Twisted Titan
30th January 2011, 07:04 PM
A question which I am regularly asked by readers (especially U.S. readers) is whether I believe that government(s) would once again confiscate the gold held by individuals. The question is a reasonable one, given the U.S.’s prior history of “gold confiscation” during a time of deep economic strife.
“Executive Order 6102”, issued by the Roosevelt administration on April 5, 1933 commanded U.S. citizens to turn over all of their bullion holdings, with a few limited exceptions. The official exchange rate for all gold confiscated was $20.67 US, which was the official, fixed price for gold at that time.
There are many observations to be made about this event, and once examined it should be more obvious to people to what extent that threat exists today. To begin with, we must look to the purpose behind that Executive Order. Here, what we see is that there was more than economic strife which motivated this action.
By that time, Hitler had already risen in Germany, and the severely flawed Treaty of Versailles (which resulted from the Armistice of World War I) was increasingly seen as a driver of new hostilities in Europe, rather than the basis for a lasting peace. With the prospects for major, European war once again rising, it was imperative to the U.S. government that it have sufficient financial reserves to engage in its own military build-up.
Here, we must remember that the global monetary system was firmly tied to a gold standard at that time. Thus the only way in which the U.S. government could rapidly increase its money supply to finance its military without shattering the gold standard (as Nixon did in 1970) was to find a way to significantly (and quickly) increase its gold reserves.
Confiscating the gold of its own citizens was clearly the easiest way to accomplish this. A very nice article on this period by Bullion Vault points out another interesting aspect to this episode. Immediately after confiscation, the U.S. government “revalued” gold against the dollar (i.e. it devalued the dollar) to $35/ounce – netting the U.S. government an immediate 50% profit on the gold it had taken from its citizens. But that was literally only half the plan.
Despite the fact that the U.S. had changed its own gold exchange rate versus the dollar, the U.S.’s European allies did not change their own exchange rate between gold and the dollar – producing one of the largest arbitrage events in market history. Traders could buy gold in Europe at $20.67/ounce and then immediately sell that gold to the U.S. government at $35/ounce.
This did more than merely make a lot of European gold traders very rich. It directly and obviously resulted in a vast amount of total, global bullion stockpiles flowing into the U.S. – as the arbitrage opportunity functioned like a “vacuum cleaner” for the global gold supply.
While we can question the course of action for our warmonger governments during this tragic era of Western history, there can be no doubt that the action of the Roosevelt government in confiscating the gold of its citizens was based upon bona fide economic, military, and political considerations. It is equally obvious that no such motivations exist today.
Certainly the U.S. is experiencing severe economic problems, indeed its economy is hopelessly insolvent – with the key word here being “hopeless”. Some readers have feared that gold confiscation would be seen by the U.S. government as a means to “stop the bleeding” of the U.S. economy. Such fears are misguided.
With the U.S. federal government having $14 trillion in current debt, plus another $70 trillion in “unfunded liabilities” (which now must be funded), the $100’s of billions it could net by making another clean-sweep of its domestic gold holdings are totally irrelevant in economic terms. Thus, if the U.S. government were still to engage in gold confiscation, it would be nothing less than a blatant act of theft by the U.S. government.
Even here, however, motivation is entirely lacking. For those worried about the U.S. government engaging in blatant stealing from its citizens (apart from the money-printing Ponzi-schemes of its bankers), the assets they should be worrying about are the $trillions in paper assets, conveniently located in accounts (operated by bankers) which could be confiscated in a instant merely by pointing-and-clicking. Indeed, there have been a rash of stories (all within recent weeks) of governments all over the world confiscating (paper) pension assets.
In contrast, gold confiscation is a ridiculously cumbersome exercise, where the costs to administer the scheme almost outweigh any benefits by themselves. As a final footnote on this issue, Wikipedia debunked a popular internet myth concerning U.S. gold confiscation in the 1930’s: that safety deposit boxes were “seized and searched for gold” as part of that Executive Order.
In fact, Wikipedia observed that such a directive never existed, and that private safety deposit boxes were never subjected to any searches based upon this administrative action. The only way in which someone could have their gold seized from their safety deposit box was if the government had a lawful reason to search the box – connected with a separate/different criminal violation.
This reinforces what I have said repeatedly to bullion-holders regarding the issue of “storage”. A safety deposit box is in the “custody” of the bank, but (legally) the contents of those boxes always remain in our own “custody”. This is wholly different from either allocated or unallocated bullion accounts where the bullion itself is always legally in the “custody” of the bank administering the account. Thus, if “gold confiscation” were to take place in the U.S. (or anywhere else), any/every ounce contained in these accounts would immediately be seized, while those with bullion in safety deposit boxes would not necessarily be affected.
For reasons listed above, however, I now view the issue of “gold confiscation” as a moot point. What surprises me, and what I intend to address in the balance of this commentary is that the issue of silver confiscation does not seem to have even been raised by any other commentator, let alone examined in a serious manner.
