Nixon's revenge

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TD's picture
TD
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Nixon's revenge

I’ve given much thought, and burnt many a brain cell, in the past year or two trying to figure out what the next US currency will look like, and how we will get there. I believe we have been living through a deflationary period that will at some time in the near future turn into hyperinflation.

I think this coming hyperinflationary period will likely last a year or more and will create a great deal of hardship, misery, and fear. I think our preparations will greatly aid us in getting through this time… such as storing food, gaining new skills, becoming self sufficient, and investing our current dollars into precious metals.

We could very well find ourselves entering a brief era of bartering and all these preparations would make a huge difference in our lives… perhaps the difference between life and death itself. But this country can’t function for long with its citizens bartering, or with them pushing a wheelbarrow of cash to the bakery. A new currency will have to be created.

Sometimes I wonder if there hasn’t been a plan in place for decades. No doubt about it, most of those in Washington appear to be utter morons (tip of the hat to Davos), but surely they can’t be so stupid as to not realize that by taking us off the gold standard that the dollar would slowly become worthless. As long as the public bought into the idea that paper money (with no backing) was sound, the country would prosper, and then when it all fell to pieces, the government would simply “go back to gold”.

Sure the transition back to real money would be tough, but heck, for those in power during the early 70’s that wouldn’t be until decades later. I call this “Nixon’s Revenge”. His generation would live out the rest of their lives well cared for, but all those hippies would get the shaft, right when they were ready to retire.

I’ve always found it curious that the US mint started again producing silver dollars, and then selling them for several paper dollars. I remember when they were on par with each other back in the early 60’s. Not too many years ago the government started to sell gold coins with values ranging from $5 to $50, curiouser and curiouser. It’s almost as if they knew a PM backed currency would once again need to be in place.

It’s been argued that there isn’t enough gold and silver to back our currency, but that’s based upon the concept that our leadership would be honest about the amount of PM’s there actually are in storage. And, on what the exchange rate would be between the old dollars and the new dollars. And…on who would be eligible to exchange old dollars for new dollar (perhaps just American citizens?). And perhaps, on how many dollars any one person be allowed to exchange?

There doesn’t need to be enough silver in storage for every new silver certificate paper dollar so that everyone can trade them in for real silver, just enough to cover those who might want to do it. Sort of like there not being enough cash in the bank if everyone wanted to withdraw their savings.

Then there is the question… “what will the exchange rate be?” How many worthless dollars will it take to buy a PM backed dollar? I think the easy answer is 100:1 but the dollar is already approaching that level of depreciation, and a reduction of our national debt by that level won’t help us much, it would still be too high. Now a 1,000 to 1… that’s more like it.

Let’s say you are now $10,000 in debt. Once the exchange is processed you are now 10 new dollars in debt.  Let’s say you have $10,000 dollars in savings, in the future the government will give you 10 new dollars. So, it’s awash.

Now instead of keeping that $10,000 in your savings account, let’s say that you had bought gold eagles at today’s prices, which would be eight 1oz gold coins, each with a face value of $50, you’d have $400 instead of $10 in our next currency. Or you could have bought $500 silver face value and be even better off.

I believe that there might be a risk in buying raw bullion, in that profits might be taxable in the confusion of transferring from one currency to another, but if the dollar denominated bullion becomes a part of our next currency it just might escape the hands of the tax collector.

There might be one investment that we can make that will bring us an even higher rate of return than silver or gold coins. And that would be the coins we currently have in our pockets. In a future time when we once again have a PM backed currency, when paper dollars are backed by real assets, we will need coins.  Will it be necessary for our coinage to be re-made out of silver, at tremendous cost? Or cannot our current change also be a backed up by silver? If we can walk into a bank and exchange a paper dollar for a silver dollar, wouldn’t it be just as likely that they would allow four quarters to do the same?

In such a scenario, $10,000 invested in rolls of quarters, dimes, and nickels, would be worth 10,000 new dollars. Wow, that would be something wouldn’t it? From what I understand something similar happened in Zimbawee. For a time, during the worst of their hyperinflation, coinage became worthless, but then it was set to the new currency, and suddenly all those folks who had kept their loose change did very well.

I don’t claim to have a crystal ball or to be able to see into the future. I’m not as financially savvy as many here on this board are. But it does seem that it wouldn’t hurt to hang onto that change jar and not cash it in, and maybe, pick up a roll of quarters the next time you are at the bank. And, for all the diehard deflationists out there, that believe cash will be king for many years to come, perhaps you should consider having that cash in the form or little round circles.

TD

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Saffron
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Re: Nixon's revenge
TD wrote:

There might be one investment that we can make that will bring us an even higher rate of return than silver or gold coins. And that would be the coins we currently have in our pockets. In a future time when we once again have a PM backed currency, when paper dollars are backed by real assets, we will need coins.  Will it be necessary for our coinage to be re-made out of silver, at tremendous cost? Or cannot our current change also be a backed up by silver? If we can walk into a bank and exchange a paper dollar for a silver dollar, wouldn’t it be just as likely that they would allow four quarters to do the same?

In such a scenario, $10,000 invested in rolls of quarters, dimes, and nickels, would be worth 10,000 new dollars. Wow, that would be something wouldn’t it? From what I understand something similar happened in Zimbawee. For a time, during the worst of their hyperinflation, coinage became worthless, but then it was set to the new currency, and suddenly all those folks who had kept their loose change did very well.

I am not arguing with your logic here but just trying to understand it. If I can exchange a paper dollar for a silver one and 4 quarters for a silver one, how does it benefit to keep the coins vs the paper? (In truth we are doing some of that ... holding onto rolled coins ... because instinctively I think you might be right, but I'd like to understand it.) Is it just that the silver and gold would be worth too much to be readily used for smaller purchases?  But then what determines the value of a quarter?

