TheEvilDetector
08-25-2007, 08:55 PM
From: http://zealllc.com/2002/hydra.htm
The Gold Confiscation Hydra
Adam Hamilton March 29, 2002 6353 Words
As a diligent student of the amazing history of the wondrous metal of gold and a wildly bullish gold investor at this peculiar crossroads in history, I am perpetually fascinated with almost everything that has anything to do with the Ancient Metal of Kings.
Like most folks once they first feel the heavy weight of cool gold coins exuding some kind of seemingly mystical power as they gleam in the palms of one’s own hands, the fires of goldlust were kindled in me in the 1970s when I first held a handful of magnificent gold coins. At that moment in my life, I immediately understood why all kinds of people from kings to pirates to adventurers throughout six millennia of human history were willing to go to unimaginable lengths to possess the magical yellow metal.
While all things gold continue to fascinate me, from the history of gold to mining gold to investing in gold to using digital gold for Information-Age transactions, there is one front of gold inquiry that never fails to cause me consternation, sometimes even leaving my blood boiling. This thorny subject is the seemingly perpetually dredged up specter of a future gold confiscation in my beloved homeland, the United States of America.
Like the fabled Lernaean Hydra of ancient Greek mythology, a fearsome abominable serpent-like beast with nine vicious heads spewing venomous and lethal breath, no matter how many times the gold confiscation ideas are challenged and mercilessly slain in public debate they keep respawning and rearing their ugly heads.
The ancient Greek sages claimed that Heracles (Hercules to the Romans and us) attempted to slay this vile hellspawn in his Second Labor of Eurystheus to prevent the Hydra from ravaging farms near Lerna in the Peloponnese.
Hercules confronted the terrible monster and, throwing his legendary strength behind his mighty war-club, violently knocked one head of the Hydra clean off. Unfortunately, our hero was dismayed to realize that every time he severed a head from the demonic serpent, two new ones would grow back in its place! Hercules, not one to crumble under adversity even while locked in seemingly hopeless mortal combat, finally realized that he could use red-hot firebrands from a nearby fire to burn the Hydra’s heads off and instantly cauterize the bloody stumps of the necks, preventing more Hydra heads from bursting forth.
The great warrior burned off all of the Hydra’s heads except for the last one, which he severed and buried. Hercules later brilliantly used the dead Hydra’s noxious blood to smear on his own arrowheads to make chemical missile weapons to launch at his future foes.
While a mere mortal like me certainly cannot aspire to slay the Gold Confiscation Hydra like the mighty hero Hercules, I would still like to spend a few paragraphs this week discussing my thoughts on gold confiscation. Perhaps, should the gods smile on me, I can help lop off a single head of the Gold Confiscation Hydra to do my small part in vanquishing the bothersome beast.
While I have received inquiries on the gold confiscation scare in the past, lately, with the wonderful continuing gold rally in 2002, I find more and more people contacting me to discuss the issue of gold confiscation. The subject is controversial, stirs deep convictions, and it never ceases to make emotions run high. Debating gold confiscation with gold investors is like watching conservatives and liberals debate the merits of mercilessly murdering innocent babies in their mothers’ wombs for fun and profit, errr, I mean “abortion” in politically-correct speak. Both debates often devolve into a no-holds-barred brutal and blood-thirsty melee.
As such, I well know this essay will probably offend everyone. So be it. I offer no apologies for my thoughts. I have deliberately avoided writing about this contentious issue for quite awhile, and am frankly growing tired of addressing it in private with my clients. While pretty much everyone is going to hate me for this essay, at least in the future I can direct my clients to this work rather than having to constantly rehash the whole conversation every time. The following ideas are my personal opinions, nothing more and nothing less. Take them with a grain of salt and please do your own due diligence. Read on if you dare.
I have been pondering gold confiscation for a long time and, after careful study of both sides’ arguments and even the original 1933 gold laws, I have come to the conclusion that the probability of such an event happening again in the United States of America in the future is incredibly low, probably less than a 1% chance. In a nutshell, there are three primary reasons why I believe this to be the case.
First, there are vast, vast structural differences between the gold environment of 1933 and today.
Second, confiscating gold again would be the final coup de grace slaughtering the fragile US dollar as thoroughly as if Hercules himself had shoved a burning firebrand down its throat.
