced to Mexico, the Maradevis were thrown to the streets and nobody wanted them. After that, and until decimalization, the smallest used coin were the quarters of a real, roughly 1/32 of the original 24.44 grams of pure silver 0.9027 peso. Decimalization introduced the cent. Until 1949, Mexican cent was roughly the same size as American one and had the same amount of copper, ever after, the unit was debased until the last ones were issued in the early 1970's. Mexican inflation of the 1970's and 80's effectively made the subsequent denominations worthless some times before they were further debased or get costlier than facial value.

As far as I remember, by the time I got to elementary school, the "quintos" or "chepitas" were just a curiosity since they could not buy anything, and almost no one really wanted them, later were the "maicitos", the smallest coins that I have handled ever, since I just didn't know the 1970-73 cents. Curiously, higher values took longer to dissapear since they covered a need. Until the 1985 earthquake, 20 cent coins were still used even when they had no use apart of the by then subsidized public telephones. Same goes for the first steel pesos when they were used just for the Ruta 100 buses until the demise of the network, same history goes for the 5, 10 and 20 pesos coins of the 80's.

After replacing the old pesos with the new pesos, the denominations used were reissued in the new coinage. Needless to say that the first coin to be withdrawn was the new "quinto", after it became worthless due to the 1994 default. By now, even when their cost is not way larger than its face value, 10 and 20 cents coins are despised by now, but that's because of a rounding campaign that the large store chains are implementing.

Logic behind all of this and the point where I wanted to get is about the fondness of people for the coinage they know. At inflation times when it is inevitable to debase continually the currency, people tend to get rid of the lesser valued coins simply because alone they get worthless due to inflation.

On january last year, I had to go to take a course to Ottawa, and had to be there for 4 days. Didn't bring with me USD, just MXN, and had not much issues exchanging them, just had to pay a commission that I could have avoided if I changed my pesos to CND before leaving, but that's another history. During the time I was up there, many of the small transactions I did were in cash, mainly food and transportation, and got back with some change. On one occasion, I asked the people about the presence of the cent, and they told me that even when by itself is worthless, it served to keep fairness to the commerce. In my opinion, it only serves to give the illusion of a lesser price, since some price announced in roundy or tiny ".99" can be taken to be rounded mentally to the lower unit instead of to the higher, that would be correct.

In accounting practice, there should be not an issue to keep the cents, to avoid over or under rounding, but in practice, prices expressed to single cent units are just not practical. Dumping cents from everyday commerce would lead to a system that is both more fair and less cumbersome for the consumer and the mint.

But that is just only my personal opinion.

Personally, I have the security of my soon to be expanded family to consider.

Is there any constructive advice you can offer with respect to:

1) Making the transition under a period of a possible dollar collapse easier for my family, and

2) The approximate magnitude of resources (in whatever USD/commodity) you conservatively feel would be most prudent to allocate against a "worst-case scenario?"

DISCAIMER: You are fully within your best interests not to respond. That being said, any thoughts would be gratefully appreciated.

[ocelotl]

Re: A doomed currency

Unfortunately, I don't have the slightest idea how bad is this going to be for me, for you, or for anybody else. I'm reporting on personal views of the history I've learned and seen as a warning of a possible evolution trend due to some similarities between Mexico during the last 35 years and US position now (external and internal debt, debasing of currency, neglect federal spending). As of my recommendations, All I can say is that the currency that has the lesser inflation/debasing combination is the one that can help us minimize bad overcomes while this all happens.

A position in PM's, as said here and in a lot of investment analysis groups here in Mexico, is a good bet (as a country, we are very fond to have silver currency and have never fully abandoned it, apart from the fact that our soil has provided more silver to the world than almost any other country in history), but not always, investing in a bubble surely is attractive, but has the issue of timing. A position in any foreign currency must be followed thoroughly to know how much more or less debased it is regarding to the local one, or when it is following the rest in the debasing race.

