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This
is the first part of a series of articles that looks at the possibility of
the confiscation of gold by one government or more. The complete series will
be featured in coming issues of the Gold Forecaster.
Mr Levine
of HSBC in a recent gold conference pointed out that some top U.S. Asset
Managers were fearful of the possibility of government confiscation of gold.
He explained, that on being told that the bank's U.S. vaults had sufficient
space available for their gold he was told that they did not want their gold
stored in the U.S.A. but preferably in Europe because they feared that at
some stage the U.S. Administration might follow the path set by Franklin D.
Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the
country's strategy in dealing with the nation's economic problems.
Who are these Asset Managers?
For a start, they
are highly qualified capable men who understand the ins and outs of investment
management. Such knowledge usually encompasses monetary matters of the sort
that would include gold. As such we would suggest their opinions have value.
Why did Roosevelt confiscate U.S. citizens Gold in 1933?
- The U.S. was
fighting to come out of the Depression and U.S. banks were struggling in
a not to dissimilar way that they are today.
- The Federal
Reserve was fully aware that U.S. money supply was closely related to
the gold they held. Money supply had to expand.
- Hitler had
gained power in Germany. The potential for war now existed.
- The value of
gold as a reserve asset that provided liquidity, when all else failed
was fully understood.
- The ability
to raise money supply by devaluing the Dollar in terms of gold, was an
opportunity that had to be taken.
But where was
Roosevelt going to get the gold needed to both enlarge the money supply
sufficiently and to provide internationally acceptable money in the event of
war? One of the recognized tactics of war always includes forging your
enemy's money and undermining the home economy. Gold is difficult to forge.
So every
advantage was there to confiscate gold and if needs be, to devalue the $ so
instantly enlarge the money supply.
When National Interests supersede those of its Citizens
How true the
saying, "A true patriot is one who commits you to his cause." And
so it is with governments. Should we see ourselves as bound up with our
government, or can we make our own decisions when we disagree with
government. Each one must answer that question for himself. Many feel the
answer has to be qualified by the situation that presents such demands. Many
will support their government nearly all the way, but draw the line at their
own personal wealth [on which tax has been paid] being confiscated, albeit
for cash. It seems this is what these asset managers feel. Certainly the
trust in and reliance on government has decayed since those days. Many feel
that gold is beyond the pale of such demands.
In Roosevelt's
day, it may have seemed reasonable to most to willingly accede to government
demands for the confiscation of gold. Today, with the ability to hold gold
anywhere in the world, such compliance may not be necessary [We will look
at the validity of this concept in a later article on the subject - it may
not be as clear as many would like it to be!] or will it? After all, the
market price at the time was $20, so it seemed a fair price. That was so for
two years, when President Roosevelt authorized the devaluation of the Dollar
by 75% and raised the price of gold to $35 an ounce. Then many citizens had a
sense of humor failure.
Where could the U.S. Government get more gold?
The most
accessible gold was locally held gold, held by U.S. citizens. To help matters
enormously, every U.S. citizen had to declare his assets on a yearly basis to
the Taxman. So accurate records were held of how much was held, by whom and
where it was held. The only way out was to hold rare gold coins, which fell
outside the classification of simple gold.
It was a great
start. The Depression spread far outside the States and the banking problems,
like today, covered the developed world. Germany was rising fast and clearly
headed for war. Europe and the U.K. were vulnerable in a war. Prudence
demanded that a war chest be accumulated and held in the States.
It would be
naïve to think that Europe and the U.K. were caught off-guard by the
United States devaluation of the Dollar, which history leads us to believe.
No other countries devalued with the U.S. Dollar. They all held their
exchange rates to the Dollar at the rate of exchange that stood before the
devaluation. This created a massive arbitrage opportunity. Buy gold in London
at the equivalent of $20 and ounce and sell it to the U.S. at $35 an
immediate 75% profit. It wasn't long before the U.S. was holding the bulk of
the world's gold, over 26,000 tonnes of it.
What principles were established by this accumulation of gold?
- The first
was that governments not only believe that it is a privilege for
individuals to own gold, but that, that privilege can be removed at any
time they want.
- The second
is that governments will cooperate to the extent needed on accumulating
gold, when they believe it necessary.
- The Third is
that confiscation is a course of action that will be followed should one
or more governments deem it necessary in their national interests.
Julian
D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
Is your
wealth effectively structured to avoid the pernicious effects of the
regulatory climate that we have moved into? It should be and we can help you
to do so professionally and within the law. Please contact us for any help
regarding this at: gold-authenticmoney@iafrica.com.
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