Gold confiscation

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Here's a question I received today, and it is both quite common and legitimate.

Hi Chris,
I know you have been a strong physical gold advocate as many on this site have been as well. I can't think of a less risky term to store wealth over the long term.

However, although gold confiscation has been mentioned in a few articles on the site, I have yet to see you post any comments or opinions. The biggest risk I see with gold is the confiscation issue. Everyone will have to decide their own course of action if this comes to pass, but my question to you is this:

What evidence do you see for or against the reimplementation of a gold standard and what evidence do you see for or against another round of gold confiscation??

Hopefully you can answer. Also, I check your site multiple times a day, but still I don't have a chance to see every forum post. Is there any way you can notify me of a response?

Thanks so much for your time and effort. You have already made a great positive impact on my family!

Sincerely,
Mike

All I can offer here is my opinion, as I certainly do not have any better insights than anybody else.

When gold was confiscated in 1933, gold was money. Today it is not. That, in a nutshell, defines why I place the possibility of gold confiscation quite low on my personal list of Things to Worry About.

First, here are the reasons I am not terribly worried about gold confiscation:

  1. The current official stockpile of gold in the US stands at 261 million ounces. While there is more in private hands, we also have to consider that the US has almost certainly leased a lot of the official gold out, so it is unlikely that there's a whole lot more than that within our borders at the moment.
  2. At the current price of $810/ounce, the total value of all the official gold in the US is $211 billion.
  3. $211 billion is barely two-thirds of the amount that was lavished on Citibank over a single 24 hour period last weekend and less than one-sixth the amount of new money created by the Fed since September.
  4. Total debt of the US government stands at nearly 50 times as much as $211 billion.
  5. Total credit market debt of the US stands at more than 230 times as much as $211 billion.

The case I am making here is that the total amount of gold, at current values, is puny and insignificant compared to either the amount of debt or money creation.

And the amount of gold in private hands? An even tinier amount than supposedly exists in the official US stockpiles.

So in the context of current monetary and fiscal policy, gold in the hands of US citizens is not significant enough to merit the distraction and possible legal difficulties that would be required to seize it from law-abiding US citizens.

Well in advance of gold being seized, I would expect 401Ks to have their tax rules amended to pass more funds to the government. I would anticipate enhanced seizure and forfeiture rules, directed at larger pools of money and larger assets. Why? Because that's where the wealth currently resides.

And here are the conditions under which I will become more concerned that gold forfeiture and seizure rules might be in the offing:

  1. Gold climbs to some meaningful dollar value that both represents a threat to the perceived value of the dollar and represents a meaningful target for seizure. For me that number begins around $5,000/ounce and becomes critical around $10,000/ounce.
  2. Some foreign country with a resource we want demands payment in gold. For example, if some oil-producing nation suddenly demands gold in exchange for oil, I would place a very high probability that gold will be seized under the umbrella of "national security."
  3. A major bank, playing the short side of the paper gold trade, gets caught, is unable to deliver, and faces insolvency as a result. Here I might also expect the rules to suddenly be changed to protect yet another "too big to fail" institution.
  4. A new international standard of currency exchange arises, based in whole or part on gold. In this scenario I could see all gold in the world being declared off-limits for everybody except for official purposes and uses.

While reason #4 gives me the most pause, I am counting on two things: My ability to see this coming from a long way off, and my ability to sell out at a much higher price prior to it happening.

But the short version of all this is that gold is not money in today's financial system, and it is a tiny asset compared to other more readily identified and liquid assets. Those, like Argentinian bank accounts in 2001, would presumably become the first targets of a desperate government.

Great question, and thanks for asking!

This is a companion discussion topic for the original entry at https://peakprosperity.com/gold-confiscation-2/

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The only thing a govt can confiscate is what you let them. At some point, you draw a line in the sand, and say "this is it".

3

I’m sorry, but I have never quite understood the part about gov’t seizure of 401k’s etc. How, exactly, and why, would they ever do that? Would it also include IRA’s? Thanks. Ben

4

government has seizure rights called taxes/ they are already talking about it. i cant remember his name but several months ago this rep i believe said the government was losing too much money with the tax breaks people were receiving from their 401k’s and th egov. could get another 80 billion or so in taxes.

who’s looking out for you?

5

Clever cartoon, funny AND frightening!

http://www.youtube.com/watch?v=QovBLFZhQME&NR=1

Cheers,

David.

6

Here is a link to a well written article that provides an interesting perspective regarding the feasibility to implementing a new gold standard.

http://www.financialsense.com/editorials/hultberg/2005/0203.html

 

7

Yes we must bring the gold standard. If we don’t we will have toilet paper for money.

                                                                                       Bob
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The biggest problem when they outlaw private gold
ownership is the inability to trade with it. They cannot search every
home. But they can effectively shut down all exchanges of gold.

There is some talk of a massive global devaluation of
all currencies. This would make all debts worth less, as all savings.
I don’t understand the mechanism behind devaluation, but it seems
that in other to make all money worth less, something has to become
worth more. What? Gold, I guess.