Third, the fearsome implications of a new gold confiscation attempt in our brave new world in social terms make it a political suicide play for any future tyrant of the dark ilk of socialist dictator Franklin Roosevelt.
Before I elaborate on these three arguments, I would like to first address another controversial issue surrounding gold confiscation that is sure to put me on many blacklists and reduce the number of Christmas cards I receive this year.
Where, oh where, when the Hydra heads of gold confiscation begin spewing their venomous words, do they first spawn?
Here is a simple experiment that you can try in the privacy of your own home. Next time you see a debate erupt on future gold confiscation, take the time to carefully track it back to its original source, the proverbial spark that kindled the fires of the current gold confiscation debate that you are observing. In my experience, maybe 8 times out of 10, if you track the Gold Confiscation Hydra’s slimy trail back to its dark subterranean den, you will find that it emerged from a gold numismatics merchant.
Gold numismatics are simply rare collectors’ gold coins that trade at high premiums to their intrinsic gold content value. Rare gold coins are beautiful to behold and can be very good investments when demand for gold rarities waxes ecstatic. Coin dealers often love rare gold coins because they are much more profitable to sell than plain old gold bullion coins like the American Gold Eagle that only trade at a small premium to the spot price of gold. The disparate profit structure for gold merchants in selling rare gold coins versus gold bullion coins is quite revealing and a key piece to understanding the gold confiscation debate.
A gold merchant can sometimes sell rare gold coins for 25%+ profit margins, a nice healthy markup. The cutthroat competition in the much larger market for gold bullion coins, on the other hand, often limits profit margins to 3% or so over the spot price of gold. Now if you were a red-blooded capitalist gold merchant, would you prefer to sell gold coins for a 25% profit or 3% profit? Exactly. I would feel the same way if I fed my family by selling gold coins.
Why do you think that Blanchard Gold, the company originally founded by legendary gold freedom-fighter Jim Blanchard who later sold it, suddenly launched a jaw-dropping marketing stunt a few months ago that declared its bread-and-butter gold bullion business was doomed because, and I directly quote, “gold is no longer a store of value” and “gold is no longer a hedge against inflation”? Huh?
Jim Blanchard, a true American hero whose tireless work laid the foundations for US investors to be able to once again legally own gold in 1975 after a four-decade ban, is probably turning over in his grave over what the company that bears his name has foolishly done. Some marketing guru at Blanchard has instantly alienated most of Blanchard’s existing and potential clients, gold bulls. I wrote about this extraordinarily odd event in more detail in February in our private Zeal Intelligence newsletter for our own clients.
Interestingly, Blanchard conveniently now only claims that gold bullion is “caught in a bear trap” and will plunge dramatically in price. It is still aggressively pushing rare gold coins like there is no tomorrow. Gentle readers, far be it from me to attempt to divine the motives of the wizards at Blanchard, but pray tell, could the fact that profit margins on rare gold coins can be an order of magnitude higher than on plain old gold bullion coins be related to the new Blanchard marketing ploy? Only the shadow knows!
The company is zealously trying to convince its clients that the price of gold will crash because central bankers don’t like it but curiously the price of obscure rare gold coins will at the same time soar. Is that logical?
80% of the time or more, whenever the fear of gold confiscation rears its ugly head like a bleating Hydra, it emerges from deep in the dark den of a gold numismatics dealer!
Now there is certainly nothing wrong with rare gold coins or the merchants who sell them. Rare gold coins are wonderful for collectors of beautiful things. I have many good friends with impeccable honor and integrity who sell rare gold coins who I continually recommend in a heartbeat to our gold collector clients who traffic in beautiful things.
There IS, however, a BIG problem when gold numismatics dealers use blatant scare tactics as Machiavellian marketing tools to herd naïve gold investors into very expensive, highly illiquid, and subjectively valued rare gold coins by telling them that there is a high probability that Uncle Sam will break down their door, conk them over the head with the butt of an MP-5, duct tape them and their family together, comb their house with a metal detector to steal all their gold bullion coins, then throw them in prison just for spite. Hogwash!
