The Gold Confiscation Issue:
History And Future Predictions
J. Kent Willis
AGAPI Financial
November 23, 2004
No subject related to gold is more debated than the possibility
that gold may again be confiscated by the US Government during
times of economic crisis. The very mention of this topic to the
die hard "gold-bugs" causes them to panic, lose sleep,
overload their blood pressure monitor and question the wisdom
of their gold investments. Prophets and pundits of every ilk
have written endless elaborate essays at both extremes suggesting
"they will never do it" or "it's a slam-dunk guarantee
that they will". As you can imagine, this issue may be the
single largest deterrent to purchasing physical gold coins as
protection against economic catastrophe in the wake of a US dollar
collapse. We will examine the arguments in detail in this section.
We will present both sides of the issue in all their bombastic
glory without bias and help you decide for yourself. But, unlike
a good mystery novel, we will tell you the ending now:
Absolutely no one knows
what the US Government will do during times of complete economic
and civil chaos. If the worst-case financial scenario unfolds
(a complete collapse and repudiation of the US Dollar by our
foreign creditors), every previous court ruling, law or custom
can be changed by a single stroke of an ink-pen at the bottom
of a Presidential Executive Order (PEO). We pray that this does
not occur. Since any intelligent and sober-minded financial advisor
will admit this, they have to frame their advice along the lines
of probability and relative risk. With a cloudy crystal ball,
we proceed
First, A Little History
Notice we said in the first
line of this section above "may again be confiscated"
What? Again? When did they do it? Why? Not many of us were alive
in the early 1930's. Unless we are familiar with the history
of the issue, we would know little about it. Dozens of books
have been written about the causes of the stock crash and ensuing
worldwide depression. While it is well beyond the scope of our
study but very much related, we will try to provide enough background
information to frame our discussion.
During the absolute bottom of the gut-wrenching depression which
followed the collapse of the US stock market on 24 October, 1929
("Black Thursday"), President Franklin D. Roosevelt
was elected. He called Congress into an emergency session on
March 5, 1933, less than 1 day after his inauguration. The House
and Senate quickly passed the rather noble sounding law titled:
"An Act To Provide
Relief In The Existing National Emergency In Banking, And For
Other Purposes"
How lovely at first glance.
If you didn't know what it really meant (as most of the US public
certainly did not), it sounded like magnificent medicine for
the current sickness of the depression. Everyone agreed that
there was a national emergency. So some new rule or law to provide
"emergency relief for the banks", has to be a good
thing, right? Citizens always look to their government for
help in times of distress. Even when their own government was
much more a part of the problem than the solution in the first
place.
This paved the way for sweeping, unparalleled confiscation of
private property from law abiding citizens in the history of
the United States. President Roosevelt wasted no time in flexing
his new muscles. He signed Executive Order 6102 on April 5th,
1933 and Executive Order 6260 on August 28th, 1933. Order 6260
revoked and superceded 6102. These laws in short order made it
illegal (a federal crime with outrageous penalties of a $10,000
fine and/or 10 years imprisonment) for any law-abiding US citizen
seeking to protect his wealth by simply possessing physical gold
coins or bullion which were lawfully, abundantly and freely in
circulation! Can you imagine that?
Our Government made it illegal to do one of the only things
that would have guaranteed economic survival for American citizens
wise enough to save a portion of their wealth in gold during
one of the darkest economic chapters in our history. Keeping
gold would have immediately almost doubled their purchasing power
at a time when they would have needed it most. Franklin
Roosevelt blew out the only candle available to ordinary citizens
struggling woefully in the dark days of the depression. Amazing.
U.S. citizens, if they had been allowed to own gold, would have
automatically almost doubled their money a few months later.
How? Well, Just 8 months later, new Federal legislation known
as the Gold Reserve Act of 1934 enacted on 30 January, 1934 revalued
gold versus the dollar. The official price was raised from $20.67
USD per ounce to $35.00 USD per ounce. Actually, we all know
that gold is the immutable standard. The dollar was devalued.
