The Myth of Gold Confiscation 42 comments
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Recently I have seen a few articles speculating whether President Obama would decree the confiscation of private gold holdings from US citizens. This is seen as a counter against the perceived inflation surge that many believe will wash over America and the world in years to come as a result of the huge debt load that the credit crunch has instigated. In fact, I have even seen speculations about mining companies being nationalized – even silver mining companies!
Gold confiscation is a subject that divides gold investors. Some say it won’t happen again and others say it will happen again. The one thing they tend to agree on is that they don’t want it to happen again. I wrote on this subject three years and I just want to reiterate one myth about the previous Roosevelt confiscation that needs to be buried lest anyone think a government seizure would leave you bereft of gold.
Roosevelt issued executive order 6102 in April 1933 ordering in all gold coin, bullion and certificates. One contention is that most people did not bother obeying such a directive. In my opinion, the following statement by the Roosevelt government was not bluster but largely true:
“White House Statement on Returning Gold to Federal Reserve Banks.
April 5, 1933
In the past weeks the country has given a remarkable demonstration of confidence. With the reopening of a majority of the banks of the country, currency in excess of $1,200,000,000, of which more than $600,000,000 was in the form of gold and gold certificates, has been returned to the Federal Reserve Banks.
Many persons throughout the United States have hastened to turn in gold in their possession as an expression of their faith in the Government and as a result of their desire to be helpful in the emergency. There are others, however, who have waited for the Government to issue a formal order for the return of gold in their possession. Such an order is being issued today.”
The anti-confiscation contention is that the people who were waiting for the government to issue a formal order were not for turning their gold in. As can be seen from the above release, $600m or roughly the equivalent of 30 million ounces of gold in coin and certificate had been returned to the banks prior to the executive order.
Now, it can be conceded that the people waiting for an official order may have ultimately held onto their gold, but a reading of the order suggests that illegally held gold was probably not going to happen in any great measure. The reason for this is the following section of Executive Order 6102:
“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:
(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.”
Now section (b) is the text of interest. Many have focused on the numismatical portion, but I have rarely seen much said about the $100 exemption clause. At that time gold was valued at $20 per ounce. The $20 double eagle coin in circulation contained just under an ounce of gold and five of them made up $100.
What is this exemption clause in executive order 6102 saying? It is saying that each person could keep up to nearly five ounces of gold coin in their possession without fear of prosecution! At that time, the adult population of America was about 90 million. In theory, the population could have held onto 450 million ounces of gold if they had the means and will to do it (in practise, this much gold was never minted into coin).
Was there widespread illegal hoarding of gold? Milton Friedman and Anna Schwartz in their book "A Monetary History of the United States, 1867-1960," give statistics which suggest that 13.9 million ounces of gold were still in circulation in January 1934 and that only about 21.9% of the gold in circulation had been handed in.
The trouble with that statement is that it does not seem to take this 5-ounce exemption clause into account. Although we do not believe that 90 million people actually held about 5 ounces each, it would only take each adult in America to legally hold 0.15oz of gold to account for this “missing” 13.9 million ounces. Indeed, even if an attempt was made to take this 5oz exemption into account, I would consider it nigh impossible to differentiate legally held coin from illegally held coin.
How much of these 13.9 million ounces was legally held? Of course, we cannot say definitely, but it seems clear to me that even during the Great Depression, holding five ounces of gold was not an onerous task for many. How much was the average wage in America in 1933? I found a few answers by searching the Internet, but they averaged out at about $1400 per annum. That means that $100 was less than a month’s wage and although the savings rate in 1933 was one of the lowest in recent American history, we suspect many households held more than $100 in savings.
Indeed, it would only take 2.8 million adults or 3% of the adult population to hold 5oz and account for the entire 13.9 million ounces of gold. When we also consider how many probably redistributed their excess gold coins to wives, sons, daughters, parents and so on to avoid confiscation, I think we can safely conclude that illegal hoarding was not a major activity.
One may say that if Roosevelt had not included this 5oz exemption, then illegal hoarding would have happened. Perhaps it would have, but in this exemption we see Roosevelt the Socialist in action. For you see, democratic socialism has this thing about progressive taxation and I suggest the same for confiscation. Just as people will not start paying tax on their income until they have crossed their personal “allowance”, so it was with this gold exemption clause. How do you get the majority of average income voters on your side on this matter? You simply let them keep a portion of their gold and then give them the added bonus of a 57% windfall when gold is revalued to $35! How many sold their five eagle allowance at $35 instead of $20? Nobody knows for sure but that is how reflation works, you create extra dollars for people to spend.
