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Halophyte | 01-10-2004 03:34 PM
Canadian Currency David Bond January 6, 2004 WALLACE, Idaho - Mark this date: The United States dollar has just become the world's official Canadian currency. We've laughed at the "Diefendollar" - named in ridicule of Canada's 13th prime minister, John Diefenbaker - for 40 years. Take a Yankee double sawbuck to Ottawa, buy a six-pack and rent a hotel room, and get $25 Canadian back in change. That was the running joke. Well, the laugh's now on us, folks. The shoe's on the other foot. Bring a Euro to the U.S. and get the same results. The United States is now the Canada of the world. John Diefenbaker would be proud. Late this afternoon - Monday as I write - the U.S. dollar is to the Euro as the Canadian dollar is to the USD: 78 cents. Seventy-eight and seventy-eight. I don't remember much, but weren't the US and Euro dollars supposed to trade at par, after the Euro entered circulation at six bits to the USD so just two years ago? And we all thought such was bollocks? Wishful thinking? What's the Euro got that we ain't got? For starters, credibility. Which is amazing in and of itself, insofar as the Euro is minted with the same crummy non-precious metals as the USD. In coin denominations, the Euro comes out like this: pennies, tuppences and nickels are struck (cast?) in steel with a copper alloy. Dimes, quarters (actually 20-cent pieces) and halves are steel with a copper-zinc coating. The dollars are made of copper, nickel and brass. Duct-tape a few Euro coins to the propeller shaft or rudder of your boat and they will provide real value as an excellent protection from electrolysis. Otherwise they are as lacking in intrinsic value as their American cousins. They are slugs. American coins, by the way, are fabricated as follows: pennies, copper-plated zinc, with copper comprising 2.5 percent of the value by weight; nickels, dimes, quarters and halves, 8.33 percent nickel and 91.67 percent copper. Compare these metallic culls with the venerable Morgan silver dollar, which was 10 percent copper and 90 percent silver and weighed in at a little over three quarters of an ounce. The halves, quarters and dimes of the pre-Lyndon Baines Johnson era were of the same composition as the Morgan: 90 percent silver and 10 percent copper. LBJ and the Congress abdicated their Constitutional duty to keep the money clean and capitulated totally to the privately-held Federal Reserve Bank in 1965 by debasing the coinage and calling back the United States Notes that John F. Kennedy had ordered issued just prior to his assassination. In fact, the callback of this last non-Fed USD was LBJ's first executive order. Speaking of Morgans, I was chatting with silver analyst David Morgan the other morning, one of those long, loquacious phone calls I have come to treasure and that we both indulge in when our respective deadlines loom. David and I share not only first names and a passion for silver: We are pretty close in birthdays, too. We were both teens when LBJ and Congress debased the money. We both sensed - more out of primal instinct than formal economic training (the latter to come years later) - that there was something dreadful in the actions of Lyndon and the Congress. Morgan began to collect Morgans with his newspaper route earnings; I started collecting Silver Certificates with mine. Each of us learned an important lesson. I learned about the perfidious nature of the U.S. government, which subsequently reneged on its promise to redeem my certificates for silver. David Morgan learned about the generally stupid and apathetic nature of the U.S. citizen after friends asked him how he could possibly expect to make money by collecting . . . money. Generic, average-grade Morgan dollars go for about $12.50 at the pawn and coin shops here in Wallace. Why would something that describes itself as worth one dollar, that WAS worth a dollar in 1964, be worth $12.50 now? Morgan knew this would happen instinctively, before his formal exposure to the Ludwig von Mises school of economics. His intuition was better than mine. All I got out of my now-worthless pile of Silver Certificates was the thundering life-lesson that the U.S. government are a bunch of lying, cheating finks whose chief visible function was to issue draft cards to extricate themselves from bloody foreign entanglements. Making money from money, indeed. David Morgan presciently saw that money divorced from silver would decrease in its value relative to silver, and the inverse: that silver dollars would go up. Ditto gold, although I think the bungee cord attached to silver is more tightly stretched than the one attached is to gold. Even CNBC and the proletariat are beginning to notice gold. Silver is still a stealth metal. But I (as I often do) digress, dodge the very question I posed at the beginning of this rant, which is: Why is a European slug of base metal more valuable than an American slug of base metal? I don't see of the big-name angelic financial gurus treading into this murky puddle, so hear treads this fool, alone. Bereft of intrinsic value, the worth of a slug is based on the public trust in its issuing government. This is the essence of fiat money. What 78 cents tells me is that the world values the word of the European community more than it values the word of the United States government. Gee, imagine