A 20 dollar gold coin could have theoretically been exchanged
for 35 paper dollars. This would have help the unemployed
and financially ruined citizens of this nation far more than
the confiscation of their only possible source of legitimate,
honest wealth. I have little doubt that FDR truly "believed"
that is his innumerable PEO's, edicts, sweeping changes in the
banking industry, public works projects and such were just what
America needed. It is also painfully clear that he did not understand
free-markets, or the ultimate implications of his price control
policies. Use "Google" to research and read his "9
Excerpts From His January 15th, 1934 Press Conference".
Also research the excellent archives of the University Of California
at Santa Barbara collectively known as "The American Presidency
Project". Then you will quickly realize that he must have
simply signed PEO's almost carte-blanche; PEO's that were crafted
carefully behind the scenes by the true "kingmakers"
who, unlike FDR, knew exactly what they were doing.
We should clarify the terms of "confiscation". The
US Government did not send armed soldiers house to house to search
for and seize gold without compensation. Gold coins that were
turned in were exchanged for legal tender Federal Reserve notes
(paper money) on a dollar for dollar basis. A $10 gold coin was
taken and the presenter given a $10 bill. Gold bullion was evaluated
for its purity or fineness and compensated at a rate of $20.67
per ounce of fine gold. This was the official US government figure
for what one ounce of gold was "worth" or "priced
at" in dollars. Arbitrary? Yes. But it was the gold-dollar
exchange rate of the long standing, so-called gold standard.
Exchanging gold in other than common coin form was a little trickier
because it required assay/testing and some delay between the
time the citizen turned it in and payment was made. History is
missing on most of the details. However do not forget, with legislation
enacted shortly thereafter, all agents the U.S. Secret Service
as well as U. S. Customs Officers were specifically authorized
to seize gold for violations of the Gold Reserve Act of 1934.
Only the U.S. gold that escaped these ever-growing-longer-arms
of the law made it safely to oversea bank vaults.
At any rate, this was a terribly bad trade to the financially
knowledgeable, but not really understood by most Americans. They
had no clue what had just happened. The law required all citizens
to turn in to the government via the banks almost all gold US
and foreign coins, bullion (bars, nuggets, dust, etc) and gold
certificates within a few weeks after the order was issued. Gold
Certificates were a special class of US paper money ("legal
tender notes") which could be exchanged for US gold coins
upon demand by private citizens at most banks. Only notes clearly
marked as gold certificates had to be surrendered. The paper
"gold claim" is rather odd; it merely represented a
claim on physical gold. The US Government simply could have issued
orders to the banking system to refuse to trade the paper for
gold coin if presented after the infamous May 1, 1933 date. The
paper could have continued to circulate at face value.
There were some exceptions to the rules. Special licenses were
available from The Secretary of the Treasury via the Federal
Reserve banks for certain professionals who used gold in the
normal course of their business such as artisans, jewelers, dentists,
etc. They were allowed to have only "reasonable" quantities
on hand, i.e. they couldn't hoard large quantities of it either.
Each US citizen could legally keep a total of $100.00 face value
of US gold coins or US Gold Certificates. A family of four could
have kept $400.00 face value of coins and so on. Banks could
continue to deal in it with other banks for international settlement
with additional controls and regulation, and store it for others.
The wealthy financiers could still play with it in most every
manner. Gold mining, refining and exporting companies could of
course still deal with it. Just plain folk like you and me couldn't,
at least not "legally".
There were also exceptions if the coin was considered to have
some nominal numismatic or coin-collector type appeal. It was
likely exempt if it was rare or unusual and typically was sold/traded
for a measurable premium over the net gold value. This was vague
and subject to interpretation. Many of the coins which have great
coin collector appeal to us today and sell for much more than
the value of the gold that is in them were considered too common
at that time to qualify for exemption. Many were melted. May
their atoms rest in peace.
