Canadian Government Stops Making Pennies—Can the Effects of Inflation Be Any More Obvious?

An old adage holds: “A penny saved is a penny earned.” Does that really hold true anymore? Well, in Canada, pennies certainly don’t count anymore. Inflation has killed the penny.

The Canadian government will no longer mint pennies. The Royal Canadian Mint made the last Canadian penny on May 4, 2012.

As a tribute to the end of the era of the penny, the Royal Canadian mint is offering silver and gold pennies for people to buy as collectables—a memory of the penny and what inflation can do to money.

Why would the Canadian government do such a thing in getting rid of the penny? Should we eliminate the penny from the U.S. economy as well?

The Canadian government says it’s too expensive to keep making pennies due to inflation. It costs more to make a penny today than its actual value and the coins take up too much space in our pockets and wallets. But let’s just face the facts: inflation has made pennies almost worthless in respect to what they can buy.

The pennies made in the U.S. economy between 1909 and 1982 had 95% copper content, but any penny made after 1982 only has 2.5% copper content. (Source: Coinflation, September 25, 2012.) Just as the Romans did to create more money, the West learned to put less of the real stuff in their coins so they could circulate more.

Those of us senior enough to remember the good old days can recall buying candy from a corner store for one cent…now an impossibility. Chocolate bars used to cost $0.25. That’s not the case either anymore. Prices have increased in the U.S. economy as the value of the dollar has decreased significantly; the after-effects of inflation.

The penny is simply an obstacle in the way of higher inflation. Once the penny gets out of circulation, prices will have to be adjusted higher; to the closest $0.05. Then eventually the nickel becomes the new penny and the vicious cycle continues—inflation with fiat money is inevitable. The more printing of paper money there is, the greater the risk of hyperinflation—making pennies worthless.

Dear reader, my point here is that inflation has really taken a toll on the U.S. economy. The Canadian government stopping the manufacturing of pennies is at least a step in the right direction of a government acknowledging these coins aren’t worth anything if they are not 100% copper as they were initially meant to be.

There is only one form of currency that central banks and governments cannot alter the form of regardless of what inflation does. I’m talking about gold, of course. If you are as concerned as me about what all this “money out of thin air” will do to prices in the future, if you are worried about hyperinflation in the future as I am, you will ensure your investment portfolio has exposure to gold-related investments.

Where the Market Stands; Where it’s Headed:

Looks like the euphoria of the QE3 (a third round of quantitative easing) announcement has worn off. The focus is now back on the slowing Chinese economy, the credit crisis in Europe, the pullback in U.S. corporate earnings, and revenue growth. The reality of the fact that QE3 does very little to help the average American is setting in and the stock market rally is quickly losing its steam.

What He Said:

“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in Profit Confidential, April 8, 2004. Michael first started warning about the negative repercussions of then Fed Governor Greenspan’s low-interest-rate policy when the Fed first dropped interest rates to one percent in 2004.

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