The Specter of “Gold Confiscation” Is a Deceptive Marketing Gimmick

[Twisted Titan]

http://news.coinupdate.com/the-specter-of-gold-confiscation-is-a-deceptive-marketing-gimmick-rather-than-reality-0317/


The Specter of “Gold Confiscation” Is a Deceptive Marketing Gimmick Rather Than Reality!




When people are fearful, they more likely to be duped by marketing ploys that, to be generous, stretch the truth. The general public’s lack of knowledge makes them more vulnerable to be steered toward merchandise that makes a higher profit for the seller, but may end up being a poor deal for the buyer. In the current global financial turmoil, I have seen the resurgence of high pressure sales tactics used on novice buyers of precious metals—the specter of “gold confiscation.”

As a quick summary, some coin dealers and coin marketing companies push customers toward collector coins which have a higher profit margin than outright bullion-priced gold and silver coins and ingots. They use the scare tactic that such numismatic coins are exempt from the possibility of “gold confiscation.”

On the surface, the spiel can sound compelling. These sales people refer to the 1933 “gold confiscation” without revealing that what happened that year was nothing of the kind. What did occur in 1933 was that the US government imposed a mandatory, fully-compensated, redemption of gold coins and gold certificates. The US government was required to pay full value for the coins and currency it received. This is the reason the feds did not want to have people turn in their coins and currency of “recognized collector value” because they would have been required to pay full value if such items were turned in.

At the time, virtually all gold coins traded at face value, so there were few coins that would have been considered as having recognized collector value. Virtually all of the $20.00 Saint Gaudens Double Eagles were not exempt from this mandatory redemption, for instance.

Once the redemption period ended, then the US government revalued gold from $20.67 to $35.00 per ounce. At the time, the profit from this price change was enough to fund 18 months of federal government expenditures.

Could the US government once again require that gold be turned in, whether or not there is any pretext of paying full compensation or not? It certainly could. The Treasury Department claims that it does not have the legal authority to do so, but there are various existing presidential orders or a new one could be issued which would permit the government to call in gold.

I consider the prospect of any kind of gold redemption or confiscation by the US government to be extremely remote. It comes down to a matter of common sense and economics. Please consider the following facts:

The best estimates I see about compliance with the 1933 compensated gold redemption was that the US government only collected about 2/3 of what it could have received. The public was much more trusting of its government in those days, so I would not expect compliance to be anywhere near that high today.

US citizens were prohibited from owning gold anywhere in the world from 1933 to 1974. It actually broke US law to own gold held at a Swiss bank. Therefore, when ownership became legal in 1975, very few Americans owned any gold coins or ingots, much less used them in everyday commerce.

Even today, the estimates of how many Americans own gold for investment or insurance purposes range anywhere from 2% to 9% of adults. That is infinitesimal compared to most countries in the world.

When I did a calculation several years ago, I concluded that, at most, the US government stood to take in 80 million ounces of gold under any redemption or confiscation scheme. To be overly optimistic, let’s say that today the feds may pick up as much as 100 million ounces.

At roughly $1,250 per ounce, 100 million ounces of gold would only represent $125 billion.
With the current federal expenditures running in excess of $4 trillion per year, US gold reserves would have to reach a stated value of gold of $6 trillion to have the same impact as occurred when the US government raised the price of gold in 1933.


Assuming that the US government does hold the 261 million ounces of gold that it reports, and there is significant suspicion that some or most of that is no longer owned by the federal government, that would indicate, at most, that there would be 361 million ounces of gold reserves potentially available to cover $6 trillion in government expenditures.


To cover 18 months worth of federal expenditures, at the minimum, would require that the price of gold be raised from $1,250 per ounce to $17,870 per ounce ($6 trillion divided by 361 million ounces)!


The US government simply could not call in gold and revalue it that much without destroying the value of the US dollar in the process!

Even further, depending on how you figure the totals, there is somewhere between $4 and $10 trillion of US dollars, US Treasury debt, and other US dollar denominated debt held by foreigners. Any move to force Americans to turn in their gold would be a blatant admission by the US government that the US dollar is extremely overvalued. I just cannot see any politician running the risk of having to quickly cash in trillions of dollars of foreign-held currency and debt (let alone think about what American citizens would also be doing) in order to acquire $125 billion of physical gold! Politicians are prone to making poor decisions, but it is difficult to imagine any of them being so foolish as to destroy the US economy in order to obtain an inconsequential amount of gold.

