Nickels Are Worth More Than Quarters

After bribing my daughter to take her medicine, it occurred to me that I had no idea what the melt value of a common Jefferson Nickel was. I'm glad I checked.

My daughter came down with strep late Friday night. The medicine she’s taking to fight it “is icky!” Despite the undesirable flavor, judging by her current sass level, she’s clearly already feeling better after just a few doses. I promise there’s a point to sharing this story.

You’d think her increased activity level would be an indication for her that the medicine might be helping. Not so for this defiant 4 year old. Being the responsible parent that I am, I’ve taken to bribing her with “shiny quarters” each time she doses up. This is what I keep telling her:

Now put this in a safe place. This is real money.

I hate lying to my daughter. Whatever it takes though, right? Santa Claus is real and 5.2 grams of copper is worth 25 cents. I actually consider this an interesting potential opportunity to teach her more about money.

After her second bribery-backed dose I decided I needed to take a shower. I had just finished a run moments before. I swear, it had nothing to do with paying my daughter to consume a pharmaceutical substance. Anyway, in the shower I remembered reading about the carnage in the nickel market recently. I thought, “I wonder how much nickel is actually in a nickel coin?” I’m psycho. I don’t know what to tell you. These are the things I think about.

Turns out, there actually was still a little bit of nickel in the coin up until recently. According to coinflation.com, the mint composition specs break out like this:

• 5.00 grams of metal weight

• 75% copper (3.75 grams)

• 25% nickel (1.25 grams)

The melt value of 1.25 grams of nickel is a little over 4 cents. The melt value of 3.75 grams of copper is a little under 4 cents. The actual metal value of a nickel minted from 1946-2014 is 7.87 cents. Which is obviously more than face value. The crazy part is the 7.87 cent metal melt value of the “nickel” coin is now actually higher than the 6.9 cent metal melt value of a post-silver mint quarter. This is all for the coins minted through 2014 though.

Why 2014? Because the metal composition was changed to battle coinage mint costs for coins minted from 2015 through now. US coinage has been debased, again. This happened before with silver coinage and I’ve talked about currency debasement here previously. 1964 is the last year most US coins were minted with silver. Precious metal was becoming too expensive so coins were instead minted with base metal.

The moral of the story is price inflation in commodities is getting so bad that even base metals are becoming too expensive to mint coins. All of this “money” is counterfeit. And most coins have more intrinsic value than banknotes at this point. Remember during the Rona when there were a bunch of headlines about coin shortages?

Well they’re back. This one is from just three days ago:

This article from January is really interesting and worth your time if you can get past it being from New York Magazine. Key quote if you don’t want to click:

The coin shortage of the 1960s, the subcommittee agreed, had pretty much one cause: People were hoarding silver coins because the value of silver was growing and the specie was worth more as an investment than as actual currency.

Hoarding because the value was growing and coins were worth more as an investment than as actual currency. I can’t help but wonder if that might be playing out again. Which can only be described as astounding considering how aggressively coins have been debased in the last 55 years. But back to the bribery of my daughter for a brief moment and how it relates to a coin shortage; after this arrangement began my wife asked me a critical question:

Do you even have enough quarters to keep doing this?

My response:

Actually no. I’m naked short quarters.

Since we had just finished watching Gaming Wall Street on HBO Max, the joke thankfully landed.

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Speaking of that HBO docuseries, I learned something incredibly interesting and it turns out I need to make a correction to something I said in Investing in Culture:

The one edge equities have in this area is nobody is buying fake stock certificates. If you buy shares of AirBNB from Robinhood, you know they’re real.

Turns out that isn’t true. It would be more accurate to say “if you buy shares of AirBNB from Robinhood, they’re probably real. Naked shorting is prevalent enough in markets that it’s actually possible you could be buying shares of equities from a brokerage that doesn’t actually have access to the shares you purchased because those shares have already been lent out to short sellers so many times that the original shares can’t even be located. This creates a scenario where multiple people have a claim on the same shares. What happens when too many people have a claim on the same asset? Exactly what happened in the Nickel market last month.

What’s that core thesis I keep trying to hammer home? Oh, right… minimize third party risk as much as you possibly can. Final point: if you haven’t figured it out yet, you should be shorting quarters and buying nickels.