TXRogers wrote: When I posted the
Gold Bug Conundrum almost 2 years ago, I tried to highlight potential pitfalls of assuming that physical gold ownership would automatically ensure the preservation of an individual’s wealth under economic crisis. In general, I agree that it’s the best option but there are no guarantees.
The key point being that “Prosperity comes from reading transitions of the financial environment around you with the underlying assumption that a functional system remains intact, and that government will tolerate current financial freedoms”.
It wasn’t always the case. The mechanisms to reduce current financial freedoms are still in place and can be activated with the stroke of a pen. The declaration of “National Emergency” varies between foul weather to border walls to distant wars initiated where no enemy can be seen by the citizenry.
Gold Seizure (content Link) Exerpts: Clearing up misconceptions about government’s power to confiscate gold from private citizens.
In 1933, President Franklin D. Roosevelt (using the “Trading with the Enemy Act of 1917”) issued an executive order on April 5, 1933 (Please see original U.S. post office poster) requiring that less than a month later on or before
May 1,1933, all persons in possession or control of gold coin, gold bullion, and gold certificates (i.e. paper currency redeemable in gold coin of the United States) to turn them in to any federal reserve bank or any “member bank” of the Federal Reserve system. (The “Trading with the Enemy Act” is still around; it was last amended by Congress a couple of years ago and the general consensus in the legal community is that a confiscation could happen again in the near future. Want proof? Read Professor Hank Holzer’s article in the 1973 Brooklyn Law Review: “How Americans lost their right to own gold and became criminals in the process.”)
Let’s take a look at Title 12 of the United States Code, Sec 95:
Sec 95. Emergency limitations and restrictions on business of members of Federal reserve system; designation of legal holiday. (a) In order to provide for the safer and more effective operation of the National Banking System and the Federal Reserve System, to preserve for the people the full benefits of the currency provided for by the Congress through the National Banking System and the Federal Reserve System, and to relieve interstate commerce of the burdens and obstructions resulting from the receipt on an unsound or unsafe basis of deposits subject to withdrawal by check, during such emergency period as the President of the United States by proclamation may prescribe, no member bank of the Federal Reserve System shall transact any banking business except to such extent and subject to such regulations, limitations and restrictions as may be prescribed by the Secretary of the Treasury, with the approval of the President. Any individual, partnership, corporation, or association, or any director, officer or employee thereof, violating any of the provisions of this section shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000 or, if a natural person, may, in addition to such fine, be imprisoned for a term not exceeding ten years. Each day that any such violation continues shall be deemed a separate offense. (b)(1) In the event of natural calamity, riot, insurrection, war, or other emergency conditions occurring in any State whether caused by acts of nature or of man, the Comptroller of the Currency may designate by proclamation any day a legal holiday for the national banking associations located in that State. In the event that the emergency conditions affect only part of a State, the Comptroller of the Currency may designate the part so affected and may proclaim a legal holiday for the national banking associations located in that affected part. In the event that a State or a State official authorized by law designates any day as a legal holiday for ceremonial or emergency reasons, for the State or any part thereof, that same day shall be a legal holiday for all national banking associations or their offices located in that State or the part so affected. A national banking association or its affected offices may close or remain open on such a State-designated holiday unless the Comptroller of the Currency by written order directs otherwise. FDR’s actions in 1933 – which effectively seized the gold bullion and coin that was not “rare and unusual” – was not the end of it. In 1947, 13 years later, President Harry S. Truman trumped the earlier proclamations:
Proclamation No. 2725 (2)
Exemption of Member Banks of Federal Reserve System NOW, THEREFORE, I, HARRY S. TRUMAN, President of the United States of America, acting under and by virtue of the authority vested in me by section 5(b) of the Trading with the Enemy Act of October 6, 1917, 40 Stat. 415, as amended [section 5(b) of Appendix to Title 50], and section 4 of 2Apr. 7, 1947, 12 F.R. 2343, 61 Stat. 1062 Page 3 of 18 the act of March 9, 1933, 48 Stat. 2 [this section], and by virtue of all other authority vested in me, do hereby, in the interest of the internal management of the Government, proclaim, order, direct, and declare that the said proclamations of March 6 and March 9, 1933, and Executive order of March 10, 1933, as amended, are further amended to exclude from their scope banking institutions which are members of the Federal Reserve System; Provided, however, that no banking institution shall pay out any gold coin, gold bullion, or gold certificates, except as authorized by the Secretary of the Treasury, or allow the withdrawal of any currency for hoarding. So just 16 or 17 years ago, Congress was still amending the section, and it is highly probable that in an emergent situation, this would be revisited by the government to assure its economic and statehood survival. Okay, that begs the fair question, can the government grab all of the gold? Probably not, at least not without paying just compensation – which is a small solace. But what happened in 1933 is that gold (then valued at $20.67 an ounce) was turned in and paid at face value – a double eagle or $20 gold piece received 20 bucks from Uncle Sam in paper, or coin – but not gold bullion or gold coin.
