Monday, October 01, 2007

Picking up Pennies

I was at the park with my boys on the weekend and as I crossed the road I saw a scattering of pennies on the ground. Now many people would sneer or make a snide comment that I bothered to bend over and pick them up considering how little a penny is worth. I do this habitually not because I’m that frugal but rather to see what I will find. This time I was quite surprised to find a rather nice example of a 1929 Canadian penny much like the image shown. If not for a recent blemish probably caused by a car driving over the coin on the road it might have been worth grading.

I found it interesting to speculate on how this coin escaped someone’s personal collection or how it managed to survive in circulation. It was an easily leap to believe that some light fingered child took them from home and dropped them, satisfying my curiosity by blaming someone’s else’s kid my mind then sped (crawled more like it) to new speculations to the relative value of this penny.

A little research today showed me that in 1929 Bread was 10 cents/lb, a cabbage 2 cents, coffee 45 cents/lb, round stake 51 cents/lb.

This of course was the end of the 1920’s boom just before the Great Depression and the decade of stagnation that would follow it. Look ahead a few years from the minting date you find beef, eggs, bread, lard, etc usually less than ½ of the 1929 prices. Cash was king in the thirties as low consumer demand, low liquidity, innovation all drove prices down and down. Those who held jobs often did well, they saved and could even buy up the assets from the less fortunate who had suffered unemployment, foreclosures, and hopelessness. People who had debts soon found that the assets they secured their loans with, land, stocks, etc had become worth less than their obligations and they defaulted. Like today’s victims of the housing bust many lost everything.

So what is that penny worth today? Measured by the Bank of Canada’s inflation calculator, similar goods purchased by my penny in 1929 would cost 12 cents today, representing 1200% of inflation or a 3.25% annual reduction in purchasing power of who ever horded that penny.

My penny’s real is worth only 8% of its original buying power

However once you realize that no one has any savings today and when money is spent it's actually money leveraged over the life of a 25y mortgage it would make a 1929 penny's equivelant value 24 cents, making todays penny worth 4% of the origian. Even better over one of those new 40y mortgages it would be about 36 cents, less than 3% or its original buying power. I don’t even care to figure out what a penny on plastic would be with all those minimum monthly payments. So my penny has gone from a real value of 1 cent or ½ a cabbage to next to nothing

What does this all mean?

Inflation is steadily eating away at any fiat money you attempt to save or horde

Fiat money is a scam that does not maintain its value over time.

Credit gives you at temporary consumer purchase “fix’, but unless you are buying a real asset that appreciates over time you are paying far too much and are even lowering you purchasing power more through your own impatience.

The system is not sound and despite claims that it can’t happen, fiat currencies have failed through out history, depressions and hyperinflation have occurred, fiat money will always lose value over time.

Gold and Silver unlike paper assets have always had a value.

Having some silver and gold is only logical given the historical precedents.

Bending over for a penny is really not worth it!


Stonehead said...

It may well be worth bending over for a penny - depending on its metal composition. In the UK, the composition was changed in 1992 as the old composition (97% copper) meant they were more valuable than their face value.

Today, that value has grown even more with strengthening copper prices. With eight billion pre-1992 copper one and two pence coins in circulation, that's a lot of valuable copper.

I also believe the US recently made it illegal to melt down its coinage or export large quantities for the same reason - they're worth more as metal than money.

So, yes, a large collection of coppers is worth hanging on to.

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