You're now on the archive server. Commenting has been disabled.
Gold Questions
Submitted by Sancho Panza on 06/29/2009 20:46 -0400
How likely is it that the government will confiscate gold bullion again? How would the mechanics of the policy proceed? Would the policy be announced before enacted?
I suspect we're still several years away from any possibility, until after the debt deflation works its way through the economy. Still, I'm curious about the mechanics. We're already off the gold standard this time.
»
- 3800 reads
- Printer-friendly version
- Send to friend
I look at it this way, at least for now: The VAST majority of Americans do not invest in gold. Most have never held a gold coin in their hands. The rich upper class likely has invested in gold, so why would they confiscate it from themselves? I don't think they would. I think they will keep their gold (and their spending power) as the vast majority of Americans holding dollars lose their spending power due to the significant inflation that is likely on the way.
I own some gold and silver, for one reason:
Total economic collapse.
Now, do I expect that is going to happen? lol, no. As bad as things can get, I do not see us getting that bad by any means, however there is a thing called "risk" and that is what I keep it around for. IF something really, really bad was to happen, I bet less than 1 in 1000 people could say "here is a 1 ounce silver coin to trade you". Hell, I bet it would be less than 1 in 10000 people, so you would have a bit of a benefit there that others don't.
On the flip side, if things were to get that bad, it wont really matter anyways since we are going to be totally up shit creek and I don't think gold or silver will matter much.
As for our governments going back to a Gold Standard? I highly doubt it.
In my view, "money" is anything that people are willing to trade their labor for. I think we are more likely to see a "Global Currency" that can be used by all governments, at the same time, than a new Gold Standard.
Not likely at all. Your retirement accounts (IRA, 401k, etc.) are currently in Washington's crosshairs.
Save your breath! No way.
I would not look to the government confiscation of precious metals becoming a reality. This would be a de facto admission that gold is indeed money. Why draw attention to it? Just a casual mention of trading dollars for gold by decree, by any of various government officials, would send the price skyrocketing. The previous confiscation was done when we were on a gold standard, as has been pointed out already. Hinting that it could be confiscated again would instantaneously put us back on an unofficial gold standard. Not a possibility in the current financial environment. All our eggs are in the dollar basket.
If you would like to read further on this issue I recommend these links to some sober articles:
http://www.kitco.com/ind/SoYouThink/may182009.html
BTW: You would not find a lot of knowledgeable holders of physical gold selling when the price rises. They would treat it just like any other "asset", they would lever it up, not just spend it. I deal in assets of this type, and I find many people who just want to sell when the price goes up. Bad move (unless you just have to sell to stay financially afloat).
Thanks for the link.
Concerning your BTW comment. If one did own gold/silver and prices went up dramatically could this not be a good instrument for ridding oneself of debt?
Sorry I missed your question. I apologize for the delay.
The simple answer to your question is a resounding "YES". If one owned precious metals, and we had inflationary prices, one could get rid of debt -- if the metals were sold to get dollars (or the currency du jour) to pay off those debts. Certainly. But one would be giving up the security that prompted the accumulation of the assets in the first place. If one could pick the "top" of the metal prices and cash in, good! If not, what's the reason for belaboring the process?
When gold had it's dip, around November of 2008, the folks who needed money were cashing in. That only points up the nature of having precious metals as "a store of value". Gold was a store of value, indeed. Tapping that value to dig out of the financial situations many traders found themselves in only proves that gold did what it is supposed to do! What better illustration could we be given than that?
All common sense tells us that the U. S. Government will not confiscate gold. But beware. Since when has the USG done anything demonstrating any common sense lately? The USG could shoot itself in the proverbial foot by confiscating gold. The lemmings would be scratching their heads as to why, while standing in line to trade good assets for fiat currency. I, for one, will be chuckling all the way to the farm in the woods.
Sancho,
As hinted in other posts, your concern is probably late by about 76 years.
Here's why:
We all know that the dollar was tied to gold when it was confiscated.
We all know that confiscation is a great way to increase demand.
Demand then pushes up the price.
This all seems very simple, but here is the kicker:
By confiscating gold, the government could increase the money supply in two ways. First, the fact that someone handed over a brick and received cash. And secondly, by increasing the price of gold, the existing government stockpiles became worth more dollars. That allowed the government some room to print more dollars.
The theory was that this would stem deflation. But it was too little, too late.
Nowadays, our government doesn't need to artificially increase the price of gold to inflate the money supply. All they need to do is press "enter" on a keyboard.
P. Prophet
Profit,
I appreciate your thoughts. I hadn't considered that the gold confiscation in 1933 might be considered as a legitimate monetary tool instead of government value-capture.
Your argument is persuasive but I find it unconvincing. Perhaps you can point out the flaw in my thinking?
I reckon all those folks, who turned in a total of 500 tonnes of gold at $20.67/oz only to have the metal revalued at $35.00/oz, might have different thoughts about whether the confiscation was more value-capture.
A general consensus among the readers here seems to be that the Fed will find itself increasingly between a rock and a hard place as this crisis continues to unfold. Why wouldn't they consider an old, proven tool like gold confiscation to alleviate some of that pressure?
