FDR forcibly purchased American investors’ bullion during the Great Depression. After Cyprus, could gold confiscations catch on again?
By virtue of the authority vested in me by … an Act to provide relief in the existing national emergency in banking, and for other purposes … I, Franklin D Roosevelt … do declare that said national emergency still continues to exist and … do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations …”
These are the opening phrases of Executive Order 6102, issued by FDR 80 years ago on Friday. The order has become notorious among gold investors. Some fear something similar could happen again, that their government might seek to take their gold away as part of some trumped up “solution” to a “national economic emergency”.
Events in Cyprus, where at one point it seemed that the state was going to levy a 6.75pc tax on “insured” deposits below €100,000, have served only to heighten fears that private wealth can, under certain circumstances, simply be appropriated.
Governments change laws from time to time, and yes, it’s possible that under the right circumstances some governments might try to confiscate their citizens’ gold. But the motivation for confiscating gold that existed for FDR in 1933 has largely disappeared. Back then the US was still on the gold standard (Britain had been forced off 18 months earlier). Gold was the foundation of the US currency and economy; at the time of FDR’s order, the dollar’s value was tied to gold at $20.67 an ounce.
Following 6102, Roosevelt was able to devalue the dollar against gold by raising the gold price, eventually to $35, something the government could do as it now controlled the supply. FDR was acting on the advice of an economist, George Warren, who believed that the best way to solve a deflationary depression was to inject some inflation and push prices higher.
In a way, it was a version of quantitative easing, a policy aimed at fighting deflation by raising asset prices. Where today central banks can simply create the dollars or pounds necessary to do this, under the gold standard that was not possible. By confiscating gold and changing its price, Roosevelt aimed to raise prices in the economy even though there was no additional gold.
The situation today is very different. Gold is not the foundation of the world’s monetary system. The gains to a government from confiscating people’s gold would be much, much smaller than those that accrued to FDR.
By Ben Traynor
10:30AM BST 03 Apr 2013 – The Telegraph