Art of Default

Published in Grant's Interest Rate Observer.

"The demise of the penny," reader Alex J. Pollock reflects,

is a pointed reminder of the Federal Reserve's unrelenting depreciation of the U.S. currency. Taking 1950 as a convenient starting date, that being 75 years or about one lifetime ago, the purchasing power of a penny has dropped by 93% as the Consumer Price Index has gone in round numbers from 24 to 321, so a penny in 2025 is worth about ¹⁄₁₃ of a 1950 penny.

Naturally, nobody in 1950 thought they needed a coin worth ¹⁄₁₃ᵗʰ of a cent and we don't need a coin of such little value, either. A nickel in 2025 is worth about ³⁄₈ of a 1950 penny, and a current dime is worth 25% less than the former penny. With the Fed's earnest promise of perpetual inflation, we soon won't need nickels and dimes. Meantime, the current quarter is worth 1.8 pennies of 1950: The Fed has transformed two bits into less than two cents. Continuous inflation has remarkable shrinking power.