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April 22, 2006

Is the penny dead?

It is probably a matter of time when the U.S. Mint will have to stop making pennies. In 1982, the price of copper rose above the intrinsic value of the penny. Now, its substitute, zinc, has done the same. Steel might be the next metal of choice. It is sales taxes that keep the penny in heavy use. I've noticed that some cashiers are rounding off change to the nearest nickel when there is a penny difference. A penney is so insigificant now, it doesn't matter. More

When prices go up, consumers are most likely to blame the messenger, the retailers and businessmen. In actuality, it is the federal government that dilutes the purchasing power of money by creating whatever amount it needs to make up for its budget shortfalls. Though the world's central banking systems are all inflating to keep their currency differences about on par, they can't alter the disparities with commodities. Thus, it is not that commodities are getting more valuable; it is the declining puchasing power of paper money that buys less commodities.

This country has been in a long inflationary cycle since WWII. Once these cycles start, they feed on themselves. At some point it is inevitable for this inflationary cycle to end in a deflationary collapse. But for now, expect prices to rise faster than your earnings.

Posted by Ray Hewitt at April 22, 2006 06:33 PM