Thursday, March 29, 2012

#Budget2012 Analysis - Part 2 - The Penny

Dropping the penny may be the most important yet most under-reported aspects of the budget. It represents a major admittance by the government wrapped in a pretty boe.

Here's one from
Search the couch cushions, roll all those lucky pennies and take them to the bank, because the government has announced it will phase out the copper coins beginning this fall.
Isn't that cute? It gets cuter:
Due to inflation, ``the penny's burden to the economy has grown relative to its value as a means of payment,'' according to budget documents.
``The penny is a currency without any currency,'' said Finance Minister Jim Flaherty. ``Free your pennies from their prisons at home and donate them to charity.''
Now, let's just assume for the sake of argument this author must be referring to the Penny's color and not it's material makeup. The modern penny is steel, not copper. Of course most know that, but that's part of the illusion of fiat currency. Pennies do not hold value, they represent value. They represent 1cent of Canadian value just as 1cent in your bank account is 1cent of Canadian value. Flaherty has just explicitly told you all our currency is devaluing due to inflation. ALL of the currency, material or not.

By digging up mental images of your dresser at home, Flaherty has averted your eyes from the devaluing currency sitting in your bank account which doesn't acummulate enough value in interest to counter the loss in value of 1 Canadian cent.
The mental image Flaherty had hoped to dig up
Consider the fact that if our currency is so strong right now, how can it be worth less? It's strong as compared to the USD. The USD is simply devaluing faster than ours is. The penny is a burden because the commodity prices are now much more expensive relative to our currency's value. This isn't the first time either, the change to steel was because copper was too expensive. Copper is a precious metal, steel isn't. Coincidently the government is recalling ALL pennies. That includes the copper ones.

This is what the very early stages of hyper-inflation look like. The minimum possible representation of value is now worth so little its worth nothing at all. Your buying power is being eroded by an excess supply of money. This is cummulative with all of the stimulus blasted our way, worldwide. Currencies everywhere are devaluing, it's not just ours. This is a tax.

Further consider how tax brackets work. The more numbers you have in your account, the more taxes you pay. I am talking personal income here. However more numbers is not equal to more value. As the numbers and prices increase, so does your tax rate even though you can only purchase an equal amount of value.

Everyone is making penny jokes, but the jokes on you.

Stay tuned for Part 3.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for CenturyLink

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

1 comment:

  1. And with a sleight of hand that Penn & Teller would admire, the truth is again kept from Canadians; typical.