Gold Confiscation: A Highly Unlikely Threat
by Gary North: Europe's
I wish this
were not necessary, but articles
like this one keep popping up. So, from time to time, I push
one of them down. Here is a recent one.
Greatest Threat to Gold Ownership
If you hold
precious metals in your portfolio, there is a good chance you
fear hyperinflation and the crash of fiat currencies.
distrust governments in general and believe they are self-serving
and have no interest in your economic well-being. It is likely
your holdings in gold are your lifeline; your hope to get you
through these times while holding on to your wealth.
you ever given it any thought to the possibility of having this
lifeline confiscated by the authorities?
In my conversations
with friends and associates, I have often raised this question.
The typical responses:
with that if and when it happens."
"I just wouldn't
give it to them."
these wishful thinking responses.
It's an interesting
thought that the greatest threat to gold and silver investment
might not be the possibility of losing on the speculation, but
the government taking it away from you. It's a thought that I've
found few want to even think about, let alone discuss.
If you fall
into this camp, you're in good company. Some of those forecasters
whom I respect most highly also treat it either as "unlikely"
or, at best, "something we may need to look at in the future."
To date, in conversing with top advisors worldwide, the two primary
reasons they believe gold will not be confiscated:
would mean the government acknowledges the reality of the value
is quite so. They would be changing their official view… which,
of course, they do all the time. But I submit that all that
they need to do is put the proper spin on it.
would meet greater resistance than they did back in '33."
that this is also true, but that a plan will be put in place
to deal with that resistance.
he consulted are correct. There are lots of other arguments that
support them. I shall cover some of these arguments in greater detail
The mark of
someone who has no clue about gold is that he goes back to 1933,
when the USA was the last nation on a gold coin standard. There
was a massive depression. Prices were falling. People held gold
coins for the same reason that they held currency. Its price was
fixed by law. The price would not fall. They did not hold it as
an inflation hedge. They held it as a deflation hedge.
The gold newbies
then equate that era with ours: inflationary, no trace of a gold
standard for 40 years, and a population that does not use gold.
In short, they argue from a world in which gold was money, and draw
conclusions for a world in which gold has not been money for almost
address both of these assertions in more detail shortly, but first,
a bit of history.
Franklin Roosevelt came into office and immediately created the
Emergency Banking Act, which demanded that all those who held
gold (other than personal jewelry) turn it in to approved banks.
Holders were given less than a month to do this. The Government
then paid them $20.67 per ounce the going rate at the time.
Following confiscation, the Government declared that the new value
of gold was $35.00. In essence, they arbitrarily increased the
value of their newly-purchased asset by 69%. (This is enough reason
alone to confiscate.)
You know this
guy has no concept of history or money. The world of 1933 was radically
different from today.
the US Government is in much worse shape than it was in 1933 and
they have much more to lose. The US dollar is the default currency
of the world, but it's one that's on the ropes, which means the
US economic power over the rest of the world is on the ropes.
The US dollar
is not on
the ropes. Its status as the world's reserve currency is challenged
only by the euro, which really is on the ropes.
think that readers will agree that they will do anything to keep
from losing this all-important power.
I hope no reader
takes any of this seriously. It's nonsense. Power over gold has
nothing to do with reserve currency status, since no currency is
connected legally to gold. You cannot walk into any bank and demand
gold for any nation's currency at a fixed rate. This has been the
case ever since 1933.
US has essentially run out of options. At some point, the fiat currencies
of the First World will collapse and some other form of payment
will be necessary.
He is arguing
for universal hyperinflation in every Western nation. This has never
happened. I mean not ever. To argue this way shows an ignorance
of history that is astounding. He is predicting the suicide of all
Western governments and currencies. It's easier for governments
to default selectively on targeted interest groups, such as oldsters,
than to commit suicide. He does not understand this.
the IMF is hoping to create a new default currency, but that, too,
is to be a fiat currency. If any country were to produce a gold-backed
currency in sufficient supply, that currency would likely become
the desired currency worldwide. Fractional backing would be expected.
It's all hypothetical.
