Guest Post: Why Our Currency Will Fail

Tyler Durden's picture

Submitted by ChrisMartenson.com

Why Our Currency Will Fail

The idea that the very same economic forces that are currently plaguing Greece, et al., are somehow not relevant to the United States' circumstances does not hold water.  As goes the rest of the world, so goes the US. 

When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning.

This report lays out the case that the US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people. 

Of course, the age of cheap oil is over. And as Jim Puplava says, the oil price is the new Fed funds rate, meaning that it is now the price of oil that sets the pace of economic movement, not interest rates established by the Fed.  

However, of all the challenges that catch my eye right now, the one most worrisome is the shredding of our national narrative to the point that it no longer makes any sense whatsoever. I'm a big believer that our actions are guided by the stories we tell ourselves. To progress as a society, having a grand vision that aligns and inspires is essential.

But when words emphasize one set of priorities and actions support another, any narrative falls apart. At a personal level, if someone touts their punctuality but chronically shows up hours late, the narrative that says "this person is reliable" begins to fall apart.

Likewise, if a company boasts about being green but its track record belies them as a major polluter, the "green" narrative fizzles.

And at the national level, if we say we are a nation of laws, but the Justice Department selectively prosecutes only the weak and relatively powerless while leaving the well-connected and moneyed entirely alone, then the narrative that says "we are a nation of blind justice and equal laws" falls apart.

I wish this was just some idle rumination, but I see more and more examples validating the importance of alignment of narrative and behavior. Because when there is a disconnect between words and actions, anxiety and fear take root.

Unfortunately, there is quite a lot to fear and be anxious about in the most recent State of the Union address and GOP response.

State of the Union

The recent State of the Union speech by Obama, and its Republican response, are both remarkable for what they say as well as what they don't say. The summary is this: The status quo will be preserved at all costs.

Here are a few examples of the sorts of disconnects between rhetoric and reality that are absolutely toxic to the morale of all who are paying the slightest bit of attention.

Obama

Let's never forget: Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same. It's time to apply the same rules from top to bottom. No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.

We've all paid the price for lenders who sold mortgages to people who couldn't afford them, and buyers who knew they couldn't afford them. That's why we need smart regulations to prevent irresponsible behavior.

It's time to apply the same rules from top to bottom? Is Obama aware of what Erik Holder is up to over there in the Justice Department? The robo-signing scandal alone has thousands and thousands of open and shut cases of felony forgery that can and should be applied to as many individuals as were directly involved, from top to bottom in every organization that was engaged in the practice.

Here's the reality. Under Obama, criminal prosecution of financial fraud fell to multi-decade lows during what is and remains one of the most target-rich environments in living memory.

(Source)

Obama

And I will not go back to the days when Wall Street was allowed to play by its own set of rules.

So if you are a big bank or financial institution, you're no longer allowed to make risky bets with your customers' deposits. You're required to write out a "living will" that details exactly how you'll pay the bills if you fail -- because the rest of us are not bailing you out ever again.

Has Obama checked with the Federal Reserve to assure they are on board with the new 'no bail out' policy? Because last I checked, they were the ones mainly involved in bailing out the big banks and providing swap lines and free credit to anyone and everyone that needed help, US or foreign. 

To be fair, Obama can make no statement or claim about what the Federal Reserve can or can't or will or won't do. It is not under executive nor even legislative control. If, or I should say when, the Federal Reserve bails out the next bank or country or whomever, it's "the rest of us" who will be paying the bill -- in the form of eventual inflation. 

Obama

[W]orking with our military leaders, I've proposed a new defense strategy that ensures we maintain the finest military in the world, while saving nearly half a trillion dollars in our budget.

Let's review the proposals for military spending then. The language above is nearly impossible to decode. What is really being said is that proposed defense increases have been scaled back, and that this is what is being called savings.

In 2000, Defense spending was $312 billion dollars. In 2012, the proposed budget calls for $703 billion, a 125% increase in 12 years.  

