Friday, December 15, 2006

Hey, you think you own that money!

An Associated Press article reports that the US Mint has declared a new law (I guess we don't bother with Congress and cumbersome things like legislation anymore). The new order from the government says that it shall be a crime to melt down a penny or a nickel anymore. The reason: the metal in the coins are worth more than the coins.

Now pennies used to be made of copper and nickels earned their name by being made out of nickel. That is no longer the case. A nickel is made mostly out of copper (75%) and a penny is now mostly zinc and only 2.5% copper. Now here is the wonderful thing about government running money. It costs them more money to produce the money than the money is actually worth! These people have a license to mint money. They can literally just produce it but each coin the produce is worth less after they are done with it than before.

A nickel is worth five cents yet it costs 8.34 cents each to produce. And a 1 cent coin costs 1.73 cents to produce! Ludwig von Mises once said that only government can take two valuable commodities like paper and ink, combine them, and produce something totally worthless!

Of course now that the metal in the coins are worth more than the coins it is profitable to melt the coins and put them to a more valuable use. And that is what the government has now declared is illegal. Mint beaurcrat, director Edmund Moy, said: "We are taking this action because the nation needs its coinage for commerce. We don't want to see our pennies and nickels melted down so a few individuals can take advantage of the American taxpayer." Typical false statement from a government clown.

It is the mint which is taking advantage of taxpayers. It takes 8.34 cents of money to produce a coin worth 5 cents. So each time the Mint produces a nickel it has to destroy 3.34 cents of value. So for every $5 million in nickels they produce they consume $8,340,000 in value. Now that really is taking advantage of the taxpayer.

Associated Press got it wrong. They attribute this to "rising metal prices". What does that mean? The price of metal is the relationship between metal and the currency. The metal can increase in price while the currency retains its value. But the currency can also decline in value while the metal retains its value. In both cases it will take more money to buy the same amount of metal. What is happening in the US is the latter. The US dollar is dropping in value. The spendthrift president and the Republicans in Congress have decimated the value of the dollar.

Gold gained 22 percent in dollar terms in 2006 and 131 percent since 2000. One analyst notes that other nations "are trying to diversify their dollar holdings. They're buying gold and anything they can to get out of the dollar." Why? Ask George!

Remember when Republicans used to be good for the currency -- sorry I guess you're giving away your age.