Gold Contracts Will Be Illegal?
The media is starting to ask scary questions about the financial mess: What if the $700 billion bailout package fails? What then? Well, nobody?seems to have?any answers but?there are actually some options. One would be for the U.S. Treasury?to use the U.S. Gold Reserves?(assuming?the gold?is still there in Ft. Knox — something I believe is the case but one cannot know 100% for certain). I started talking about this a couple of years ago and so far Jim Sinclair has been the only one to seriously take up the discussion. His version is the?“Federal Reserve?Gold Certificate Ratio”. While this could be one way to?go about?it, I don’t believe it is very workable.
In the next few days, I will be writing an expanded article on the subject of “What Next?”.?In this article, I will be revealing what might possibly be the only approach that has a chance to stop the complete destruction of our financial system.?It involves gold and that little known piece of U.S. law called the Gold Clause Resolution of 1933. It appears that when Ford lifted the ban on private gold ownership in the U.S. at the end of 1974, this law remained on the books until amended in 1977 (thanks for the correction, Qwerty). And it could be used by the U.S. government to put in place a new gold-based system that could avert total monetary collapse. How? I’m still working on the detailed explanation. It won’t be very pretty but it could be the one thing that might actually work.
The problem with government regulation of gold is that it is simply impracticable. It is impossible to tract that much personal property among such a spread population. Also, if the U.S. Dollar is suddenly backed by gold then we aren’t we going to feel some heavy deflation, would the government have to let the money supply correct itself? The fed couldn’t make unlimited amounts of loans could it?Though the government may as well regulate everything if that bill in congress gets passed. If I am completely wrong someone please politely correct me, I am only 18.
Gold clauses in contracts are enforceable for contracts entered into after 1977, as per 1977 amendment.
David446: The government CAN try to confiscate gold (at least some of it) and it CAN revalue it under exchange controls. Think FDR and when he revalued gold from $20 to $35. That was under a gold standard so in effect the U.S. dollar was instantly devalued by a proportional amount. That was not deflationary then and it would not be deflationary now. Indeed, if the U.S. government would declare that gold is now worth US$5,000 per ounce that would likely cause a devaluation in all currencies. Yet that is not really what I’m talking about here.
Qwerty: Yes, that is true, and that was the next point I was working on, way to go and ruin the suspense!
You’re probably right though that I should make this part clear in the introduction, so I’ve now fixed it.
The thing I could imagine would be exchange controls where the dollar exchange rate in the US is very different from that abroad. Problem would be the emergence of a black market.
Confiscation of gold seems silly. Who would be targeted? US citizens? ETFs? Residents? Visitors?
Let?s not forget the ultimate goal of the money elite ? world government and control over the world?s money (with liberty and justice for all bankers). It seems fiat money is the means to accomplish that.
Assuming we haven?t already seen these goals realized to a significant degree and there is further to go, the question is, will gold be officially recognized for its monetary role and if so how?
That might be a huge step backward for our money masters. And given their personal successes to date, I suppose they will have something to say about that.
Will a ?sound? monetary system ever be a long-term option or just a short-term fix?
One could argue that a continuing chain of doomed replacement fiat currencies imposed after each disaster would over time accomplish the goals of the money elite. As populations are financially enslaved, impoverished and decimated we eventually reach that ?ideal? 50% reduction of world population these guys are on record as wanting.
I?m in a pretty sh*** mood watching these con men tell us they should be made whole - by the people still getting screwed.
I know of people who were dealing in gold during FDR’s ban on ownership, who were doing so through the “loop holes” left in the executive order. I myself was one of those persons. I welcome the government’s attempt to control gold; such efforts make for opportunities to profit, black market or otherwise. Some of the citizens were “law abiding” and complied with the order to turn in their gold, if they had any. Most only had silver, gold being too costly. Gold was held in the banks, making them an easy target. How much was turned in and how much was hidden, no one knows for sure. But there are a large number of US gold coins from that period still around today. These no doubt were in “private” holdings, out side the banking system.
You know that they are not going to spend more money to “collect” hoards in homes than it is worth.