Greater implications of government-owned gold When all of the gold that was going to be got was turned in, FDR devalued the dollar 59% – he raised the price of gold from $20.67 an ounce to $35 an ounce. (In 1971, President Nixon raised the price of gold to $38 an ounce, and in 1973, it was raised to $42.22 an ounce.) Let’s look at that statistic for a minute. In 2011, the price of gold per troy ounce jumped at one point above $1,900, yet the entire American gold reserve of 8,133.5 tonnes – 261 million troy ounces – is officially valued at $42.22 an ounce. That makes the American official gold reserves of gold about $11.019 billion – clearly an artificially low figure (i.e., if Fort Knox were emptied with other storage sites, the government would really have a lot more value- anywhere from 35 to 45 times the figures quoted today as being part of the official reserve.)
The Financial Management Service is a bureau of the United States Department of the Treasury. It issues a daily Treasury Statement, and a monthly as well, but the most interesting thing that they compile from our standpoint is the
Strategy Report of U.S.- Owned Gold. Just what does that show?
Here’s the reality of it. The 261 million troy ounces have a current official value of $42.22 (or around $11 billion). Boost that fair market value of $1,600 an ounce (or informally [say] 35 times larger, a total value of around $400 billion.
That means over $400 billion in gold is presently in government hands – and billions more find themselves in the hands of the people, which would move to the government. Once in hand per se the dollar could be revalued or left on its own. Either way, though, the average citizen now, as then, would lose out.
Draconian criminal penalties for those who ignored law Those who did not want to turn in their gold (the current argument is that the government lacks the resources to make it mandatory): the executive order provided for severe, Draconian criminal penalties for non-compliance: a $10,000 fine or 10 years imprisonment, or both. You have to be really unafraid or believe that the government would not prosecute. Some said that the government only tried to capture a single 1933 $20 gold piece. Not true. They went after the 1933 double eagles – they sued or were sued by collectors who sought to retain the rarity. James A. Stack (no relation to the New York dealer, Stacks’s Rare Coins) was involved in law suits in federal and state court; L. G. Barnard, in Tennessee, was, too. Both lost, even though they had paid a lot for the coin which was both rare and unusual.
The 1933 double eagle wasn’t considered that special. What the Mint viewed it as, however, was a coin that got away – and the Mint faced some pernicious people. But each individual owner was subjected to U.S. Secret Service weapons and other searches. It never was about just the 1933 $20.
There were other cases, too. A sampling going back to the Civil War, when the Act of July 13th, 1861 allowed Treasury Regulation, No. 22, forbidding all transportation of coin or bullion to any State or section declared by the President’s proclamation to be in insurrection (a Supreme Court case affirmed that right); in 1969, an airman was sentenced to 7 years at hard labor for possession and hoarding of gold coin and bullion (U.S. v. Whitfield, 1969 WL 6253), all invited by the changeover. (AFCMR, 1969).
In another case, “An indictment against Gus Farber, a diamond and jewelry merchant of San Francisco, charged… that on or about February 21, 1939, he willfully, unlawfully, and knowingly acquired thirteen genuine $20 gold coins of the United States without a license in accordance with the President’s Order No. 6260, as amended, 12 U.S.C.A. 95 note”, (Farber v. U.S., 114 F.2d 5 , C.A.9, 1940). He was convicted.
In another instance, a 206 troy ounce gold rooster was forfeited to the United States: “Richard L. Graves… was the owner of certain properties in Sparks, Nevada. Included in these properties was the ‘Rick Graves Nugget Casino’. As part of the operation of that establishment, Graves ran a dining room in which the specialty was fried chicken. This room was known as the ‘Golden Rooster Room’. For various reasons, including, among others, the advancement of the interests of his business establishment, Graves developed the idea of acquiring, and showing, a solid gold rooster as a main object of attraction in this room.”