There are variations of the sales spiels used to persuade potential buyers that there really is a reason to worry about a future gold confiscation effort. In the late 1980s, a common line was that the US government considered any gold or silver coins or bars sold in the private sector for within 15% of its precious metal content to be subject to confiscation. That was predicated on a proposed Internal Revenue Service regulation in the early 1980s that tried to define a threshold where coin dealers would be required to file form 1099 with the IRS for purchases made from the public. This proposed regulation was never implemented, but that didn’t stop some dealers from citing this “evidence” of potential future gold confiscation for years afterward.

More recently, an updated version of this gimmick refers to actual regulations adopted to implement Section 351 of the USA Patriot Act of 1991. Coin dealers and jewelers are supposed to be on the lookout for terrorists where, if customers do more than an incidental amount of “bullion” transactions over a twelve month period, the merchants must adopt an anti-money laundering compliance program. Thereafter, the dealers must obtain positive identification of all retail and wholesale customers conducting transactions over a certain dollar threshold. Within these regulations, bullion is defined to include anything that trades up to 200% of its precious metal value. Whether or not this definition, used to determine whether a company is subject to a regulation, ever has anything to do with defining what would be exempt for a future confiscation, the truth is that many dealers using the marketing angle sell a large number of US $20.00 Liberties and St Gaudens Double Eagles at prices less than 200% of their current metal value.

If dealers are so concerned that owning gold could run the risk of confiscation, why don’t they recommend the purchase of silver bullion instead? After all, the fundamental supply and demand data for silver are much more favorable for silver’s future appreciation than for gold. Obviously, the answer is because that coin dealer makes a higher profit selling numismatic gold coins than silver bullion.

In my judgment, any coin dealer or marketer that ever mentions the specter of “gold confiscation,” especially if they do not suggest silver bullion-priced coins and ingots as an exempt alternative, indicates a company to avoid for any dealings. There are enough honest reasons to consider the ownership of numismatic gold coins without having to deceive unknowledgeable customers. Any dealer willing to lie about “gold confiscation” may also not be trustworthy in other parts of a transaction such as quality and competitive price.

As long as some coin dealers and marketers can boost their profits during the current financial tumult at the expense of their novice customers, I expect this marketing tactic to continue to appear. Don’t let your guard down.

[gunDriller]

some dealers do use the fear factor to sell PM's, which sucks.

i think it's important for people to be aware of the details, like that article there.

i think the US gov. will use a variety of methods that have the effect of confiscations -

* requiring people leaving the US to pay tax for un-realized gains on PM's - i believe this is already law.
* the Obamacare 1099 $600 law that kicks in in 2012 - unless it can be overturned by a Republican House & Senate (and maybe a few Dems) before then.
* what they just did to Edgar Steele in Idaho. asset confiscations of troublesome individuals is a revenue source for local & federal law enforcement.

[Sparky]

Confiscation is such a non-issue.

Keep in mind that in 1933 we were on a gold standard; the availability of gold restricted the government's cash flow.

A confiscation of gold today would be immediate validation by the government that gold has monetary value, and it would undermine their ability to issue unlimited fiat.

Do you really think they would do that? I say no chance. It's much more likely that they slap a huge federal "transaction" tax on it, every time it passes hands in exchange for FRNs.

Silver confiscation is more plausible, as they could argue that its industrial value is necessary for military purposes, and it wouldn't undermine their fiat thievery. It seems very unlikely, thought. However, the variety of possible scenarios is why you should own both silver and gold.

[oldmansmith]

Confiscation is such a non-issue.

Keep in mind that in 1933 we were on a gold standard; the availability of gold restricted the government's cash flow.

A confiscation of gold today would be immediate validation by the government that gold has monetary value, and it would undermine their ability to issue unlimited fiat.

Do you really think they would do that? I say no chance. It's much more likely that they slap a huge federal "transaction" tax on it, every time it passes hands in exchange for FRNs.

Silver confiscation is more plausible, as they could argue that its industrial value is necessary for military purposes, and it wouldn't undermine their fiat thievery. It seems very unlikely, thought. However, the variety of possible scenarios is why you should own both silver and gold.


I wouldn't say no chance, and I have some pre-33 gold coins as a hedge for that possibility. Of course, I bought them when premiums were low and gold was 600 bucks, so what do I care. I can sell them as bullion and still do fine.

