Sunday, July 02, 2006

Inflation Strikes Back

Interesting story of how a penny (1 cent) now cost 1.2 cent for the Federal Reserve to manufacture. The reason why the penny now cost more than a penny to manufacture is that the price of zink (which the penny is made of) and other metals have soared, something which ultimately is caused by the Fed's own inflating. In this case, we thus see how inflation have struck back at the Fed, whose reckless inflating may have been profitable at first, but who now have made the act of making some forms of money too expensive to be profitable.

This reminds me of the old Beavis&Butt-Head episode "Green Thumbs", where the boys sit outside the local store, Maximart, and only have one dollar bill while the sign says that their favorite food, Nachos, cost $2, whereupon Beavis remarks "We need like more money", to which Butt-Head replies "good thinking, Beavis!". After Beavis start producing some confused ideas about creating a machine which you can put a dollar into and get another dollar out and then put that dollar back into the machine and then get another dollar out, Butt-Head (who is stupid, but slightly less so than Beavis)upon hearing that and seeing a sign in one window that you can get copies for 10 cents, gets the idea of going to the copy shop and copy the dollar in the black and white copy machines. He starts making copies, thinking he is really smart, remarking "I can't believe no one has ever thought of this before". Of course, as all of my readers (who presumably are more educated than Butt-Head) know, quite a lot of people (including governments) have thought of the idea of counterfeiting before. And his copies, which were black and white on one side and blank on the other wasn't going to fool anyone.

Yet as futile as Butt-Head's attempted counterfeiting was, at least he made paper copies of paper money and at least the "nominal value" of his copies were 10 times as high as the cost of producing them. Beavis, who again is even more stupid than Butt-Head, took the nickel (5 cent coin) he had and put it in the copy machine. Even apart from the fact that a paper copy of a metal coin which were black and white on one side and blank on the other was even less likely to fool anyone than Butt-Head's one dollar bill copies, the "nominal value" of his copies were half of the cost of producing them.

It seems now that the Fed have been forced by its own inflating to engage in a Beavis-type stupid act of producing money at a higher cost than the value of the produced money. I guess this is what one might call poetic justice.


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