My Father and Mother opted not for making a business, but relying on a local bank. We grew up being frugal, since as far as I remember we've been told we are in a crisis. There is a saying around here that says that is way better to be an active pessimist than a doping optimist.

My only advice is analyzing options, the more doors you have open to stand through all this, the better your outcome can be. Don't expect sudden fortune increases, don't trust luck, go one step at a time and keep hope only in your immediate environment. Keep alert, occupy yourself, keep reading this forum and develop your personal thesis.

[Jim Nickerson]

Re: Steel Pennies

Personally, I have the security of my soon to be expanded family to consider.

Is there any constructive advice you can offer with respect to:

1) Making the transition under a period of a possible dollar collapse easier for my family, and

2) The approximate magnitude of resources (in whatever USD/commodity) you conservatively feel would be most prudent to allocate against a "worst-case scenario?"

DISCAIMER: You are fully within your best interests not to respond. That being said, any thoughts would be gratefully appreciated.

Good luck seriously with what I guess is going to be a birth of your child vs. what could be an adoption.

Right after I started reading financial stuff on the internet which was in early 2006, Warren Brussee, a retired electrical engineer, was interviewed by Jim Puplava and then I bought Brussee's book "The Second Great Depression--Starting 2007 Ending 2020" that was published in 2005. It was an okay book, but one thing that stuck in my mind from it was he predicted that things would get so bad that people (I guess those with brains not located in their sexual organs) would stop bringing children into the world because things would be so bleak. Whether that comes to past remains to be seen, and whether or not for couples to plan to have children in what possibly could turn out to be a very bleak period is something that should be given very careful consideration.

I think it is natural for people to seek advice from someone who might know more, but first, no one reading here really knows your circumstance, and it is unlikely that you will know whether anyone offering you advice knows his/her ass from his/her elbow. Read Brussee's book or the one recommended by Williams by Ruff, I think it was. Brussee's book might give you some ideas, and I know nothing of Ruff's book. Brussee struck me as someone who had given a lot of thought to what might evolve with regard to preparation for survival.

Good luck.

[metalman]

Re: Steel Pennies

Good luck seriously with what I guess is going to be a birth of your child vs. what could be an adoption.

Right after I started reading financial stuff on the internet which was in early 2006, Warren Brussee, a retired electrical engineer, was interviewed by Jim Puplava and then I bought Brussee's book "The Second Great Depression--Starting 2007 Ending 2020" that was published in 2005. It was an okay book, but one thing that stuck in my mind from it was he predicted that things would get so bad that people (I guess those with brains not located in their sexual organs) would stop bringing children into the world because things would be so bleak. Whether that comes to past remains to be seen, and whether or not for couples to plan to have children in what possibly could turn out to be a very bleak period is something that should be given very careful consideration.

I think it is natural for people to seek advice from someone who might know more, but first, no one reading here really knows your circumstance, and it is unlikely that you will know whether anyone offering you advice knows his/her ass from his/her elbow. Read Brussee's book or the one recommended by Williams by Ruff, I think it was. Brussee's book might give you some ideas, and I know nothing of Ruff's book. Brussee struck me as someone who had given a lot of thought to what might evolve with regard to preparation for survival.

Good luck.

ruff's a lifetime, professional doombat. he's been publishing the ruff times since 1975. in it, the world has been going to shit since 1975.

nuff said... nuff about ruff.

i prefer this place because you are going to get a range of opinion. sure, that still leaves it up to you to decide who's full of shit or not. but that's life, isn't it? no one person has 'the answer'.

i generally go with the itulip position. the official forecasts here may seem extreme compared to the mainstream view... dot com bust, housing bubble, etc.,.. but is usually quite close about 2 years later. but not as extreme as some folks here like old luke (where'd he go?) who thinks the oil will run out and we'll all be shooting each other and chewing on squirrels shortly.

the articles here said get out of dot coms in apr 2000, open a treasury direct account and sit in cash a while and i did. buy gold in 2001 and i did. get out of the stock market end of 2007 and i did.