What the plan he mentions really calls for is spending increases in 5 out of the next 6 years. The lone holdout is 2013, when the plan calls for cutting spending by a whopping $6 billion less than the amount already approved for 2012. 

Somehow that all translates into rhetoric that implies cuts of "nearly half a trillion dollars."

As Lily Tomlin used to say, "As cynical as I am, I find it hard to keep up."

GOP Response

“The routes back to an America of promise, and to a solvent America that can pay its bills and protect its vulnerable, start in the same place.  The only way up for those suffering tonight, and the only way out of the dead end of debt into which we have driven, is a private economy that begins to grow and create jobs, real jobs, at a much faster rate than today."

This platitude-laden set of ideas is blissfully blind to the role of energy in the story, the amount of debt in the system, and the fact that both parties have contributed equally over the years to the predicament at hand.

How exactly is it that the private economy is supposed to flourish here, with the Federal government borrowing more than a trillion dollars a year and oil at $100 per barrel? The simple truth is that the US government needs to begin borrowing at a rate lower than the previous year's economic growth. If GDP grows at 2%, then the total debt pile must not grow by anything more than 2%. That is the only way that the official debts can shrink relative to the economy. 

GOP Response

“We will advance our positive suggestions with confidence, because we know that Americans are still a people born to liberty. There is nothing wrong with the state of our Union that the American people, addressed as free-born, mature citizens, cannot set right."

Last I checked, the original vote tally in the Senate on the National Defense Authorization Act, which empowered the armed forces to engage in civilian law enforcement activities and selectively suspended the habeas corpus and due process rights (as guaranteed by the 5th and 6th amendments to the Constitution), passed by a voice vote of 93 to 7 in the Senate.

It's kind of hard to swallow the idea that the GOP stands with Americans as "a people born to liberty" when their members are in perfect lock-step with the Democrats, chipping away at the most basic and cherished freedoms. There's no difference between the parties when both seem intent on limiting individual freedom and increasing the power of the government to reach into and examine our daily lives. 

When Words Hurt

The above examples are not meant to pick on any one person or party or set of ideas, but to illuminate the profound gap that exists between what we are telling ourselves at the national level and the actions we are undertaking. 

Again, it is the gap between what we tell ourselves and what we do that creates a sense of unease, anxiety, and oftentimes fear. When we hear words "X" but see actions "Y" over and over again, it is hard not to come to the conclusion that the words are meaningless; empty rhetoric designed with polls and focus groups in mind, but little else. 

It is the blind obedience to the status quo that worries me the most, as it raises the likelihood that nothing of any substance will be done until forced by circumstances, at which point, like Greece, we will discover that the remaining menu of options ranges from bad to worse.

Left Unsaid - Our Missing Narrative

In neither Obama's address nor the GOP response do we hear anything about Peak Oil, a stock market that has gone nowhere in ten years, or the fact that with two wars winding down there ought to be massive savings from defense cuts that we can capture. There's lip service to the idea of using more natural gas to begin weaning us off our imported oil dependence, but no commensurate trillion-dollar program offered to rapidly build out the infrastructure necessary to utilize that gas in a meaningful way.

A more honest set of messages would note that mistakes were made, opportunities squandered, and priorities misplaced. It would note that the US is on an unsustainable course with respect to spending, debts, and liabilities. There would be an explicit admission that having your central bank print trillions in "thin air" money in order to enable runaway deficit spending is a dangerous and foolish thing to entertain.

Most obviously missing is a national narrative that is coherent and comports with the facts. Both parties basically imply that if we elect a few more of their type, do a little of this and then tweak a little of that, then we will get our nation back on track. 

There is no call to a shared sacrifice for something greater. There is nothing to rally around except a laundry list of disconnected programs; a little something for everyone. There is no overarching theme under which everything else can be hung, such as a space race, a civil rights movement, or a massive upgrading of our national infrastructure.

A good narrative is one that inspires people and is based in reality but also asks something larger of us that we can share in. What is our vision for this country? Where do we want to be in ten years? How about twenty?   How will we get there, and what will be required? What should we stop doing, what should we start doing, and what should we continue doing?

