the dollar vigilante blog

Penny Polemics and Pontifications

[ED. this post is by Chris Horlacher, TDV Correspondent]
 
No sooner does the Canadian penny get axed, do the establishment chimps start flinging dung at the critics of this move.  In the latest from the National Post, anyone criticizing the government’s decision to drop the penny is casually labeled a “crackpot”.  This is pretty much par for the course when it comes to the defenders of the establishment; all they do is insult other people.  Who are we, the lowly peasants, to question the decisions of our masters after all?
 
Dropping the penny saves us money, they say.  Does it?  While it’s true that the cost of making a penny now exceeds its spending power, pontificating on why this is now the case is something we the public are apparently too stupid to engage in.  Better to listen to the writers at establishment media organizations, who have never been caught off guard by an economic event, for our daily dose of economic truth.
 
All of this reeks of a familiar stench though.  In the late 1960’s the quarter and dime were ended in the de-facto sense.  Those coins used to be made from 80% or more silver but after the price of silver began to exceed the face value of those coins they were quickly pulled from circulation and replaced by a nickel imposter.  After it became too expensive even to use nickel then the government turned to steel in 1999 in order to continue creating what now amounted to little more than a casino token.
 

 
The penny followed a similar trajectory.  It was made from nearly pure copper up until 1996, at which point the government turned to zinc in order to make them.  In only 2 years it could no longer even maintain the zinc penny-standard and has made them out of steel ever since.  Now it’s farewell to even that denomination of currency and for the first time in Canadian history there will no longer be such a thing as 1/100th of a dollar, all transactions will be rounded to the nearest nickel.  Don’t expect that to last very long at this pace.
 
What better example of Gresham’s law is there though?  Once people were forced to accept nickel coinage at the same value as the silver-made coins, all silver was quickly hoarded out of existence.  We are now seeing the same with the old copper pennies as well.  A glance through eBay reveals a thriving industry of private silver and copper coin traders.  Some entrepreneurial inventors are even marketing sophisticated coin sorting machines that will easily separate the copper and steel pennies.
 
Debasing coins with base metals is hardly a new trick; it’s the oldest one, in fact.  Before the printing press, all money had to essentially be coins and so debasement took on slightly different forms than today but the effects were nonetheless the same.  In order to sustain chronic budgetary deficits, the Roman Empire turned to debasing the silver denarius in order to fund their extravagant military and welfare state.
 

 
The consequences of doing this were very real; the Empire didn’t survive much longer after they ruined their primary means of exchange.
 
This is what the chimpanzees in the mainstream media are hiding behind their pile of excrement; the incremental destruction of the national unit of exchange.  Real commodities like copper, silver and gold have traditionally retained their values over long periods of time and keep a fairly stable exchange rate between one another.  The problem is that the currency unit of Canada (and every other nation) has become so eroded that it is scarcely a shadow of its former self.
 

 
Does anyone really believe that a 40-fold increase in the money supply isn’t going to come without some consequences?  No, I didn’t think so.  This is why the establishment can only toss insults at anyone that may object to what it is that they’re doing, because even a child can see the problem here.  The Great Wizard of Oz is being exposed for what he really is, a swindler and a cheat.  Only this time I don’t think he’ll be able to buy Dorothy off with a few trinkets and a free ride home.
 
The great irony in all of this is that while the government is trying to spin this as them looking to save taxpayers money, the cost of keeping the penny in its current, adulterated state isn’t even worth mentioning compared to the massive deficits incurred by the bloated bureaucracy that taxpayers have been saddled with.
 

 
You almost have to laugh at the sheer comedy of it all, but I’m then reminded of the monumental tragedy that most people are still feasting on a pile of chimpanzee dung, thinking it’s foie gras.
 
Chris Horlacher, CA is the Founder and Managing Director of Maple Leaf Metals Exchange Inc. He possesses a Chartered Accountant designation and is a former Senior Auditor for Deloitte & Touche LLP where he provided audit and assurance services to Fortune 500 companies, as well as independent businesses. He left Deloitte to aid Euro Pacific Canada Inc., an IIROC dealer-member, during its formative period by serving as Chief Financial Officer before founding Maple Leaf Metals Exchange Inc.
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