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On March 9, 1933 Franklin D. Roosevelt (FDR) called Congress in for an emergency session, which would result in the speedy passing of the Gold Confiscation Act. According to FDR's Executive Order (6102) the Act would "provide relief in the existing national emergency in banking, and for other purposes".
The law required all citizens to hand over to the government via the banks almost all gold coins (US and foreign), bullion (bars, nuggets, dust, etc) and gold certificates within a few weeks after the order was issued. A short eight months after the confiscation a new piece of Federal legislation, the Gold Reserve Act, was enacted. The Gold Reserve Act revalued gold versus the dollar. In theory, a 1934 $20 gold coin would then be equivalent to 35 paper dollars. This was a substantial difference in that the value of the paper dollar prior to the Gold Confiscation Act was much less.
From an historical perspective in what way(s) was the Gold Confiscation of 1933 beneficial or detrimental to U.S. citizens?
I am not a Marxist Political Economist. I am a Marxist labour historian. When I relate to economic history, I can only really talk about the way in which capitalism actually functions (with reference to the truth systems of academia) from a "firm level" or "proletarian" perspective. This question would require a Marxist political economist to answer it in terms of academic truth systems.
Therefore, as I'm incapable of giving an academic answer, I shall give a political answer based on the truth systems used by proletarian revolutionaries.
There were three crises in US political economy that are relevant here: 1890s (Long duration) 1919 1930s
The 1919 crisis was halted by smashing working class power, effectively a forced devaluation of the price of labour. The 1890s crisis was resolved by a long term devaluation of the price of labour through deflation. Gold standards benefitted large capitalists as it preserved the price capital through devaluation far more than it preserved the price of labour.
The reason why the 1930s political crisis could not be resolved through devaluation was that the Soviet Union existed, and the Europe wide revolutions of 1916-1921 were politically fresh and a real and immediate threat. The IWW was reviving in its new form as the CIO unions and the wildcatters in the 1930s. The CPUSA appeared to be a threat to capital. The option of forcing the proletariat to pay for the crisis was not viable, because of the very real demonstration that European proletariats would attempt to take capital during crises.
Further, the plan to grow consumer spending, grow capital growth and accumulation and tolerate inflation was an acceptable solution to the crisis of working class militancy.
Leaving the Gold Standard was merely a part of this further development of Fordism-Taylorism, and was essential for the development of the realisation of capital through a consumer good market (Department IIA). This has proved in the long run to be a far more successful method of accumulating capital than reliance upon realisation in Departments I or IIB (capital goods, luxury goods for capitalist consumption, respectively).
Was this "good" or "bad" for the average American?
In the 1890s the average american, the populist, the farmer labourer, the free silver advocate had been demanding an end to the deflationary nature of the gold standard. So they got what they wanted.
In 1919 the workers of Seattle and elsewhere in the US were demanding an end to the wage labour system and capitalism. Moving off the Gold Standard ensured that working class unrest could be bought off with inflation developed growth and consumption. So it was bad.
In 1933 the average American much more highly valued work, food, secure housing and freedom from want. By 1950 this had been delivered to male white industrial workers, and the myth that work, food, secure housing and freedom from want existed in the United States became a persistent myth until the 1960s ghetto riots. If compulsory gold standard deflation had existed in the 1930s, then it is unlikely that US capital would have bought off the US working class with a pittance out of the growth economy that persisted until the 1970s.
FDR was not the first president to come to power during a financial "panic" (aka: Recession or Depression). However, he was the first one after the advent of modern economics, and he was listening to the new economists.
Economically, banning private holding of gold had the effect of propping up the US currency. Normally in hard times (and I think 1933 certianly qualifies) people try to trade in things of value they may have in favor of "safer" things, and Gold was traditionally viewed as the safest. Without the law, in the preceeding years people were trading their dollars in for Gold, which was taking a lot of cash out of circulation. That's certianly not something you want to happen when the economy needs help.
Part of the effect of this is that there was pretty hefty deflation (27%!) between 1929 and 1933. This is exactly what historically had happened during every "panic" before. Why? Because as people "paniced", they started buying gold, and there were less and less dollars floating around. Basic supply and demand tells you this will increase the value of the few dollars remaning, which effectively decreases the value of everything else not tied to the dollar by law (which Gold was at the time). Deflation.
The next thing he did, which you didn't mention, was take the USA off the gold standard. That didn't make people quit wanting gold, but it immediately put dollars back into the market with everything else (and instead made the prices of gold rise through the roof, of course).
The effect of this was that deflation was instantly no longer a problem
Note that we didn't have modern monetary theory at the time, so they didn't really have the option of increasing the money supply by lowering prime rates, like was done in the USA in the last (current?) recession. So prohibiting flight to gold by law was perhaps the best money-supply tool available (short of just mass-printing greenbacks).
So the basic answer is that during a financial panic, a flight to Gold takes money out of circulation, making things worse. Tying your currency to gold will additionally create deflation.
(Note: Charts and some content taken from this article: Puncturing Deflation Myths, Part 1 Inflation During The Great Depression.
It is a politically charged issue and it really depends on the economic and political side of the fence you're on (T.E.D gave the Keynesian view). As someone who's libertarian on most financial/economic policies, I see it as detrimental and that we're still feeling the negative effects of it today. As Alan Greenspan put it in Gold and Economic Freedom…
The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Basically, the other side of the argument is that FDR did not need to use this tactic to combat currency speculation or deflation. There were enough gold reserves to have maintained the value of the dollar sufficiently but not enough to do this and finance social welfare schemes like the NRA and so forth.
Therefore, I would tie the policy of abandoning the gold standard or a hybrid commodity system to the debt crisis that we're currently facing in the US and Europe. This video by Milton Friedman on the gold standard discusses it further. If you really want to get into all the details, visit FreeToChoose.tv.
I'd also say that gold confiscation restricted personal economic freedom which is another thing that I see as detrimental although those of other political views do not.
As I noted, it is something that's politically charged and if you're discussing it in most academic environments you'll want to stick with the Keynesian view in class discussions and papers to protect your grades (I'm probably risking down votes here for mentioning these views here). However, it's important that you know that there's more than one school of thought on this issue.
When Owning Gold Was Illegal in America: And Why It Could Be Again
In 1933, Franklin D. Roosevelt was elected president of the United States by promising to end the Great Depression, which had driven the national unemployment rate up to 25% and gutted the economy.
During his presidential campaign, FDR promised to lower government spending and taxes, and balance the budget. Once in office, he did the exact opposite. FDR's government spent more in an effort to create jobs and increase consumer demand. He raised taxes to fund the hike in spending, as well key government services. All of this was meant to stimulate the economy while assisting struggling American households, in order to bring the nation out of the depths of the economic depression that had begun with the 1929 stock market crash.