I do have to say that they are very pretty, and there is nothing like having a 100 year old gold coin in your hand.

[Twisted Titan]

The Best hedges against Gubbermint confiscation:

[Dave Thomas]

A better question would be, "Who's going to give you 5,000 FRN's for a Gold coin once it reaches that level.

[Sparky]

A better question would be, "Who's going to give you 5,000 FRN's for a Gold coin once it reaches that level.

The only way it reaches that level is if there is someone willing to give you 5,000 FRNs for a gold coin.

[Texan]

Here's a copy/paste of this technique in action sent to someone I know courtesy of a "Senior Portfolio Adviser" at Swiss America:

Here are some facts courtesy of Criminal Politics Magazine on
potential gold confiscation. This is why I converted into numismatics
a couple of years ago.

Another benefit is that they have a finite supply therefore the upside
potential is also far greater than bullion.

If you decide to buy bullion that is fine I just like arming my
clients with facts and have a hard time recommending something I
myself no longer own. Hope this helps.

GOLD. . . And The PATRIOT ACT

REGULATIONS EFFECTIVE JANUARY 1, 2006

CLEARLY SHOW . . . .
THE INTENT – TO (ONCE AGAIN) – PROHIBIT
THE OWNERSHIP OF GOLD IN ANY FORM
OTHER THAN — JEWELRY & ANTIQUE COINS

. . . . These new rules can be found on the internet at the Federal
Register website. However, the specific definitions are buried at the
very end of the third column on page 33716. They specifically define,
under federal law, what IS and what IS NOT “bullion.”

. . . . Also, they define, under the Patriot Act — what IS and IS NOT
“antique numismatic gold.”

. . . . What’s more, the trade associations of the jewelry industry
involving 30,000 retail jewelry stores . . . . and about 1,000 bullion
and numismatic coin dealers have been notified of the requirement to
attend costly seminars — led by the Treasury Department — on the new
rules and regulations concerning the sale of gold in either bullion —
or — antique form. It gets much worse. . . .

TREASURY DEPARTMENT REGISTRATION — AND LICENSING
BY THE GOVERNMENT

. . . . It should be impressed upon our viewers’ minds that — retail
jewelry stores and gold dealers are now effectively “LICENSED” &
“REGULATED” by the Treasury Department. Forms must be filed according
to regulations on certain transactions, depending upon whether they
are one type or the other . . . . cash or paid by check. KEY QUESTION:
– - What might the purpose be for all this?? To receive an annotated
copy of the Federal Register, Contact us at 1-800-543-0486, no charge.

My staff will be glad to discuss this clearly threatening document and
its wording. . . . . All of this is not an accident — but it is
indicative of plans to reorganize the U.S. monetary system based upon
a continuously weakening currency – - due to our phenomenally growing
trade debts with our trading partners, in particular, Red China.

. . . . Our trade debts with China — alone — are running at the
rate of a quarter trillion dollars per year at the present time,
increasing our China debts — by a trillion dollars every four years.
Other countries are LENDING US the money . . . . to purchase goods by
accepting U.S. Treasury Bonds to invest the accumulated dollar cash
taken in payment. However, China has already rejected any further
Treasury Bonds to invest their dollars in, as of the fall of 2004.

. . . . China is now pressing hard on the Treasury Department to come
up with options for it to purchase other American assets such as Gulf
Coast real estate . . . . home mortgage bonds . . . . AND GOLD. We
are faced with a monetary crisis of monumental proportions with China
leading the way to collect unpaid debts for merchandise we no longer
provide ourselves.

. . . . Secretary of the Treasury, Henry Paulson , has been flying
back and forth to China on a regular basis since taking office . . . .
Even now in May of ‘07, a delegation of Chinese officials will be
visiting with Paulson in the United States , making it impossible for
him to attend a critical scheduled meeting — of the group of eight
monetary cooperating countries scheduled at the same time.

. . . . The U.S. press does NOT cover the monetary threat . . . .
However, the London Financial Times does, occasionally, provide — an
article with a clear indication of the possible collapse of the dollar
if our trade practices continue much longer, which lead to higher and
higher debts.

THE SETTLEMENT OF DEBTS —
WITH GOLD — the basis of all Central Bank wealth and the primary
monetary asset used to settle debts between nations.