What is the legal basis
for the Presidential Power Manifested In An Executive Order?
A common clause inserted in
the text of essentially every PEO is "By virtue of the authority
vested in me". FDR's edict is no exception. He specifically
cited the "War Powers Act" of 6 October, 1917 and its
revisions which were promulgated in March, 1933. As I recall,
a large number of Texas Republicans who believed that even as
late as 1994 this Emergency Act was still in effect were nigh
unto seceding from the Union at one time. (That issue is a whole
other can of worms!). The 1917 law was also Titled "National
Emergency In Banking Relief And Trading With The Enemy Act".
Fifteen long years after the original national emergency of the
time (WWI) was clearly over, the law was still very much alive.
Constitutional scholars have many times debated the nature of
many such executive orders. When do/did they officially expire?
If they were not officially rescinded, what exactly is their
legal status and judicial import at any point in time? This was
the gist of the Texas Republican Committee complaint in the mid
1990's. I will leave that discussion to the legal experts.
Emergencies conveniently always last much longer in the eyes
of authorities than they do in the heart and minds of the people
under their protection. If you carefully read the text of
FDR's gold confiscation PEO you would wonder when it would end.
The White House released a public statement on April 5, 1933
that contained the following: "The order is limited to the
period of emergency. The chief purpose of the order is to restore
to the country's reserves gold held for hoarding and the withholding
of which under existing conditions does not promote the public
interest".
It was only many years later that US citizens holding gold coins
and bullion would be in the "public interest". These
Presidential Executive Orders making it illegal for private citizens
to own gold were in effect for 40 years until they were revoked
by, you guessed it, another Presidential Executive Order (11825)
on 31 December, 1974. What a lovely late Christmas gift from
Gerald R. Ford! Americans were free to do whatever they pleased
regarding gold coins and bullion again. May it ever be so.
Back to the source of the authority. We are not constitutional
experts, but here is our understanding as good citizens who study
our constitution earnestly. The President, under Article II
of the Constitution is granted very broad powers, including
primarily:
a. Wield Executive Power.
b. Serve as Commander In Chief of all the Armed Forces.
c. Grant Officer Commissions in the Armed Forces.
d. Convene Special Sessions of Congress for reasons he deems
fit.
e. Enforce/Ensure as the "Top Cop" that federal laws
are obeyed.
f. Receive Foreign Ambassadors.
g. Grant pardons (except for impeachment) and Stays Of Execution
to convicted felons.
h. Appoint officials to many, but not all, lower positions, i.e.,
Cabinet members, etc.
The President must share power
with The Senate and House of Representatives in some matters.
The Senate must also participate in approval of treaties with
foreign governments, appointment of Ambassadors, and selection
of higher level court judges. Federal legislation enactment requires
Congressional approval. Article II deals with powers of
the Executive Branch. Clause 1 of Section 1 clearly states that
the President has "Executive Power". Item "a"
above was the source for matters like FDR's PEO's. Prior to WWI,
executive orders were often used for relatively minor acts of
state for often unremarkable matters. After the War Powers Act
of 1917, this changed drastically. But the number of PEO's increased
as well as the importance of the issues unilaterally enforced
via use of the PEO. WWI frighteningly impacted essentially every
facet of US trade with the world, international policies, existing
treaties/agreements and as a consequence, directly and brutally
impacted the US economy. The War Powers Act was very much exactly
the right legislation need for the uncharted territory filled
with the horrors of WWI. The huge concentration of power in the
hands of the President, while legitimate if carefully wielded,
was supposed to be temporary. Much like the sunset clauses in
the current Patriot Acts I and II. Yet, long after the guns fell
silent and the bombs no longer rained from the sky, the power
of the Act rested quietly, ready to strike again on a moment's
notice.
