Yesterday, the US Treasury and Federal Reserve announced some new regulations to fix all of America’s financial problems. Buried deep inside was a small reference to activating an obscure “Metals Act” regulation from January 1945.
It seems that the US came very close to going bankrupt while fighting World War II. Some metals became so scarce that even the common nickel was minted from silver since nickel was needed for the war effort. Near the end of the war, the silver was running out and all the gold was being used to back loans needed to keep fighting. The Metals Act of 1945 was designed to allow the US Government to change the US Dollar from the Gold Standard to the Zinc Standard very quickly if the emergency of that time or any future emergency warranted it. The development of the atomic bomb brought the war to a decisive end before the crisis was quite bad enough to warrant activating the provisions of the Metals Act, so the option was never used. It has remained on the books in case of a future financial crises.
The recession that started in the late 1970’s brought America’s government closer than ever to using this provision. Even as the economy began to recover, in 1982, the US 1 Cent coin was switched from 95% copper to a 97.5% zinc core with a copper coating. The recovery that followed was strong enough that plans to switch to the Zinc Standard were shelved again.
The time has come. America’s current fiscal crisis has pushed us to a crossroads. The American and world economy is just beginning to recover, and even a small issue could quickly escalate into a another worldwide great depression. At this point, Federal Reserve chairman Ben Bernanke has finally admitted that money as we know it is just an intangible social construct. It’s pieces of paper or bits of electronic data backed up only by the people’s faith in the government and that faith is rapidly failing. Something had to be done to prevent a potential collapse of the US Dollar, and the 1945 Metals Act was the only law on the books that could be used without endless and counterproductive debate in Congress. President Obama has now signed off on activating it.
The final activation of the 1945 Metals Act is now scheduled for January 1st of 2011. At that time, the US Dollar will be backed by zinc, and all US coins intended for general circulation will be made from zinc or zinc alloys so that the value of the zinc in the coin will be related to the coin’s face value (very much like the silver and gold value in coins when the US was on the Gold Standard).