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Usually whenever gold is mentioned
the specter of the confiscation hydra rears its ugly head. I
do not think gold confiscation is a major threat. Usually those who
consider confiscation a probable threat are biased. There are three
main reasons why I think gold confiscation is improbable. First, there are
great structural differences between the gold environment of 1933 and today.
Second,
confiscating gold again would releasing the guillotine blade on the
fragile US dollar’s neck. Third,
such a move would be political suicide even a tyrant of Lincoln or Franklin
Roosevelt’s stature would shy away from.
Many coin dealers who raise the confiscation issue
have a profit motive in doing so. Many ‘collectible coins’
that were not subject to confiscation in 1933 sell for significant premiums
which means the coin dealers make a larger profit on the transaction.
This conflict of interest does
not vitiate the substantive argument but only
reveals the bias.
For example, I have a beneficial financial interest
in gold. If you ask me to contrast the advantages and disadvantages of
gold and fiat currency what do you think I will say? While I write both
objectively and persuasively depending on the occasion my conflict
of interest does not vitiate the substantive basis of my argument. The
same is true for the tenured university professor who derives his salary from
taxation through inflation without representation via the instrumentality of
fiat currency. Of course the professor is going to extol and
indoctrinate his students with the virtues of a fiat currency system because
his livelihood depends on it. When it comes to money and
wealth everyone
is biased.
Structural Differences. In 1933 the world was still on a gold
standard and the US Dollar was convertible to gold at an exchange rate of
$20.67 for 1 ounce of gold. If you showed up at the United States
Treasury with a paper dollar you could demand payment in gold bullion.
Most American banks kept gold in their vaults. Saturday March 4,
1933 the day after inauguration the second great American Tyrant Franklin Roosevelt
broke his solemn campaign promises and unilaterally declared a four-day
‘bank holiday’ shutting down all the banks. A month later
he issued Executive Order 6102 providing for the
confiscation of gold. After confiscating the gold at $20.67 per ounce
the dollar was shortly thereafter devalued to $35 per ounce. These
drastic actions by a desperate tyrant effectively demonetized gold
in the daily transactions of Americans and decoupled it from the banking
system.
Currently under 31 U.S.C. 5,101-5,118 although gold clauses in contracts
are legal and enforceable there are no links, legal or contractual,
between gold and the US dollar, the Federal Reserve System or United States
banks. If some tyrant wanted to outdo Roosevelt what could possibly be
the rationalization to the markets and general population? I agree that
governments act irrationally such as constantly and perpetually lying, cheating,
stealing and murdering. But they do have a common purpose:
Inertia. Very rarely do those in power wish to surrender any of
it but instead seek to maintain the status quo of being attached like
gluttonous parasites to the public’s wealth.
Guillotine for the Dollar. Confiscating gold from the American public
would almost instantly vaporize the Dollar. A fiat currency is valued
only by the confidence in it. There is no difference between the
intrinsic value of $1, $20 or $100 bills and with no link to a commodity like
gold the Dollar is no different from the bills found in a Monopoly game.
Much of the federal debt is owned by foreign investors who watch the
dollar gold price for any sign of weakness. A gold confiscation order
would shock their faith to the very core and they would most likely
immediately dump their dollar holdings.
Foreigners invest in America because of their
Judeo-Christian principles in their law evidenced in property rights.
If the government tries to seize property like gold in an arbitrary way
then foreigners will bolt for the exit. Countries that violate the
sanctity of private property are punished for their theft by international
investors because they are unreliable and unpredictable which increases
political risk. A new gold confiscation order would be a serious and
seminal clarion call of political risk within the United States and of
an imminent dollar devaluation. The deluge of dollar sellers
would probably drown even Noah and the dollar would probably lose 20-80% of
its value in a single day. The Dollar system would evaporate almost
instantly. I seriously doubt any of the government parasites
would intentionally instantly evaporate the Dollar system.
Political Suicide. Besides the geo-political problems there would be
tremendous socio-political implications. Suppose Chris Wallace on
Lockheed Martin Nightly News declares that all gold owners are required to
take their inert yellow metal to the local Federal
Reserve which has enemies and exchange it for worthless paper. What
will the reaction be? Perhaps like Iceland in
November 2008. Suppose of the 400 million Americans there are 150
million investors. Suppose only 3% or 4,500,000 own the yellow metal.
We will assume that half of them voluntarily comply. That leaves
2,250,000 with their yellow metal. What is this group like?
I ran into a couple ‘gold bugs’ at the
local fair once. I spotted them because each was wearing an African
Krugerrand around their necks. Come to find out both were highly
intelligent and upstanding active members of their community in both business
and church. They were both ardent defenders of unalienable rights as
found under the Declaration of Independence and protected by the United
States Constitution. Both were strong advocates of the 2nd Amendment
and were highly trained being snipers for the Army Rangers. They were
both very wary of government abuses and knew the role gold played in
protecting against despotic inroads by government. They were gold standard advocates.
So in this hypothetical situation the government has
issued a confiscation order for physical bullion and suspects that about 2
million highly armed, distrustful, respected community leaders have it.
What does the government do?
First, the government has to track down who owns the
gold. Often transactions are carried out in cash and do not have much
of a paper trail. Even if one purchased gold in the past why would they
currently possess it? Going door-to-door looking for gold is extremely
costly, disorderly, dangerous and politically suicidal. They can do it
nicely or meanly. If it is done nicely then a single agent goes and
kindly asks the 2,250,000 highly armed individuals who willfully and
deliberately ignored the first gold confiscation order to please turn in
their yellow metal.
If it is done meanly then they send a squad of
jackbooted Blackwater mercenaries because no self-respecting federal agents,
local police or members of the Armed Services would desecrate their
honor by going door-to-door and stealing from their fellow countrymen and
perhaps even ‘become the executioners of their friends and
Brethren’. Even then it would have to be done slowly, house by
house, gold investor by gold investor. It would be
terribly personnel intensive with six mercenaries in the entry
squad and another six to seal the perimeter.
In perhaps 10% of these unreasonable searches and
seizures which grossly violate the United States Constitution worse than even
King George was able to the mercenaries would run into a stubborn gold investor
who would resist with physical force. The gold investor would most
likely die in the Waco or Ruby Ridge-like firefight. But this atrocity
of upstanding peaceful leaders in the community being invaded in their own
homes and murdered would only need to happen a few dozen times across America
before the viral YouTubes and public outrage would foment into a fervent
political inferno. If any Armed Services, federal agents or local
police were engaging in this horrendous massacre they would quickly be demoralized
and demonized. The Blackwater mercenaries would be considered
apparitions of Satan. The volcanic political response would result in
the heads of politicians rolling. If not through elections
then perhaps literally like the Reign of Terror.
Conclusion.
There are certain
political boundaries that exist which no representative-republic
government dares to cross. Stealing private gold in a decoupled gold
world is such a boundary. Digital gold currencies, like GoldMoney, safely nestled in
offshore jurisdictions like Switzerland make physical confiscation much more
difficult. Although not discussed in this article there are easier
targets for pillaging wealth like 401Ks, IRAs, etc. For these reasons I
consider the probability extremely low of a future gold confiscation.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young
University, a law degree from California Western School of Law and studies
the Austrian school of economics. He works as an entrepreneur, investor,
journalist and monetary scientist. He is a strong advocate of the freedom of
speech, a member of the Society of Professional Journalists and the San Diego
County Bar Association. He has appeared on ABC, NBC, BNN, many radio shows
and presented at many investment conferences throughout the world.
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