FDR quickly realized, however, that he could not print enough money to pay for his spending program, even by increasing taxes. The Federal Reserve Act of 1914 limited the amount of money that could be printed by the government. All Federal Reserve notes (paper money) had to be backed by 40 percent gold owned by the Federal government. In other words, for every dollar printed, the government needed 40 cents of gold in the bank.
FDR Outlaws Gold
One of FDR's first acts as president, therefore, was to declare the fact that Americans were withdrawing their gold and currency from the beleaguered banking system "a national emergency." He ordered all banks to close from March 6-9 "in order to prevent the export, hoarding, or earmarking of gold or silver coin or bullion or currency."
Because he believed this action was not sufficient to prevent runs on banks and the resulting drain of gold from the system, on April 5, 1933, one month after taking office, Roosevelt used the powers granted to the president by the Trading with the Enemy Act of 1917 to make gold ownership illegal. He issued Executive Order 6102, which made gold ownership--both in coins and in bars--illegal for all Americans and punishable by up to ten years in prison. Anyone caught with gold would also have to pay a fine of twice the amount of gold that was not turned over to the Federal Reserve in exchange for paper money.
Americans Required to Hand Gold Into the Government
All Americans were required to turn in their gold on or before May 1, 1933 to the Federal Reserve in return for $20.67 of paper money per troy ounce. Americans who did not turn in their gold were subject to arrest on criminal charges and faced up to 10 years in federal prison. An exception was made for dentists, who could own up to 100 ounces. Proclamation 6102 also prohibited the use of gold in contracts. This was upheld by the Supreme Court on March 1935, in what were called the Gold Clause Cases.
Millions of Americans waited in long lines to hand in their gold. Many photos from this era are often cited as examples of people getting their money out of the banks when in fact, they were simply turning in their gold in accordance with FDR's new laws.
With gold and paper money now separated, FDR was able to increase the federal deficit by issuing bonds (debt) in exchange for paper money. He used the paper money raised through government bond issues to pay for the many government programs he initiated as part of his New Deal program.
Sadly, FDR's New Deal did not end the Great Depression. Instead, in 1937, the stock market collapsed by 90 percent and unemployment soared. Then, in the 1970s, the U.S. government removed the last remaining restraint on federal government deficits.
Nixon Ends The Gold Standard
At that time, foreign countries could exchange dollars they received through international trade for gold held by the American government, at $32 per ounce. In 1971, gold started to pour out of the U.S. government's stockpile due to large deficits in both the federal budget and the trade balance. At 9 PM on August 15, 1971, President Richard Nixon gave a televised speech to the nation, announcing that he was taking the dollar off the "Gold Standard." This move enabled the dollar to float freely against other currencies, and removed the final obstacle to ballooning federal deficits and trade imbalances.
The prohibition against owning gold wasn't uplifted until 1974 when President Gerald Ford-- unaware that it was a federal felony to own gold--saw sound-money advocate Jim Blanchard on TV raising a bar of gold and asking from his wheelchair: "Why can I not own this?"
Ford signed proclamation Pub.L. 93-373, which legalized gold ownership and also made it legal to include gold clauses in contracts, effective 1977. Ford failed, however, to reestablish gold as a back up to government fiat or the American dollar.
Deficits Climb and the Dollar Falls
As a result, deficits continued to mount. Today, the U.S. federal deficit is at $19 trillion with another $70 trillion in off-balance-sheet debt, which can be triggered if certain individuals or institutions renege on debts that the Federal government has guaranteed. The purchasing power of the U.S. dollar has precipitously declined, as well.
Do Today's Presidential Candidates Think the Same Way?
To hear several U.S. presidential candidates remark that "we can always print more money" is disturbing. It was that line of thinking--first with FDR and later with Nixon--that instigated today's mounting deficits and the dollar's declining purchasing power. Printing more money is fraught with the very real risk of creating high rates of inflation that will destroy the purchasing power of the dollar further, and potentially damage every American's savings and the livelihoods of people living on fixed incomes such as Social Security.
Could the Federal government ever move to seize gold from American citizens again? When the government nationalized gold coin and bullion nearly 80 years ago, it gave Americans less than a month to turn in their gold. It's hard to imagine this happening again, but it's important to be aware of the very real history of gold confiscation in the U.S. and to be conscious of the economic pressures that could make a president decide to take such action again.
Special thanks to Naomi Shah for research contributed to this article.
Government Confiscation of Gold: It Happened Before — Could It Happen Again?
Our nation was founded with the sacred words, “We hold these truths to be self-evident, that all men are created equal that they are endowed by their Creator with certain unalienable rights that among these are life, liberty and the pursuit of happiness.” But in 1933, all that was shattered if by “pursuing happiness,” you chose to pursue gold.
The Foundations of the Great Confiscation
Confiscation all dates back to the Trading with the Enemy Act of 1917. That year, President Woodrow Wilson signed the “TWEA” into law, forbidding American individuals and businesses from engaging in trade with “enemy nations.” The world’s functional gold standard, which had overseen tremendous global economic growth in the early years of the twentieth century, was effectively halted by the outbreak of World War I, and the stage was thus set for the Great Depression and World War II.
Shortly after taking office sixteen years later, Franklin Delano Roosevelt signed Executive Order 6102 into law, prohibiting the “hoarding” of gold. Under this executive order, Americans were prohibited from owning more than $100 worth of gold coins, and all “hoarders” (i.e. people who owned more than $100 worth of gold) were forced, by law, to sell their “excess” gold to the government at the prevailing price of $20.67 per ounce.
Then, once the government had all the gold, FDR revalued the dollar relative to gold so that gold was now worth $35 an ounce. By simple decree, the government had thereby robbed millions of American citizens at a rate of $14.33 per ounce of confiscated gold, which is why most historians agree that the Gold Confiscation of 1933 is the single most draconian economic act in the history of the United States.
The Utilitarian Rationale Behind Confiscation
The reasoning behind the Great Gold Confiscation was, of course, the Great Depression, which had begun several years prior. After an inflationary run-up in prices and asset values, the stock market crashed in 1929, and the economy soon went with the crash.
Rather than responding to the situation with laissez-fair wisdom, President Herbert Hoover, often accused of being a proponent of laissez fair by those to whom the term is considered an epithet — instead raised taxes and erected new trade barriers, intensifying the misery. When FDR was elected, the people were willing to go along with nearly anything to try to alleviate the deflation that had gripped the country and strangled economic activity.
