Why We Stack Penny Bullion or Doing the Math

[johnbrickner]

So I come home from work last night and my daughter tells me she's learning about inflation back during the colonial era and she's got to define the word inflation. She says it is sometimes difficult in class to know when to give the "school" answer or the "Dad" answer. But in this case, since the subject is so important, she says she's always going with the "Dad" answer (this girl knows what side of her bread to butter). She wasn't sure her teacher was real happy with her answer as (she tells me) the "school" answer is when it keeps taking more and more money to buy the same items or that prices keep going up vs the "Dad" answer about the whole government printing press problem of creating more and more dollars from nothing backed by nothing.

I thought maybe she might have been a little to vigorous with her 7th grade answer so I did the math in a way she could explain and . . . well, the way I would teach it to her instructors and classmates:

1933 was the last year a $10 Indian Head gold coin was minted into circulation. It had about .48375 troy oz of gold or put another way you could get .48375 troy oz of gold for $10. On 1/13/15 you can buy .48375 troy oz gold valued at around $595.10.

The Inflation math goes like this, $10/$595.1= $0.0168 or today's dollar is now worth $0.0168 compared to the 1933 dollar based on the price of gold or an inflation induced decrease in the value of the dollar of over 98%! Gold not becoming more valuable but the dollar worth-less.

Here is the good part . . . wait for it . . .

U. S. Dollar value = 1.68 cents
Copper cent value = 1.78 cents based on 1/13/15 price of copper (and other metal,) making a copper penny now more valuable than the dollar.

[Recyclersteve]

I would imagine all denominations from $1 to $100 cost about the same to print. So you could argue that the copper penny is technically worth even more than a $100 bill. Still, if someone offered me $100 (or even $1) of phony fiat for a real copper penny, I'd definitely take the currency (unless there was some end of the (financial) world scenario going on).

[mtalbot_ca]

Here is the good part . . . wait for it . . .

U. S. Dollar value = 1.68 cents
Copper cent value = 1.78 cents based on 1/13/15 price of copper (and other metal,) making a copper penny now more valuable than the dollar.

= Erosion of the purchasing power.

Metals have the caracteristic of protecting it.

[reddirtcoins]

I'm keeping this example.. Nice thought on the matter!

[johnbrickner]

Update . . . 1/22/15 . . . with gold at or very near $1300/ troy oz the US Dollar is now worth $0.0159

[johnbrickner]

Two year and two days ago, I made this post. Funny how some thing come back around to make the circle. I came across James Turk's article in Gold$eek on the cost of building the Titanic in today's dollars. James starts off using my numbers comparing the inflation of the U$D to gold prices then and now. This reflects the devaluation of the Dollar.

But then throws in a new twist, what he calls his Fear Index. The equation goes like this: "The weight of the US Gold Reserve times its market price divided by M3, which is the total quantity of dollars in circulation. The Fear Index is expressed as a percent." The fear index is representative of the debasement of the U$D.

Search as I might for an M3 number for 1933, Paul Van Eeden of Kitco claims no data exists for prior to 1959. So I reluctantly use Turk's 1912 Fear index number of 8% vs todays 2% and interpolate new numbers for the above as:

Today's dollar is now worth 0.43 of a cent or less than 1/2 a cent. I might anticipate a less severe number here as the money in circulation plunged in 1933 as a result of the "Depression" but without the known numbers it is at best an educated ball park guess.