Two cents' worth of warning

Inflation IS out there, despite what Uncle Sam's statisticians would have you think. One cannot run such massive deficit spending and easy credit for as long as we have without it.

By one estimate, the mint lost over $100 million making pennies in 2007, with costs ranging from 1.2 to 1.7 cents for each penny made. So the government is likely to change these coins to an even cheaper metal, this time steel, which is as cheap as it gets. The next step would be to abandon the coin altogether (as many countries have done with their smallest denominations) and have people round prices off to the nearest nickel or dime.

It turns out that the penny is an economic bellwether — an indicator of the long-term course of the US dollar and of the soundness of US monetary policy. The penny does have a story to tell. Like a canary in the coal mine of America's monetary system, the penny can warn of lurking inflationary troubles. The lowly penny indeed has economic relevance far beyond its size and value.

From 1864 until 1982, US pennies were made of copper. Rising copper prices through the 1970s made it cost the US mint more than a penny to make a penny, and so a cheaper substitute metal was sought. Late in 1982, the mint began making pennies out of zinc — with a thin copper veneer to make them outwardly identical to previous issues.

At one time, coins had intrinsic worth, based on their metal content, and paper money was backed by something of substance. In fact, the Constitution --that of't ignored document-- required it. When the day comes you have naught but painted steel rounds jingling in your pocket, they will only have 'value' because Uncle Sam's would-be alchemists say they do.

And we know how good his word is. Right?