The boom of the 1920s was largely an illusory creature of the still-new Federal Reserve’s gross ineptitude, and by the thirties when reality had caught up to the loose-money standards of the prior decade, the money supply quickly contracted, causing deflation.
Like inflation, deflation also begets more of itself, and as prices dropped, it became wiser for the possessors of money to hold it rather than spend it, since prices would be lower the next day — and even lower the day after that — ad infinitum.
Since no one was spending money, businesses went under and people were out of the work, thus making the situation worse. In response, FDR knew what needed to be done — prices needed to be stabilized. On this, few would disagree. The exception economists take is with the implementation the president chose to pursue.
First, as discussed, private ownership of gold was effectively barred. The only exceptions were coinage worth $100 or less, or collectible coins, industrial uses, and jewelry. Gold could not be “hoarded” as a significant investment, and all “hoarders” were made to sell their gold to the government.
The Federal Reserve itself — a private banking cartel more so than an arm of government — was not excluded from this requirement either, as made clear by the Gold Reserve Act of 1934. That legislation required the Fed to surrender all gold and gold certificates held, to the United States Treasury.
Finally, the dollar was revalued, and U.S. Dollars was then redeemable at a rate of $35 an ounce, as opposed to the old gold standard of $20.67. However, it’s important to note that only foreign bankers and international governments could redeem their dollars for gold — private gold ownership was still illegal in the U.S. until the end of 1974.
The effect revaluation had on the U.S. dollar was an instant depreciation of 41%. Thus, prices were pushed back up again, in nominal terms, at least. What the long-term effects of this action would have been in the absence of World War II will never be known, but within a few years, the U.S. war economy was humming.
Following the end of the second great war, the U.S. stood alone as an economic super power, virtually untouched by the Axis or Allies, while most of Europe lay in ruins. It all made Roosevelt’s coercive and unconstitutional acts look ingenious, but scholars from the left and right continue to debate whether they were truly wise or if the New Deal was bailed out by global externalities.
So, under legally dubious means, FDR and Congress passed a law outlawing the private ownership of gold in excess of $100. Millions of Americans were made to trade in their gold coins for paper dollars — effectively at gunpoint. Then, once all the coins were in the government’s coffers, FDR revalued the dollar from $20.67 per ounce of gold to $35 an ounce — a theft of almost forty-once cents on the dollar.
Gold ownership remained illegal in the United States until 1954. That year, the Treasury Department legalized the ownership of rare coins. What was a rare coin? Well, since the government had seized all pre-1934 coins, then by definition, all such coins were deemed “rare.” After all, these coins were so uncommon that those few in circulation were worth much more than their face value or the value of the gold of which they were made — the coins had numismatic value. They effectively were no longer “money,” and thus they didn’t pose a competitive threat to the government’s fiat currency.
Gold, Government, and the Law
In 1969, the federal government further clarified the 1954 ruling and officially exempted “rare coins” from any future government confiscations — but still reserved the “right” for the government to seize its citizens’ gold in the future. “The basic principles governing the administration of the Gold Acts and Orders,” said the Treasury Department in 1969, “are that gold, as a store of value, can be held only by the government and that private citizens and entities in the United States can acquire gold only for legitimate and customary industrial, professional, and artistic purposes.”
Two years later, in 1971, President Nixon “closed the gold window” and took the U.S. dollar off the gold standard — making it a true fiat currency with no asset backing or intrinsic value. Four years after that, President Ford legalized the private ownership of all gold — not just rare coins — and gold has continued to be fully legal for the past thirty-two years. Or has it?
Although laws prohibiting gold ownership have been repealed, the laws allowing the government to confiscate gold have not. Rare coins, however, are the exception. For the government to confiscate citizens’ bullion, all the government has to do is act on long-dormant laws. But for the government to confiscate rare coins, it would have to overturn fifty-plus years of precedent and shatter the legal system’s overarching ideal of jurisprudence. This may not be entirely impossible, but it certainly offers the holders of pre-1934 gold coins more protection than the owners of bullion.
Reinstating the Gold Standard?
But why would the government confiscate gold? Some argue it did so in the past in order to revalue the dollar relative to gold, and since the dollar is no longer on the gold standard, the government would have no reason to confiscate gold. This is a good point, but it also begs the counter-argument: Now that the U.S. dollar is not backed by gold, it’s only a matter of time before the house of fiat-money cards crumbles. When this happens — when the government’s printing presses are incapable of printing money with any real value, then the government will certainly look to do something, and conveniently, laws on the books allow it to confiscate privately owned gold. It’s likely that the government could do this ostensibly to reinstate the gold standard!
In such desperate times, would rare coins be safe? It is impossible to know for sure, but it is certainly true the coins would be safer than bullion or non-rare coins. After all, look no further than to the first Great Confiscation in which many “patriotic” Americans willingly turned over their gold for paper money. Certainly, some Americans would do this again, especially if it were in the name of reinstating the gold standard. The government would probably promise gold redemptions would be
reinstated “in a matter of time.”
And while certainly not all goldbugs would willingly turn over their gold, there would be far less resistance to government confiscation of commodity-valued gold than there would be to the seizure of rare, numismatic coins. The government would not want to be in the business of coin dealing, at least not at first, and it would undoubtedly go after the low-hanging fruit — especially when laws on the books allow it to be legally picked.
Gold Confiscation: Could it Happen Again?
Although the U.S. dollar is constantly under pressure, the U.S. government continues to stockpile debt, and impossible-to-fulfill entitlement commitments loom on the horizon, the idea that the U.S. government would try to confiscate citizens’ gold today or anytime in the foreseeable future certainly seems spurious at best. After all, the government did so in the past in order to recalibrate the gold standard, which we have not been on since 1972.
However, our government has become increasingly bold in its refusal to be restrained by the Constitution, and following the return to limited government (at least in rhetoric) by the Reagan administration in the eighties, the Constitution has been all but ignored by subsequent administrations and congresses.
The government might want to reenact gold confiscation, and most congressmen would feel no moral compunction about doing so, but logistically, it would seem virtually impossible in today’s globally interdependent and well-connected economy.
Investors might need to beware, however, if certain interest groups on the left and right get their way and begin building walls, both literally and figuratively, around the country in an effort to block that global interdependence. Protectionism and higher taxes led to the greatest depression in U.S. history, and along with it came gold confiscation. It would probably take a similar impetus for such a sequence of events to happen again.
Win With or Without ‘Financial Armageddon’
Silver investors should be aware of the potential of another Great Confiscation. But, a diverse portfolio of stocks, bonds, cash, and precious metals has worked the best over the past thirty years, and will probably work the best for the next thirty. And, as part of a hedging strategy, holding some rare gold coins — in addition to bullion — is undoubtedly a wise decision. Just in case.
