By a so-called Executive Order, President Roosevelt declared on April
5, 1933 that:
"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."
The story told today is that citizens in the 1930's were 'law abiding'
and willingly lined up to turn in their gold, but the facts from back then
tell a different story. Here is an interesting table based on data for
circulating gold coins reported by Milton Friedman and Anna Schwartz in their
book, "A Monetary History of the United States, 1867-1960".
Monetary Gold in the United States
Coin (million oz)
Gold Stock (million oz)
$ Value of Gold Stock (millions)
There are two observations to be made from the above table.
- The total quantity
of monetary gold (i.e., gold bullion/coin in bank vaults and circulating
gold coin) in the US was declining before FDR announced the confiscation
on April 5th. The gold stock in banks, the Federal Reserve and the US
Treasury fell by 5.5%. Circulating gold coin fell a staggering 35.5% in
the three months prior to FDR's announcement. What was the reason for
these declines? There was a lot of speculation before FDR's April 5th
announcement that he would confiscate everyone's gold. I think it is
reasonable to assume that some people chose to get their gold to safety
- just in case the confiscation rumors turned out to be true - so that
their gold would not be taken from them. Such action would suggest that
people were not so law abiding after all, which is also confirmed by the
- After the
confiscation announcement, only 3.9 million ounces of gold coin -
approximately 21.9% of the gold coin then in circulation - were turned
in. Subsequently, the government no longer reported this statistic as it
assumed, according to Friedman and Schwartz, that these gold coins were
"lost, destroyed, exported without
record, or�in numismatic
collections". After analyzing in some detail each
possibility noted in the government's contention that ostensibly
explained why all these gold coins remained outstanding after the
confiscation, Friedman and Schwartz go on to say: "We therefore
concluded that in Jan. 1934 the bulk of the [13.9 million ounces] was
retained illegally in private hands."
So people were not so law abiding in 1933, and who can blame them? The
Constitution was written to restrain federal authority to 17 enumerated
powers, none of which allow the federal government to confiscate gold - or
any asset for that matter - even if that claim were made by a duly enacted
law, let alone where the confiscation is supposedly authorized by an
unconstitutional decree called an Executive Order. In other words, there is
no provision in the Constitution for that type of dictatorial power. But the
above table is interesting for another reason, and it is one that I think
causes any reasonable person to ask, what was FDR's true objective?
It has been argued that the gold confiscation was necessary in order
to build up the total weight of the US gold reserve to increase the amount of
gold that was backing the US dollar. The argument goes that by increasing
this gold backing, confidence in the US monetary and banking system would be
restored. Let's assume that this argument is accurate. There are two ways to
increase the amount of backing - either increase the
weight of gold and/or increase its dollar value.
My point is that this table shows the gold confiscation was totally
unnecessary. The backing could have been increased simply by devaluing the
dollar. This point needs explanation.
FDR devalued the dollar by 69.3%. Before this devaluation, it took
20.67 dollars to exchange for one ounce of gold. After the devaluation, it
took 35 dollars in exchange for that same ounce. The table shows that the
total US gold stock rose from 193.3 million ounces before the confiscation to
195.1 million ounces after. At $35 per ounce, the gold stock's dollar value
in January 1934 was revalued to $6,829 million. But this equation can also be
solved another way.
Let's assume that this $6,829 million total provided the right amount
of gold-backing needed to restore confidence in the dollar. This value for
the gold stock can be achieved without the gold confiscation simply by
devaluing the dollar by 70.9% to $35.33 per ounce. In other words, multiply
the 193.3 million ounces in the gold stock before the confiscation by $35.33,
and you still get this same $6,829 valuation for the gold stock.
Further, the dollar's devaluation would have only needed to be 61.5%
if FDR had made clear that any confiscation was not on the agenda, ending the
rumors about it and thereby avoiding the decline in the available gold. In
other words, the 204.5 million ounces in the gold stock at December 1932
equals $6,829 million at $33.39 per ounce. So why did FDR confiscate the
Evidently it was not to increase the weight of gold that was backing
the dollar. It seems clear that he had some other objective. What was FDR's
I'm sure the records of his thinking - if they exist at all - will
never see the light of day. But only one thing seems plausible to me. I think
FDR's real objective is explained in a 1966 essay entitled "Gold and
Economic Freedom" written by Alan Greenspan. "The
abandonment of the gold standard made it possible for the welfare statists to
use the banking system as a means to an unlimited expansion of credit."