My company, Zeal LLC, sells financial information. If you asked me if I believe whether the best source of financial information is the Wall Street Journal, CNBC, or private investing newsletters, honestly what do you think I would say? You got it. It doesn’t mean that I am right or wrong, just that I am biased because my heart and passions are near and dear to this business. It is the same with gold numismatics merchants. Is it any surprise that they cling to and propagate theories that increase their profits and provide better financial futures for their own families?
Anytime you hear a newsletter publisher tell you that newsletters are the ultimate way to get valuable financial information, or anytime you hear a rare gold coin merchant tell you that rare gold coins are the best gold investment because the Franklin Roosevelt Gestapo chose not to bother with them in 1933, you should really take the assertions with a heaping pile of salt. Do your own due diligence and be cautious to believe anyone who has a direct financial interest in getting you to subscribe to a particular worldview! (Holy cow! My Zeal partners are going to thrash me for saying that! See, I told you I would offend everyone in this ill-fated essay! Woe is me.)
Now that the typical shadowy subterranean origins of the Gold Confiscation Hydra have been exposed to the unforgiving rays of sunlight, I would like to briefly discuss the vast differences between the gold environment in 1933 and today, the lethal chain of financial world events in a neo-gold confiscation that would ultimately shatter the fragile fiat US dollar, and the enormously dangerous socio-political implications of such a course of action by a future American tyrant.
As one of those nerdy students of history who can think of few greater pleasures than curling up in front of a crackling fireplace with snow roaring outside and devouring an old book, I have spent untold hours reading about the 1920s and 1930s. Folks who have suffered through other essays that I have hammered out certainly know that my investment interests and intellectual pursuits extend far beyond the world of gold.
The general and gold environments of 1933 were light-years away from what we live in today.
In 1933, gold was legal tender currency in the United States of America. The dollar was literally as good as gold as the US and many other European countries had been on the gold standard for a century. If you possessed paper dollar bills, you could present them to the US Treasury and demand gold bullion. If you had a $20 bill (a lot of money back then), you could exchange it for a $20 one-ounce gold legal tender United States coin. In 1933 gold really was the coin of the realm and was accepted everywhere as money.
Today, ever since US President Richard Nixon tragically severed the final link between gold and the dollar on August 15, 1971, there is absolutely no official or legal tender relationship between gold and the dollar. In fact, the US Treasury and the Federal Reserve have spent hundreds of billions, possibly trillions of fiat dollars over the last three decades, to attempt to prove this very point to the international financial markets and American populace that gold is no longer relevant in the modern world of central banks. Socialist government economist John Maynard Keynes’ “gold is a barbarous relic” thesis has been the rallying cry of the recent official campaign to fully decouple gold from the national fiat currency markets. And it has been done.
In 1933, many American banks kept gold in their vaults. If you had an account at a bank, you could, in some cases, actually demand to withdraw gold instead of paper dollars if you wished. As the Great Depression raged untold multitudes of US banks were failing. Dictator Franklin Roosevelt, only one day after he was inaugurated as President on Saturday March 4, 1933, broke his solemn campaign promises to the American people and unilaterally shut down all the banks in the United States by declaring a four-day “bank holiday”. A terrifying banking crisis was gripping the nation.
Because gold was legal tender, both American bank depositors and foreign investors could demand to withdraw their accounts in gold bullion if the contractual provisions of their particular account allowed this, and many did. As people sensed trouble and began dumping their paper dollars for US legal tender gold coins, the mushrooming gold demand would have contributed to further banking problems and possibly a systemic US banking failure. In history when a country’s banking system totally collapses, the government falls soon after. The 1933 gold confiscation happened a month after the bank holiday and was intimately related to the banking crisis.
Today, of course, US banks don’t keep gold in their vaults and no one can demand gold in lieu of dollars if they want to cash out their accounts. While a gold rush certainly could exacerbate a bank run in 1933, today there is absolutely no link whatsoever between gold and commercial banking. Gold demand and prices can soar today and still have no direct effect on the solvency of the banks.
In 1933, gold was legal tender US currency because the US was on the Gold Standard, paper dollars could be surrendered and gold bullion demanded at the US Treasury and many banks, and the health of the fragile fractional-reserve US banking system could be placed in mortal peril by rapid increases in gold demand trends. In addition, back then a run on gold could deplete the US Treasury and collapse the US dollar. All that is impossible today because of the official decoupling of the dollar from gold!