None of these things are on display, and all are badly needed if we are going to make the most of the next twenty years.

The Troubling Facts

Of all the facts that got skimmed over or avoided in the State of the Union extravaganza, the fiscal nightmare in DC was probably the most glaring. Yes, both parties have decided to talk about the deficit, but neither is giving the appropriate context. 

For FY 2012, the federal government is projected to run a $1.1 trillion deficit.   Let's compare that number to the projected revenues:

 (Source

The $1.1 trillion deficit is 42% of total revenues and 73% of all income taxes. That is, in order to spend what the US currently spends without going further into debt (i.e., to have no deficit), income taxes must immediately increase by 73%(!).

This is the sort of territory that, were the US any other country, would have already landed its debt markets -- and likely its currency, too -- in very hot water.

Historically, countries that have run deficits 40% greater than revenue for more than two years have experienced profound financial and political crises. The US is now in its fourth year of inhabiting this rare territory.

How can it keep doing this when every other country that has tried has gotten into trouble? Simple. The Federal Reserve has enabled such egregious deficit spending by buying up mind-boggling amounts of government debt. This has both kept rates low and created a lot of additional buying demand for Treasuries.

Exactly how much US debt is the Fed buying? Under Operation Twist, the Fed has bought anywhere from 51% to 91% of all gross issuance of bonds dated six years or longer in maturity. 

(Source

It is quite obvious that the Fed has been a major participant in the bond markets and a major reason why Treasurys are priced so high and offer so low a yield. 

It seems that it is well past time to speak directly to the enormous fiscal deficits in a credible way, not merely bemoaning them being too high. And we're also overdue for an adult national conversation that it's unwise and unsustainable for a country to lean on its central bank to print up the difference between receipts and outlays.

Oil and Recoveries

There is a clear relationship between high oil prices and recessions, confirming the idea that the price of oil has the same impact on the economy as higher interest rates (perhaps even more so nowadays). Both are a source of friction. With higher interest rates, less lending and less consuming happens. With a higher price of oil, more money gets spent on energy, much of it sent to foreign producers of oil, and thus less money is available for other consumption.

Both higher oil prices and higher interest rates cause people to think a bit more before pulling the trigger on either ordinary spending or a big capital project.

Note that all of the six prior recessions were preceded by a spike in oil prices. In the case of the double-dip 1980's twin recessions, oil remained elevated after the first recession was (allegedly) over. Don't be fooled by the logarithmic nature of the chart below -- note that the typical decline in oil prices between the recession-inducing peak (blue lines) and the recovery-enabling trough (green lines) was a substantial 30%-50%:

(Source

Also note in the most recent data that oil prices happen to be at roughly the same level that triggered the first recession in 2008 (the purple dotted line). 

If we needed one simple chart to help us understand why trillions of dollars of stimulus and handouts are not causing the economy to soar, this is the chart that explains the most. High oil prices and recessions are highly correlated, and it's not too much of a stretch to postulate that economic recoveries and high oil prices are inversely correlated.

Note also that the above chart is not inflation-adjusted. If it were, it would show that there have been exactly zero recoveries when oil prices are near or over $100 per barrel. 

For those counting on an economic recovery here to lift all boats and assist the bailout efforts, the burden of history is upon them to explain why this time we should ignore the price of oil. 

I say we cannot. Policy planners and citizens alike should be ready for disappointing market and economic activity in response to the usual bag of printing, borrowing and delaying tricks.

Dead Ahead: A Currency Crisis

The State of the Union speech and GOP response neither accurately portray the true fiscal condition of the US, nor present a compelling narrative that speaks either to the realities of today or a future we might like to head towards.

The US is simply on a fiscally ruinous path, and neither party seems up to the task of laying out the story in a way that is mature, clear, and direct. 

No recovery has ever been possible from oil prices this high, nor with debt levels this extreme, and it is quite improbable to think that both conditions could be overcome with anything less than a completely clear-eyed view of the true nature of the predicament faced.