Horns of a trilemma
Why do governments risk the bad publicity of restricting gold? This is linked to a cornerstone of macroeconomics known as the monetary policy trilemma. This states that countries must choose between two of the following and can’t generally do all three at the same time: (1) setting fixed exchange rates (2) allowing capital to move freely over international borders and (3) being able to independently set interest rates and print money (in other words, control monetary policy).
In the 1930s system, countries generally chose fixed exchange rates linked to gold, plus free capital movement and sacrificed control of monetary policy. The system came under more and more pressure because too many investors were trading in their money for gold. One way for the US to take enough control of monetary policy to print more money was to impose various capital controls, including seizing gold.
Today, the situation is different because western economies have free-floating exchange rates so they have control over monetary policy and can allow capital to move freely. This means that during a crisis, they can print money and cut interest rates without having to impose controls on the likes of gold.
In fact, any direct meddling by governments in the gold markets today would likely be counterproductive. It would increase investor anxiety and encourage them to rush to other assets with similar properties such as silver or other precious metals. Those who hold gold are therefore probably safer than they might have been in the past.
There are alternatives open to governments besides outright gold nationalisation. For example, when the UK left the international gold standard in 1931, the devaluation of the pound put pressure on other currencies such as the Dutch guilder. In response, the Netherlands imposed a variety of restrictions on gold that stopped short of confiscation.
Again, this kind of move is unnecessary in today’s era when countries control their own monetary policy. Gold will probably remain a safe haven on the sidelines – unless countries felt they had to sell their reserves aggressively for some reason, say to reduce debts. Even in the current crisis, that’s not on the horizon. But the one lesson from history that all investors need to bear in mind is that in times of crisis, anything goes.
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The Gold Confiscation Issue: History and Future Predictions
No subject related to gold is more debated than the possibility that gold may again be confiscated by the US Government during times of economic crisis. The very mention of this topic to the die hard "gold-bugs" causes them to panic, lose sleep, overload their blood pressure monitor and question the wisdom of their gold investments. Prophets and pundits of every ilk have written endless elaborate essays at both extremes suggesting "they will never do it" or "it's a slam-dunk guarantee that they will". As you can imagine, this issue may be the single largest deterrent to purchasing physical gold coins as protection against economic catastrophe in the wake of a US dollar collapse. We will examine the arguments in detail in this section. We will present both sides of the issue in all their bombastic glory without bias and help you decide for yourself. But, unlike a good mystery novel, we will tell you the ending now:
Absolutely no one knows what the US Government will do during times of complete economic and civil chaos. If the worst-case financial scenario unfolds (a complete collapse and repudiation of the US Dollar by our foreign creditors), every previous court ruling, law or custom can be changed by a single stroke of an ink-pen at the bottom of a Presidential Executive Order (PEO). We pray that this does not occur. Since any intelligent and sober-minded financial advisor will admit this, they have to frame their advice along the lines of probability and relative risk. With a cloudy crystal ball, we proceed…
First, A Little History
Notice we said in the first line of this section above "…may again be confiscated…" What? Again? When did they do it? Why? Not many of us were alive in the early 1930's. Unless we are familiar with the history of the issue, we would know little about it. Dozens of books have been written about the causes of the stock crash and ensuing worldwide depression. While it is well beyond the scope of our study but very much related, we will try to provide enough background information to frame our discussion.
During the absolute bottom of the gut-wrenching depression which followed the collapse of the US stock market on 24 October, 1929 ("Black Thursday"), President Franklin D. Roosevelt was elected. He called Congress into an emergency session on March 5, 1933, less than 1 day after his inauguration. The House and Senate quickly passed the rather noble sounding law titled:
"An Act To Provide Relief In The Existing National Emergency In Banking, And For Other Purposes"
How lovely at first glance. If you didn't know what it really meant (as most of the US public certainly did not), it sounded like magnificent medicine for the current sickness of the depression. Everyone agreed that there was a national emergency. So some new rule or law to provide "emergency relief for the banks", has to be a good thing, right? Citizens always look to their government for help in times of distress. Even when their own government was much more a part of the problem than the solution in the first place.
This paved the way for sweeping, unparalleled confiscation of private property from law abiding citizens in the history of the United States. President Roosevelt wasted no time in flexing his new muscles. He signed Executive Order 6102 on April 5th, 1933 and Executive Order 6260 on August 28th, 1933. Order 6260 revoked and superceded 6102. These laws in short order made it illegal (a federal crime with outrageous penalties of a $10,000 fine and/or 10 years imprisonment) for any law-abiding US citizen seeking to protect his wealth by simply possessing physical gold coins or bullion which were lawfully, abundantly and freely in circulation! Can you imagine that? Our Government made it illegal to do one of the only things that would have guaranteed economic survival for American citizens wise enough to save a portion of their wealth in gold during one of the darkest economic chapters in our history. Keeping gold would have immediately almost doubled their purchasing power at a time when they would have needed it most. Franklin Roosevelt blew out the only candle available to ordinary citizens struggling woefully in the dark days of the depression. Amazing. U.S. citizens, if they had been allowed to own gold, would have automatically almost doubled their money a few months later. How? Well, Just 8 months later, new Federal legislation known as the Gold Reserve Act of 1934 enacted on 30 January, 1934 revalued gold versus the dollar. The official price was raised from $20.67 USD per ounce to $35.00 USD per ounce. Actually, we all know that gold is the immutable standard. The dollar was devalued. A 20 dollar gold coin could have theoretically been exchanged for 35 paper dollars. This would have help the unemployed and financially ruined citizens of this nation far more than the confiscation of their only possible source of legitimate, honest wealth. I have little doubt that FDR truly "believed" that is his innumerable PEO's, edicts, sweeping changes in the banking industry, public works projects and such were just what America needed. It is also painfully clear that he did not understand free-markets, or the ultimate implications of his price control policies. Use "Google" to research and read his "9 Excerpts From His January 15th, 1934 Press Conference". Also research the excellent archives of the University Of California at Santa Barbara collectively known as "The American Presidency Project". Then you will quickly realize that he must have simply signed PEO's almost carte-blanche PEO's that were crafted carefully behind the scenes by the true "kingmakers" who, unlike FDR, knew exactly what they were doing.