Greenspan then goes on to say: "The financial policy of the
welfare state requires that there be no way for the owners of wealth to
protect themselves. This is the shabby secret of the welfare statists'
tirades against gold. Deficit spending is simply a scheme for the
confiscation of wealth. Gold stands in the way of this insidious process. It
stands as a protector of property rights. If one grasps this, one has no
difficulty in understanding the statists' antagonism toward the gold
It is of course exceedingly ironic that Mr. Greenspan now presides
over this inequitable monetary system of fiat dollars and unlimited credit
expansion that he so severely rebuked four decades ago. Nevertheless, we have
to ask ourselves, has anything changed? Have the welfare statists completely
transformed themselves so that they now fight for the protection of
everyone's property rights and the restoration of a sound Constitutional
of course not. So the risk of government confiscation remains a real threat,
and not just for one's gold. All assets are at risk. After all, why just stop
with gold, which is hard to collect, as the 1933 experience shows. Why not go
after some easy pickings, like 401k's and other tax deferred programs? Using
one of FDR's speeches announcing the gold confiscation, the offending future
'Executive Order' might read something like the following:
"The continued avoidance of tax by subjects of the United
States in various tax-deferred programs poses a grave threat to the peace,
equal justice, and well-being of the United States; and appropriate measures
must be taken immediately to protect the interests of our people. Therefore,
pursuant to my authority as president, I hereby proclaim that such
tax-deferred programs are prohibited, and that all assets within such
programs be tendered within fourteen days to agents of the Government of the
United States. All tax-deferred programs in banks or financial institutions
have been frozen. All sales or purchases or movements of assets in those
programs within the borders of the United States and its territories, and all
transactions or movements of such assets across the border are hereby
prohibited. Your possession of these proscribed assets and/or your
maintenance of a bank or brokerage account to manage them in a tax deferred
program is known to the Government from bank and brokerage company records."
So your retirement plan assets are confiscated. But what about
compensation, you ask. After all, when the gold was confiscated, everyone got
$20.67 for each ounce taken. You could argue that even though that
compensation was 69% worse than if the gold holders had been able to keep
their gold for a few more months until the dollar was formally devalued, it
What I would expect is that you will be compensated for your stolen
assets with a special issue US Treasury bond denominated in dollars "for
compensation in the legal tender of the Government", which is what
FDR declared gold holders would receive for their gold. And as readers of
these letters know, that 'legal tender' is becoming worth less and less as
inflation worsens and as the dollar falls on the foreign exchange markets due
in large part to the federal government's deteriorating financial position.
What's just as worrying, as the dollar continues to plummet, the confiscation
In contrast to the virtuous circle of the 1990's - when a strong
dollar led to more people wanting to hold the dollar, which thereby became
stronger - a vicious circle has begun. A weak dollar is leading to more
people fleeing the dollar, which leads to a weaker dollar.
This vicious circle describes the 'flight from the dollar' stampede
about which I have been writing and warning everyone reading these letters.
And as the dollar declines, the federal government as a result will find it evermore difficult to finance the $2 billion of debt that
it needs every day without debasing the dollar further. It therefore won't be
long I suspect before the assets sitting in tax-deferred programs become a
The federal government is running amok. Its finances are a shambles.
The prospects for improving its situation are bleak, and sadly, rather than
seeking guidance from the wisdom of the Framers of the Constitution and the
sound money provisions written into it, the federal government is moving even
further away from the principles enshrined in that document. So it is
unlikely that reason will prevail. Governments invariably rely upon force,
not reason. And asset confiscation is just one example of that force.
Here is some thoughtful guidance offered by Jay Taylor [See: www.miningstocks.com].
"I am concerned about civil disorder when the existing system
breaks down. I am also concerned about the prospects for our government's
making gold ownership illegal when a very tiny minority of gold investors
ends up with virtually all the national wealth following the devastation of
the dollar. With countless trillions of dollars currently being "dropped
from helicopters," the notion of a multi-thousand-dollar gold price
might in the end prove to be far too conservative. But if that is true, then
we are likely to face a very badly mucked-up world. If nothing else, once the
U.S. becomes an insolvent nation, you may very well count on a "tax the
rich" scheme that effectively confiscates most if not all your wealth.
I certainly do not suggest or condone breaking our country's laws. But
as of this point in time, it is not illegal to transfer wealth out of the
U.S. My warning is you might begin doing that now, if you are blessed to have
more than you need. Just as we suggest owning gold stocks with projects in
geographically diverse areas of the world makes sense, we think owning gold
in diverse locations, especially outside of the U.S., may be a very prudent
policy, especially given our precedent of criminalizing gold ownership during
I think Jay's comments also answer an important question. As noted on
the page 1 table, some 21 million ounces of gold 'disappeared' in the three
months before FDR's gold confiscation. To where did it disappear? Much of it
went to safer countries with less political risk than that prevailing in the
US. And I think therein lays the answer to the confiscation risk.
I have found in my years of experience, that if there is any one right
answer to managing money, it is diversification. This policy enables you to
spread risk. Thus, while you might want to keep some gold in the US, it would
be prudent to keep the bulk of your holdings in countries that do not have a
history of confiscating assets.
In this regard, you may want to consider my company, www.goldmoney.com as one possible
alternative to help you achieve diversification. Not only is your gold stored
in England and insured by Lloyd's of London, GoldMoney's
online purchases are convenient - you don't have to travel to London to open
an account. And perhaps most importantly, because of its exceptionally
attractive rates, you get more gold for your money.
In conclusion, it is a wise policy to plan for the worst. But that is
no reason to not continue hoping for the best. We can hope that an asset
confiscation will not occur, but given the federal government's sorry track
record and the bleak prospects for the once almighty dollar, that hope is
Copyright � 2003, 2004 by Freemarket Gold & Money Report. All Rights Reserved.
First published on December 1, 2003 in FGMR
Turk is the founder of GoldMoney (www.goldmoney.com) and the co-author of The
Coming Collapse of the Dollar (www.dollarcollapse.com).
Copyright © 2007 by James
Turk. All rights reserved.
Copyright © 2008. All rights reserved.
Edited by James Turk, email@example.com
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