. . . . The settlement of U.S. debts must be – AT LEAST – partially
paid with American gold bullion plus: . . . . real estate and other
assets. To accomplish this, the rules of the Patriot Act clearly
indicate the confiscation of privately owned bullion with exceptions
for antique numismatic coins with a rarity value in addition to the
bullion content. This key formula will be the single defining fact —
as to whether or not you will be able to continue to own gold coins
after the confiscation is announced.

NOTE THIS: – -
Failure to turn in your gold will reap no benefit – - AS YOU WILL NOT
BE ABLE TO FIND A BUYER — DUE TO CRIMINAL PENALTIES.

. . . . If you would like a copy of these regulations with an
explanatory bulletin ask your broker by requesting a copy. Once you
see the regulations in print — pursuant to the Patriot Act from the
federal website, you will realize that the freedom to own gold,
achieved only in 1975 — is going to COME TO AN END ONCE AGAIN.

HOW TO PREPARE FOR CONFISCATION: —

. . . . To protect our subscribers and clients, we have long since
chosen a reliable numismatic expert to offer services which we stand
behind and guarantee satisfaction. Since there are a number of
questionable or dishonest dealers in the numismatic and coin trade, it
is especially important that you ONLY deal with a numismatic dealer
backed by a publisher

WHEN WILL CONFISCATION COME ?? . . . . There is no way to know
the day of the confiscation decision pursuant to the regulations of
the Patriot Act

. . . . However, in our publisher, Lawrence Patterson’s view — having
been involved in gold since 1966. . . . and having studied the
monetary system of the U.S. and its accumulated debts . . . . current
events indicate that time is clearly running out for negotiations with
China (and other countries) — for a stable universally accepted
currency . . . . The dollar has routinely slipped and slipped month
after month and year after year to lower and lower levels against
foreign currencies, especially against the Pound, the Euro and the
Yen.

. . . . This makes many countries unwilling to continue to accept the
monetary unit of the United States . Thus, a conflagration is about
to unfold . . . . We suggest you talk to one of our consultants. . . .
then order the copy of the regulations mentioned above. We will mail
them to you at no charge, if you provide us with your full name,
address and phone number when you call.

. . . . Also, after reviewing the rest of the website, if you
would like to obtain a past issue of Criminal Politics Magazine, we
would be glad to provide you with a sample copy as well, along with
your request for the federal regulations on the ownership of bullion
vs. antique gold. . . . . Criminal Politics Magazine is now in
its 32nd year of publication.

[Answer2me]

This is one of the best discussions on the gold confiscation topic i have read. It comes from the methodical mind of FOFOA.

Foreword

Please do not take this post as a definitive, final statement on this very complex topic. This is only one view of many that explains why confiscation will not happen. Once you understand the dynamics of a completely demonetized, free, non-fractional, physical-only gold market (freegold), it will become clear that this is where the river of time is taking us. This particular post is meant only to encourage a focused discussion on this "concern", for the benefit of us all. In fact, think of this post as a primer or introduction if you will. Or if you prefer, think of it as a dose of ocular Xanax for your "gold-angst".

Anatomy of a Straw Man

This tired old topic of gold confiscation seems to surface far too often within the online gold community. In the spirit of colorful analogies I'll liken it to a noxious vial of fox urine strategically placed to scare hungry little bunnies away from the delicious golden strawberry patch. Fox urine seems more appropriate than a simple scarecrow. But as we all know, a scarecrow is not really alive, and urine does not really eat bunnies.

The most important thing to keep in mind during this discussion is the macro, or global economy. The US is but one global player among many. This is not a simple story about stupid US politicians versus helpless US citizens. Instead, it is a grand story of giants. It is a story about the US government versus the rest of the world. And it is not just about this present crisis. It is a story that covers many crises and 96 years in the life of a single paper contract called the US dollar. In this global macro view, that a 1933 confiscation happened at all means that a 21st century one will not. That option has already been fully exhausted!

Anatomy of a Dollar Collapse

The dollar is going down, and there are a couple of ways this could play out, but one is more likely than the other. To understand why this will not lead to the confiscation of our gold, we must first understand the corner the dollar has painted itself into, and what its future options really are.

As I have explained many times, freegold and hyperinflation are separate events. Freegold is the establishment of a physical gold market after the paper gold market is arrested through default, breaking the dollar's grip on gold, and also breaking the dollar's international settlement function.

The first way this collapse could play out is a quick devaluation of the dollar, say, over a couple weeks, followed by the emergence of freegold. Think of it as the riverbed at the bottom of the waterfall.

