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Blanchard
Online asks could gold confiscation happen again?
(emphasis mine) [my
comment]
Gold
Confiscation: Could it Happen Again?
With the dollar growing weaker and the price of gold skyrocketing, could we
see a repeat of the 1933 gold confiscation?
The eventual result of the Bailouts will be inflationary and will further
weaken the dollar. The flip side to a weak dollar is a rising gold price.
All other things being equal, gold will continue to climb higher as the
dollar moves lower. Today, just as in 1973 when gold began its last, big
bull market, gold and the dollar are competitors, riding opposite ends of an
economic seesaw.
In the 1980s and 1990s, gold languished and was replaced by the dollar as
the standard against which all things financial are measured. In the coming
years, as the dollar suffers one of the great meltdowns in monetary history,
gold will reclaim its place at the center of the global financial system. Gold's
value, relative to most national currencies, will soar.
However, the monetary crisis that will make your gold extraordinarily
valuable will also create the very situation in which the government could
return to some version of the gold standard, which would require that central
banks enlarge their stocks of gold, increasing the gold price.
The problem is that the very circumstances that would make your gold so
valuable could also result in its being taken from you. In 1933, in order to
stabilize the monetary system, President Franklin D. Roosevelt, under
Executive Order No. 6102, confiscated all privately owned gold in the United
States. Could it happen again? No two currency crises are exactly
alike. However, it may be important to consider the reason why confiscation
or expropriation is even relevant: the fact that, if it eventually became
necessary for the U.S. to bolster a collapsing dollar with gold, we no longer
have enough gold to do so in any meaningful way. As our debt and deficits
have soared over the years, and as more and more dollars have been created, U.S.
gold reserves have disappeared. In 1950, the United States Department of the
Treasury owned 68.2 percent of the world's total gold reserves. Today, the
Treasury owns less than 28 percent [Incorrect. The
US has leased out this remaining gold and is net short gold via its big
commercial banks].
My reaction: I
don’t believe we will see another confiscation of “all privately
owned gold”. There are many key differences between 1933 and now:
1) FDR’s gold confiscation was small, only 110 tons of gold. By
contrast, the US would need to accumulate at least several thousand tons
today, something that will likely be much more fiercely opposed.
2) In 1933, the dollar was on the gold standard backed by 5800 tons of
gold in US vaults, so those turning in gold for dollars only experienced
a 69% loss. Today, any gold confiscation would result in 99.9% losses and
would be seen as blatant theft.
3) Finally, the biggest reason a gold confiscation is unlikely is dual
citizenship.
Dual citizenship would make it a nightmare for trying to confiscate gold. For
example, I have dual citizenship (American/French). If the US announced a
gold confiscation, I would leave the country using my French passport to go
store my gold someplace safer. Faced with this scenario, the US would have
two choices:
A) Confiscate the gold of non-US citizens as they leave the country. This
would not go over well with the rest of the world. In fact, the US would
probably face crippling sanctions and/or an oil embargo if it tries to steal
the gold of non-US citizens.
B) Allow only non-US citizens to leave the country with gold. This solution
would be incredibly unjust to those without dual citizenship, and American
voters will object.
Dual citizenship also creates a host of other issues. A gold confiscation
would result in wealthy Americans living abroad giving up their US
citizenship rather than giving up their gold. This would decrease US tax
revenues. Foreign governments could require dual citizens to turn gold over
to them instead of US. Etc…
Finally, when it comes right down to it, the US is in no position to
confiscate gold. The US owes gold to Europe (gold swap and gold leases to US
banks), is addicted on foreign oil, and is dependent Asia’s cheap
consumer goods. The world is unlike to tolerate any gold confiscation which
extends to dual citizens, and the American voters are unlikely to tolerate
any gold confiscation which excludes dual citizens. Hence, no gold
confiscation.
---------------------------------
UPDATE: March
10, 2009
In response to
the comments below, I am expanding this entry.
First, I want to stress how different the US is today compared to back then.
In the past, the US was far more xenophobic than most people realize. To give
you an example of how bad it was, consider this: In
1858, California passed an outright ban on all people of
“Mongolian” (Chinese) descent, except in cases of shipwreck or
accident.
(emphasis mine) [my
comment] (note: the article has an xenophobic bias)
Some
states took immigration policy into their own hands. In
1855, California levied a fine of $55 per person on Chinese immigrants. Three
years later, when it was clear the fine had not stopped the flow, the state
passed an outright ban on all people of “Mongolian” descent,
except in cases of shipwreck or accident. Survivors were expelled as soon as
they recovered. The city of San Francisco passed its own laws, taxing
Chinese laundries and door-to-door vegetable peddlers. Perhaps most
imaginative was a “queue” ordinance, which required a mandatory
haircut for anyone convicted of a crime. This was aimed at Chinese, for whom
it was a great disgrace to lose the pigtail.
From 1854 to 1874, Chinese could not testify against whites in California
courts. The legislature declared that Chinese “have never adapted
themselves to our habits, modes of dress, or our educational system …
Impregnable to all the influences of our Anglo-Saxon life, they remain the
same stolid Asiatics that have floated on the rivers and slaved in the fields
of China for thirty centuries of time.”
In 1875 the US Supreme Court declared immigration a federal, not a state
responsibility, but the US government picked up where California and other
states left off. Beginning in 1882, it passed a series of laws barring
Asians. The first Chinese exclusion act, in force for 10 years, was
renewed in 1892 and 1902. In 1904 Congress made the ban permanent, and it was
in effect until 1943, when China was our ally in the war against Japan, and a
total ban seemed unfriendly [No kidding].