TD's picture
TD
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Re: Nixon's revenge

Safron, It's tough to get my head wrapped around all of this... even harder for me to try to explain it. lol

I believe in the future we might very well see new paper dollars issued that will be backed by gold and silver. Our paper money used to have the words "silver certificate' engraved on them. You could go easily go to the bank and trade your paper dollar for silver. Not any more, they are just pieces of paper.

The dollars we currently have in our pockets are on their way, I believe, to becoming worthless and one day it could be that we will be exchanging a thousand of them to get one new dollar, which will be backed by gold and silver. This new currency, these new dollars, will need to be fractionally divided... in other words.. coins. I see a potential where we will be able to purchase a new dollar with four quaters, or a thousand of our current paper dollars. If that's the case, I'd like to have a good stack of quarters. :)

Americans have gotten used to coins that are made of common metals, just like we are used to paper bills having value. Once we lose faith in our currency, because of huge debt and out of control printing, the illusion is over and we are in for a world of hurt. But if the government steps forward and backs up a new currency with PM's things should return to some normality. I believe that if we can have faith again in paper bills, then it just might work for us to have faith in low valued metal coins... if they are backed up the same way paper bills are.

I would think the government would avoid if possible re-minting all our coins, I imagine the cost would be prohibitive and time consuming. Our leaders are going to want to bring in a new currency as quickly as possible and not have to start creating penny replacements. It is interesting that the mint makes one dollar silver coins, and $5, $10, $25, and $50 gold coins... but no fractional dollar amounts out of anything but junk metal. (ok... the nickel does have 5 cents worth of metal in it)

Thanks for your interest, and questions... I'm just thinking out loud here.. I might be wrong, I might be right, but I thought it was worth sharing.

TD

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Travlin
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Re: Nixon's revenge
TD wrote:

Sure the transition back to real money would be tough, but heck, for those in power during the early 70’s that wouldn’t be until decades later. I call this “Nixon’s Revenge”. His generation would live out the rest of their lives well cared for, but all those hippies would get the shaft, right when they were ready to retire.

I didn't understand your post.  But your quote above was awesome.  I totally agree with that.  It is certainly in character for Nixon. 

Mr. Fri's picture
Mr. Fri
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Re: Nixon's revenge

Interesting post. 

FYI - One $10 roll of quarters (40) weighs 0.500 lbs. If you had $10,000 in quarters that would weigh 500 lbs.  You would want to make sure your safe is on the ground floor! Laughing

TD's picture
TD
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Re: Nixon's revenge

Travlin, thanks... yeah that tricky Dick was quite the fellow!

I guess to summarize my whole posting is that I came to two possible conclusions that I hadn't thought of before...

1) The returns that we will one day get on our gold and sliver might be based more upon the dollar demonination stamped on the coin, than on how much it wieghs.

2) It wouldn't hurt, and it sure might be a very wise move, to store up some rolled coins....

500 lbs huh? yikes... sounds like something that would best be put in the basement!

TD

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Mr. Fri
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Re: Nixon's revenge

As I said, interesting post.  But, I’m not sure it will happen that way. Two reasons come to mind.

 (1)   I can’t see 1 oz of gold being worth much, much less than the same weight of gold in the form of a $50 dollar Eagle.  After all, that is an “old dollar,” not a new dollar. I don’t know a lot about the history of gold but I’d tend to think the Eagle would fall into the same category as old gold coins.

(2)   If coins suddenly jumped in value by 1,000X then many weird things would happen. The poor college student would reach into his laundry basket for his rolls of quarters and suddenly have more money than his parents who are paying for him to be in college. (Sometimes that’s true anyway, but you know what I mean.) Also, the guy who runs the local 25 cent car wash would become a millionaire. All businesses would cash in their change and instantly have enough money to pay off their business debts.  I’m not sure this “injustice” would go over too well.

Just my 2 cents (worth 20 new dollars!)

><>Larry

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Travlin
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Re: Nixon's revenge

As I see it a coin of gold or silver is ultimately worth the current melt value of the metal, regardless of the denomination stamped on it.  When you buy a coin issued by any government they guarantee the purity and weight, so it can be readily sold to anyone.  This is a big advatanage over bullion, privately minted coins, wafers, bars, etc.  Of course you pay a premium for this advantage.  A government can make such sales illegal, but they can't realisticly expect people to accept $50 for a coin that cost them over $1,000.  Gold and silver are easy to melt.

As to the value of our current debased coins, I don't see them rising much in an emergency.

 

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TD
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Travlin's picture
Travlin
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Re: Nixon's revenge

I can't argue with your facts.  It did happen in Zimbabwe. 

TD's picture
TD
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Re: Nixon's revenge

Well, I might very well be wrong... but once we get to other side of this crisis there will be a need for coins. What will we use? From what I can find there are 2.5 trillion US dollars worth of coins currently in circulation. Will the US recall all those coins and remake them out of silver? How long will that take? Where will the silver come from?

http://answers.yahoo.com/question/index?qid=20100107070401AAg60hC

And with regard to the mint selling bullion with dollar denominations on it... Why is that? There is no denomination on a Krugerrand. Why is there a dollar denomination on an oz of silver... which is just what it was when our dollars were based upon that valuation... Might this be part of plan to once again return to that standard?

I think the answer to both of these questions, whatever they are, are very important, and could make a difference in our future if we plan accordingly now.  I'd be very interested in knowing how others in this community would answer these questions.

TD

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