In sum, there’s ample authority – and many cases- allowing for seizure of gold coins and bullion. What then of the exemptions (and how does that figure in the equation)? When the government nationalized gold coin and bullion nearly 80 years ago, it gave less than month for Americans to turn in their hoard, allowing an exemption of up to $100 in gold coin per person, and also permitting collectors of “rare and unusual” coin to maintain their collections. (More on this exemption below.)
On March 9, 1933, the statute was amended to declare (as it remains today) that
“during time of war or during any other period of national emergency declared by the President,” the President may regulate or prohibit (under such Rules and regulations as the President may prescribe) the hoarding of gold bullion. (Emphasis added). This included gold coinage. The following day, on March 10, 1933, acting pursuant to the newly emboldened statute, the President prohibited the removal from the United States of “any gold coin, gold bullion, or gold certificates”‘ except in accordance with regulations. (Executive Order No. 6073, 31 C.F.R.Sec 120.3)
“Rare and unusual” coins exempted from 1933 seizure There is no precise definition of what constitutes a “rare coin.” Executive Order 6260 (issued by FDR on August 28, 1933) recalled all gold coins then in circulation, except “rare and unusual” coins, which were subsequently interpreted to mean as any U.S. gold coin minted prior to 1933. In Coin World Almanac (6th ed. 1990), it is noted that “[T]here are many factors which can make a particular issue coin rare. These include total mintage, the normal attrition of circulation, official and private meltings, and the level of collector interest at the time of issue.” One could argue that subsequent collector interest is also a factor. That the Treasury Secretary would exempt “rare and unusual” coin from seizure asks more questions than it answers. What precisely is a “rare” coin? There is no precise definition of what constitutes a “rare coin.”
Citizens once had the right to deposit silver or gold bullion with the mint and receive, in return, a full measure of precious metal coinage, less the cost of coining. The government and the population could thus control currency supplies. The right to deposit these metals was called “free coinage”, though this was hardly so since there was a modest charge by the Mint for the service. Free coinage of silver ended with passage of the Coinage Act of 1873; general circulation gold coinage itself was halted in 1933, and created the first modern government regulatory function: controlling those numismatic coins which were exempted from an otherwise nation-wide recall of gold coins.
With the 1933 gold recall, all but rare and unusual coins were required by law to be turned in to the government in exchange for paper currency. Executive Order 6260 provided in pertinent part that “no return…[is required of] gold coins having a recognized special value to collectors of rare and unusual coin…” There were other limitations. Because more than $1.5 billion in coins were melted, calculated at their face value, millions of coins were forever destroyed.
Government clarifies the definition for “rare and unusual coins” By September, 1933, the Treasury Department had prepared and issued a compilation of regulations in booklet form. Prepared under the signature of Dean Acheson, then Acting Secretary of the Treasury, the document is entitled “Gold Regulations Prescribed by the Secretary of the Treasury under the Executive Order of August 28, 1933 Relating to the Hoarding, Export, and Earmarking of Gold Coin Bullion, or Currency and to Transactions in Foreign Exchange and the Executive Order of August 29, 1933 Relating to the Sale and Export of Gold Recovered from Natural Deposits,” a document consisting of more than 13,000 words. (Acheson, who later became Truman’s Secretary of State, was forced to resign because of his opposition to FDR’s inflate-the-currency with gold policies).
Many collectors subsequently sought to acquire post-1933 coinage, which they claimed was rare and unusual, and eventually, the Treasury Department set up an Office of Domestic Gold & Silver Operations (ODGS) to deal with the many claims. Into the 1970’s, the ODGSO was still opining which gold coins were legal to own, and which were not.
In May of 1969, the Treasury clarified (by issuing a list) of those coins that were eligible for importation as “rare and unusual”; more than 200 gold coins made this list. By 1971, Mexican gold coins came off because the country was issuing restrikes. Then, starting in 1972, intense pressure began to mount in Congress to repeal the gold ownership prohibitions; this would become a keen political issue in conjunction with the debate concerning America’s bicentennial coin program. But it was in December,1973 that the ODGSO issued a famous memo that every collector of gold coins issued prior to 1960 should remember even today:
The GOLD COIN STATEMENT was specific in stating that
“All foreign gold coins minted 1934 through 1959, if genuine and of legal issue, are now considered to be of such recognized special value to collectors of rare and unusual coins as to warrant the issuance of a general license for their importation into the United States under section 54.20(e) of the gold regulations for numismatic purposes.” That was a wrap, for it meant that importation of coins made prior to 1960 were “rare and unusual” and thus exempt under the 1933 and 1934 Executive Orders. It would be highly unlikely that the government would put somebody to his or her detriment after giving it an “okay”, which is why, even today in 2011 and beyond, such importance is placed in these coins. To summarize the feelings of some knowledgeable observers, the government’s position in declaring the coins “rare and unusual” was something that would be hard to refute; in other words, the clock could not be un-rung – and this list of coins prior to 1960 was virtually immutable.