We should clarify the terms of "confiscation". The US Government did not send armed soldiers house to house to search for and seize gold without compensation. Gold coins that were turned in were exchanged for legal tender Federal Reserve notes (paper money) on a dollar for dollar basis. A $10 gold coin was taken and the presenter given a $10 bill. Gold bullion was evaluated for its purity or fineness and compensated at a rate of $20.67 per ounce of fine gold. This was the official US government figure for what one ounce of gold was "worth" or "priced at" in dollars. Arbitrary? Yes. But it was the gold-dollar exchange rate of the long standing, so-called gold standard. Exchanging gold in other than common coin form was a little trickier because it required assay/testing and some delay between the time the citizen turned it in and payment was made. History is missing on most of the details. However do not forget, with legislation enacted shortly thereafter, all agents the U.S. Secret Service as well as U. S. Customs Officers were specifically authorized to seize gold for violations of the Gold Reserve Act of 1934. Only the U.S. gold that escaped these ever-growing-longer-arms of the law made it safely to oversea bank vaults.
At any rate, this was a terribly bad trade to the financially knowledgeable, but not really understood by most Americans. They had no clue what had just happened. The law required all citizens to turn in to the government via the banks almost all gold US and foreign coins, bullion (bars, nuggets, dust, etc) and gold certificates within a few weeks after the order was issued. Gold Certificates were a special class of US paper money ("legal tender notes") which could be exchanged for US gold coins upon demand by private citizens at most banks. Only notes clearly marked as gold certificates had to be surrendered. The paper "gold claim" is rather odd it merely represented a claim on physical gold. The US Government simply could have issued orders to the banking system to refuse to trade the paper for gold coin if presented after the infamous May 1, 1933 date. The paper could have continued to circulate at face value.
There were some exceptions to the rules. Special licenses were available from The Secretary of the Treasury via the Federal Reserve banks for certain professionals who used gold in the normal course of their business such as artisans, jewelers, dentists, etc. They were allowed to have only "reasonable" quantities on hand, i.e. they couldn't hoard large quantities of it either. Each US citizen could legally keep a total of $100.00 face value of US gold coins or US Gold Certificates. A family of four could have kept $400.00 face value of coins and so on. Banks could continue to deal in it with other banks for international settlement with additional controls and regulation, and store it for others. The wealthy financiers could still play with it in most every manner. Gold mining, refining and exporting companies could of course still deal with it. Just plain folk like you and me couldn't, at least not "legally".
There were also exceptions if the coin was considered to have some nominal numismatic or coin-collector type appeal. It was likely exempt if it was rare or unusual and typically was sold/traded for a measurable premium over the net gold value. This was vague and subject to interpretation. Many of the coins which have great coin collector appeal to us today and sell for much more than the value of the gold that is in them were considered too common at that time to qualify for exemption. Many were melted. May their atoms rest in peace.
What is the legal basis for the Presidential Power Manifested In An Executive Order?
A common clause inserted in the text of essentially every PEO is "By virtue of the authority vested in me…". FDR's edict is no exception. He specifically cited the "War Powers Act" of 6 October, 1917 and its revisions which were promulgated in March, 1933. As I recall, a large number of Texas Republicans who believed that even as late as 1994 this Emergency Act was still in effect were nigh unto seceding from the Union at one time. (That issue is a whole other can of worms!). The 1917 law was also Titled "National Emergency In Banking Relief And Trading With The Enemy Act". Fifteen long years after the original national emergency of the time (WWI) was clearly over, the law was still very much alive. Constitutional scholars have many times debated the nature of many such executive orders. When do/did they officially expire? If they were not officially rescinded, what exactly is their legal status and judicial import at any point in time? This was the gist of the Texas Republican Committee complaint in the mid 1990's. I will leave that discussion to the legal experts. Emergencies conveniently always last much longer in the eyes of authorities than they do in the heart and minds of the people under their protection. If you carefully read the text of FDR's gold confiscation PEO you would wonder when it would end. The White House released a public statement on April 5, 1933 that contained the following: "…The order is limited to the period of emergency. The chief purpose of the order is to restore to the country's reserves gold held for hoarding and the withholding of which under existing conditions does not promote the public interest".
It was only many years later that US citizens holding gold coins and bullion would be in the "public interest". These Presidential Executive Orders making it illegal for private citizens to own gold were in effect for 40 years until they were revoked by, you guessed it, another Presidential Executive Order (11825) on 31 December, 1974. What a lovely late Christmas gift from Gerald R. Ford! Americans were free to do whatever they pleased regarding gold coins and bullion again. May it ever be so.
Back to the source of the authority. We are not constitutional experts, but here is our understanding as good citizens who study our constitution earnestly. The President, under Article II of the Constitution is granted very broad powers, including primarily:
- Wield Executive Power.
- Serve as Commander In Chief of all the Armed Forces.
- Grant Officer Commissions in the Armed Forces.
- Convene Special Sessions of Congress for reasons he deems fit.
- Enforce/Ensure as the "Top Cop" that federal laws are obeyed.
- Receive Foreign Ambassadors.
- Grant pardons (except for impeachment) and Stays Of Execution to convicted felons.
- Appoint officials to many, but not all, lower positions, i.e., Cabinet members, etc.
The President must share power with The Senate and House of Representatives in some matters. The Senate must also participate in approval of treaties with foreign governments, appointment of Ambassadors, and selection of higher level court judges. Federal legislation enactment requires Congressional approval. Article II deals with powers of the Executive Branch. Clause 1 of Section 1 clearly states that the President has "Executive Power". Item "a" above was the source for matters like FDR's PEO's. Prior to WWI, executive orders were often used for relatively minor acts of state for often unremarkable matters. After the War Powers Act of 1917, this changed drastically. But the number of PEO's increased as well as the importance of the issues unilaterally enforced via use of the PEO. WWI frighteningly impacted essentially every facet of US trade with the world, international policies, existing treaties/agreements and as a consequence, directly and brutally impacted the US economy. The War Powers Act was very much exactly the right legislation need for the uncharted territory filled with the horrors of WWI. The huge concentration of power in the hands of the President, while legitimate if carefully wielded, was supposed to be temporary. Much like the sunset clauses in the current Patriot Acts I and II. Yet, long after the guns fell silent and the bombs no longer rained from the sky, the power of the Act rested quietly, ready to strike again on a moment's notice.
What is even more significant is that most Americans are not aware of the following fact: The 1917 War Powers Act contained explicit language that EXCLUDED American citizens from the sharp teeth and effects of the legislation. FDR convened a Special Session of Congress in 1933 to remove that clause. Consequently every law abiding US citizen was subject to its decree. This permitted the President to declare a "national emergency" for just about any reason. In less than 40 minutes, with no debate, this travesty was ratified by the House and the Senate. The gold confiscation edicts were born from the illicit union of Mother Fear and Father Hubris in the midst of the depression.