What is even more significant is that most Americans are not
aware of the following fact: The 1917 War Powers Act contained
explicit language that EXCLUDED American citizens from the sharp
teeth and effects of the legislation. FDR convened a Special
Session of Congress in 1933 to remove that clause. Consequently
every law abiding US citizen was subject to its decree. This
permitted the President to declare a "national emergency"
for just about any reason. In less than 40 minutes, with no debate,
this travesty was ratified by the House and the Senate. The gold
confiscation edicts were born from the illicit union of Mother
Fear and Father Hubris in the midst of the depression.
Well, what happened to
the gold?
Many Americans dutifully turned
in their meager holdings. But not everyone. Many simply ignored
the order, assumed the risks and stashed them away knowing that
gold was more valuable than the paper given in exchange. Keeping
it literally meant the difference between living or dying for
some. There are not significant historical legal records of US
citizens being fined or imprisoned for failing to comply. This
was the bottom of the depression and average citizens did not
have large quantities of gold. Many were jobless, bankrupt and
barely surviving; selling pencils and apples on the street corners
as so often depicted in the old black and white newsreels from
that era. But wealthy businessmen, bankers and society elites
did own considerable gold. They obviously did not turn in their
gold. How do we know? Most of the US mint made gold coins that
were in circulation at the time ($2.50, $5.00, $10.00 and $20.00
denominations, but mostly the 10 and 20 dollar coins) were simply
shipped off in bags by the thousands to European banks (primarily
in Switzerland and Great Britain) for anonymous safekeeping,
far away from the reach of US authorities. They simply sat there
in darkness and dust buried at the bottom of bank vaults. When
gold ownership was again legalized for US citizens in 1975, tons
of the coins appeared back on the US market. Many coins thought
long since melted appeared, looking as fresh as the day that
they were made. Many coins that were thought to be numismatically
rare (meaning that only a few examples have survived and were
priced very highly) turned out to exist in quantities of hundreds,
even thousands. To this day there are still occasionally large
hoards of US and foreign gold coins likely hidden during the
1930's that are available to collectors and investors coming
onto the market. But rest assured, as a dealer I tell you in
all honesty that most small US and foreign gold coins (about
1/10 ounce up to 1 ounce weight) usually disappear as soon as
they come on the market. They slip quietly back into the hands
of the wise who prefer to store their excess savings in something
other than paper.
And Now, The Future Through
The Cloudy Crystal Ball
(A) Reasons to Resurrect
The Demons Of Confiscation:
The US Government has done
it before. Legal precedent, no matter how dubious and dishonest,
is very powerful. If (when) the US Government is forced to again
back the US dollar in a credible fashion this may be the determining
factor. This is an even greater possibility if in fact, as GATA
proponents claim, that most of the American citizen's gold has
been sold or leased to suppress the price for the past 20 years.
I am certain that the price has been "officially" suppressed
for quite some time. The anecdotal and "weird market behavior"
evidence is overwhelmingly aligned with such an assumption. The
reasons that the price must be suppressed along with the methods
likely used to accomplish such are clearly obvious to all but
the most economic and politically naïve. Why might the dollar
be backed again by gold somehow? Will the dreams of the true
hard-money patriots be realized? Well, if it's only a dream,
I don't want to wake up! Many other extremely knowledgeable experts,
including Jim Sinclair, et al., have dealt with the manner in
which gold might be restored to her rightful place as the indisputable
standard whereby all national currencies are judged. The only
squabbles will be just how worthless any given currency is relative
to gold and what ratio of paper to reserves will be internationally
tolerated. Nations will still be free to debase their currency
for any crisis du jour. But gold will raise her lusty voice,
point out the return to folly, and quickly determine just how
many of those paper impostors you have trade for an ounce of
her. She's doing that now anyway. The likely mechanism used to
once again add real flesh to the skeleton of the dollar will
be the restoration of the Federal Reserve Gold Certificate Ratio.
Uncle Sam will need a great deal of gold to implement
a workable solution even if the price of gold soars to levels
well in excess of $1,000/ounce because there are trillions
of incorrigible little dollars running amok on the planet.
