In this the second part of this series we look at the big global picture when President Roosevelt's Administration confiscated the gold of U.S. citizens. Based on this part, in the next part we contemplate whether it can happen again.
From May 1, 1933 until 1971, U.S. citizens could no longer hold gold as a protection against paper money, which also lost its gold backing at the same time. Foreign central banks could continue to exchange the U.S. dollars that came into their possession (known as Eurodollars for decades) for gold and did so particularly when the dollar was devalued and then floated against the gold price in 1971.
The 'why' of it all, is critical to our understanding of the global monetary system now! There were two distinct phases to the process that began in 1933.
- The economic time period was as the great depression was coming to an end in the world. It was a time when Hitler came to power in Germany and that country turned on the growth taps with its war machine driving Germany out of its depression into a resurgence of that country ahead of the Second World War. It became clear to all that monetary turmoil was to continue. More money was needed to start and to fuel growth in the U.S. despite the fact that the traditional way of growing money [against real growth in the economy] would hold the world back for a considerable period of years still. With money tied to gold and the U.S. needing to fuel its money supply it appeared reasonable to increase the government's stock of gold forcefully and dramatically. The first step was this order confiscating gold. All but rare gold coins were handed over to the government under the threat of a $10,000 fine or 10 years in prison. These threats were persuasive enough. U.S. citizens complied in full.
- Perhaps a mix of the need for an even larger increase in the money supply and the gathering war clouds persuaded the U.S. government to go further still and revalue gold by a full 75%. Remember, it was still gold that was money plus the I.O.U.'s issued against it. The U.S. dollar as we have now is not any form of I.O.U., it can only be changed for another dollar and has not backing whatsoever, except in our mind's eye. So any expansion of money supply had to be against an increasing stock of gold. In the event of war it was clear to the Allies that the U.S. would be the best place to hold their gold too. (One of the war tactics is to forge your enemy's money and cause a monetary breakdown in his ranks, too.) So in 1935 the dollar was devalued from $20 to one ounce of gold down to $35 to one ounce of gold (one has to wrap your mind round the idea that the dollar was measured by gold not gold by the dollar). Remember too that it was a world of fixed exchange rates only. No exchange rates floated, or were devalued or revalued. It would take another 35 years before this changed! The expansion in the money supply that this caused combined with the war preparations caused a huge U.S. growth and brought back the days of prosperity to the States (who became suppliers of goods to the world from then on for the next 35 year and more).
This had an international effect because, for either ignorance or willing compliance by foreign governments, they did not devalue their currencies against gold at the same time, in 1935. So a gold dealer could buy gold at the old price of $20 outside the U.S., in foreign currencies sell it to the U.S. for $35 an ounce. Gold up and left the developed world and headed to Fort Knox very quickly making the Bullion Bankers very happy indeed. That's how the states managed to acquire over 26,000 tonnes of gold ahead of the outbreak of war in Europe in 1939.
The post war monetary system called the Bretton-Woods system still had gold in the background behind currencies, but U.S. individuals were not allowed to enjoy this security. European could and did enjoy access to gold and gold bonds [such as the Rente Pinot and the Rente Giscard in France] and still do. But it was not until 1971 that U.S. citizens could own gold privately again.
The fact that it has happened before makes it possible that it can happen again! It is wise to make sure that you are not vulnerable to such an act. We will look at this in more detail in a later part of the series. To ensure you get the entire series, please subscribe to Gold Forecaster through: GoldForecaster.com.
Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.