Well, what happened to the gold?
Many Americans dutifully turned in their meager holdings. But not everyone. Many simply ignored the order, assumed the risks and stashed them away knowing that gold was more valuable than the paper given in exchange. Keeping it literally meant the difference between living or dying for some. There are not significant historical legal records of US citizens being fined or imprisoned for failing to comply. This was the bottom of the depression and average citizens did not have large quantities of gold. Many were jobless, bankrupt and barely surviving selling pencils and apples on the street corners as so often depicted in the old black and white newsreels from that era. But wealthy businessmen, bankers and society elites did own considerable gold. They obviously did not turn in their gold. How do we know? Most of the US mint made gold coins that were in circulation at the time ($2.50, $5.00, $10.00 and $20.00 denominations, but mostly the 10 and 20 dollar coins) were simply shipped off in bags by the thousands to European banks (primarily in Switzerland and Great Britain) for anonymous safekeeping, far away from the reach of US authorities. They simply sat there in darkness and dust buried at the bottom of bank vaults. When gold ownership was again legalized for US citizens in 1975, tons of the coins appeared back on the US market. Many coins thought long since melted appeared, looking as fresh as the day that they were made. Many coins that were thought to be numismatically rare (meaning that only a few examples have survived and were priced very highly) turned out to exist in quantities of hundreds, even thousands. To this day there are still occasionally large hoards of US and foreign gold coins likely hidden during the 1930's that are available to collectors and investors coming onto the market. But rest assured, as a dealer I tell you in all honesty that most small US and foreign gold coins (about 1/10 ounce up to 1 ounce weight) usually disappear as soon as they come on the market. They slip quietly back into the hands of the wise who prefer to store their excess savings in something other than paper.
And Now, The Future Through The Cloudy Crystal Ball
(A) Reasons to Resurrect The Demons Of Confiscation:
The US Government has done it before. Legal precedent, no matter how dubious and dishonest, is very powerful. If (when) the US Government is forced to again back the US dollar in a credible fashion this may be the determining factor. This is an even greater possibility if in fact, as GATA proponents claim, that most of the American citizen's gold has been sold or leased to suppress the price for the past 20 years. I am certain that the price has been "officially" suppressed for quite some time. The anecdotal and "weird market behavior" evidence is overwhelmingly aligned with such an assumption. The reasons that the price must be suppressed along with the methods likely used to accomplish such are clearly obvious to all but the most economic and politically naïve. Why might the dollar be backed again by gold somehow? Will the dreams of the true hard-money patriots be realized? Well, if it's only a dream, I don't want to wake up! Many other extremely knowledgeable experts, including Jim Sinclair, et al., have dealt with the manner in which gold might be restored to her rightful place as the indisputable standard whereby all national currencies are judged. The only squabbles will be just how worthless any given currency is relative to gold and what ratio of paper to reserves will be internationally tolerated. Nations will still be free to debase their currency for any crisis du jour. But gold will raise her lusty voice, point out the return to folly, and quickly determine just how many of those paper impostors you have trade for an ounce of her. She's doing that now anyway. The likely mechanism used to once again add real flesh to the skeleton of the dollar will be the restoration of the Federal
Reserve Gold Certificate Ratio. Uncle Sam will need a great deal of gold to implement a workable solution even if the price of gold soars to levels well in excess of $1,000/ounce because there are trillions of incorrigible little dollars running amok on the planet. Do the math it will scare the bejeebus out of you. Hopefully, the US government will lawfully acquire the needed gold reserves from the open, unmanaged market to supplement whatever official hoard that she retains. This market includes financially savvy citizens who may be happy to part with their real gold at much higher prices in exchange for paper that might actually be worth something again, at least for a little while. Unfortunately, this can likely only occur after the visceral repudiation and dissolution of the IMF in her present incarnation, notwithstanding the frightening re-emergence of the Islamic Gold Dinar. Do not dismiss this as folly. The Gold Dinar and her little brother the Silver Dirham are coming with a vengeance that will crush those that underestimate its chances for success. The foundation for their success is both already laid and guaranteed it is the hollowed out core of the once mighty US dollar. Nature abhors a vacuum gold in some primordial fashion will once again fill that hollow space. (The Dinar is the subject of another long-winded, bloviating research paper which is also in the pipeline-stay tuned).
(B) Reasons To Leave The Demons In Their Graves:
It would be a mistake to repeat the folly of FDR. It's un-American. It's illegal. It's immoral. It's unjust. Citizens can legally hold gold in their IRA. Citizens can buy and hold all the gold they want provided they follow the laws when purchasing and the tax rules when taking profit. Gold ETF's are now available for US investors. It would be the ultimate in hypocrisy for the United States to be constantly bringing democracy and free-trade by force to every nation of the world while at the same time destroying the freedom of her own patriotic, law abiding and peace loving citizens who know full well that gold and silver are the only righteous and lawful money of the US Constitution. And so on, ad infinitum…
As we mentioned at the outset, so we say again: No one knows what will happen. Not even the Great MOGAMBO! No financial advisor can accurately judge your perception of this risk or to what extent your fear/confidence regarding the outcome of this fundamental issue should have on your portfolio structure. I am NOT your financial advisor. What is right for me may not be right for you. But I know what I believe will occur. I have positioned myself accordingly.
A simple procedure for you would be to decide FIRST just where YOU are on the continuum from "head for the hills" or "everything's gonna be just peachy". If you believe in the "end of the financial world as we know it", just purchase actual gold coins with paid for savings, using no margin or debt. Don't foolishly tap Home Equity credit lines or anything like that. Don't play your own mini-version of the interest rate carry trade thinking it will be easy to pay back those loans and interest with skyrocketing US dollar gold prices. Foolishness has killed many. Greed has killed everyone.
If you believe that physical gold will be once again be taken from citizens but still want to participate in gold's historic price rise, play the risky paper games of buying shares of the new ETF's with uncertain custodial controls on the gold that supposedly backs the shares. Or, chase stock promises of well-run, non-hedged gold explorers and producers. Avoid the miners heavily invested in places where the strength of the national currency relative to the dollar and "resource nationalization" issues are of concern. Talk to your trusted personal advisor, CPA, or accountant about the risks which exist for any type of investment. Maybe dial up your family attorney. Theory, meditation, jaw-boning, and even pounding away all night on the keyboard in gold-bug chat rooms won't solve your problem. Sleep on it. Two nights. Then act.