Today of course, the US government and central banks around the world go to great pains to assure us that gold is nothing but another commodity, like wheat, that has zero role as money in the modern world.
While Franklin Roosevelt was a dishonorable rogue and a thief that stole the future of many Americans nine months before he almost doubled the gold price by decree in his notorious dollar devaluation in 1934, we can look back at history and fully understand why gold was the very cornerstone of the US monetary and banking system at the time.
Today, there are no legal or contractual links between gold and the US dollar, the Federal Reserve, and US banks.
If some future American tyrant even wanted to try and outdo Franklin Roosevelt to become America’s worst president in history by stealing gold from the American people again, what on earth would his justification be this time around? Even if the US financial system was collapsing and bank runs were rampant, because there are now no links between gold and the dollar there is no conceivable reason, real or contrived, that would justify a new gold confiscation to the markets and court of public opinion.
Now relax, I hear your objection already. You are thinking, Adam, we are talking about the federal government here! These are the same folks who honestly expect the public to believe that their new program of strip-searching little old ladies to prevent them from carrying heavy weapons like nail clippers and knitting needles onto jets makes it safe to fly again! Never mind the fact that any self-respecting Islamic terrorist can easily bypass showy-but-lacking-substance new “airport security measures” by simply purchasing a man-portable shoulder-fired surface-to-air missile like the Stinger at an international arms bazaar and easily blast fully-loaded 747s out of the sky on take-off without even setting foot in an airport!
You are thinking, yes, there may be no possible way to justify a new gold confiscation, but the government won’t care. The government is not logical and not rational and it will do whatever the heck it pleases regardless of whether it makes sense or not.
I agree with you completely that governments do not act rationally but I have one point to add. Even though governments perpetually lie, cheat, and steal, there is one thing that virtually all governments and bureaucrats have in common throughout history. Almost without exception, they want to stay in power and ensure that nothing upsets the cozy status quo of the public trough at which they happily feed like gluttonous parasites. This brings us to my second reason why a future government gold confiscation in the US is an extremely low probability event that will probably never happen.
The Gold Confiscation Hydra
Adam Hamilton March 29, 2002 6353 Words
As a diligent student of the amazing history of the wondrous metal of gold and a wildly bullish gold investor at this peculiar crossroads in history, I am perpetually fascinated with almost everything that has anything to do with the Ancient Metal of Kings.
Like most folks once they first feel the heavy weight of cool gold coins exuding some kind of seemingly mystical power as they gleam in the palms of one’s own hands, the fires of goldlust were kindled in me in the 1970s when I first held a handful of magnificent gold coins. At that moment in my life, I immediately understood why all kinds of people from kings to pirates to adventurers throughout six millennia of human history were willing to go to unimaginable lengths to possess the magical yellow metal.
While all things gold continue to fascinate me, from the history of gold to mining gold to investing in gold to using digital gold for Information-Age transactions, there is one front of gold inquiry that never fails to cause me consternation, sometimes even leaving my blood boiling. This thorny subject is the seemingly perpetually dredged up specter of a future gold confiscation in my beloved homeland, the United States of America.
Like the fabled Lernaean Hydra of ancient Greek mythology, a fearsome abominable serpent-like beast with nine vicious heads spewing venomous and lethal breath, no matter how many times the gold confiscation ideas are challenged and mercilessly slain in public debate they keep respawning and rearing their ugly heads.
The ancient Greek sages claimed that Heracles (Hercules to the Romans and us) attempted to slay this vile hellspawn in his Second Labor of Eurystheus to prevent the Hydra from ravaging farms near Lerna in the Peloponnese.
Hercules confronted the terrible monster and, throwing his legendary strength behind his mighty war-club, violently knocked one head of the Hydra clean off. Unfortunately, our hero was dismayed to realize that every time he severed a head from the demonic serpent, two new ones would grow back in its place! Hercules, not one to crumble under adversity even while locked in seemingly hopeless mortal combat, finally realized that he could use red-hot firebrands from a nearby fire to burn the Hydra’s heads off and instantly cauterize the bloody stumps of the necks, preventing more Hydra heads from bursting forth.