So how would this arrested form of confiscation work if it was imposed today? If President Obama seized the gold ETFs but allowed citizens to keep five ounces per head how would that pan out? Quite easily I suspect. As it happens, five ounces of gold currently costs about $4800. If the average American wage is $40000 today, then this 5oz would form 12% of annual income. In 1933, it would have been 7% at $20 an ounce and 12% at $35 an ounce so not much of a difference even after 76 years (herein we see gold’s ability to preserve wealth across the decades).
Of course, a modern confiscation may be for different reasons than a 1930s one. The point I am trying to make is that Roosevelt signed off executive order 6102 not to prohibit ownership per se but to prohibit hoarding which is a completely different matter. The relevant portion of the executive order is:
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 of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations ..
Possessing five gold double eagles is not hoarding, gold ownership was not prohibited, gold hoarding was. Thanks to the gold standard, people were cashing in paper for gold and depleting the Treasury. But when the gold standard began to prove inconvenient to a government that wanted to reflate the economy, it had to go. So much for the gold standard holding government accountable, they just discard it when it gets in the way!
Today we have a similar situation in terms of form but not magnitude. The government wants to reflate but gold is not in the way this time. Back in 1933 you increased the money supply by 50% by revaluing gold to $35 an ounce. Today, you just devalue the dollar by debt auctions and quantitative easing. Is gold confiscation coming? I doubt it -- and even if it did, the exemption clauses of order 6102 may set a precedent for many families to hold sizable portions of gold.
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This article has 42 comments:
Also, at the time, Roosevelt forced people to trade 1 ounce of gold for $20, at a fixed exchange. Deflation was taking place because individuals had exchanged paper money for physical gold, and that reduced the money supply. However, less than a year later, Roosevelt revalued gold. He forced people to return their gold for $20 an ounce, and then offered it back to them for $35!
Gold, silver, oil—any commodity or foreign currency stands in the way of government's ability to manipulate the money supply. Roosevelt could fool the public because trust was higher in government, and never had so great a swindle been perpetrated on the American people. But this time, it isn't deflation that's has gold bugs agitated, it's inflation. The government will use high taxes or outright bans on commodity speculation, currency speculation, stock speculation, and capital controls—anything that involves exiting the U.S. dollar. They will make it difficult for Americans to hold anything except paper dollars to prevent hyperinflation.
Here lies the problem- dollars were actually exchangeable for gold, and thus were a direct representation thereof. One needs to think about it in the terms of gold=money- a family of three with $15000 in savings would be at the limit if they held this amount as gold. In the context of hyperinflation, or at least 10% year over year inflation, this is a pittance. This is barely even a hedge; it is more like short-term disaster insurance. The risk of hyperinflation was near zero in 1933; today, it is significant. Not to mention other forms of wealth did not face the same risks of government confiscation (via taxation, inflation) then as it would now, so the hedge factor of PMs was less significant. Only Socialists believe in the "hoarding" rhetoric as it pertains to wealth- few truly wealthy capitalists "hoard" anything. They would rather risk capital and return more capital. "Hoard" ushers in pictures of dragons sitting on piles of stolen treasure, and pirates' booty buried in sand. It's useful to feed the proletariat anger that gives their bromides of wealth redistribution clout.
From there It can be moved anywhere.
From there It can be moved anywhere.
The problem now is a different one. If the conspiracy theorists are correct on this count, gold has not been allowed to rise above $1,000 an ounce because it would be a psychological blow to the dollar (and, by implication, other fiat currencies). If gold successfully breaches the $1,000/ounce barrier and convincingly blows past it, it is a kind of "proof" that the dollar is toast.
If that happens, will anyone in D.C. even care? Or will they pretend not to care, like the Soviets did in '69 when Apollo 11 landed on the moon and they lost the race to put a man on the moon? (Sorry, had to throw that in -- but it's a perfect example of the big lie, there was a race and they lost it, but then denied that there ever had been a race)
I think that if it were politically expedient this administration (as would most of the ones we have had in this country over the last fifty years) would certainly not hesitate to trample on individual property rights if it felt there was a need to -- witness the recent intimidation of the Chrysler bond holders, etc. The question is, will they do it, or will whatever payoff they would get from such a tactic be not worth the trouble. After all, they CAN get what they want from a continued devaluation of the dollar, and it's not like anyone other than the Chinese and Japanese can do a darned thing about it.