The second and more likely way this will play out is with hyperinflation thrown in, perhaps lasting many months or years after the initial plunge/devaluation. The overwhelming evidence that this will be our path is the political control the Executive Branch is exercising over dollar monetary policy. Jim Sinclair believes this is a serious threat:

China wishes the annihilation of the Fed policy of “Quantitative Easing.”

The Fed wishes to accommodate China.

The US Treasury is absolutely opposed to any such consideration as it would cement the present Administration into a one term wonder.

The US Treasury must win this battle because the boss of this opposition has the power to appoint the new Chairman of the Fed, either Summers or Geithner.

Political control of the US Fed and therefore of monetary policy is in the cards...

...political control of monetary policy is CERTAIN as the Fed cannot win this contest against the Administration in the form of the US Treasury.

Bernanke becomes a team player or a team player will replace him.

The latter is becoming a probability as it is hard to trust a prior adversary. (Link)


I suppose you could picture this one as a waterfall with no riverbed at the bottom. Instead, the water falls all the way to the fiery pit of Zimbabwe hell where it burns into nothing but a curiosity for future historians and possibly a cheap eBay collectable, "The $11 trillion bundle - Now even YOU can pay off the US national debt".

Anatomy of a Gold Run

In the 1920's, if you had a dollar you held a contract for 1/20th of an ounce of gold. In essence, you had loaned your gold to the US Treasury and the dollar was your note on that loan. You could walk into the bank and present your note and it was the bank's job to provide you with gold or to die trying.

The problem was that the Federal Reserve system issued more notes than it had gold. So the whole "fractional reserve system" relied solely on the confidence that you COULD receive your gold, knowing full well that all people could NEVER receive all their gold.

By taking a look at the modern paper gold market, a striking similarity should start to emerge.

COMEX is primarily a betting operation that pairs up long bettors with short bettors. Only a very small percentage of these bettors actually take the physical gold. So the COMEX relies on the market's confidence that you COULD receive your gold, knowing full well that all the bettors could NEVER receive all of their gold at the same time (or ever for that matter).

So COMEX is essentially existing the same as the banks during the Roaring 20's.

In the crisis of the early 1930's, too many people went into the banks to withdraw their gold. And fulfilling their duty to provide gold or die trying, many banks died. This is the fate the COMEX has to look forward to.

Imagine if one favored entity, say Goldman Sachs, decides to take delivery on futures contracts that amount to perhaps 3% of the total open interest. Then imagine that all the short sellers exit the market through a cash deal with an offsetting long position. Where does the Goldman gold come from? Let's say for convenience that the entire registered stock of COMEX gold is eligible to meet Goldman's delivery. Great! The bank (COMEX) was able to cash Goldman's check! But what happens when the other 97% open interest sees this action and wants delivery too? Or even just part of it?

In any bank run, the first few people in line do get their cash. But ultimately, it is the flood that ensues that kills the bank. An innocent bystander might hear a rumor that the bank is about to fail. When he arrives at the bank he sees the long line and starts to panic. But then he sees a few customers coming out with their cash, so he calms down and gets in line. But will he make it through the doors before the bank closes for the "holiday"?

Anatomy of a Gold Default

In its role as the global reserve currency, the dollar must have two vital things: value and function. It is indisputable to rational minds that gold is true money. The universal way fiat currencies are measured for value is by how much gold they can be exchanged for. So the dollar has value on the global stage because of its ability at any given moment to buy gold. For function, the dollar is needed to repay all dollar-denominated loans and contracts around the world. But a dollar will always be able to pay one unit of any dollar-denominated loan, no matter what the value of that dollar is. So a failure of the dollar would be defined as a failure of value, not function. A dollar collapse would be defined by its inability to be exchanged for true money, gold, at any reasonable price.

What does it mean for a bullion bank to fail? Just as a regular bank would fail from a massive withdrawal of deposits beyond its ability to pay, we could say that a bullion bank has failed if it can't supply the gold necessary to honor its obligations. You can be sure it will first exhaust itself by trying to obtain whatever gold can be obtained on the spot market to fill its obligations prior to failure as an institution. But this is where the price would race away on the spot market paving the way for a complete run on all physical gold, permanent backwardation in the forward gold market, the withdrawal of all offers to sell physical gold, and a complete failure of the spot market to exchange gold for dollars at any reasonable price. And so, we would have the official failure of the dollar as well.