Decades ago, Ludwig Von Mises captured everything discussed here elegantly:

There is no means of avoiding the final collapse of a boom brought about by credit expansion.

The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Our current dire fiscal condition, our leaders' dysfunctional unwillingness to address the flawed behavior that caused it, plus many other recent events both in the US and in Europe, point to the idea that a voluntary abandonment of further credit expansion is just not on the menu.

That leaves us with some final and total catastrophe of the involved currency system(s) as the inevitable outcome.

In Part II: Surviving a Currency Crisis, we explain what a currency is, what happens when a currency collapses, and, most importantly, how to position yourself prudently in advance.

At this point, time to prepare is your greatest asset. But as we can see from the precarious global economic situation described above, time is running out. Use what remains wisely.

Click here to access Part II of this report (free executive summary; enrollment required for full access)

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WALLST8MY8BALL's picture

Currency Collapse and Pepper Spray - Its what's for dinner!

ilion's picture

Failing currency is one step in the right direction.

kindape's picture

you're kidding right

do you know how many people will die within a week if our currency fails? And how many then die within a month as people don't go to work. imported components, medicines, etc dont show up.  You think this stuff all happens automatically?

Get your head out of the doom porn and be constructive/aware/real.

hedgeless_horseman's picture

 

 

...do you know how many people will die within a week if our currency fails?

Excellent fear mongering.  Are you a pro?

ali-ali-al-qomfri's picture

save and or collect phone books, yellow pages=brown pages. :)

tired1's picture

Crap! What a wonderful idea!

economics1996's picture

The best thing we can all do is learn about 100% fractional reserve banking with gold/silver as the base.  Remember that you people on this site will be the "experts" as to why there was a collapse to your friends and neighbors.  If you haven't read about banking you need to now.  Here are a couple of my favorite banking books.

http://www.amazon.com/History-Money-Banking-United-States/dp/0945466331/ref=sr_1_sc_1?ie=UTF8&qid=1328719446&sr=8-1-spell

Murray Rothbard

http://www.amazon.com/Money-Sound-Unsound-Joseph-Salerno/dp/1933550937/ref=sr_1_1?s=books&ie=UTF8&qid=1328719618&sr=1-1

Joseph Salerno

stirners_ghost's picture

...not to mention rapid exothermic oxidation

TeMpTeK's picture

How bout some Preppermint gum?

whoisjohngalt11's picture

Food goes then violence starts, how long does that take??

LowProfile's picture

As long as delivery isn't interrupted, for a long time.

If delivery is interrupted, about a week.

SilverDOG's picture

Now that is being generous.

I'd give it 72hrs.

Only took 48hrs in the Tennessee Mts? a couple years back due to a snow storm.

Fightin' over food and fuel, and the currency was still afloat.

pods's picture

Hell that happens in NC when snow is forecast.

pods

Ghordius's picture

he might have a point, though. some people get hurt or die when a currency fails (not that I believe in the catastrophic collapse of the USD, more a decline)

----

since I got 6reds vs. 1green up to now for the statement above I'll explain: the Treasury has (or appears to have, for the hard-core) some 10'000 tons of gold. Yes, the FRN might all try to come home at one point, but it's a card that let's me think of orderly decline instead of catastrophic fail.

kindape's picture

Pro? At what ? Towards what end?
just a doctor.

hedgeless_horseman's picture

 

 

...do you know how many people will die within a week if our currency fails?

My crystal ball is only a novelty item.  However, history is in the books.  How many people died within a week, Doc, each of the previous times the currency failed in America?