No nation is anywhere near doing this. No exporting nation would
dare do this. It's currency would skyrocket. That eliminates Asia.
So, who's left? Latin America? Does he think Brazil is going to
introduce a gold coin system? His whole argument is just plan nuts.
most readers will know, the Chinese, Indians, Russians and others
see the opportunity and are building up their gold reserves quickly
and substantially. If these countries were to agree to introduce
a new gold-backed currency, there can be little doubt that they
would succeed in changing the balance of world trade.
Utter nonsense. They have been building reserves from hardly anything
to slightly more than hardly anything. He needs to present figures:
the dollar value of gold holdings compared to the dollar value of
IOUs from Western governments. He doesn't, because the figures would
show that gold is an afterthought to central bankers. It's hardly
worth mentioning in terms of total reserves for those nations' domestic
currencies. But he talks as if it were a big deal. It's marginal
buying. They are not selling IOUs issued by Washington.
But, just for
the record, at $1800 an ounce, India has 8.7%
of its foreign reserves in gold. This does not count its holdings
of domestic IOUs from the government. Russia
has 7.7%. China has a piddly 1.6%.
To launch a 100% gold-backed currency, the size of their holdings
of domestic assets would have to plummet by 100%, and their holdings
of foreign reserves would have to plummet by over 90%. They would
have to sell these assets. To whom? The market for government debt
would collapse. This would create domestic depressions in all three
of these BRIC countries. Domestic prices would fall by 95% or more.
Their commercial banking systems would collapse within weeks.
Is there some
other plan to create a gold standard in each of these countries?
If so, what are these plans? These nations have never publicly discussed
such a plan. I know of no Keynesian economist who has suggested
one. I know of no monetarist/Friedmanite economist who has done
Is there the
slightest possibility that the Keynesian central bankers of these
three nations are contemplating the establishment of a gold standard?
Mundell is advising these countries. But how will they figure out
what he is talking about or how his plan could be implemented? Nobody
in the West ever has.
said, the US Government is watching these countries just as we are
and they are aware of the threat of gold to them.
Who says? There
is not a shred of evidence that Obama or anyone in his Administration
is paying any attention to the gold holdings of BRICs. Why should
he? These nations are exporting nations. They want to sell for dollars,
not gold. They want foreigners with dollars or euros to buy their
US ostensibly has approximately 8,200 tonnes of gold in Fort Knox,
although this may well be partially or completely missing. Additionally,
they ostensibly hold a further 5000 tonnes of gold in the cellar
of the New York Federal Reserve Building. Again, there is no certainty
that it is there. In general, the authorities don't seem to like
True, but so
what? There will be no audit of Ft. Knox. Congress will not even
audit the Federal Reserve. But if the government confiscates the
public's gold, there could be probably would be demands
to audit this gold. "What is the government hiding? If gold is this
important, is the government's gold really there?"
In any case,
the gold in Ft. Knox and the Federal Reserve Bank of New York is
worth about $500 billion at $1800 an ounce. Of course, it really
isn't. If the government tried to sell it, the dollar price of gold
would fall. Here are the figures. You can read them here.
The government could sell the gold and do only one of the following
(add 20%, because gold's price is up).
$1,500 per ounce, the total value of U.S. gold reserves is about
$393 billion. Sound like a lot of money? Enough to get the U.S.
out of the debt/spending crisis that we are in? Here's what the
U.S. could do with an extra $393 billion.
- Pay off
2.75% of the national debt
- Pay less
than one year's interest on the national debt
- Reduce the
estimated 2011 budget deficit of $1.645 trillion by about 23%
- Reduce this
year's U.S. budgeted spending of $3.8 trillion by about 10%
- Pay for
40% of the $1 trillion dollar cost of the wars in Iraq and Afghanistan
- Cover about
33% of the estimated cost of the bailing out Fannie Mae and Freddie
- Cover half
of one percent of the estimated unfunded U.S. government liabilities
for social security and medicare
- Pay off
about 4% of total mortgage debt held by American families
of the confiscation article ignores all of this. The largest hoard
of gold on earth if it's really there is a drop in
the fiscal budget.
the rest of the article
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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