This is how a failure of the paper gold market, a DEFAULT on paper gold, will mean the collapse of the dollar. You will have the dollar on one side, gold on the other, and COMEX contracts in between the two of them. This will essentially pit gold and the dollar against each other, forcing them to arrive at a settlement in a dollar-rich/gold-starved arena. Could the dollar ever deliver on its physical gold contract obligations? No way. Which do you think will be left standing?

Back in 1933, the dollar DID default on its contractual gold obligations. In essence, the US government kept the gold that its citizens had loaned it and told the citizens to eat the loss. The government told them to simply keep the paper promissory note and pretend it was still "as good as gold".

At the time, the Bretton Woods agreement was more than a decade away, but there were still a whole lot of dollars floating around the international arena. So in order keep international trade goods flowing into the US, the US government said that dollars that worked their way into the international central bank clearing system could still be exchanged for physical gold.

To facilitate this convertibility in a time of dire crisis, it took three more drastic steps. First the government defaulted on 41% of its outstanding international gold obligations by devaluing the dollar 70%. (The world DID take notice of this 41% default!) Second, it called in the local gold to establish a fresh hoard for backing the international dollar. And third, it made gold ownership illegal in the US, a capital control move to prevent capital flow out of paper and into physical gold on the open market.

Then, in 1971 the US did it again, this time defaulting on 100% of its gold obligations to the rest of the world. Something to think about: The US did this while it still had a lot of gold. Why was that? If it was going to take the world off the gold standard, why not do it when the gold ran out? At least then it doesn't make you look like a cheat. As Another liked to say, "think long and hard on that one"!

Gold is off the table

The US gold hoard is now off the table. Think of a poker cheat who pockets his winnings yet still wants to play. When he loses he writes paper IOU's to the other players. Can he ever pull his money back out of his pocket without having it taken away? Think of an individual who declares his own insolvency and defaults on his obligations to pay, only to resurface later with a windfall inheritance. What problems will he face?

In 1971 the US refused to ship any more gold. It defaulted on its international obligations. It took its golden chips off the table but continued to play in the game. But the dollar didn't change. It still remained an international contract for gold. Watch the announcement:

Nixon Closes the Gold Window
As a politician, the President did not want to interrupt television viewers watching the tremendously popular TV series Bonanza, not wishing to potentially alienate those voters who fanatically followed the cowboy series. He was advised that the practical decision was to make an announcement before the stock markets opened on Monday (and just when Asian markets also were opening trading for the day). On 15 August 1971, that speech and the price-control plans proved very popular and raised the public’s spirit. The President was credited with finally rescuing the American public from price-gougers, and from a foreign-caused exchange crisis.



This was cheating, plain and simple. The international financial system and the global market place run on procedure protocols that are not binding. They are not binding, but without them, international trade would stop altogether. Just because a rule is not binding does not mean it is not important. And just because a non binding rule is broken, does not mean it disappears.

Why do you think the US gold hoard was never publicly audited after this? And why do you think the book value of that gold was left frozen at $42 per ounce, never marked to market bringing it "back into play"?

There are two international bodies that facilitate the international financial and monetary system, the IMF and the BIS. These two bodies are in opposite camps. The IMF is in the dollar camp. Its sole purpose is to ensure that third world countries can pay their dollar-denominated debts in order to keep the dollar alive. If that debt from third world countries could no longer be serviced, it could no longer be held as an asset within the financial system. Therefore, the IMF issues highly leveraged dollar loans to these countries to make sure that payments continue. In exchange, it locks up real world capital as collateral for the loans. This is NOT a system that supports third world economies. It is a system that supports the dollar's reserve function at the EXPENSE of third world economies. If the IMF stopped functioning, so would the dollar. And the US government would lose its external funding.

The BIS, on the other hand, coordinates central bank transfers to facilitate international trade balance. If the BIS stopped functioning, so would international trade. This clearing system is fractal in that imbalances are first cleared locally, then regionally, then nationally, then internationally. If the BIS didn't deliver, food would not arrive at your local store, at least until a local production, distribution and clearing system was set up.

This leaves us with a one-sided dependence dynamic in which the BIS and the rest of the world could, if they wanted to, stop supporting the IMF and let the dollar die. But on the other side, the dollar cannot survive without the BIS. But why does this matter? What could make the dollar even think about abandoning the BIS?