Au Shucks's picture

His proctology practice limits the amount of time he can spend learning history.  To him, it's all one dark, smelly hole.

kindape's picture

This is a no analog event. Population,degree of interconnectedness, dependence on trade for basic inputs and lack of local regional supply chains make it very different situation. ALL past currency failures ha much more decentralized means of production. You're right. I don't know. But know enough to junk that first poster rooting for currency collapse. Those liitle shiny pieces in his basement will do scant good if trade abruptly stops

clymer's picture

now you're assuming he's a gold bug? You are a pro

kindape's picture

Ok sorry.
But it is a common theme here...dollar collapse will increase the relative fitness of all those who own gold. My main point is that they are neglecting a likely huge drop in absolute fitness. And lest you jump to your own conclusions I think gold ultimately is going to soar and I own some. But gold will still only be a monetary marker for real capital and a sideshow to the larger social story

hedgeless_horseman's picture

 

 

So we should all just live with the cancer because the cure might kill some of us?  

Calmyourself's picture

Really that is what he said HH?  I do not think so, I realize we (most) folks here believe this is coming and it will be bad either way but lets try to be a bit inclusive. Just a thought..

hedgeless_horseman's picture

 

 

Inclusive of people like the poster, ilion, he was responding to that would welcome a new monetary system as a step in the right direction?  Inclusive of posters that really understand the inflation tax?  Inclusive of people that stood up to Hank Paulson's threats of blood in the streets and voted against TARP?  Or a different kind of inclusive?

Calmyourself's picture

Both, as they both mainly agree with us.  The collapse will be painful how painful none of us really know but I will take someone who has awaken from the lies, ponzinomic bullshit and perhaps overlook some aspects if we can share a foxhole and argue monetary poilcy and which rat we eat next..

HungrySeagull's picture

Some of us actually choose not to under go the poisoning and just get Hospice to manage the dying process.

hedgeless_horseman's picture

 

 

Some of us actually choose not to under go the poisoning austerity and just get Hospice cable television to manage the dying debt process.

I do agree with you on cancer, HS, although I would want to die at home.

HungrySeagull's picture

Same here, what good is thousands of dollars a week in a futile fight to buy a few more days or months? Some will do it anyway.

I know of one who did. It took 5 months for that person to die. It was not the original medical emergency that killed this person but bedsores. The kind that get infections into the blood and killed that way.

We actually cut the cable because we can no longer withstand the repeat of bullshit, lies and paradise being dispensed to the masses.

aerojet's picture

Nobody ever explained what you're supposed to do with the gold.  Do you barter with it?  Do you convert it to some other currency on some long time horizon?  You don't want to sell it for dollars if dollars are worthless. 

I really think the prepper crowd is out of their minds.  They're people who don't have much going for them, they desire collapse because it fulfills some kind of leveling fantasy where they may achieve status simply for somehow being ready for something.  What they fail to understand is that they are flawed actors in the our current system for a reason and will end up being flawed actors in whatever future "apocalypse" scenario comes into being for the same reasons.  That is, unless, they are a totally violent badass Rambo, which they aren't, because totally badass Rambo types aren't preppers.  You see what I'm getting at here?  If you're marginal in today's system, you're still going to be marginal in tomorrow's unless you smarten up.  Gold isn't going to help you, either way--it may make you feel better, or allow you to avoid dealing with unpleasant personal characteristics, but it's not magically going to elevate you to warlord status sometime down the road.  Personally, I think gold is in the mother of all bubbles, just like oil and a real recovery will flatten it, no matter what inflation does to the dollar.

 

 

Sweet Chicken's picture

Please humor me on how the hell physical gold can be in a "bubble"?! This is absurd in the extreme. You can't manipulate gold, you either have it or you don't!!!

trav7777's picture

bingo.  The worst bugz around here want a total collapse of all paper, thinking they will be the only ones left with any wealth.

Green Leader's picture

To prevail what's coming up will take seeds, fertilizer, hand tools, LOTS of calcium carbonate and LOTS of physical strength & agroecological  farming skills. Goats, chickens, donkeys and other farm animals, too.

DanDaley's picture

You're right, but don't forget barbed wire, pepper spray, and lead. Lots of lead.