In many of my own commentaries, I have gone into detail on the numerous (and ever-increasing) uses of silver in myriad industrial applications. Not only are many of these products of great importance to both consumer and commercial markets, but because of silver’s superb (and unique) chemical/metallurgical properties, in many of these applications there are either only inferior “substitutes” available, or no substitutes at all.
Compounding the importance of silver in our modern economy is the fact that (as has frequently been reported) both global inventories and stockpiles of silver are nearly totally exhausted. Thus, we have in the silver market something which is entirely absent in the gold market: a legitimate motive for confiscating silver.
Undoubtedly, silver-holders would be furious should the U.S. government (or any other) seek to engage in silver confiscation (almost certainly at only a fraction of silver’s real “fair market value”). There may even be riots in the streets. But unrest would be short-lived, because with a plausible (and even somewhat reasonable) pretext for confiscation, public opposition would quickly wane.
In this respect, we must look at the now-famous internet “campaign” by Max Keiser and friends/allies to “take down JP Morgan” as a two-edged sword. I would (will) undoubtedly be one of those cheering the loudest on the day that this odious Oligarch is forced into bankruptcy. However, a blatant and direct “threat” to bring down arguably the single most-important financial institution in the entire U.S. economy may be viewed by the U.S. government as both “an economic threat” and as a “threat to national security”.
We need only look to Afghanistan and Iraq for examples of the extremes to which the U.S. government will go under the pretext of “national security”. Compared to its global military rampage, confiscating any/all of the silver it could lay it hands on would be nothing more than a minor “footnote” to current events.
In this respect, Bullion Bulls Canada has not joined the growing internet clamor to “take down JP Morgan”. We will certainly monitor this important grassroots movement, but our own policy is not to engage in active promotion of this campaign. To those parties who are actively crusading on this issue, I would hope that they would take the time to seriously evaluate the consequences of their actions.
“Taking down” one of the most notorious banking oligarchies in the history of humanity may (is?) a noble goal. However, as individuals laughingly parrot the phrase “let’s take down JP Morgan”, it’s important that people realize that this is not some “internet browser game” but real life, with real consequences.
Despite being an ardent silver-bull myself, I always caution readers to maintain “balance” in their bullion holdings. Indeed, I have devoted a previous commentary to a conservative (but simple) strategy for investors to use in allocating their dollars between gold and silver.
The reason why I have warned investors not to go “all in” in silver is because it was always possible to envision scenarios where silver’s seemingly much brighter future may not play-out as silver investors currently envision. Sadly, current circumstances have now created such a plausible scenario where it is silver confiscation, not “gold confiscation” which should be an issue pondered by all precious metals investors.
http://www.bullionbullscanada.com/in...=42:rokstories
“Executive Order 6102”, issued by the Roosevelt administration on April 5, 1933 commanded U.S. citizens to turn over all of their bullion holdings, with a few limited exceptions. The official exchange rate for all gold confiscated was $20.67 US, which was the official, fixed price for gold at that time.
There are many observations to be made about this event, and once examined it should be more obvious to people to what extent that threat exists today. To begin with, we must look to the purpose behind that Executive Order. Here, what we see is that there was more than economic strife which motivated this action.
By that time, Hitler had already risen in Germany, and the severely flawed Treaty of Versailles (which resulted from the Armistice of World War I) was increasingly seen as a driver of new hostilities in Europe, rather than the basis for a lasting peace. With the prospects for major, European war once again rising, it was imperative to the U.S. government that it have sufficient financial reserves to engage in its own military build-up.
Here, we must remember that the global monetary system was firmly tied to a gold standard at that time. Thus the only way in which the U.S. government could rapidly increase its money supply to finance its military without shattering the gold standard (as Nixon did in 1970) was to find a way to significantly (and quickly) increase its gold reserves.
Confiscating the gold of its own citizens was clearly the easiest way to accomplish this. A very nice article on this period by Bullion Vault points out another interesting aspect to this episode. Immediately after confiscation, the U.S. government “revalued” gold against the dollar (i.e. it devalued the dollar) to $35/ounce – netting the U.S. government an immediate 50% profit on the gold it had taken from its citizens. But that was literally only half the plan.
Despite the fact that the U.S. had changed its own gold exchange rate versus the dollar, the U.S.’s European allies did not change their own exchange rate between gold and the dollar – producing one of the largest arbitrage events in market history. Traders could buy gold in Europe at $20.67/ounce and then immediately sell that gold to the U.S. government at $35/ounce.
This did more than merely make a lot of European gold traders very rich. It directly and obviously resulted in a vast amount of total, global bullion stockpiles flowing into the U.S. – as the arbitrage opportunity functioned like a “vacuum cleaner” for the global gold supply.
While we can question the course of action for our warmonger governments during this tragic era of Western history, there can be no doubt that the action of the Roosevelt government in confiscating the gold of its citizens was based upon bona fide economic, military, and political considerations. It is equally obvious that no such motivations exist today.