One man's hoarding = another man's saving for a rainy day. I just wish I could be sure the rules on defining those terms were known and transparent.
I am at a total loss as to how your parsing an 1933 Executive Order crystal balls you to today's situation. Next time you get an itch to write an article, read it before clicking the submit button.
You state that holding gold 'is another matter' from hoarding gold.
Where was Roosevelt's legal authority to determine the threshold here? How was the definition of hoarding proscribed, except via government fiat decree? Government regulation of my personal stores is not compatible with their expressed powers.
Let me ask you this - how much food am I allowed to keep at my house? Is it up to you, or a government executive, to deem a sufficient amount? How does that comport with my rights to pursue life and liberty?
Dangerous waters and lack of internal logic support that premise.
Therefore the discussion is moot. The only confiscation I could see taking place would be the ETF's supply. That they could probably pull off. As in the Chrysler and GM deals Obama has shown that at least some courts will bow down to even his most absurd and illegal orders.
I'd just hope that TPTB are content to steal all the savings away through monetary inflation (not saying it's right, just that it's already in progress) and leave the poor cynical gold-bugs alone...not that I know anyone like that.
So that might be part of your answer -- whenever you pony up your ill-gotten long-term gains on the precious metals you've been hoarding, the tax man will be waiting with his hand out.
Not to rain on anyone's parade, but if confiscation WERE to be the order of the day I would imagine the gummint would start going through the customer lists of the main companies that deal in bullion and gold & silver coins and start taking names.
Clearly the writer owns no physical gold.
Besides, what's the gripe? If the government goes back to a gold standard and calls in gold to back up the dollar - isn't that what many gold holders want - so called honest money? Would some of you sacrifice your gold stash for what you in principle have wanted the government to do for years? If you can redeem your dollars for X oz of gold, what's the problem?
Not that I think a gold standard would work ...
At present, I think the gold hoarding issue is of the radar screen for Obaminites.
many would say impossible. our troops have become experts in house to house searches and cordoning neighborhoods to do systematic confiscations. i would guess their numbers would be augmented by the community service youth (gangs) corps.
the purpose of confiscation would be to keep the population dependent on the welfare state. this is about the power of the state now.
it takes a charismatic leader and a population that is ready to vent anger to allow such outrageous behaviour. anyone noticed the postings of the drive-by populists?
see what you can learn of the current state of venezuela.
That is why a gold standard is useless, government will just drop it at the first inconvenience. What is needed is free market money - competing local currencies which the people can vote for via their wallets. Unfortunately, control of the money supply is the last thing government will ever give up to the people.
What's the gripe? I don't want to hand in my gold on the pretext that the U.S. is going back to the gold standard. "Don't worry, you can trust us." isn't going to get it.
I think the government is more concerned with confiscating guns.
doubleguns did have a very viable method to alleviate the ownership problem, take it to Canada.
My preference would be to EXCHANGE it! Gold/silver ratio is 65:1. Take your gold, swap it for silver. That solves the problem. Now, ONLY consider shifting back into gold (should confiscation not come to pass) when ratio is 35-40 to 1.
Hang in there. Keep BUYING gold and ESPECIALLY silver. You will be okay. Those in the stock market will get SLAUGHTERED!
May God bless us all (holders of gold)!
Your guns are at more risk than your gold. Confiscatory tax rates will deliver your gold to the state as the only way now that the state will retreat is thru revolution.
If you know Lew Rockwell, none of this surprises you.
I caution that this is folly. The disparity in force is so great that, regardless of what you have, you cannot match the state's force. So, you are NOT well able to deal with a hairbrained government. This battle cannot be won by force.
I personally do not worry about gold confiscation (except through GLD and SLV). Who in their right minds would actually follow the order and hand in their gold. As long as you have physical possession you can hide your gold and silver (I have). Unless the government goes door to door with metal detectors, I do not see how they could confiscate people's gold.
On May 29 09:02 AM The Goy wrote:
> Why would you think that just because they did something a certain
> way in the 1930's they will do it the same way. Our government has
> shown it is willing to go to any lengths to push it's agenda, so
> why would you feel comfortable rellying on a 1930's example. Besides,
> IMO gold will not be what they confiscate, it will be other metals.
