One of the most popular blog posts I have written was on “Collecting Nickels“.  I can see the statistics and this particular post has been read a lot compared to other posts on my blog.  That means that either it is not a widely discussed topic on the internet or a lot of people are searching it.  If you type “collecting nickels” into google, my post is on the second page of ten.

In the post, I say that it is the one investment you can make that is a hedge against inflation and deflation at the same time.  It is a hedge against deflation because it is the same as holding cash.  Your purchasing power grows with deflation.  With short-term interest rates right now at a fraction of a percent, the interest you would lose from not having it in a bank is negligible.

It is a hedge against inflation because of the metal content of the coin.  If there is massive price inflation ahead, then metal prices will most likely go much higher.  The metal content of the coins will increase and the coins will be worth far more than five cents.

So what about pennies?  Pennies are actually quite similar.  However, I see less attraction trying to collect pennies because it is even more bulky than trying to collect nickels.

There is a story on “Penny Hoarders” by ABC News.  They ran a full story on it on “Nightline”.  This story covers some serious collectors.  This is a business to these people.

The story says to collect those that are dated 1982 or before.  The reason is because of the metal content of the pennies.  Pennies dated from 1982 and earlier are made with 95 percent copper.

This story also says, ” In what could be the biggest legislation to hit the U.S. Mint in 50 years, officials are now looking at the composition of pennies and nickels and considering an overhaul.  If the laws change and the mint decides to abolish the penny, people would be free to melt them down for the copper.”

Regardless of whether the law is changed, we will see Gresham’s law take over and we will see older pennies and all nickels slowly go out of circulation.  This is a very similar situation to pre-1965 dimes and quarters, which are made out of silver.  They are held by people investing in silver.  Holders of these silver coins would rather not melt them anyway, because they are easily identifiable as silver and they are in small denominations.  I have written before on this subject too.  I could see melting pennies as more attractive because of the low value of the metal content as compared to silver.

I am not sure that it will matter if the law is changed.  Either way, if you have the time and patience (and space), go ahead and start collecting pennies along with your nickels.  Pennies are more difficult, not just because of the space required, but also because you have to sort out the pre-1983 ones.  However, it is practically a no-lose investment.

The Republicans and Democrats in DC are bickering over the extension of the payroll tax cut that was enacted for this current year.  While both sides say they want to extend the tax cuts, the Democrats want to expand it further and “pay” for it by putting a “surcharge” of 3.25% on people making over a million dollars.

Most of the Republicans are full of it, but they are refusing to blatantly raise taxes as they know what happened to George H. W. Bush in 1992 after he broke his pledge of “no new taxes”.  Meanwhile, the Democrats do not hide their socialism and class warfare as they want to increase income taxes on high-income earners.

As the article linked to above says, Harry Reid said that Republican opponents “insist on helping the very wealthy while turning their back on the middle class.”  Ok, if Reid were talking about Republicans bailing out banks or giving big contracts to military companies, then he might have a point.  But Reid is talking about not raising taxes on high income earners.  So Harry, for anyone who does not believe that the already high income taxes on high-income earners should be raised, you consider that helping the wealthy at the expense of the poor?

Of course, never in a million years could the Democrats advocate something without “raising taxes on the rich”.  Never could they actually come up with something to cut out of the budget.  They really are a bunch of socialists, but that in no way should imply that the Republicans are any good (with the exception of a very few like Ron Paul).

If I were in Congress, I would vote to extend the payroll tax cut.  However, I would vote “no” if it meant raising any other taxes (unless those taxes were specifically for members of Congress).  While spending should be cut dramatically, I think that any tax cut we can get, we should take.  It is just allowing us to keep a little bit more of our earnings.

As far as helping unemployment, this won’t really do much.  As I have said before, if they really wanted to help create jobs and lower unemployment, then the tax cut would be for the employer portion of the payroll tax.  By cutting taxes for employees, it gives a raise to people who are currently employed.  It will only marginally help those unemployed if it doesn’t actually hurt them.  If taxes were cut for employers, it would decrease the cost of hiring labor and there would be some net improvement in employment on the margin.

If the Democrats got what they are advocating, it would just hurt the economy more.  It would mean less money on the margin for high-income earners, who are often the employers.

All of this talk is more class warfare by the Democrats and more posturing by the Republicans.  Neither side is advocating any significant cuts in spending, which is really what we need.  This economy will not have a sustainable recovery until government spending is cut dramatically.

American taxpayers and holders of American dollars got the news today that they are getting ripped off again.  Not that many people pay attention, but the Fed announced today that it will be providing liquidity for the European financial institutions.  The stock market loved the news and soared.

It wasn’t enough that the Fed bailed out American financial institutions in 2008.  It wasn’t enough that they subsidized foreign banks and foreign governments.  Now they are doing it again.  The Fed is acting as a lender to European banks.  Americans and holders of American dollars (are you paying attention China?) are subsidizing European banks.  In a sense, Americans are actually subsidizing the irresponsible European governments and their welfare recipients.

The main reason that the European banks are in so much trouble is because they stupidly bought government debt from countries like Greece and Italy.  Now that these countries are on the verge of default, the banks in Europe are in major trouble.  Here comes Helicopter Ben and the Fed to the rescue.

The Fed teamed up with the central banks of Europe, Canada, England, Switzerland, and Japan, although it is likely that it will be the American central bank that does most of the subsidizing.  I guess Germany could not serve as the host any more.  The parasites have to keep sucking the hosts dry before moving on to someone else.

While this might temporarily save the European banks, it kicks the can down the road again.  It props up the profligate spending of countries like Greece.  These countries should declare bankruptcy and they should be forced to dramatically cut back on their welfare states.

With the Fed essentially subsidizing loans to European institutions, it will once again harm the American economy.  It is another misallocation of resources.  The voluntary free market economy in the U.S. (at least what’s left of it) is starving for capital and investment.  With the Fed doing this move and others like it, it is hurting the overall savings pool.  This hurts economic growth.  In order for the economy to grow sustainably, there must be savings and the government/ Fed are not allowing this to happen.

Nothing should be a surprise any more.  If there is one lesson from today, it is that the future is unpredictable.  I continue to say that we can’t predict the economy and investments with any absolute certainty because the economy is made up of millions of people acting.  In this case, the human action is just coming from a few elitist individuals who are affecting virtually the entire world economy.

As Ron Paul would say, “End the Fed.”