Wednesday, January 5, 2011

Bad Money Drives Out The Good

Gresham’s law – “bad money drives out the good”, driven by the effects of currency devaluation, also know as inflation and hyperinflation, ensures that push for cashless society will grow as the existing monetary system continues to crumble.

It’s only a matter of time before denominations such as the penny and nickel are eliminated and recomposed, respectively.

In 1982 the penny was recomposed from 95% copper (Cu) and 5% Zinc (Zn) to 97.5% Zn and 2.5%. Why? “Bad money drives out the good.”

It would cost 0.0285 cents to produce 95/5 Cu/Zn mixture today. Soon market forces will drive the cost of 97.5/2.5 Zn/Cu above 1 cent. Today's Zn/Cu blend costs 0.0065 cents. Hence, the rumblings about termination have grown loader as the production costs approaches par value.

A recomposition and death of the nickel is not too far behind. Today’s nickels metal content, a 77/25 Cu/Ni mixture, at 0.066 already exceeds its face value.

The elimination of smaller denominations from circulation by market forces is a classic sign of hyperinflation. It is difficult to profit without the knowledge of history. History, the collective voice of previous generations, is saying, wake up people. The choices made from here, whether large or small in scope, will define history for the next generation.

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