The great warrior burned off all of the Hydra’s heads except for the last one, which he severed and buried. Hercules later brilliantly used the dead Hydra’s noxious blood to smear on his own arrowheads to make chemical missile weapons to launch at his future foes.
While a mere mortal like me certainly cannot aspire to slay the Gold Confiscation Hydra like the mighty hero Hercules, I would still like to spend a few paragraphs this week discussing my thoughts on gold confiscation. Perhaps, should the gods smile on me, I can help lop off a single head of the Gold Confiscation Hydra to do my small part in vanquishing the bothersome beast.
While I have received inquiries on the gold confiscation scare in the past, lately, with the wonderful continuing gold rally in 2002, I find more and more people contacting me to discuss the issue of gold confiscation. The subject is controversial, stirs deep convictions, and it never ceases to make emotions run high. Debating gold confiscation with gold investors is like watching conservatives and liberals debate the merits of mercilessly murdering innocent babies in their mothers’ wombs for fun and profit, errr, I mean “abortion” in politically-correct speak. Both debates often devolve into a no-holds-barred brutal and blood-thirsty melee.
As such, I well know this essay will probably offend everyone. So be it. I offer no apologies for my thoughts. I have deliberately avoided writing about this contentious issue for quite awhile, and am frankly growing tired of addressing it in private with my clients. While pretty much everyone is going to hate me for this essay, at least in the future I can direct my clients to this work rather than having to constantly rehash the whole conversation every time. The following ideas are my personal opinions, nothing more and nothing less. Take them with a grain of salt and please do your own due diligence. Read on if you dare.
I have been pondering gold confiscation for a long time and, after careful study of both sides’ arguments and even the original 1933 gold laws, I have come to the conclusion that the probability of such an event happening again in the United States of America in the future is incredibly low, probably less than a 1% chance. In a nutshell, there are three primary reasons why I believe this to be the case.
First, there are vast, vast structural differences between the gold environment of 1933 and today.
Second, confiscating gold again would be the final coup de grace slaughtering the fragile US dollar as thoroughly as if Hercules himself had shoved a burning firebrand down its throat.
Third, the fearsome implications of a new gold confiscation attempt in our brave new world in social terms make it a political suicide play for any future tyrant of the dark ilk of socialist dictator Franklin Roosevelt.
Before I elaborate on these three arguments, I would like to first address another controversial issue surrounding gold confiscation that is sure to put me on many blacklists and reduce the number of Christmas cards I receive this year.
Where, oh where, when the Hydra heads of gold confiscation begin spewing their venomous words, do they first spawn?
Here is a simple experiment that you can try in the privacy of your own home. Next time you see a debate erupt on future gold confiscation, take the time to carefully track it back to its original source, the proverbial spark that kindled the fires of the current gold confiscation debate that you are observing. In my experience, maybe 8 times out of 10, if you track the Gold Confiscation Hydra’s slimy trail back to its dark subterranean den, you will find that it emerged from a gold numismatics merchant.
Gold numismatics are simply rare collectors’ gold coins that trade at high premiums to their intrinsic gold content value. Rare gold coins are beautiful to behold and can be very good investments when demand for gold rarities waxes ecstatic. Coin dealers often love rare gold coins because they are much more profitable to sell than plain old gold bullion coins like the American Gold Eagle that only trade at a small premium to the spot price of gold. The disparate profit structure for gold merchants in selling rare gold coins versus gold bullion coins is quite revealing and a key piece to understanding the gold confiscation debate.
A gold merchant can sometimes sell rare gold coins for 25%+ profit margins, a nice healthy markup. The cutthroat competition in the much larger market for gold bullion coins, on the other hand, often limits profit margins to 3% or so over the spot price of gold. Now if you were a red-blooded capitalist gold merchant, would you prefer to sell gold coins for a 25% profit or 3% profit? Exactly. I would feel the same way if I fed my family by selling gold coins.
Why do you think that Blanchard Gold, the company originally founded by legendary gold freedom-fighter Jim Blanchard who later sold it, suddenly launched a jaw-dropping marketing stunt a few months ago that declared its bread-and-butter gold bullion business was doomed because, and I directly quote, “gold is no longer a store of value” and “gold is no longer a hedge against inflation”? Huh?