Let me try to articulate my thinking so you can correct me where my logic is wrong:
1. Fiat money systems don't last forever.
2. At some point, probably still years away, the U.S. dollar will need to be tied to something more objective.
3. Gold is the most likely object to which the dollar will be tied.
4. Simply revaluing the dollar based on current U.S. stockpiles of gold would lead to an astronomical price of gold.
5. Allowing that process to happen, without confiscation, would constitute a massive transfer of wealth to goldbugs and anyone else holding the yellow metal. In turn, as soon as goldbugs start spending their realized wealth, it would seem there would be a step-change in the price level of other real goods, which certainly would not benefit the masses.
6. The government would then be politically empowered, with the popular will, to confiscate gold for the purpose of value capture, to serve the common good, as it had been done before.
All currencies are fiat, that is to say, the government declares it to be a legal tender, through a FIAT mandate.
Gold is gold, but when it is declared a currency, it has been given an unnatural function of becoming the exchange medium.
World Modern economics couldn't cope with Gold as a currency or as a 'backing' for a currency. It can't be created or destroyed as easily as paper currency, and it would add huge accounting overhead to deal with gold.
If governments were forced to use gold again, they'd end up doing the same as they are doing now with the fiat currency: keep lots of secrets, and manipulate the system in such a way that it would baffle even experts. They would become the "goldsmith" holding gold in their vault, and issuing lots of receipts, as they did back then. The Fed, and co. would resist any efforts of the nation to audit them... just as they are doing now.
There's no incentive for the Fed to capture gold. At present they do whatever they need to manipulate its price not for the sake of value, but just to confuse people who think gold would be a stable replacement for the dollar, or any other currency.
In addition to the logistic problems of gold, it is susceptible to the same problems as paper money. Inflation, deflation, and so on. Gold is as valuable as there are products to aid human survival in the market place.
You can't buy bread with gold if there isn't any bread. The focus for economic recovery should be placed on employment and production.
Even so, wouldn't that give them a reset button to start the next FIAT demise? But I see your point about employment and production.
I think a moratorium on income taxes for five years would do the economy good.
"World Modern economics couldn't cope with Gold as a currency or as a 'backing' for a currency."
Which do you think is more likely to stand the test of time? World modern economics, as you call it, or the yellow metal?
The money rate of interest cannot be manipulated below the natural rate of interest forever. History is pretty clear on that. At some point in the future, policymakers will either have to choose to stop the money printing with very dire but necessary consequences in the short term, or the dollar will collapse. I am new to economics, so I really don't have a good sense of how to measure how near we might be to that point in time, or even if it can be measured, but with the Fed's balance sheet growing 2x to 5x (we think) during the past year, I'm concerned we may be approaching that moment when that decision must be made, or else.
How much faith do you have in U.S. policymakers to make the hard decision - to risk political suicide - to raise interest rates to where they need to be to flush all of the rotten malinvestment out of the system? I honestly don't know.
Sancho,
You say that the USD will need to align itself with 'something more objective', than oil. So maybe another energy source that is more abundant and capable of development and market growth, such as nuclear, is a better option.
You think it will be gold. Why? You don't really explain that.
http://en.wikipedia.org/wiki/Money
Maybe I'd be worried if they reenacted Bretton Woods. Until then, I think your fighting your grandfather's battle... If the world is going to hell, then oil and guns are the new gold. In any case, IMO we're much more likely to see some form of the "Emergency Price Control Act" instituted before we ever see any FDR-like action to confiscate gold (assuming an inflationary scenario evolves--but that's a whole other question).
Tough question.
All I can say is that the rules can be changed upon decree without warning.
I think it is a good idea to keep some off the grid assets like green cash, gold, and silver as a hedge against risks which could emerge into real problems.
Gold is tiny compared to the amount of money needed for the current global economy. No reason to bother with it.
"Gold is tiny compared to the amount of money needed for the current global economy."
Well, that's kind of the point, isn't it? All you need to do is revalue gold to a much higher price and, bingo, you have enough gold for the economy...
Of course, the government would like to take possession of the gold before the revaluation. Any objective assessment of history would suggest as much, wouldn't it? If it's happened before...
My curiosity remains. How would the government confiscate gold this time, now that we're already off the gold standard? After a bit of research yesterday I learned that FDR signed the order April 5, 1933. And everyone was given until May 1 to trade their gold bullion in for our favorite fiat. This time, would the price be allowed to float until the deadline? Or would the price be fixed as of the announcement? If you were the government, what would you do? What would you have to be concerned about?
If the price was allowed to float, would it take-off? Or would a renewed international faith in a soon-to-be gold-pegged dollar actually strengthen the dollar? Or would the international market be smart enough to realize the revaluation was coming? What would silver do?
I'm trying to figure out whether its worth acting like a gold bug or if they are doomed from the start. Why would the government allow a massive transfer of wealth to the gold bugs? Do we really think they play fair?
Just trying to figure out the best way to keep the modest amount that I've earned and saved. Any additional thoughts would be much appreciated.
I could be wrong here, but I don't think Americans would stand for this especially with the Internet being an equalizer.
Americans have sat on their hands so far... I mean look who the president is.