now i'm waiting to hear when to get out of gold and into treasuries again. might be a looooong wait. can you imagine yields rising faster than inflation ala early 1980s?

that said, in 2005 ej said that something "unseemly" is going to happen in the usa but he does not know what. he suspected a severe inflation. i'd like to see an article on how that might play out. williams sounds off the wall to me... a complete breakdown. can't use the atm, etc. that didn't even happen in argentina. it ain't the 1920s anymore ala weimar republic.

here's what i think: that we are going to get sucked into a war that we don't start... and that means paying for it, and that means huge inflation because we won't be able to sell bonds to other countries to pay to do the fighting for them because they'll be fighting in it, too.

my big worry is that everyone gets whipped up into a nationalistic frenzy during this war, again... ain't hard to do with 'mericans... and part of it is 'turn in your gold for the good of your country, you goddamn gold hoarder!'

not the police or feds but your neighbors you got to worry about.

another thing... and the goldbug hyperinflationistas have not thought this one thru, i think... if your neighbors are suddenly destituted from inflation and chewing on squirrels lukewise, you'd better be ready to either share or stay up 7/24 gun in hand to defend it, or leave with it well before the shit hits the fan. and you'd better be fit for a fight... the physically strong and mentally tough will rule.

more useful, practical advice if you believe the chewing on squirrels scenario is research that shows signs that lead up to that. it can't happen overnight... there has to be some sign, warning... that the shit is coming down...

[sadsack]

Re: A doomed currency

Thanks for the input, guys.

Just a brief note for now:

I think Williams' fundamental thesis is this:

Every experiment in fiat currency has always failed, and failed catastrophically. There are indications that the current world experiment in fiat money is entering its end phase. Therefore, it's not a question of how bad - we know it will be, and has always been, catastrophic. It just comes down to a question of timing - when?

EJ in this context seems to be trying to peg a loose lower bound to the degree of inflation/superinflation/hyperinflation; i.e., it's going to be at least as bad as X in the intermediate future. This in itself is valuable, for if the fiat regime can lumber along for another generation, there is a small chance (5%? 1%? 0.001%?) that we can turn things around.

For Williams, any kind of upper bound for the developing inflation is meaningless, and rightly so (under the thesis above) - it will, just as it always has thoughout history, be asymptotic.

[raja]

Re: Steel Pennies

another thing... and the goldbug hyperinflationistas have not thought this one thru, i think... if your neighbors are suddenly destituted from inflation and chewing on squirrels lukewise, you'd better be ready to either share or stay up 7/24 gun in hand to defend it, or leave with it well before the shit hits the fan. and you'd better be fit for a fight... the physically strong and mentally tough will rule.

My guess is that the government would nationalize the agriculture/food distribution system, so the people would get fed. That would prevent societal collapse, and the roving gangs scenario. However, the standard of living for most would plummet. Those with gold would (hopefully) preserve some of their wealth, so that when things return to less dire circumstances, that gold will have value and can be traded for whatever the "currency" is at the time.

I doubt that gold will be outlawed, since my guess is that lot's of rich folks have it. On the other hand, it wouldn't hurt to own lots of "real" property, like real estate.

[ocelotl]

Re: Steel Pennies

My guess is that the government would nationalize the agriculture/food distribution system, so the people would get fed. That would prevent societal collapse, and the roving gangs scenario. However, the standard of living for most would plummet. Those with gold would (hopefully) preserve some of their wealth, so that when things return to less dire circumstances, that gold will have value and can be traded for whatever the "currency" is at the time.

I doubt that gold will be outlawed, since my guess is that lot's of rich folks have it. On the other hand, it wouldn't hurt to own lots of "real" property, like real estate.

Sorry to kill your intentions. It has been done here in Mexico, and it blew up. Please search and read about the history of both "Conasupo" and "Sisema Alimentario Mexicano".

Idealism is pretty and soul enhancing, the bad point is that the institutions it forms are run by humans that are prone to be ambitious and greedy.