Jim Blanchard, a true American hero whose tireless work laid the foundations for US investors to be able to once again legally own gold in 1975 after a four-decade ban, is probably turning over in his grave over what the company that bears his name has foolishly done. Some marketing guru at Blanchard has instantly alienated most of Blanchard’s existing and potential clients, gold bulls. I wrote about this extraordinarily odd event in more detail in February in our private Zeal Intelligence newsletter for our own clients.
Interestingly, Blanchard conveniently now only claims that gold bullion is “caught in a bear trap” and will plunge dramatically in price. It is still aggressively pushing rare gold coins like there is no tomorrow. Gentle readers, far be it from me to attempt to divine the motives of the wizards at Blanchard, but pray tell, could the fact that profit margins on rare gold coins can be an order of magnitude higher than on plain old gold bullion coins be related to the new Blanchard marketing ploy? Only the shadow knows!
The company is zealously trying to convince its clients that the price of gold will crash because central bankers don’t like it but curiously the price of obscure rare gold coins will at the same time soar. Is that logical?
80% of the time or more, whenever the fear of gold confiscation rears its ugly head like a bleating Hydra, it emerges from deep in the dark den of a gold numismatics dealer!
Now there is certainly nothing wrong with rare gold coins or the merchants who sell them. Rare gold coins are wonderful for collectors of beautiful things. I have many good friends with impeccable honor and integrity who sell rare gold coins who I continually recommend in a heartbeat to our gold collector clients who traffic in beautiful things.
There IS, however, a BIG problem when gold numismatics dealers use blatant scare tactics as Machiavellian marketing tools to herd naïve gold investors into very expensive, highly illiquid, and subjectively valued rare gold coins by telling them that there is a high probability that Uncle Sam will break down their door, conk them over the head with the butt of an MP-5, duct tape them and their family together, comb their house with a metal detector to steal all their gold bullion coins, then throw them in prison just for spite. Hogwash!
My company, Zeal LLC, sells financial information. If you asked me if I believe whether the best source of financial information is the Wall Street Journal, CNBC, or private investing newsletters, honestly what do you think I would say? You got it. It doesn’t mean that I am right or wrong, just that I am biased because my heart and passions are near and dear to this business. It is the same with gold numismatics merchants. Is it any surprise that they cling to and propagate theories that increase their profits and provide better financial futures for their own families?
Anytime you hear a newsletter publisher tell you that newsletters are the ultimate way to get valuable financial information, or anytime you hear a rare gold coin merchant tell you that rare gold coins are the best gold investment because the Franklin Roosevelt Gestapo chose not to bother with them in 1933, you should really take the assertions with a heaping pile of salt. Do your own due diligence and be cautious to believe anyone who has a direct financial interest in getting you to subscribe to a particular worldview! (Holy cow! My Zeal partners are going to thrash me for saying that! See, I told you I would offend everyone in this ill-fated essay! Woe is me.)
Now that the typical shadowy subterranean origins of the Gold Confiscation Hydra have been exposed to the unforgiving rays of sunlight, I would like to briefly discuss the vast differences between the gold environment in 1933 and today, the lethal chain of financial world events in a neo-gold confiscation that would ultimately shatter the fragile fiat US dollar, and the enormously dangerous socio-political implications of such a course of action by a future American tyrant.
As one of those nerdy students of history who can think of few greater pleasures than curling up in front of a crackling fireplace with snow roaring outside and devouring an old book, I have spent untold hours reading about the 1920s and 1930s. Folks who have suffered through other essays that I have hammered out certainly know that my investment interests and intellectual pursuits extend far beyond the world of gold.
The general and gold environments of 1933 were light-years away from what we live in today.
In 1933, gold was legal tender currency in the United States of America. The dollar was literally as good as gold as the US and many other European countries had been on the gold standard for a century. If you possessed paper dollar bills, you could present them to the US Treasury and demand gold bullion. If you had a $20 bill (a lot of money back then), you could exchange it for a $20 one-ounce gold legal tender United States coin. In 1933 gold really was the coin of the realm and was accepted everywhere as money.