Ask yourself this question, “would I be a member of a ‘collection’ team kicking in citizens doors to demand their hoard, when there are over 200 million civilian guns still out there?” I didn’t think you would be. A high percentage of gold owners are gun owners.
They will use different methods, such as reporting requirements for liscensed dealers or punitive taxes on precious metals trades, nationalizing big metal stashes, show trials for big violaters, ect. They know that the sheople, who are not into gold and silver, will be scared away from getting some, by these methods. The rest of us gold bugs (enimies of the facist state) aren’t any real threat to the statists and the amount of gold and silver we collectively hold is miniscuel. They also know that we will develop the black market anyway and the smart ones will avail themselves of our services.
This reminds me of my older German neighbor who’s father was a Nazi big wig and after the war there were draconian measures, enacted by the military governers of the divided German nation, to attempt to control every aspect of the German’s lives (a form of collective punishment). The Christmas week end, in I think it was 1947, when the West German President, Adinour (sp) announced that the following Monday there would no longer be price controls and there would be no more money printing; to my neighbor’s amazement the formerly bare shelves of all the shops, were filled come Monday morning!
My neighbor couldn’t understand where all those goods came from, overnight? I told her that because she was from a “good Nazi” family, the black market was verboten (forbidden); but for any one willing to face social disgrace, those goods had always been there, even in the worst of the fighting. It only surfaced when the government got out of the way and stopped punishing people for doing the right thing.
This same story will be repeated here in the good old US of A (Universal Suffering of Assholes) because just like my neighbor’s “good Nazi” family, Americans want that something for nothing, so badly, that they have sold their souls to get it; and they will get it good, long and hard! Exactly what they deserve.
Here is my advice. Keep a low profile. Always have a back up plan. Divide the hoard’s hidingn places. Develop networks of trusted individuals, but keep no records of any kind (especially on a computer). Keep an eye on the local government “security specialists” (ie., Sheriff, Chief of Police, State Police Chief, FBI, and other “Home Land Security” staff) as it will be these people who (as in the case of the Soviet Union collaspe) will assert their “authority” and take charge…warloard style. Avoid direct confrontation. Use weapons only as a last ditch effort, but when used, use to greatest affect. I could go on for days, as I am writing a book on these issues, I’ll stop for now.
These events will be the adventure of our lifetime. I have bought a front row seat for the action. See you in the fray and keep your powder dry.
Thanks for the correction silverax, I haven’t been around very long and could never guess what a gold backed currency could do. I still do have one question though, and that is- when is silver going to take its next high, I can’t imagine the news is keeping silver prices down, so what is? I understand there is a lot of profit taking and that the market was flooded with paper silver, but how can silver not be soaring with the sure promise of inflation as the fed has been pumping more money into a market with no capital?
Remember that confiscation of gold need not require raiding homes or banks - governments have been quietly hoarding gold for decades by taking it off the open market. It is arguable that the paper gold and silver market is a device to achieve this or cover up the activity by surpressing the price. As Professor Fekete has written this can only be monitored by watching the basis and looking for backwardation. The dollar price of PM’s, PPI, exchange rates, interest rates etc. do not give reliable clues, only the basis. Tom can explain this in detail. Hyperinflation is triggered once fiat money can no longer be exchanged for physical metal.
217,300,000 and rising.
The confiscation of gold that took place in 1933 excluded numismatic or rare coins. Would it not be ironic that the premiums one had to pay for Morgan dollars were in fact cheaper than the premiums we are paying for silver eagles if confiscation is a factor? I have found that no matter what we do, even if we are making money that we are in the end always wrong.
As for hiding things always hide metal near metal as even the fanciest of detectors cannot realistically discriminate.
Great comments! What I’m actually talking about is not outright confiscation, which would be futile and not worth it. Instead, I’m suggesting that the U.S. may revert to the anti-gold clause, withdrawing the pledged U.S. Gold Reserves from the Federal Reserve (since nobody really thinks the Federal Reserve Note is backed by gold anyways, although it is), and then issuing new Gold Certificates. Jim Sinclair believes the Federal Reserve would do this (”Federal Reserve Gold Certificate Ratio”) but in fact that would not be possible without some major changes in the law and perhaps even a constitutional amendment. Yet the U.S. Dept. of Treasury could make it happen without much hooplah.
