Nickels: A Deflationary and Inflationary Hedge?

Economics Economics Questions
1

The saying goes, Deflations = cash is king; Inflations = hard assets is king. Hyperinflation = hard assets in your ‘hand’ is king.

Some predict deflation. Some predict inflation. Even if deflation leads to inflation, you still experience that period of deflation, however long it might last. Some are concerned how well gold and silver might do during deflationary times. After the housing market popped gold and silver plummeted along with the stock market. Off the top of my head, I think the metals climbed out of the funk a lot sooner, but Im not sure.

I’ve been thinking of a way the hedge against inflation AND deflation. While holding both cash and metal is a good idea, holding cash in a fiat failure would not be good. I dont know if youd see it coming or not, but holding too much cash can make you vulnerable to a US dollar collapse.

I think a good option would be metal fiat, ie nickels and copper pennies.

Nickels are 75% copper and 25% nickel. Pre-1983 pennies are 95% copper (some 1983’s too). You can get nickels at face value and their current metal is worth about 4.7cents. You can get copper pennies at face value but you’d have to sift thru the zinc ones. Lots of work. You can buy copper pennies for about 1.7x face value off ebay, delivered.

If we had a terrible deflation and you could buy things at a 90% discount, a $2 roll of nickels would be worth $20. If we had high inflation, the metal value of the nickels would likely go up too.

With copper pennies, you’re investment would tend to favor inflation since you’re already paying a 70% premium for their metal content.

It seems nickels would be the perfect hedge against both, except for the inconvenience of their bulk, but I guess that’s the price you’d pay for that extra hedge against hyperinflation and/or dollar collapse.

You can also buy silver US coins. You might get a silver dime for $2. This 20x face value premium heavily favors inflation, because if you assume a silver price collapse during deflation and a face value rise of 10x, you’d just break even on that dime.

Other US coin hedges that favor inflation would be the 35% silver war nickels (adjusted alloys during war-time nickel shortages) and 40% silver half-dollars.

See coinflation.com for details.

So what do you guys think about owning some nickels as a hedge against inflation and deflation?

2

Do you really believe that the US Central Bank would allow any loss in the amount of money due to bank failures all the while letting nominal asset prices collapse? The Chairman of the Fed said that he would drop money from helicopters and that what happened in the 1930s (The Fed increased the money supply.) would never happen again. And most of all, do you believe that the Fed itself could stand up to their member banks as their assets and the bonuses of their executives crashed? And what would happen to the borrowing rates of the US Federal Government in such a situation. The 10year note trades at less than 3%, what if that rate went up to 6, 9 or 12%. The borrowing costs would be in the trillions.

3

What if theres a great big debt default? I dont think itll happen either, but wouldnt such a scenario leave many cash starved? Look at this interview with the godfather of deflation:

http://www.youtube.com/watch?v=gHAMQ3eGNjA

much more in-depth here

http://www.youtube.com/watch?v=aVm-aVA-kU8

Do you think there’s a chance for a strong deflationary period followed by high inflation?

4

Your long-term savings should be in precious metals, unimproved land, and mineral rights. Your short term savings should be in cash and small bullion. In the medium term contingency bucket, there is room for nickels, because they are spendable as dollars (though not as easily, therefore theyre not as liquid) and they represent industrial metals. Industrial metals are a good medium term hedge if you already have other stuff. I know someone who has several hundred dollars in nickels put away. Bob Wenzel says some guy has a straight mil in nicks hahahahaha

5

The Fed has not begun to create money. The Fed can buy anything it wants. It could for instance buy all of the mortgages outstanding in the State of California or those in the entire USA with newly created money. Look at all of the hyper-inflations, the central banks just kept devaluing the currency.

And if he is so confident in deflation then why hold gold or precious metals? Those are assets to protect against hyperinflation, not deflation.

I get it, at the end he talks about the coming high to hyper inflation. Then in that aftermath when people give up on the currency then there will be massive deflation in terms of precious metals or other physical assets.