|
Recently
I have seen a few articles speculating whether President Obama would decree
the confiscation of private gold holdings from US citizens. This is seen as a
counter against the perceived inflation surge that many believe will wash
over America
and the world in years to come as a result of the huge debt load that the
credit crunch has instigated. In fact, I have even seen speculations about
mining companies being nationalized – even silver mining companies!
Gold
confiscation is a subject that divides gold investors. Some say it
won’t happen again and others say it will happen again. The one thing
they tend to agree on is that they don’t want it to happen again. I
wrote on this subject three years and I just want to reiterate one myth about
the previous Roosevelt confiscation that needs to be buried lest anyone think
a government seizure would leave you bereft of gold.
Roosevelt issued executive order 6102 in April 1933 ordering in all gold coin,
bullion and certificates. One contention is that most people did not bother
obeying such a directive. In my opinion, the following statement by the Roosevelt government was not bluster but
largely true:
“White House Statement on Returning Gold to
Federal Reserve Banks.
April 5, 1933
In
the past weeks the country has given a remarkable demonstration of
confidence. With the reopening of a majority of the banks of the country,
currency in excess of $1,200,000,000, of which more than $600,000,000 was in
the form of gold and gold certificates, has been returned to the Federal
Reserve Banks.
Many persons throughout the United States
have hastened to turn in gold in their possession as an expression of their
faith in the Government and as a result of their desire to be helpful in the
emergency. There are others,
however, who have waited for the Government to issue a formal order for the
return of gold in their possession. Such an order is being issued today.”
The
anti-confiscation contention is that the people who were waiting for the government
to issue a formal order were not for turning their gold in. As can be seen
from the above release, $600m or roughly the equivalent of 30 million ounces
of gold in coin and certificate had been returned to the banks prior to the
executive order.
Now it
can be conceded that the people waiting for an official order may have
ultimately held onto their gold, but a reading of the order suggests that
illegally held gold was probably not going to happen in any great measure.
The reason for this is the following section of Executive Order 6102:
“All persons are hereby required to deliver on
or before May 1, 1933, to a Federal Reserve bank or a branch or agency
thereof or to any member bank of the Federal Reserve System all gold coin,
gold bullion, and gold certificates now owned by them or coming into their
ownership on or before April 28, 1933, except the following:
(b) Gold coin and gold certificates in an amount not
exceeding in the aggregate $100.00 belonging to any one person; and gold
coins having recognized special value to collectors of rare and unusual
coins.”
Now
section (b) is the text of interest. Many have focussed on the numismatical portion, but I have rarely seen much said
about the $100 exemption clause. At that time gold was valued at $20 per
ounce. The $20 double eagle coin in circulation contained just under an ounce
of gold and five of them made up $100.
What
is this exemption clause in executive order 6102 saying? It is saying that
each person could keep up to nearly five ounces of gold coin in their
possession without fear of prosecution! At that time, the adult population of
America
was about 90 million. In theory, the population could have held onto 450
million ounces of gold if they had the means and will to do it (in practise,
this much gold was never minted into coin).
Now was
there widespread illegal hoarding of gold? Milton Friedman and Anna Schwartz
in their book, "A Monetary History
of the United States, 1867-1960" give statistics which suggest that
13.9 million ounces of gold were still in circulation in January 1934 and
that only about 21.9% of the gold in circulation had been handed in.
The
trouble with that statement is that it does not seem to take this 5-ounce
exemption clause into account. Although we do not believe that 90 million
people actually held about 5
ounces each, it would only take each adult in America
to legally hold 0.15oz of gold to account for this “missing” 13.9
million ounces. Indeed, even if an attempt was made to take this 5oz
exemption into account, I would consider it nigh impossible to differentiate
legally held coin from illegally held coin.
How much
of these 13.9 million ounces was legally held? Of course, we cannot say
definitely, but it seems clear to me that even during the Great Depression,
holding five ounces of gold was not an onerous task for many. How much was
the average wage in America
in 1933? I found a few answers by searching the Internet, but they averaged
out at about $1400 per annum. That means that $100 was less than a
month’s wage and although the savings rate in 1933 was one of the
lowest in recent American history, we suspect many households held more than
$100 in savings.
Indeed,
it would only take 2.8 million adults or 3% of the adult population to hold
5oz and account for the entire 13.9 million ounces of gold. When we also
consider how many probably redistributed their excess gold coins to wives,
sons, daughters, parents and so on to avoid confiscation, I think we can
safely conclude that illegal hoarding was not a major activity.
Now
one may say that if Roosevelt
had not included this 5oz exemption then illegal hoarding would have
happened. Perhaps it would have but in this exemption we see Roosevelt the Socialist in action. For you
see, democratic socialism has this thing about progressive taxation and I
suggest the same for confiscation. Just as people will not start paying tax
on their income until they have crossed their personal
“allowance”, so it was with this gold exemption clause. How do
you get the majority of average income voters on your side on this matter?
You simply let them keep a portion of their gold and then give them the added
bonus of a 57% windfall when gold is revalued to
$35! How many sold their five eagle allowance at $35 instead of $20? Nobody
knows for sure but that is how reflation works, you
create extra dollars for people to spend.
So how would this arrested form of confiscation work if it was
imposed today? If President Obama seized the gold ETFs
but allowed citizens to keep five ounces per head how would that pan out?
Quite easily I suspect. As it happens, five ounces of gold currently costs
about $4800. If the average American wage is $40000 today, then this 5oz
would form 12% of annual income. In 1933, it would have been 7% at $20 an
ounce and 12% at $35 an ounce so not much of a difference even after 76 years
(herein we see gold’s ability to preserve wealth across the decades).
Of
course, a modern confiscation may be for different reasons to a 1930s one.
The point I am trying to make is that Roosevelt
signed off executive order 6102 not to prohibit ownership per se but to
prohibit hoarding which is a completely different matter. The relevant
portion of the executive order is:
I, Franklin D. Roosevelt, President of the United
States of America, do declare that said national emergency still continues to
exist and pursuant to said section to do hereby prohibit the hoarding of gold coin,
gold bullion, and gold
certificates within the continental United States by individuals,
partnerships, associations and corporations ..
Possessing
five gold double eagles is not hoarding, gold ownership was not prohibited, gold hoarding was. Thanks to the gold standard, people
were cashing in paper for gold and depleting the Treasury. But when the gold
standard began to prove inconvenient to a government that wanted to reflate the economy, it had to go. So much for the gold
standard holding government accountable, they just discard it when it gets in
the way!
Roland Watson
The Silver Analyst
silveranalyst.blogspot.com
All articles
by Roland Watson
Further analysis and comment on the silver market can be read in the
subscriber-only Silver Analyst newsletter described at http://silveranalyst.blogspot.com where readers can obtain the first issue free. Comments and questions
are also invited via email to silveranalysis@yahoo.co.uk.
| 