With gold certificates back in circulation and a carve-out for their use in contracts but not for physical gold, the government would effectively be able to “open the Mint” for citizens to exchange gold (and maybe silver) for Gold/Silver Certificates which then could be used in contracts and as a means of exchange in large transactions. This would effectively concentrate more physical gold in the Treasury’s hands than would a confiscation, and it would perhaps even allow the dollar to “float into oblivion” instead of collapse instantly (which is what would happen with just about every other plan involving the gold standard).
The other “brilliant” aspect of this is that it might be capable of frustrating Gibson’s paradox in the sense that Gold Certificates would never be held as dear as gold itself, and therefore they would remain in circulation instead of being hoarded like the physical stuff. There would only be as many Gold Certificates in circulation as the economy demands, but the government could effectively force more of them into circulation (to offset deflationary forces) by using the Gold Certificates to buy up illiquid or distressed assets or spending them on “social projects”. Now mind you, this would only be a transitional solution because it does not deal with foreign exchange rates and international trade, which is where the exchange controls would come into play. Thus, something like the U.S. dollar would still be necessary. One exchange control might be that Gold Certificates could not be exported or used outside the U.S. (doing so would cause them to be canceled with no compensation to the holder). Sure, there would still be a black market but probably much smaller than in the alternative. Speaking of black markets, everybody who wants to study how the future might work needs to see the documentary “Cocaine Cowboys” about the Miami drug scene in the 1980’s.
The gold certificates would still be a form of paper. Expanded at will by printing more certificates.
No one in their right mind would offer physical gold to the mint in exchange for a paper certificate. I suggest you read the book on the Weimar hyperinflation by Bresciani - Turroni: only when the expansion of the money supply is halted, hyperinflation will stop and the economy returns to normalcy.
I think I am more in favor of a “RentenDollar”. First step would be to lower the exchange rate of the dollar dramatically and then back the total outstanding supply of dollar to the available supply of gold in the US at that exchange rate. Then stop the printing presses. This is basically what Hjalmar Schacht did with the Rentenmark.
Ed: The pure gold standard where the only form of “money’ is the physical coin will never exist and only existed in much simpler economic times in the past. Those simpler times will (hopefully) never come back. Even in the golden age of the gold standard, 1870-1931, gold certificates (fully backed by gold) were an important component of the “money” supply. This would be no different. Presumable, gold certificates would be limited to the extent there is gold to back them up. Doubts about full backing would be precisely why gold certificates would remain in circulation and not be driven out by Gibson’s Paradox (no one in their right mind would HOARD gold certificates as they might gold itself).
As for “no one in their right mind would offer physical gold to the mint in exchange for a paper certificate”, sure they would. That is where the “anti-gold clause” would come into play. In other words, if somebody wanted to use gold in a legally enforceable transaction, the only choice would be gold certificates issued by the U.S. Treasury. Otherwise they could use Federal Reserve Notes or its fractional derivatives. Look, I’m not saying this would be the perfect system or even one that would work on a permanent basis, but it might have a chance to help the economy transition without a total collapse.
Ed: The problem with the “RentenDollar” approach is that there are today many aggregates of money that need to be accounted for, i.e., M1, M2, M3 and even beyond that are derivative obligations, etc. To set the exchange rate one time and never allow it to float thereafter would require Godly foreknowledge about the total money supply that would need to be absorbed. It also would not work because there would occur a complete disruption of the international monetary system, trade, etc. unless it was matched in lockstep by the other major world economies. Moreover, China and other countries with huge dollar-denominated assets would be bankrupted by such a devaluation. To avoid the dire consequences as would occur with a “RentenDollar” or “Modern Federal Reserve Gold Certificate Ratio”, the gold backing would have to be restricted to the domestic U.S. economy and would need to be free-floating vis-a-vis the U.S. dollar (not denominated in terms of dollars or a fixed exchange). I never said my approach was desirable or pretty, just (potentially) workable.