Well, if the US ever put gold back on the table through another confiscation of its citizens' gold, the BIS would call in all of its outstanding claims in gold at the rate of $42 per ounce. And the BIS would not be alone. Other entities would have legal claims for gold at $20.67 per ounce, and others at $35 per ounce. How much gold was either confiscated or defaulted on without due process of law? Claims of perpetual entities never go away. If the US government ever exposed its own gold (or its citizens' gold through confiscation) to the light of day, it would expose itself to all kinds of claims and an international legal mess. Under international law, the US is still an OUTLAW when it comes to gold!

This is why gold is off the table. This is why we can never go back to a gold backed dollar. It is also why they cannot call in gold AGAIN under the same dollar that they did in 1933. To call in gold at a specific exchange rate now, the US would first have to back the dollar with gold at that rate and then call it in. That would expose the US gold to international legal challenges for redemption. If they simply called in the gold without backing the dollar, the US government would be exposed to thousands of internal law suits. These law suits would rightfully demand a retroactive reversal of 1933 before any new confiscation could take place. They would demand that US official gold be distributed to all citizens at $20 per ounce BEFORE it could be turned back in to the government.

The US government will never take this risk! It will never expose itself to this legal nightmare! The US is already a golden outlaw!

If the coming dollar collapse takes the first waterfall route and hits the riverbed, how would an insane and illogical confiscation play out? Well, if the US dropped out of the BIS to secure sovereignty over its confiscated gold, the BIS would halt all international dollar traffic and probably try to use those dollars to buy gold on the international free market. The dollar would be instantly dead.

But what if the dollar falls all the way to the pits of Zimbabwe hell? What if the US simply declares the dollar dead, confiscates the gold, and then starts a new gold backed currency? Wouldn't that work? I will tell you now that it would never be accepted on the international market as an exchange contract for gold! Even at $10,000 or $100,000 an ounce. The world is not that stupid. The US has defaulted on its gold obligations to the world TWICE now. The first default was 41% and the second was 100%. What will it be next time? No, the US will never be trusted to issue paper promises for gold again! Freegold is the only option!

The US government and the US dollar is caught up in this massive Catch-22 because of its own past cheating actions. This is why a future gold confiscation is simply not in the cards. This is why the Fed will appear more and more INSANE in its futile attempts to save the current system, all the way to the fiery bottom. And this is why freegold is the only possible end to this system.

Bottom Line: It takes AAA credibility to gain the confidence needed to run a fractional reserve paper gold scheme. The US government spent all of its credibility on a failed scheme long ago. And now the current COMEX scheme will face the same fate, thanks to the inflating of paper contract supply to meet demand, far in excess of physical supply, in the sole support of the US dollar printing authority that needed support since it had already defaulted TWICE!

And when the dollar finally collapses in value, a THIRD and final default will take place. The US government's existing dollar-denominated debt of $11 trillion will become instantly worthless.

And once the printing press source of funding is gone, the US will be forced to settle its trade deficit with real money on a 1 to 1 basis, no more fractional reserve shenanigans. If this is done centrally, as it is now, then the government will face a whole world of claims saying the gold already belongs to them. For its past sins, the government cannot take this chance. The other way to settle an ongoing trade deficit is on the local level, through millions of small transactions.

This is freegold. And this will pit trader against foreign trader, rather than government against government, or central bank against central bank. It will allow for trade goods to flow across borders and keep the economy alive so that the government can continue to collect taxes. This system will become very clear, very fast. It may be hard to imagine right now, but once it is forced into action by necessity, it will be clear. Even to the US government.

Freegold is not about huge profits for owning gold. It is only about the protection of wealth for everyone in the world. The huge profit only happen once, during the waterfall. It is a one time event. After that gold becomes the only store of value that keeps up with inflation... automatically!

I had wanted to end with a recent comment on this subject which prompted this post. But rather than extend this already long post any further, I will end with a simple link. Here is Ender's excellent explanation of why a freegold financial system is the only option left to a government that cornered itself long ago. Ender's comment will give you a glimpse at how this new freegold system will actually benefit governments while gold confiscation would hurt them. Remember, the government already has a monstrous system of confiscation in place. It is called TAXES. And freegold will stimulate the exact activity that generates the most confiscation, er... taxes. That would be local business investment! So take a break and then come back and read Ender's great two part post.

http://fofoa.blogspot.com/2009/08/confiscation-anatomy-different-view.html