Search and seizure of gold
A myth has gained credence over the years that the IRS executed a nationwide search of safe deposit boxes as part of the government's “confiscation policy”. The myth is supported by reference to portions of E.O. 6102. I’ve reviewed 6102, and the language cited by the mythmakers is not in the original. Moreover, there are no contemporary accounts of such searches and seizures. It’s hard to imagine they would have escaped press attention.
However, there are a few cases in which gold was, in fact, confiscated (without compensation). As far as I've been able to determine, all of these confiscations came as a result of criminal prosecution of people who had violated federal law. There was no widespread prosecution of individuals who simply owned gold. The cases brought by the government were typically against gold traders, dealers, and companies that failed to surrender large quantities of gold.
For example, the first case I found was brought against an individual who tried to withdraw from his bank 5,000 ounces of gold, worth $6.5 million at today's price. In the depths of the Great Depression, this was an enormous sum, even at 1933 prices. Since the withdrawal request had to be processed by his bank, and the bank was required by law to report such transactions, he was greeted at the bank by federal agents. Clearly, he hadn't thought it all the way through.
Another example: The government confiscated double eagles worth $12.5 million ($812 million at today's price) that a Swiss company had placed in the hands of an American business for safekeeping. I assume they fired their attorney.
There are other examples, but the point is that individual gold owners were not subject to search nor uncompensated seizure of their gold nor the vigorous enforcement of federal law. If your gold was confiscated, your violation of federal law was probably pretty flagrant and poorly executed and you probably held a lot of it.
FDR takes United States off gold standard
On June 5, 1933, the United States went off the gold standard, a monetary system in which currency is backed by gold, when Congress enacted a joint resolution nullifying the right of creditors to demand payment in gold. The United States had been on a gold standard since 1879, except for an embargo on gold exports during World War I, but bank failures during the Great Depression of the 1930s frightened the public into hoarding gold, making the policy untenable.
Soon after taking office in March 1933, President Roosevelt declared a nationwide bank moratorium in order to prevent a run on the banks by consumers lacking confidence in the economy. He also forbade banks to pay out gold or to export it. According to Keynesian economic theory, one of the best ways to fight off an economic downturn is to inflate the money supply. And increasing the amount of gold held by the Federal Reserve would in turn increase its power to inflate the money supply. Facing similar pressures, Britain had dropped the gold standard in 1931, and Roosevelt had taken note.
On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money. It required all persons to deliver all gold coin, gold bullion and gold certificates owned by them to the Federal Reserve by May 1 for the set price of $20.67 per ounce. By May 10, the government had taken in $300 million of gold coin and $470 million of gold certificates. Two months later, a joint resolution of Congress abrogated the gold clauses in many public and private obligations that required the debtor to repay the creditor in gold dollars of the same weight and fineness as those borrowed. In 1934, the government price of gold was increased to $35 per ounce, effectively increasing the gold on the Federal Reserve’s balance sheets by 69 percent. This increase in assets allowed the Federal Reserve to further inflate the money supply.
The Gold Confiscation Act Of April 5, 1933
From: President of the United States Franklin Delano Roosevelt To: The United States Congress Dated: 5 April, 1933 Presidential Executive Order 6102
Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By
virtue of the authority vested in me by Section 5(b) of the Act of October 6,
1917, as amended by Section 2 of the Act of March 9, 1933, entitled
An Act to provide relief in the existing national emergency in banking, and
for other purposes
in which amendatory Act Congress declared that a serious emergency
I, Franklin D. Roosevelt, President of the United States of America, do
declare that said national emergency still continues to exist and pursuant to
said section to do hereby prohibit the hoarding gold coin, gold bullion, and
gold certificates within the continental United States by individuals,
partnerships, associations and corporations and hereby prescribe the following
regulations for carrying out the purposes of the order:
Section 1. For the purpose of this regulation, the term ‘hoarding”
means the withdrawal and withholding of gold coin, gold bullion, and gold
certificates from the recognized and customary channels of trade. The term
“person” means any individual, partnership, association or corporation.
Section 2. All persons are hereby required to deliver on or before May
1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any
member bank of the Federal Reserve System all gold coin, gold bullion, and gold
certificates now owned by them or coming into their ownership on or before April
28, 1933, except the following:
(a) Such amount of gold as may be required for legitimate and customary use
in industry, profession or art within a reasonable time, including gold prior to
refining and stocks of gold in reasonable amounts for the usual trade
requirements of owners mining and refining such gold.
(b) Gold coin and gold certificates in an amount not exceeding in the
aggregate $100.00 belonging to any one person and gold coins having recognized
special value to collectors of rare and unusual coins.
(c) Gold coin and bullion earmarked or held in trust for a recognized foreign
government or foreign central bank or the Bank for International
(d) Gold coin and bullion licensed for the other proper transactions (not
involving hoarding) including gold coin and gold bullion imported for the
re-export or held pending action on applications for export license.
Section 3. Until otherwise ordered any person becoming the owner of
any gold coin, gold bullion, and gold certificates after April 28, 1933, shall
within three days after receipt thereof, deliver the same in the manner
prescribed in Section 2 unless such gold coin, gold bullion, and gold
certificates are held for any of the purposes specified in paragraphs (a),(b) or
(c) of Section 2 or unless such gold coin, gold bullion is held for purposes
specified in paragraph (d) of Section 2 and the person holding it is, with
respect to such gold coin or bullion, a licensee or applicant for license
pending action thereon.
Section 4. Upon receipt of gold coin, gold bullion, or gold
certificates delivered to it in accordance with Section 2 or 3, the Federal
reserve bank or member bank will pay thereof an equivalent amount of any other
form of coin or currency coined or issued under the laws of the Unites
Section 5. Member banks shall deliver alt gold coin, gold bullion, and
gold certificates owned or received by them (other than as exempted under the
provisions of Section 2) to the Federal reserve banks of there respective
districts and receive credit or payment thereof.
Section 6. The Secretary of the Treasury, out of the sum made
available to the President by Section 501 of the Act of March 9, 1933, will in
all proper cases pay the reasonable costs of transportation of gold coin, gold
bullion, and gold certificates delivered to a member bank or Federal reserve
bank in accordance with Sections 2, 3, or 5 hereof, including the cost of
insurance, protection, and such other incidental costs as may be necessary, upon
production of satisfactory evidence of such costs. Voucher forms for this
purpose may be procured from Federal reserve banks.
Section 7. In cases where the delivery of gold coin, gold bullion, or
gold certificates by the owners thereof within the time set forth above will
involve extraordinary hardship or difficulty, the Secretary of the Treasury may,
in his discretion, extend the time within which such delivery must be made.