that! Buried deep within the bureaucratic bowels of the United States government - that same bunch of lying finks who won't redeem my Silver Certificates - there is actually an entity called the Bureau of the Public Debt? As Dave Barry would say, I am not making this up. Their website is: publicdebt.treas.gov. Look it up. And the Bureau of Public Debt has the temerity to publish the national debt to the actual penny, which as of year's end was $7,001,312,247,818.28. Like dude, they're proud of it. I don't see Europeans boasting about how deeply in hock they are. The French and Swiss economies, for example, are essentially gold-backed. The deeply wounded Arab world is resorting now to the silver- and gold-backed Dinar, which may ultimately gain primacy (as the Euro is now) for oil settlements. About the only currency the U.S. Dollar isn't surrendering to is the Sri Lanka Rupee, where the dollar has been holding steady at 97.4 rupees to the buck. This is encouraging news. The other reason that European slugs possess more proletarian value than American slugs is that the European slugs are still new. America has had 30 years since the Kennedy assassination to demonstrate to the world how to lie, steal and cheat your way to prosperity while fighting wars off both coasts. Can't blame the Europeans for wanting to imitate this feat. Difference is, the Euro is new, and if history is any guide, the life-span of a fiat currency since Roman times, from naissance to collapse is about 30 years. So the baseless Euro has a 28-year run ahead of it, while the once-bright light of the U.S. Dollar is flaming out. It is incredible to me that the dollar's fast fade isn't dinner table conversation. It's not even fodder yet for the Sunday morning chat shows. Fast-reverse to Iranian hostage crisis times, and I bet any sentient American could quote the interest rate accurately within a couple of basis points. Not now. Nobody but those of us who spend too much time talking to ourselves realizes how serious the dollar's fate is. The only coin in the realm that's even remotely worth its stated value is the U.S. penny. A hundred copper-plated zinc pennies produced by the U.S. Mint last year actually contained about 80 cents worth of metal - probably more now, given that copper, lead and zinc are all up 50 percent over last summer's commodity prices. The lying finks won't tolerate this equal measure for equal measure business long, so look for a new move to wipe the U.S. penny from circulation. It may be time to start hoarding pennies, same way David Morgan gathered Morgans. There are several ways to hoard pennies, and not all of them involve rolls and sacks. My favorite pennies to collect are actually penny stocks: Specifically, the surviving penny mining stocks of the late Spokane Stock Exchange. Once numbering 130 or so, the old Spokane Exchange penny stock inventory is now down to, near as I can tell, about 36. In researching for a book on this subject to be published later this winter, I was amazed to discover that a few of them are still alive and trading after all these years. Discovering them gave me the same nice rush you get when some clueless clerk at the local gas-and-graze gives you a real silver dime in change. These penny stocks hold massive land positions in silver country here in North Idaho, and several have invisible, valuable assets. There's one penny stock from the old Spokane Exchange issued by a Silver Valley mining company that has more cash in the bank than its market cap. Underground workings, standing merchantable timber, long-term lease agreements with the seniors redound in these companies. Silver Valley penny mining stocks are a sleeping giant. A year ago, I invested an imaginary $1,000 in 16 of them - betting blind, equally across the board - tracked their daily moves, and I called this exercise the XAG Index. (As in, AG for silver.) Just for giggles, the Silver Valley Mining Journal has begun posting my daily XAG Index at www.silverminers.com. They think I'm nuts but look at the results: My blind, January 2, 2003 thousand-dollar bet is worth almost $7,500 today - just one year later. A few of the winners: My $100 bet on Chester (CHMN) went to $1,222; Kimberly Gold's (KMGM) $100 is now $1,240 on heavy liquidity; ditto Sterling (SRLM), buyers of the Sunshine Mine, who rose from $100 to damned-near $2,000 on increasingly heavy volume; even Atlas (ALMI), the dog of the lot, returned 22 percent on investment last year. There are still plenty of sleepers in this lot, but you're going to have to wait for the book. Still think I'm nuts? Insofar as the blind-pig public hasn't even noticed the dollar's collapse - much less the acorn of the bold gold rush into metal commodities - I'll wager that the XAG will be at 15,000 by the end of 2004. Unless, of course, the Lous (Loos?) Ruckeyser and Dobbs weigh in and the masses get a whiff, at which point I'll bail at 50,000 or 100,000 and . . . what? I was gonna say, pay down the mortgage. But why would I want to do that, when the payments are fixed and I could wait to pay this dollar thing off with pennies a few years out. Nah, I've got a better idea. I'm going to buy a Canadian yacht while I still can afford one. And I will put the rest of my lucre into Sri Lanka Rupees. After all, they're as sound as a dollar. .

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