Moon-shot penny theory

[AGgressive Metal]

OK, I know the odds of this are extremely long, but I have been listening to some Bix Weir, Jim Rickards, Ron Paul, and other chatter about the US returning to a gold standard.

Now stop and just follow me for a few sentence and stay with me. The US started on basically a silver standard, had a brief fiat period during the Civil War, then went to a gold standard, then introduced Federal Reserve Notes and tinkered with the gold standard, then took the silver out of the coins, then came off the gold standard completely, and has been running on fiat since 1971, with some chatter lately of bringing back gold as I mentioned. Now all during those times, the one cent coin was unchanged in legal tender status, other than changing size a couple times, but the old large cents are to this day still legal tender. So, assuming the US dollar went back on a gold standard, there is no reason in my mind why we would alter the penny and nickel coins, since they are virtually the exact same pennies and nickels we used back when gold was $20 an ounce or $35 an ounce (other than the copper to zinc change). So while FRNs or bank digit dollars may go to zero, or be de-valued, I can't see any logical reason why the government would make all new pennies and nickels instead of just keeping the ones we've always used.

Conclusion:
When gold was $20/oz, we used the Lincoln cent. When it was $35/oz, we used the Lincoln cent. When in was $42.22/oz, we used the Lincoln cent. When gold hit $1600, we still used the Lincoln cent. The fact is that a penny is really just a handy token for making change, not really something intended to be traded for its intrinsic value like higher denomination gold and silver coins (CTUs aside). I think that, if the US returns to a gold-backed dollar at some point in the future, there is a decent shot that we will retain our small change coins as they are. Therefore, your penny could conceivably go from being worth 1/160,000th of an ounce of gold, to something much higher. Its something to ponder.

[beauanderos]

I have always held to this view. It's just one extra reason to keep backup boxes of whatever denomination for sorting later.

[Morsecode]

Your logic is sound, and conclusion reasonable. Therefore, our gov't will never embrace it.

Seriously, it would take massive forces domestically and internationally to bring that about. Almost like we were compelled to do it, rather than chose to do it.

[Slaphot]

When our country's original monetary system was set up they used a ratio of Gold/Silver/Copper.
1 OZ of Au = 15 OZ of Ag = 840.21 OZ of Cu

Time for a little fun math. If we use these numbers with $1,600 gold. We get $106 Silver and $8.40 a LBS of copper. That would make a copper penny worth aprox 5.6 Cents. If we use $5,000 gold that makes a Cu cent worth 17.9. That would mean a 1CTU = $1790 melt.

So, if we did go to a gold standard that would make your "moonshot" penny is possibly.

Like I said, just some fun math. But we don't need to be on a gold, silver, or copper standard for the Cu cent to achieve a huge increase in purchasing power.

[Lemon Thrower]

there is a big flaw in your logic.

if the u.s. ever goes back to the gold standard, it would be at a gold price north of $10,000, say $15,000.

so a penny would still be 1/100th of a dollar, but you would need 1,500,000 to buy an ounce of gold.

in other words, the gold standard would really have no direct effect on fiat coins. indirectly, it would be an admission that dollars have only a fraction of the purchasing power once thought. so the dollar would be worth much less, and a metal coin, even a zinc one, would be worth more than the face value. its at this point that the govt would stop minting small denominations like pennies and nickels. in some countries, like NZ, they are currently proposing to eliminate the dime. i traveled in europe last year and dimes were used infrequently. many countries have coins in lieu of $1, 2.50, and $5 denominations.

so a revaluation of the dollar in gold terms makes it much more likely that low denominations continue to be produced. once they are no longer produced, they'll have a deadline in which they are demonetized and then after that the melt ban is lifted.

[AGgressive Metal]

Well if they simply say that the dollar is now $12,000/oz, that is one thing. But if they default and start over without the Fed, they may go back to something more traditional like $50, $100, or $300/oz.

[NHsorter]

No matter what happens, I think it is hard to make an argument that holding copper is going to be anything but profitable. It's gotta be one of the safest investments that I can think of at this point. Little, if any downside and as many people have pointed out here, a growing chance of quite a big upside.

[Lemon Thrower]

its almost inconceivable that they would default and then revalue the dollar up. the point of revaluation or devaluation is to avoid default (technically) and repay in dollars that have less purchasing power. it makes repayment easier and is not a default only from a technical point of view.

copper - low risk in that you will eventually be able to capture much of the spread between face value and melt. however, doing so requires work. if you are buying copper cents at 1.6x on the open market, there is more risk. also, copper is not a monetary metal the way gold or silver are can be expected to decline when china crashes. i would much rather be in silver or gold than copper. the main advantage of coppper is the ability to obtain below melt but that only goes so far.

[AGgressive Metal]

its almost inconceivable that they would default and then revalue the dollar up.

Don't think in terms of "the dollar" being "re-valued up". Think in terms of simply assigning a measuring system to a weight of gold. You are not measuring dollars in terms of gold, but gold in terms of dollars. The dollar would just be like "inch" or "meter" or "pint" under a true gold standard.

