- Written by Marc Courtenay
- Thursday, 13 August 2009
There’s a lot of Internet chatter these days about the possibility of the U.S. government seizing its citizens’ private gold holdings.
What are the chances?
Well, it’s always good to bear in mind that there is no telling what the government might do. It’s already doing things that were unthinkable just a few years ago. If President Obama believes there is political hay to be made from seizing your gold – or even if he sincerely thinks such a move would be “good for the country” – we’re sure he won’t hesitate to make the grab. After all, his favorite predecessor, Franklin Roosevelt, set the precedent.
Many Americans don’t even realize that private gold ownership was forbidden for forty years, but it was. The relevant edict is Presidential Executive Order 6102 of April 5, 1933, which begins:
Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of the authority vested in me by Section 5(b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled
An Act to provide relief in the existing national emergency in banking, and for other purposes,
in which amendatory Act Congress declared that a serious emergency exists,
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 …
There was, of course, no constitutional peg on which to hang such an outrageous crime against the people, so FDR decided to fall back on the 1917 Trading with the Enemy Act, which he claimed gave him the authority to do this in order to prevent gold from falling into the “wrong” hands. If that seems a flimsy argument, it is.
But it echoes eerily today. How much of our personal freedom have we already been asked to sacrifice to the Forever War on Terrorism? And note also the reference to an “existing national emergency in banking” that requires extreme measures. Sound familiar?
So, no question that Obama could follow in the footsteps of his mentor, if he wanted to. That said, though, the likelihood of a new gold confiscation is remote, for a number of reasons.
2009 is not 1933. Back then, the money supply was constrained by the gold standard. As Roosevelt concocted the New Deal, he ran smack up against that wall. He needed more money than he had, couldn’t raise taxes in a depression, and couldn’t print dollars that weren’t gold-backed.
His solution may have been reprehensible, but it was elegant. First, make the private possession of gold illegal, paying those who surrender their metal the official price, $20.67 per ounce. Then revalue gold to $35 per ounce. Voilà: Instant inflation, lots of new money, problem solved. And the New Deal was off and running.
But we have long since abandoned the gold standard, and Obama doesn’t face FDR’s constraints on monetary inflation. However much money is needed to finance his New Deal Redux, he can have it. All he has to do is rev up the printing press or turn an unlimited number of bits and bytes into electronic cash.
Given this kind of clout, what does he need gold for?
An argument can be made that the yellow metal is still useful. It runs like this: Creating money out of thin air is inflationary, and a large stash of gold, even if it doesn’t officially back anything, serves as a sort of counterweight. People around the world will have greater confidence in your currency knowing that, as a last resort, you can pay your bills in gold. And the more gold you have, the better.
Furthermore, confiscating gold and assigning it a fixed dollar value would also prevent the kind of runaway gold price that the coming massive inflation is bound to trigger. As those who argue that the gold price is already suppressed correctly point out, the government has decided to sacrifice the dollar in order to avert deflation. Thus a lower-than-free-market gold price helps obscure the damage that’s been done to the currency. People feel richer with more, albeit inflated, dollars in their pockets; a rapidly escalating gold price shows them that they’re not.
These two arguments aren’t empty, but they’re not convincing. Most folks in government subscribe to the “barbarous relic” school of thought about gold. Precious metals probably cross the minds of Obama’s economists only when they’re out buying jewelry.
And most American citizens have never even seen a physical gold coin, much less own one. Reeling in all the bullion out there will, in reality, do the government little if any good.
One final point. In the 1930s, when people were asked to turn in their gold, compliance was quite high. Americans believed their government when told that it was for the greater good. Imagine.
Today, that attitude seems laughably naïve. Those who have gold know that it is an unequaled storehouse of value. That they would meekly part with it at the government’s behest requires a belief that naïveté still rules the land.
Far more likely is that gold owners would resist. And since they also tend to be gun owners, there could be serious confrontations. The government doesn’t want mass resistance to one of its orders, nor an escalation of the domestic violence it will probably get anyway, when unemployment rises to Depression-era levels. It’s simply not worth it.
Never say never where government stupidity is involved. But all things considered, a modern-day gold confiscation is not high on our list of financial worries.
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