Wednesday, February 21, 2007

The Stealth of Inflation

A while back I decided to collect the American State Quarters. Every time I got a newly issued coin, I would press it into the coin book and the thought would run through my mind, these coins look kind of cheap. No quality or high relief in the coin (Chucky Cheese has better looking play tokens). Compared to a 1995 quarter, quality is very apparent, the new ones look phony.

A 1964 quarter made of Silver looks quite impressive. These coins are different; you don’t see them in circulation any more, they are worth a lot more than their face value.

It really strikes me as funny, here I am complaining about the difference in quality of two quarters produced 5 years a part 1995 vs. 2000. But think about it. The 1964 quarter won’t see the light of day unless it’s in a coin shop. Your government has found a way to produce coins of lower quality even cheaper. It’s kind of on the level of using butcher block paper for toilet paper. It works but yet it doesn’t.

So if the Silver quarter represented value, the non Silver quarter (before 2000) represented quality, and the present one represents what ever you have left after you take away VALUE and QUALITY.

A $10 bill in 1964 would buy 40 packs of cigarettes. A hundred dollar bill today will buy 30 packs of cigarettes. So when you see that Silver has climbed to $13.50 per ounce, ask just one question; How can an ounce of Silver still buy the same amount of cigarettes as it did 44 years ago?

Silver didn’t jump in price, the dollar fell in value. Perspective is the issue here. Our perceived concept of inflation is measured from year to year. It’s gradual and not really noticed.

So you want to put your money in a bank and collect interest? Well, 3% isn’t much of a deal. Why not spend it and buy something? A lot of people are doing just that. When they wave that card and say “Charge It,” my mind thinks inflation.

Why not give Gold and Silver a shot? Three percent from the bank is chump change. The thing to think about is the rest of the world. A world wide depression would wreck some governments financially and their citizens would try to secure their assets by purchasing Gold and Silver. It never hurts to be first in line and buy before it becomes popular. The demand for the time tested store of value that Gold and Silver have to offer could become quite pronounced.

The real question you have to ask yourself, is the real world rational with Google at $475 per share? If you smell smoke, move towards an exit. Under no circumstances yell the word “FIRE.”


Anonymous said...

"It’s kind of on the level of using butcher block paper for toilet paper. It works but yet it doesn’t."


Anonymous said...

How to deal with people who make cheap quarters:

Under Henry I, the quality of England’s silver coins fall dramatically. In 1124, the right hands of the mint masters were cut off causing a temporary improvement in the quality. Henry II reformed the English coinage in 1158 thereby restoring the prestige of English money which was maintained for the next three centuries.