Certainly the U.S. is experiencing severe economic problems, indeed its economy is hopelessly insolvent – with the key word here being “hopeless”. Some readers have feared that gold confiscation would be seen by the U.S. government as a means to “stop the bleeding” of the U.S. economy. Such fears are misguided.
With the U.S. federal government having $14 trillion in current debt, plus another $70 trillion in “unfunded liabilities” (which now must be funded), the $100’s of billions it could net by making another clean-sweep of its domestic gold holdings are totally irrelevant in economic terms. Thus, if the U.S. government were still to engage in gold confiscation, it would be nothing less than a blatant act of theft by the U.S. government.
Even here, however, motivation is entirely lacking. For those worried about the U.S. government engaging in blatant stealing from its citizens (apart from the money-printing Ponzi-schemes of its bankers), the assets they should be worrying about are the $trillions in paper assets, conveniently located in accounts (operated by bankers) which could be confiscated in a instant merely by pointing-and-clicking. Indeed, there have been a rash of stories (all within recent weeks) of governments all over the world confiscating (paper) pension assets.
In contrast, gold confiscation is a ridiculously cumbersome exercise, where the costs to administer the scheme almost outweigh any benefits by themselves. As a final footnote on this issue, Wikipedia debunked a popular internet myth concerning U.S. gold confiscation in the 1930’s: that safety deposit boxes were “seized and searched for gold” as part of that Executive Order.
In fact, Wikipedia observed that such a directive never existed, and that private safety deposit boxes were never subjected to any searches based upon this administrative action. The only way in which someone could have their gold seized from their safety deposit box was if the government had a lawful reason to search the box – connected with a separate/different criminal violation.
This reinforces what I have said repeatedly to bullion-holders regarding the issue of “storage”. A safety deposit box is in the “custody” of the bank, but (legally) the contents of those boxes always remain in our own “custody”. This is wholly different from either allocated or unallocated bullion accounts where the bullion itself is always legally in the “custody” of the bank administering the account. Thus, if “gold confiscation” were to take place in the U.S. (or anywhere else), any/every ounce contained in these accounts would immediately be seized, while those with bullion in safety deposit boxes would not necessarily be affected.
For reasons listed above, however, I now view the issue of “gold confiscation” as a moot point. What surprises me, and what I intend to address in the balance of this commentary is that the issue of silver confiscation does not seem to have even been raised by any other commentator, let alone examined in a serious manner.
In many of my own commentaries, I have gone into detail on the numerous (and ever-increasing) uses of silver in myriad industrial applications. Not only are many of these products of great importance to both consumer and commercial markets, but because of silver’s superb (and unique) chemical/metallurgical properties, in many of these applications there are either only inferior “substitutes” available, or no substitutes at all.
Compounding the importance of silver in our modern economy is the fact that (as has frequently been reported) both global inventories and stockpiles of silver are nearly totally exhausted. Thus, we have in the silver market something which is entirely absent in the gold market: a legitimate motive for confiscating silver.
Undoubtedly, silver-holders would be furious should the U.S. government (or any other) seek to engage in silver confiscation (almost certainly at only a fraction of silver’s real “fair market value”). There may even be riots in the streets. But unrest would be short-lived, because with a plausible (and even somewhat reasonable) pretext for confiscation, public opposition would quickly wane.
In this respect, we must look at the now-famous internet “campaign” by Max Keiser and friends/allies to “take down JP Morgan” as a two-edged sword. I would (will) undoubtedly be one of those cheering the loudest on the day that this odious Oligarch is forced into bankruptcy. However, a blatant and direct “threat” to bring down arguably the single most-important financial institution in the entire U.S. economy may be viewed by the U.S. government as both “an economic threat” and as a “threat to national security”.
We need only look to Afghanistan and Iraq for examples of the extremes to which the U.S. government will go under the pretext of “national security”. Compared to its global military rampage, confiscating any/all of the silver it could lay it hands on would be nothing more than a minor “footnote” to current events.
In this respect, Bullion Bulls Canada has not joined the growing internet clamor to “take down JP Morgan”. We will certainly monitor this important grassroots movement, but our own policy is not to engage in active promotion of this campaign. To those parties who are actively crusading on this issue, I would hope that they would take the time to seriously evaluate the consequences of their actions.
“Taking down” one of the most notorious banking oligarchies in the history of humanity may (is?) a noble goal. However, as individuals laughingly parrot the phrase “let’s take down JP Morgan”, it’s important that people realize that this is not some “internet browser game” but real life, with real consequences.
Despite being an ardent silver-bull myself, I always caution readers to maintain “balance” in their bullion holdings. Indeed, I have devoted a previous commentary to a conservative (but simple) strategy for investors to use in allocating their dollars between gold and silver.
The reason why I have warned investors not to go “all in” in silver is because it was always possible to envision scenarios where silver’s seemingly much brighter future may not play-out as silver investors currently envision. Sadly, current circumstances have now created such a plausible scenario where it is silver confiscation, not “gold confiscation” which should be an issue pondered by all precious metals investors.
http://www.bullionbullscanada.com/in...=42:rokstories