Calmyourself's picture

Tough question, what to do with gold, hmm how about buy bread??

http://www.youtube.com/watch?feature=player_detailpage&v=7ubJp6rmUYM

Folks are alwys going to need something to transact business with and in a total collapse it will take time but the gold will bubble up..   Personally I am stocking curly lightbulbs for the mercury content, it is the new precious metal..

 

darkhorse222's picture

hmmm.....so you walk into a store with your $500 gold coin, or worse, gold BAR worth thousands, to by a loaf of $10 bread-what storeowner would make change for that purchase???

Calmyourself's picture

Well, all you've proved is that you did not watch the video. Watch the video. All your questions will be magically answered.  If it happens in f*&^%& Zimbabwe, it can happen here...

10mm's picture

Being capable of handling one's self without the help of some type of authority/agency to come to the rescue in a breakdown is not being unresonable.Or in general.depends on where one lives.

RockyRacoon's picture

Go ahead, aerojet, and maintain your faith in the fiat.   Are you old enough to remember silver coinage?  Well, if not, you'll be old enough to remember the nickel.

Canada changes alloys of $1, $2 coins in cost-savings move

Lighter multi-ply plated steel coins due to enter circulation soon

By Jeff Starck-Coin World Staff | Feb. 03, 2012 10:00 a.m.   

Canada’s $1 and $2 coins will soon sport technological upgrades to deter counterfeiting, and new compositions to save the Canadian government millions annually. Examples of current composition 2011 coins appear here.

Canada’s new lighter weight $1 and $2 coins are due to enter circulation in early 2012, after receiving final governmental approval before Christmas.

The notice of approval was published Jan. 4 in the Canada Gazette.

The new multi-ply plated steel coins will be similar in appearance and feel to the current versions.

Though largely driven by the potential to save millions annually, the changes are coming hand-in-hand with the development of new anti-counterfeiting technology by the RCM.

Planned anti-counterfeiting technology to make its debut on the coins includes the use of a lasermark maple leaf on the reverse of each $1 coin and two “virtual image” maple leafs “between two lines at the top of the coin and the words CANADA and 2 DOLLARS interspersed with two lasermark maple leaves each within a circle at the bottom of the coin.” In addition, edge lettering of CANADA and 2 DOLLARS, with a maple leaf flanking each side of CANADA, will be used on the $2 coin.

RCM Senior Manager of Communications Alex Reeves declined to answer questions about the timing of the coins’ release, the RCM’s cooperation with Canadian vending officials and how the new coins affect the RCM’s relationship with blank provider Jarden Zinc in Greeneville, Tenn., which expanded its facility in 2011 to service global plated coinage demand. The firm has produced blanks for Canada’s dollar coins since 2005 and will be retained as a secondary source of supply for the multi-ply plated dollar blanks.

The new technology will also allow the RCM to expand a metal harvesting program that it began in 2003, pulling millions of tons of older nickel-composition coins from circulation to be replaced with new, cheaper coins.

Despite an initial $40 million cost to the vending industry for retrofitting equipment, the move will save a maximum estimated $16 million a year for the Canadian government, according to RCM documents filed as the RCM sought approval, for a present value of $107.5 million over 10 years.

That estimate of savings is based on a projected demand of 30 million coins of each denomination for each of the next 10 years, with some of the production needed to replace coins that are withdrawn from circulation and melted through the metal harvesting program. The RCM reported in the 2010 annual report that using a multi-ply plated steel blank for the $1 coins would save 30 cents per coin.

In the request for approval, the RCM sought and received an amendment to the Royal Canadian Mint Act, which governs the denomination, composition and other specifications of Canadian coins, in order to make the
changes.

Plated steel

The new coins will be struck from a multi-ply plated steel composition. The replacement composition was developed by the RCM in 1999 and has been in use for most Canadian coins since 2001.

Multi-ply plated steel coins are made from steel plated with multiple, alternating layers of copper and nickel.

The RCM said it has struck more than 6 billion 1-, 5-, 10-, 25- and 50-cent coins in multi-ply plated steel since 2000, saving the government approximately $250 million.