[Common Cents]

Trust in Gresham's law. All fiat currencies eventually suffer the ravages of inflation, which makes all essential commodities rise in price, Copper has been, and will be a crucial commodity for mankind going forward. I consider 100 copper pennies to be a sound dollar, much in the same way 4 silver quarters is a sound dollar. Currently silver has been bid way up due to investor demand that copper has yet to see. But I see copper narrowing the gap considerably, once it becomes more attractive to investors priced out of silver and gold.

[Lemon Thrower]

its almost inconceivable that they would default and then revalue the dollar up.

Don't think in terms of "the dollar" being "re-valued up". Think in terms of simply assigning a measuring system to a weight of gold. You are not measuring dollars in terms of gold, but gold in terms of dollars. The dollar would just be like "inch" or "meter" or "pint" under a true gold standard.

sure, i understand your point. in 1792, when the dollar was created, it was worth 371.25 grains of fine silver. of course they changed the ratio over time, but if you think of a cent as 1/100th of a dollar its just 3.7125 grains of silver.

but the connection between our money and silver and gold was severed long ago.

the folks who will restore the connection - central bankers and politicians - will not do so out of the goodness of the heart but out of necessity. the last thing they are going to do is change the money in a way that would result in creditors getting repaid in dollars that have greater purchasing power. if they reconnected gold or silver to dollars, that is what would happen.

on the contrary, what they intend to do is a stealth default by inflating the paper currency. this means creditors are repaid with paper dollars that are worth less. we are coming to the point where the market will no longer accept this. when we get to that point, then and only then will they reconnect gold or silver to the dollar. but they will be several multiples in price to where they are now. so just for an example, take gold. today its $1600 per troy ounce. that means you need 160,000 cents to buy one ounce, or that a cent will buy 1/160,000 of an ounce. if the price of gold goes up 10X in dollars - an amount Jim Rickards has suggested - , and they make dollars convertible to gold at $16,000 an ounce, then your cent will buy only 1/1,600,000 of an ounce of gold. you will have missed the boat.

its true that if your cent is copper and they lift the melt ban, then you have some protection. but where you stand vis a vis the holders of zinc cents, paper dollars, gold and silver will all be different. My expectation is that PM's will increase faster than other commodities because they will be remonetized. other commodities will see a price increase in dollars but not in real terms (e.g. priced in gold or silver or oil). in fact, i expect the monetary metals to outpace other commodities, so the real price of other commodities will decline. Further, commodities tied to the health of the economy, like copper, can expect to pause or decline. in other words, if china crashes and stops buiding empty cities, then copper demand and prices will fall, even if governments revalue their paper currencies in terms of gold or silver. while many countries have or had copper coins, no central bank holds copper in its vaults. its not really a monetary metal the way gold and silver are. even silver is less of a monetary metal than gold.

[John_doe]

I don't think the united states has the funding to re instate a gold standard. Hence why the GAO can't get an audit on the "gold" held in fort knox. It won't be reinstated while the country is at war.

My overall conclusion:
the united states won't return to a gold standard unless there is a complete financial collapse. In which case another fiat currency will take the place of the frn in time.

[henrysmedford]

Franklin found the moon-shot penny yesterday see--http://www.realcent.org/viewtopic.php?f=15&t=7147

[Lemon Thrower]

we have the gold alread, supposedly, the only question is the appropriate price. this article says north of $9,000

http://www.shtfplan.com/precious-metals ... e_07212011

[AGgressive Metal]

LT, I'm not talking about something that is LIKELY to happen. But historically, every coin made by the mint has remained legal tender. So if there is a total wipe-out and we "re-boot" from scratch with a $100/oz standard or whatever, there is slightly better than a snowball's chance our pennies will be dramatically more valuable.

[Lemon Thrower]

i think you are mixing concepts.

you say our money has always retained its value but then you suggest a complete wipe out. in every other country that has had a wipe out, the old coins were demonetized. they only retained their metallic value.

a slow, gradual wipeout is far more likely, especially at first, because it allows the current policies and current government to continue. i expect them to do everything they can to stay in power and avoid a total wipe out.

Jim Sinclair a few years ago suggested that things would get so bad that the would be forced back on a gold standard. when that happens, the gold price in dollars will be a lot higher than it is now, either because it got their gradually as things got worse over time or because of a sudden devaluation of the dollar priced in gold as in 1933.

[AGgressive Metal]

you say our money has always retained its value but then you suggest a complete wipe out.

You are mixing concepts. Lincoln's Greenbacks were defaulted on, then redeemable again, then finally demonetized - yet coins never changed during this time period. Federal Reserve Notes are not obligations of the US Treasury, coins are. If the dollar collapses, chances are that FRNs will go near to zero, along with checking account money, money market funds, Treasuries, corporate and municipal bonds, euro-dollars, mortgage loans, etc. However, when the gold standard is re-instated, there will be no logical reason to discard the billions of usable existing coins, which historically, regardless of the price of gold, have remained legal tender.

[frugalcanuck]

Well if you are talking about monetary history in USA I remember reading it all started with tobacco. Thats where the greenback got its name.

I personally think it is pointless to look at history to try and predict how the US will deal with its monetary mess because there hasnt been a super power to collapse since there has been such globalization. There is also much more population control capabilities for when something goes wrong.

[AGgressive Metal]

Well if you are talking about monetary history in USA I remember reading it all started with tobacco. Thats where the greenback got its name.

Greenbacks didn't come out until the 1860s