Today, ever since US President Richard Nixon tragically severed the final link between gold and the dollar on August 15, 1971, there is absolutely no official or legal tender relationship between gold and the dollar. In fact, the US Treasury and the Federal Reserve have spent hundreds of billions, possibly trillions of fiat dollars over the last three decades, to attempt to prove this very point to the international financial markets and American populace that gold is no longer relevant in the modern world of central banks. Socialist government economist John Maynard Keynes’ “gold is a barbarous relic” thesis has been the rallying cry of the recent official campaign to fully decouple gold from the national fiat currency markets. And it has been done.
In 1933, many American banks kept gold in their vaults. If you had an account at a bank, you could, in some cases, actually demand to withdraw gold instead of paper dollars if you wished. As the Great Depression raged untold multitudes of US banks were failing. Dictator Franklin Roosevelt, only one day after he was inaugurated as President on Saturday March 4, 1933, broke his solemn campaign promises to the American people and unilaterally shut down all the banks in the United States by declaring a four-day “bank holiday”. A terrifying banking crisis was gripping the nation.
Because gold was legal tender, both American bank depositors and foreign investors could demand to withdraw their accounts in gold bullion if the contractual provisions of their particular account allowed this, and many did. As people sensed trouble and began dumping their paper dollars for US legal tender gold coins, the mushrooming gold demand would have contributed to further banking problems and possibly a systemic US banking failure. In history when a country’s banking system totally collapses, the government falls soon after. The 1933 gold confiscation happened a month after the bank holiday and was intimately related to the banking crisis.
Today, of course, US banks don’t keep gold in their vaults and no one can demand gold in lieu of dollars if they want to cash out their accounts. While a gold rush certainly could exacerbate a bank run in 1933, today there is absolutely no link whatsoever between gold and commercial banking. Gold demand and prices can soar today and still have no direct effect on the solvency of the banks.
In 1933, gold was legal tender US currency because the US was on the Gold Standard, paper dollars could be surrendered and gold bullion demanded at the US Treasury and many banks, and the health of the fragile fractional-reserve US banking system could be placed in mortal peril by rapid increases in gold demand trends. In addition, back then a run on gold could deplete the US Treasury and collapse the US dollar. All that is impossible today because of the official decoupling of the dollar from gold!
Today of course, the US government and central banks around the world go to great pains to assure us that gold is nothing but another commodity, like wheat, that has zero role as money in the modern world.
While Franklin Roosevelt was a dishonorable rogue and a thief that stole the future of many Americans nine months before he almost doubled the gold price by decree in his notorious dollar devaluation in 1934, we can look back at history and fully understand why gold was the very cornerstone of the US monetary and banking system at the time.
Today, there are no legal or contractual links between gold and the US dollar, the Federal Reserve, and US banks.
If some future American tyrant even wanted to try and outdo Franklin Roosevelt to become America’s worst president in history by stealing gold from the American people again, what on earth would his justification be this time around? Even if the US financial system was collapsing and bank runs were rampant, because there are now no links between gold and the dollar there is no conceivable reason, real or contrived, that would justify a new gold confiscation to the markets and court of public opinion.
Now relax, I hear your objection already. You are thinking, Adam, we are talking about the federal government here! These are the same folks who honestly expect the public to believe that their new program of strip-searching little old ladies to prevent them from carrying heavy weapons like nail clippers and knitting needles onto jets makes it safe to fly again! Never mind the fact that any self-respecting Islamic terrorist can easily bypass showy-but-lacking-substance new “airport security measures” by simply purchasing a man-portable shoulder-fired surface-to-air missile like the Stinger at an international arms bazaar and easily blast fully-loaded 747s out of the sky on take-off without even setting foot in an airport!
You are thinking, yes, there may be no possible way to justify a new gold confiscation, but the government won’t care. The government is not logical and not rational and it will do whatever the heck it pleases regardless of whether it makes sense or not.
I agree with you completely that governments do not act rationally but I have one point to add. Even though governments perpetually lie, cheat, and steal, there is one thing that virtually all governments and bureaucrats have in common throughout history. Almost without exception, they want to stay in power and ensure that nothing upsets the cozy status quo of the public trough at which they happily feed like gluttonous parasites. This brings us to my second reason why a future government gold confiscation in the US is an extremely low probability event that will probably never happen.