The modern era in gold ownership By December 31, 1974, private gold ownership was legal in every form, and new marketplaces began to open up. Collectors were able to buy bullion coins – pieces made primarily for the metallic content.
So that brings us to the second decade of the 21st century. See what this economic scenario sounds like. The U.S. Mint’s bullion program has had more than $2.8 billion in bullion sales in 2010. Gold coins that once had virtually the same value as stamped on their face or reverse – the double eagle or $20 gold piece contains $19.99 worth of gold – now have a worth that is substantially more; way more. The double eagle’s worth on one day this year was over $1,800 in gold content, or more than 90 times face value.
A British sovereign, once the equivalent of one pound sterling or $4.86 when gold was valued at $20.67 an ounce) now is worth over $350 a coin. The ubiquitous 20 Franc coin (used in many countries under a different name: 20 Lire in Italy, the Vrenelli (20 Fr. Switzerland), and so forth, once $3.73 when gold was priced at $20.67 an ounce (1837-1933, more or less), today is valued in the range of $300 a coin, or more. And that doesn’t count numismatic value.
Let’s look at this scenario:
It’s a dark and stormy economy. Unemployment (including the discouraged workers) exceeded 18 percent. The stock market, in the midst of a trading session, suddenly lost steam and the Dow Jones Industrial Average went into a steep decline that made some wonder if it would – or could – ever come back. Gold was positively volatile.
The first three sentences sound a lot like a precursor to the Great Depression – and indeed, read like a pot boiler of the early 1930’s. And all this may sound a lot like something that you’d read in the newspapers of the late 1920’s, after the Crash that saw the Dow decline by 25%; but it turns out that it also could be that day in May, 2010 when the Dow plummeted by nearly 1,000 points at mid-day. Or that recent day in September, 2011 when gold dropped over $100 an ounce and silver plummeted from $49 to $30.
Actually, all the rest of the economic implications is contemporary, 21st century – and 1933 – wrapped into one. In either case, the result could be the same because the “Trading with the Enemy Act of 1917” is still good law, and could still be used by the President of the United States, as FDR used it in 1933 to nationalize domestic gold and silver coin and bullion and JFK used it during his administration to require Americans owning gold coin and bullion abroad to turn it all in.
Interestingly enough, JFK actually attempted to wrestle limited power from the FED.
On June 4, 1963, a little known attempt was made to strip the Federal Reserve Bank of its power to loan money to the government at interest (link).
On that day President John F. Kennedy signed Executive Order No. 11110 that returned to the U.S. government the power to issue currency, without going through the Federal Reserve. Mr. Kennedy's order gave the Treasury the power "to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury." This meant that for every ounce of silver in the U.S. Treasury's vault, the government could introduce new money into circulation. In all, Kennedy brought nearly $4.3 billion in U.S. notes into circulation. The ramifications of this bill are enormous.
With the stroke of a pen, Mr. Kennedy was on his way to putting the Federal Reserve Bank of New York out of business. If enough of these silver certificates were to come into circulation they would have eliminated the demand for Federal Reserve notes. This is because the silver certificates are backed by silver and the Federal Reserve notes are not backed by anything. Executive Order 11110 could have prevented the national debt from reaching its current level, because it would have given the government the ability to repay its debt without going to the Federal Reserve and being charged interest in order to create the new money. Executive Order 11110 gave the U.S. the ability to create its own money backed by silver.
After Mr. Kennedy was assassinated just five months later, no more silver certificates were issued. The Executive Order was never repealed by any U.S. President through an Executive Order and is still valid. Why then has no president utilized it? $Trillions in debt has been created since 1963, and if a U.S. president had utilized Executive Order 11110 the debt would be nowhere near the current level. Perhaps the assassination of JFK was a warning to future presidents who would think to eliminate the U.S. debt by eliminating the Federal Reserve's control over the creation of money. Mr. Kennedy challenged the government of money by challenging the two most successful vehicles that have ever been used to drive up debt - war and the creation of money by a privately-owned central bank.
No one can say for sure what the future will bring. For all the precedent that argues against it – with surviving morsels of gold, the siren call of seizure could be stirring.
Tx