Do the math; it will scare the bejeebus out of you. Hopefully,
the US government will lawfully acquire the needed gold reserves
from the open, unmanaged market to supplement whatever official
hoard that she retains. This market includes financially savvy
citizens who may be happy to part with their real gold
at much higher prices in exchange for paper that might actually
be worth something again, at least for a little while. Unfortunately,
this can likely only occur after the visceral repudiation and
dissolution of the IMF in her present incarnation, notwithstanding
the frightening re-emergence of the Islamic Gold Dinar. Do not
dismiss this as folly. The Gold Dinar and her little brother
the Silver Dirham are coming with a vengeance that will crush
those that underestimate its chances for success. The foundation
for their success is both already laid and guaranteed; it is
the hollowed out core of the once mighty US dollar. Nature abhors
a vacuum; gold in some primordial fashion will once again fill
that hollow space. (The Dinar is the subject of another long-winded,
bloviating research paper which is also in the pipeline-stay
tuned).
(B) Reasons To Leave The Demons In Their Graves:
It would be a mistake to repeat the folly of FDR. It's un-American.
It's illegal. It's immoral. It's unjust. Citizens can legally
hold gold in their IRA. Citizens can buy and hold all the gold
they want provided they follow the laws when purchasing and the
tax rules when taking profit. Gold ETF's are now available for
US investors. It would be the ultimate in hypocrisy for the United
States to be constantly bringing democracy and free-trade by
force to every nation of the world while at the same time destroying
the freedom of her own patriotic, law abiding and peace loving
citizens who know full well that gold and silver are the only
righteous and lawful money of the US Constitution. And so on,
ad infinitum
Summary
As we mentioned at the outset,
so we say again: No one knows what will happen. Not even
the Great MOGAMBO! No financial advisor can accurately
judge your perception of this risk or to what extent your fear/confidence
regarding the outcome of this fundamental issue should have on
your portfolio structure. I am NOT your financial advisor. What
is right for me may not be right for you. But I know what I believe
will occur. I have positioned myself accordingly.
A simple procedure for you would be to decide FIRST just where
YOU are on the continuum from "head for the hills"
or "everything's gonna be just peachy". If you believe
in the "end of the financial world as we know it",
just purchase actual gold coins with paid for savings, using
no margin or debt. Don't foolishly tap Home Equity credit lines
or anything like that. Don't play your own mini-version of the
interest rate carry trade; thinking it will be easy to pay back
those loans and interest with skyrocketing US dollar gold prices.
Foolishness has killed many. Greed has killed everyone.
If you believe that physical gold will be once again be taken
from citizens but still want to participate in gold's historic
price rise, play the risky paper games of buying shares of the
new ETF's with uncertain custodial controls on the gold that
supposedly backs the shares. Or, chase stock promises of well-run,
non-hedged gold explorers and producers. Avoid the miners heavily
invested in places where the strength of the national currency
relative to the dollar and "resource nationalization"
issues are of concern. Talk to your trusted personal advisor,
CPA, or accountant about the risks which exist for any type of
investment. Maybe dial up your family attorney. Theory, meditation,
jaw-boning, and even pounding away all night on the keyboard
in gold-bug chat rooms won't solve your problem. Sleep on it.
Two nights. Then act.
J. Kent Willis
email: jkentw2@aol.com
November 23, 2004
AGAPI Financial
J. Kent
Willis is a Financial Advisor, Licensed General Securities Representative
and the President of AGAPI Financial, LLC. He specializes in
tangible assets, biblical faith-based investing seminars and
balanced life strategies. He has traded gold and silver since
the mid 1970's and resides in Kentucky. He can be reached at
jkentw2@aol.com. This work may be reprinted and distributed freely
to all hard money, "gold-bug" and related websites
provided credit is given to the author and the website from which
it was originally posted.
________________
321gold Inc
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