The approach Tom is suggesting( Hi Tom) would work if the price offered were high enough. There is always a price high enough to induce a sale. For example if the US gold reserves were to be valued at par with our foreign debt holdings of approximately 2.5 trillion dollars then the offered price would be $9157 per ounce. I would tender my bullion for the certificates. Can I get that in $100’s please.
221,000,000 ounces in SLV. 10% more than when the price was $19.50, 2 months ago.
Tom what’s lacking in just having a free market in gold (cash/physical only) to act as a check on any fiscal irresponsibility? That would make gold the ultimate currency and all currencies would be relatively valued against their gold price. As a transition we could use a basket of currencies including gold which would be used as an international trading unit.
It’s simple, does not require major changes to the present system and restores fiscal responsibilty.
Let’s face it our govt. is not responsible enough to control the world’s reserve currency.
Gold is on it’s way to becoming the defacto reserve currency anyway, unless Russia or someone decides to make their currency fully convertible to gold.
What about the AMERO?
If the SLV has more silver in it than when the price was 19.50, why aren’t the minters just buying SLV and taking delivery so they can print more eagles at a premium to their costs?
Also, speaking of SLV, is it possible for SLV’s price to disconnect from the Comex price? We know that Comex delivery is limited and thus a virtual default, but what about SLV? Can’t I just keep bidding up SLV to match the physical demand and take delivery of all I can sell?
PeterG: Interestingly, it would be to the U.S. Treasury’s benefit to have the price be higher than lower, and this could be controlled by using the new Gold Certificates to buy assets in the market. That is why having a fixed rate of exchange to the U.S. dollar would not work; it would impose a pricing scheme on the gold reserves and prevent future adjustments to deal with what is likely to be an ongoing deflationary crisis.
Rob: I mostly agree, but it would be impossible to go from here to there without some sort of transition that addresses some of the peculiarities of money including Gibson’s Paradox. The problem with using gold as an international trading unit is the same problem that resulted in the demise of the gold standard: imbalances between economies would result in gold being fully withdrawn from some countries even if they were running things responsibly. Indeed, I would argue that gold should NOT be used as an international trading unit, only for domestic purposes, even if the gold standard were fully implemented again. The only way gold would work as an international trading unit is if we had some sort of “one world” system, or an as-yet undiscovered mechanism that can compensate for the flow of gold (especially as a result of speculation). I’m not saying that mechanism does not exist, but nobody has thought of it yet (though I’m talking to the good Professor about it).
T Rob: I track the SLV price vs. the spot price on a daily basis and if there is a price disconnect, I’d be one of the first to know, followed by those who have signed up for the GSUL 5 in Canberra. In fact, later tonight I will be posting another “password protected” comment that clearly demonstrates exactly what has been happening in SLV and how it gave an advance warning of precisely what you are talking about, which was in part responsible for the strong rally in the price.
Oh no, did I just here Tom mutter the “D” word?
I just saw on the news that 30 day money rates are spiking. The Fed is injecting money into foreign central banks to head off a “shortage of US dollars”. Turns out that banks are hoarding money! See Professor Fekete’s paper “Can we have inflation and deflation all at the same time?”. This may mean that as Bernanke’s helicopter takes off, the electronic liquidity will be shunned and physical cash and short term treasuries will be hoarded driving us ever closer to the black hole of zero interest.
This interest rate theory is explained nicely in Professor Fekete’s paper, “The wreckers ball of swinging interest rates”. Each extreme of the interest rate cycle is articulated in two more papers, “Fiat Currency : Destroyer of Capital” and “Fiat Currency : Destroyer of Labour”. There is plenty of real world evidence from the 1970’s and today supporting these theories. With out knowledge of the Professors previous works, reading this material can take quite some time to understand clearly.
Until the US bond market breaks and Commodities break convincingly to new highs these forces will remain dominant.
By the way, Australia would like to thank the American tax payers for bailing out National Australia bank today.
Australia,
you’re welcome. Just put it on my credit card.
Hi Tom:
I wasn’t thinking that gold would be an international trading unit. Only that it would become the default reserve currency against which all currencies would be valued on a floating basis and which would determine their relative values. It appears to be the only place we can go when the $ loses it’s reserve status.