Applications for such extensions must be made in writing under oath addressed
to the Secretary of the Treasury and filed with a Federal reserve bank. Each
applications must state the date to which the extension is desired, the amount
and location of the gold coin, gold bullion, and gold certificates in respect of
which such application is made and the facts showing extension to be necessary
to avoid extraordinary hardship or difficulty.
Section 8. The Secretary of the Treasury is hereby authorized and
empowered to issue such further regulations as he may deem necessary to carry
the purposes of this order and to issue licenses there under, through such
officers or agencies as he may designate, including licenses permitting the
Federal reserve banks and member banks of the Federal Reserve System, in return
for an equivalent amount of other coin, currency or credit, to deliver, earmark
or hold in trust gold coin or bullion to or for persons showing the need for
same for any of the purposes specified in paragraphs (a), (c), and (d) of
Section 2 of these regulations.
Section 9. Whoever willfully violates any provision of this Executive
Order or these regulation or of any rule, regulation or license issued there
under may be fined not more than $10,000, or,if a natural person may be
imprisoned for not more than ten years or both and any officer, director, or
agent of any corporation who knowingly participates in any such violation may be
punished by a like fine, imprisonment, or both.
This order and these regulations may be modified or revoked at any time.
Franklin D. Roosevelt
President of the United States of America
What the Next Gold Confiscation Will Look Like… and How to Protect Yourself
On April 5, 1933, under the pretext of a national emergency, President Franklin D. Roosevelt issued Executive Order 6102, making it illegal for U.S. citizens to own gold.
The decree forced Americans to sell their gold at an artificially low “official price.” If they refused, the government could hit them with stiff penalties: a $10,000 fine (equivalent to $205,000 today) and/or up to 10 years in prison.
The government blatantly stole wealth from the American people.
Many worry the U.S. government might confiscate gold again if it becomes desperate enough. I don’t think those fears are unfounded. The U.S. government’s abysmal financial situation is only getting worse.
But would it really do a 1933-style grab again?
I don’t think it will. However, there is another growing threat to your gold.
More Likely Than Outright Confiscation
Today, only a tiny fraction of the U.S. population owns gold. Heck, I’d bet most Americans have never even seen a gold coin, much less appreciate its value.
This wasn’t the case in 1933, when the U.S. was still on a variation of the gold standard. That’s why the government probably won’t repeat the 1933 rip-off. It’s simply not worth the effort.
If the government wants to confiscate wealth, it’s far more likely to go for the easy option… steadily debasing the currency by printing money. It’s a stealthy way to confiscate from savers.
That doesn’t mean gold owners are in the clear.
I think the government will try a new scam: taxing windfall profits on gold. This would make it much easier for the government to accomplish something similar to its 1933 heist.
There’s precedence for it, too. In 1980, Congress passed the Crude Oil Windfall Profit Tax Act, which taxed up to 70% of “windfall profits” of domestic oil producers.
What the heck is a windfall profit anyway?
As far as I can tell, it’s whatever politicians decide it is. It’s completely arbitrary. There are no objective measures to define it.
In short, a windfall profit is simply a profit politicians don’t like. The whole concept is a scam—a word trick to camouflage and sanitize legalized theft.
If the price of gold explodes, I wouldn’t be surprised if Congress passes a Fair Share Gold Windfall Profit Tax Act levying a tax of 80%, 90%, or more on gold profits.
Fortunately, there are some practical steps you can take to protect yourself from this form of politically motivated expropriation.
One way you can avoid a windfall-profits tax on gold is to renounce your U.S. citizenship. But that’s a drastic step. It’s just not realistic for most people.
Thankfully, there’s a far more practical option. You can do it from your living room. And you don’t have to turn in your passport.
The solution is to own gold stocks in a Roth IRA.
A Roth IRA is a tax-free zone. You fund it with after-tax savings, and any future capital gains or income derived from investments in your Roth IRA are not taxable.
While you can never be 100% sure what the U.S. government will do, it’s far less likely a future tax increase, even a windfall-profits tax, would affect investments in a Roth IRA.
A Roth IRA is the most practical way to protect yourself from the most likely form of future gold confiscation—a windfall-profits tax. It makes you a hard target.
Editor’s Note: Most people have no idea what really happens when a currency collapses, let alone how to prepare…
But there’s more to do to make sure your wealth doesn’t get wiped out in the coming financial tidal wave.
How will you protect your savings in the event of a currency crisis?
This video we just released will show you exactly how. Click here to watch it now.
Governments Still Heavy-Handed 80 Years After FDR's Gold Confiscation
Of two men walking down Main Street, one with a gold coin in his pocket and the other carrying a bottle of booze, the first was now breaking the law and the second was an upstanding citizen. Or so went the joke in 1933, no funnier than it is today, with the Cyprus deposit-seizure fiasco neatly marking 80 years since President Franklin D.Roosevelt signed his infamous Executive Order 6102 on April 5, 1933.
FDR's gold confiscation meant private owners were obliged to take their coins, bars or gold certificates to a bank, and exchange them for dollars at the prevailing rate of $20.67 per ounce. Over the next year, the president then raised his official gold price to $35 per ounce, effectively cutting 40% off the dollar in a bid to stoke inflation and spur the economy. We hear echoes of this in Japan today. Of course, for FDR, it took WWII to get things moving again, but the national emergency the president invoked in 1933 sounds very familiar here in 2013.
The banks were shut, on the verge of collapse. The government, too, after close-fought elections, was struggling to cover its debt repayments. Mass unemployment threatened civil unrest. The radical and shocking solution was to grab private wealth, and use it to try and reboot the system.
Could the same thing happen today? The first, disastrous bail-in proposal in Cyprus, followed by the euro zone's first-ever exchange controls, only serve to heighten fears that private wealth can, under certain circumstances, simply be appropriated.
Governments change laws from time to time, and yes it's possible that under the right circumstances some governments might try to confiscate their citizens' gold. But it is important to realize that the motivation for confiscating gold which existed for FDR in 1933 has largely disappeared.
Back then the U.S. was still on the gold standard (the U.K. had been forced off 18 months earlier). So seizing private gold and then devaluing the currency was in fact a 1930s version of quantitative easing. Saving our banks from their stupidity still means swelling the money supply, and hurting cautious savers by devaluing their wealth.
While gold is still hoarded by governments (and increasingly by fast-growing emerging economies), it is only tenuously tied to our currency system as the "foundation" of sovereign reserves. Gold also makes a disappointing asset to grab, especially in the rich but troubled West. Because few people own it compared for instance to real estate (a sitting duck for local government levies and the new talk of "wealth taxes") or readily-captured financial assets such as pension pots (already so enticing to distressed governments in Argentina, Hungary and Portugal).