The $1 and $2 coins are the only two denominations of Canadian coinage that RCM officials have not converted to a multi-ply plated steel composition. However, in some instances, the RCM still issues coins of an old alloy if it has to meet circulation needs and cannot acquire sufficient plated steel blanks to meet demand.

Changing the alloy hedges against possible spikes in the price of raw material used to make coins, according to the document.

The dollar coin is currently composed of bronze-plated nickel or brass-plated nickel (both alloy variations exist). New dollar coins will have a steel core coated with multi-ply plated brass.

The current $2 coin has an aluminum-bronze center piece and nickel outer ring. For the new $2 coin, the center piece will be composed of aluminium-bronze coated with multi-ply plated brass; the outer ring will be steel plated with nickel.

The dollar coin will remain “yellow in color,” according to the RCM, and the shape will remain 11-sided.

The $2 coin will continue to have a yellow core and an outer ring that is white in color, but edge serrations will be thinner to allow for the application of edge lettering.

The dollar coin, which now weighs 7 grams, will weigh 6.27 grams after the switch, while the $2 coin, currently 7.3 grams in weight, will be reduced to 6.92 grams.

The diameters are not expected to change.

Counterfeiting safeguards

The RCM is using the introduction of new money-saving alloys as also an opportunity to bolster the $1 and $2 coins against the ever-growing threat of counterfeiting. The new security features are pre-emptive, and not a response to any specific counterfeiting threat, according to the regulatory filing.

“The new features present a major deterrent to forgers trying to duplicate them as it would require a significant capital investment along with strong technical knowledge to effectively operate the process,” according to the RCM.

The new lasermark, virtual images and edge lettering features will allow for a visual authentication of the new $1 and $2 coins, and the cost to produce such features would result in it being prohibitive for counterfeiters to duplicate, according to the RCM.

Vending industry

Another deterrent to counterfeiting will be the unique EMS, “electromagnetic signal,” of both coins. That change is not without cost to operators of coin acceptance machines.

The RCM acknowledges that introducing the new coins will require the vending industry to spend an estimated $40 million Canadian to recalibrate automated coin-acceptance equipment to read the new coins and still accept the old versions, but that “as part of the industry’s capital planning, such updates already occur on a somewhat regular basis.”

The cost estimate is based on $300 for recalibrating each older machine and $100 for each newer machine. Any new machines purchased after the new coins are introduced would already be equipped to accept the new coins.

The RCM has been working with vending industry representatives since 2009 to keep them aware of the changes. RCM efforts include presenting sample tokens to the Canadian Automated Merchandising Association’s members on multiple occasions, including sending out samples of the new coins in April 2011.

In addition to deterring counterfeiting, the unique EMS also enables equipment to sort the old coins from the new, allowing the RCM to expand its metal harvesting program, according to the RCM. Millions of pounds of older, nickel-based Canadian coins have been withdrawn from circulation in the Alloy Recovery Program, which began in 2003 and generates millions of baseline revenue for the Mint.

More than 1 billion dollar coins and more than 700 million $2 coins are in circulation, according to the RCM, offering a huge supply of metal to be melted.

The new coins will not pose a problem to those with limited or no vision, according to the documents.

The new $1 and $2 coins will be produced along with other circulation coins at the RCM’s Winnipeg Mint, and their lighter weight means savings in transportation costs.

 

http://www.coinworld.com/articles/canada-changes-alloys-of-1-2-coins-in-...

StychoKiller's picture

There's a sound financial reason WHY counterfeiters do NOT counterfeit pennies (or any other coin these days!)

Iwanttoknow's picture

Kindape,You are an insult to other physicians including myself.

kindape's picture

why exactly?

 

. What a bizarre hateful place this is...great seeds for cultural change...

Not.

CrockettAlmanac.com's picture

And there's nothing bizarre about a guy who hangs around a forum he claims to despise.

Not.

StychoKiller's picture

Ever read the story of Joseph in the Bible?  He rose from Hebrew slave to trusted advisor to the Pharoah.  Look at HOW he did it.