There would not be any requirement for a nation to exchange it’s gold for it’s currency. Anyone could use any currency to buy gold at the market rate, more or less what it is now only with more recognition as to the status of gold. Nations that do not keep their money creation under control would be punished in the foreign exchange rate. Nations that have trade surpluses would not need gold so much as others that need to finance negative trade balances. Once the world currency situation stabilizes, the gold price will stabilize and CBs will find it preferable to hold strong currencies vs. gold as those can be invested or earn interest.
I think any attempt to carve out a new reserve currency will fail to reach any agreement and if one is reached you can be sure it will be full of all types of loopholes for CBs to create money.
What we need is some type of discipline on CBs. Anything will do. I think Jim Sinclair’s gold certificate ratio idea is really just something to stop the $ decline and hold it up while placing some sort of discipline on our government’s spending. He does not offer it as an efficient mechanism only something to stem the bleeding. Once the world imposes some discipline on CBs we can begin the long recovery from this debacle.
Bottom line is the $ as the reserve currency cannot survive and gold is the only thing that will impose discipline. this will happen without anyone agreeing to anything other than there’s no place else to hide.
All we need is for the Government to step out of the way and let the free market and gold do it’s thing. Once that happens we’ll see a balanced budget, Congress actually helping the economy create productive jobs and hopefully an end to these costly unecessary wars. Gold of course will trade at a much much higher price in $.
Thanks for your valuable insights.
Lone Ranger: Thanks for pointing to the Professor’s work on this subject, everyone should study it.
Rob: If the exchange rate of gold to currencies is allowed to float while gold is recognized as the ultimate form of international liquidity by the Central Banks while not strictly backing the domestic currency, then I think gold could work as an international balancing mechanism. The problem is that it cannot possibly serve as BOTH the international balance AND the national currency. That is the mistake of the past gold standards–trying to do everything and be everything. It’s one or the other, but cannot be both. Personally, I believe gold would function much better if it were used to back national currencies under a Real Bills regime, and for something else to function as the international balancing mechanism. Then all the wonderful things you describe about the free market and economic recovery could actually take place (domestically). Be that as it may, there is still the need to get from here to there. And without some sort of transition like Sinclair’s Federal Reserve Gold Certificate Ratio, my Treasury Gold Dollars, or the approach that the Professor has come up with, there would be a total collapse instead of a transition.
The insights being posted on this site are terrific - a true collective brilliance.
Rob makes a good point I think. Has anyone here considered the specific relevance of crude oil to the monetary picture?
The next monetary role for gold might just depend on the oil exporting nations. As their production slides and domestic consumption climbs these countries will find it increasingly undesirable to export their precious resource for paper money. As the oil-for-Dollars scheme breaks down, it would not be unreasonable to see oil priced in ounces or bushels.
Gold could be thrust into a new international commodity-related monetary system whether we like it or not. Individual governments and the banks would then have an even greater incentive to accelerate the consolidation of gold into their hands.
The public will most likely be on the losing end of any new domestic monetary scheme. Rather than international paper, I think fiat money going forward would be easier to perpetuate domestically within the confines of a nation?s power to enforce ? as long as other countries do the same.
Also, any new domestic monetary scheme will be imposed from above ? by those with the most to lose and the most to gain. The long-term interests of the public will not be served as we are unlikely to experience an ideal utilization and decentralization of precious metals in the monetary system. Changes in domestic money will simply be ?holding actions? with the intent of preserving or reverting back to the fiat status quo later on.
An ideal domestic recognition of monetary precious metals won?t happen unless we see broad civil/government collapse or perhaps a tsunami of people march on the Fed and JP Morgan with ropes in their hands and some understanding in their collective heads as to who to hang and how to proceed thereafter.
“Electronic liquidity will be shunned and physical cash and short term treasuries will be hoarded driving us ever closer to the black hole of zero interest.”
By whom?
I could care less if bank refuse to lend to eachother and panic into buying T-bills. It is all about PURCHASING POWER. Sure, you may stock up on T-billl, but if you think you can swap these T-bills in the future for more soupcans than today, you are mistaken.