Japanese and Koreans tried to immigrate later than the Chinese, but got
the same treatment. The Japanese and Korean Exclusion League, founded
in 1905 in San Francisco, whipped up so much anti-Asian sentiment that Teddy
Roosevelt persuaded the Japanese government in 1907 to withhold passports
from anyone who wanted to emigrate to America — the so-called
Gentleman’s Agreement. The Immigration Act of 1917 created an
“Asiatic Barred Zone” that virtually eliminated all Asian immigration,
and also required literacy tests for European immigrants.
[Check
the graph below. Can you see why a gold confiscation today might be slightly
more problematic than in 1933?]
Note decline during the First World War, and the success of the
restrictions of the 1920’s. The spike in 1991-2 is due to IRCA
amnesties.
[…]
If
illegals are included, between 1970 and 1980, the number of foreigners living
in the US rose by 47 percent (4.5 million). Between 1980 and 1990, the number
rose by another 40 percent (5.7 million), and during the 1990s, increased by
a staggering 57 percent (11.3 million, the largest single-decade increase
ever). This meant that in 2002, 33.1 million immigrants were living in
America — 11.5 percent of the total population [in
2007, 38.1 million foreign born people living in the US, about 12.5 percent
of the total population]. Immigration drives US population growth.
Since 1965, immigration and the children of immigrants have accounted for 70
percent of the increase, giving the United States population growth rates
like those of Third-World countries.
My reaction: The
situation surrounding the 1933 gold confiscation was very different than
today:
The US’s situation during the 1933 gold confiscation
1) Dual citizenship was a non-existent issue, and the clear distinction
between Americans and non-Americans made it easy to confiscate gold.
2) An immigrant population making up just over 9 percent of US population.
3) The gold confiscation was small (110 tons).
4) The scale of the gold thief was also small (Americans were forced to sell
their gold at a 43 percent discount of the future price of gold).
5) The US was self reliant (no dependence on foreign oil or consumer goods)
while the rest of the world owed money to the US. So event if foreign
government objected to the gold confiscation, they had no leverage whatsoever
to do anything about it.
6) Finally, at the time of the confiscation, the US had one of the strongest
currencies in the world: huge gold reserves, trade surplus, low levels of
national debt, etc… The dollar’s strength in 1933 meant
hyperinflation was never an issue.
The US’s situation today
1) It's estimated that more than 40 million Americans are eligible for dual
citizenship. This dual citizenship is a recent phenomenon, and I think that
people are underestimated how big an issue this could be.
Key point about dual citizenship: both countries don’t recognize
the second citizenship and act as thought it didn’t exist. In other
words, France recognizes me as a French citizen without acknowledging my US
citizenship. Now imagine for a second that France starts demanding that
thousands US citizens, including those living in the United States, turn over
their gold, with no compensation, to the Banque de France to help the country
fund its budget deficit. How do you think the US, struggling with its own
budget issues, would react to this blatant theft of American gold? Remember,
the US can’t acknowledge that those Americans whose gold is being
confiscated might also be French.
2) An immigrant population making up nearly 13 percent of US population.
3) A 2009 gold confiscation would have to be massive to be effective (over
1000 tons of gold)
4) Any 2009 gold confiscation would be a total thief (Americans would be
forced to sell their gold at a 99.9 percent discount of the future price of
gold)
5) The US is dependent on foreign oil, cheap foreign consumer goods, and
foreign financing. Even mild sanctions could cripple the US’s already
weak economy.
---------------------------------
Jeff Burton said...
My point goes to Eric's contention that there is going to be some kind of
outcry if the gov't tries to confiscate dual citizens' gold. First, there aren't
that many of them (I mean dual citizens who are going to have gold). Second,
there will be little sympathy for a) people who have gold, b) people who have
dual citizenship. I'm sorry if this is unfair, but the world's not fair. If
you are in that situation, I would put absolutely zero faith in your fellow
citizens rallying to your cause.
First, I would never, ever, expect “fellow citizens rallying to my
cause”. This isn’t about sympathy or fairness, it’s about
theft and greed.
Governments have no issue taxing their citizens to death (or confiscating
their gold), but they absolutely hate it when someone else tries to steal
from their citizens. I don’t expect France and other foreign nations to
come to my defense because it is the right thing to do. I expect them to do
so because they want the gold. If someone is going to steal the gold of
French Americans, why should it be the US? By confiscating the gold of French
Americans, the US would be stealing from France. Since France and countries
around the world are having its own economic/financial difficulty, they will
react very violently and hostility to the theft of their gold.
If you accept that governments have a right to confiscate their
citizen’s gold, then foreign nations have claims against the roughly 40
million Americans who are eligible for dual citizenship. They are unlikely to
give up these claims without a fight.
Also, there are millions of Americans with dual nationality. Most of these
holders of dual nationality come from cultures that value gold far more than
Americans do (European, India, Israel, etc…). Third, holders of dual
nationality are much more likely to have had experience with currency
collapses, whereas many US citizens, because of the depression, are focused
on deflation. Finally, international businessmen and other wealthy
individuals are disproportionally likely to possess dual nationality.
Combined, this means that a large quantity of gold is in the hands of
Americans with dual nationality.
Finally, if the
US did try to confiscation, families are likely to turn over their gold
holdings to trusted family members or friends with dual/foreign citizenship
in an effort to protect their gold and get it out of the country. Since
nearly every Americans has at least one friend or family member with
dual/foreign citizenship, this means for any US confiscation efforts to be
successful, the US has to be willing/able to steal the gold of foreign
citizens. I would be absolutely amazed if the foreign nations stood by and
did nothing while several thousand tons of gold were being stolen from their
citizens.
Eric
de Carbonnel
Market Skeptics
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