Quote:
"How do you get the majority of average income voters on your side on this matter? You simply let them keep a portion of their gold and then give them the added bonus of a 57% windfall when gold is revalued to $35!"
Interesting thought that raises a few questions. I first assumed that the windfall for the people with 5 ounces of gold would be offset by the huge loss in value of their paper dollars when Roosevelt devalued the dollar. But inflation stayed low from the devaluation of the dollar in 1934 until at least 1940, rising only 5 to 8% before hitting a steady clip as WWII started. So if prices were stable for that long, was the inflation in prices just delayed by deflationary forces for the better part of a decade, or did Roosevelt’s devaluation only effect the dollar relative to gold? (Because the paper dollars bought roughly the same goods for some years.) In the latter scenario, maybe I’ve been wrong all these years thinking FDR stole so much wealth from Americans when he changed the exchange rate.
Question 2: Roosevelt devalued the dollar by raising gold 60% (from almost $21 to $35 an ounce). Yet we say he devalued the dollar by 40%. How do I best explain to high schoolers why we don’t say the dollar was devalued by 60%?
For all who read this make the elections in 2010 a priority, know the candidates and what they stand for and try to inform everyone you know.
On May 29 02:13 PM Roland Watson wrote:
> Looks like some of you guys misread my 5 ounce subplot. I am not
> saying you get to keep only 5oz under a presumed new confiscation,
> who knows what will happen. But the allocation was 5oz PER PERSON,
> be it your wife, kids, granny, etc. All depends how much you trust
> your extended family.
>
> Besides, what's the gripe? If the government goes back to a gold
> standard and calls in gold to back up the dollar - isn't that what
> many gold holders want - so called honest money? Would some of you
> sacrifice your gold stash for what you in principle have wanted the
> government to do for years? If you can redeem your dollars for X
> oz of gold, what's the problem?
>
> Not that I think a gold standard would work ...
At this time, I suspect that any attempt of government confiscation of gold (or guns) would be defied on a loud and massive scale.
Americans have always rallied for their country, but Obama is pushing many citizens up to the brink of what they are willing to tolerate. The attempt to "remake America", using the financial crisis as a pretext for firing CEO's, controlling auto companies and banks, and putting limits on compensation while the Fed and Treasury hand the nation's wealth over to the Wall Street and banking crowd ( I am looking at you, Goldman Sachs) is causing many to question what is going on. Any attempt at confiscation of gold will be what is known as "when push comes to shove".
> I understand that our armed populace
> outnumbers all persons in all branches of our military by more than
> 10 to 1
That's true. If it's one thing we learned from the Chinese "volunteers" during the Korean War, wave attacks CAN work. Indeed, many of those "volunteers" weren't even armed. There are enough rifles in civilian hands (as the Founding Fathers intended) to cause problems for either a foreign occupying or domestic tyrranical force.
On the other hand, remember that chinese fellow standing in front of the tank? That wasn't a 10 second deal, apparently the dude had crawled up on top of the vehicle and was arguing/talking with/cajoling the armored column leader for something like 20 minutes before his buddies came along and saved him from imminent arrest. As an ex-service guy, I find it real difficult to believe most military folk will go in for mowing down the population to control them. Some, but not most. So sad for the banks.
However, and I may be wrong, most people held coins (I am not sure jewellery was forced to be handed in) and those coins unless foreign were the property of the US government? What the holder of the coin had was the right to $20 for a double eagle and so on.
As to simply defying the executive order, some who had more than 5oz per person may well have buried their gold. My only question was how they exchanged their gold for cash without getting arrested?
How much was the dollar devalued by? I guess 60% since gold was still the means of international exchange between countries even if it had now disappeared from public transactions. One would also need to look at exchange rates between other currencies which would further obscure the picture since I suspect some of them went through similar gold devaluations.
> As to simply defying the executive order, some who had more than
> 5oz per person may well have buried their gold. My only question
> was how they exchanged their gold for cash without getting arrested?
I do not know the exact answer to your question, but I can guess: cash was bypassed and exchanges of gold for goods were more common. Even today, there's a huge black market in the United States: for labor (i.e. payment in cash under the table to escape payroll and income taxes) and for contraband (i.e. marijuana, stolen goods). During the FDR gold confiscation era, I am sure that some persons were willing to accept gold (real money) in exchange for their labor or goods.