 

9

Fogle:
Gold would be a black market traded commodity. They’d lose the 30% capitol gains tax afforded to it now. 30%! They don’t like gold now.
If the dollar lost its remaining 4% of value, say it was worth .0000000000001 cent then your pay would be like a million bucks a week. We’d pay off our mortgage and skip a loaf of bread to eat one week. The government would pay off its debt and even replenish the Social Security "Trust" "Fund" which is empty.
Then Romer would come in and re-denominate the dollar with a new dollar. Vockler would raise interest rates to protect it.
Basically, rather the world forgiving debts the kind way they do it the hard way.
Again, this is my opinion based on just reading a lot of stuff. I could be way off.
Lastly, if some other country (Iran, China) take the gobs of gold they are buying and demand a gold standard be imposed (i.e. no gold no oil, no gold no Wal-Mart imports) on the world I’d say watch out, I think there will be the mother of all wars.

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Our government could do what Argentina just did to their private pension accounts:

http://www.reuters.com/article/bondsNews/idUSN2345934020081023

Personally, I’m not putting any more money into my retirement accounts. I’m also storing my physical metals in a safe location, outside the banking system. What the government can’t see is what the government can’t tax or seize.

 

Look up at the moon…that’s how high gold is going.

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Are Humans Smarter Than Yeast? Humans eat, they breed, they die - but for a purposeful plan only known to the "brewers and bakers" which compose the New York financial and banking cabals. The total sum of human toil is about to be harvested vis a vie confiscation of lands, goods and labor. The trillions in debt dollars will lay claim against the billions of hands multiplied by man-hours of labor per lifetime.

The consensus trance among the fattened, tranquilized American Middle Class expects salvation form their demigod Technology as evidenced by mindless demand for faster home computers and flatter flat screen TeeVees. But these devices will only deliver more fat producing anesthetic to the sofa bound infotainment grazers.

The rescue remedy redemption (i.e. confiscation) plan will follow a hierarchy. Here is a vague list of how the American Middle Class will be harvested by the master brewers:

Wages -> investments -> weapons/ammunition -> stored commodities (food/fuel/gold) -> land/water -> inscription/slavery.

Between investment and weapon confiscations, expect restrictions on travel (except for those carrying National ID
Cards), restrictions on local manufacturing and trade (except for
Card carriers), and regular patrols with occasional house-to-house search for "contraband" and suspects (those without a Card).

Just before land confiscation, expect prohibitions against raising farm animals or gardening (for health/infectious disease/public safety reasons). All food production will be limited to "terrorism free" government sanctioned corporations (Monsanto, ADM, Tysons, etc).

The post-Peak Oil depletion of refined fuels will generate prohibitions against stockpiled heating and cooking liquids and gases. We could see laws restricting fuel containers limited to five gallons per person per week. Forested areas will be nationalized and "closed" in the name of protecting national resources.

Water will be more precious than gold or oil. Expect the biggest and most desperate battles to be fought over fresh water access and pump/storage resources.

Any and all people who fail to willingly and completely surrender will quickly find themselves subject to the last redemption: forced labor, Chinese factory style. What irony that the Walmart shoppers of today might be forced into the same labor factory model that once produced their salad shooters, plastic wading pools and Christmas tree decorations. Those people who try to "cheat" the system by growing, manufacturing and bartering, any or all without the benefit of National ID Cards, will be easily spotted: they will appear well fed, clothed and shodded, and in general good health and spirits.

Are Humans Smarter Than Yeast? We shall soon see.

 

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Hi Bob

No I don’t think they will bring back the gold standard. It was removed and substituted buy Fiat money for a reason.

The truth of the matter is scandalous, the formulation of Fiat currency by the US Government addressed the very problem with the depression in the 1930’s. You have to change your mind set and think of a commodity as being worthless until some one wants to give you something for it. The same would apply for gold. At the moment It’s value is artificially exaggerated. The winners in the gold markets are the investors of prey 2002. Or to look at it from another angel Post 9-11.

Be very careful about the future of gold. I thought about making an investment not a large amount just a little of the real stuff. Any how long story short, I took a walk to my local bullion dealer in London just outside the Savoy hotel. Things whitch are evident when you make a purchase. You have to declare you passport, so they know who you are, and they will only sell a you a base amount because supply is at an all time low.

I Spoke candidly with the chap on the other side of the counter and asked some hard questions. Little did I realise the UK Government claims the authority in declared emergencies to seize and freeze just about everything that might be considered a financial instrument. So with that bit of understanding buying gold would be a gamble in times where unsertinties run high.

I hope people begin to understand how life’s trouble’s and toils amount to very little when faced with what Government’s are capable of.

13

Chris,
Very good post! But I was surprised, however, that I did not see a very important element mentioned in your post. It is an element that the saver hates, but the debtor loves (fixed, that is :slight_smile: ). It is an element that the politicians have to have in order to save them from themselves, and it is an element that is unseen in the day-to-day, but it is an element that destroys us every day.
What is this magical element of which I write? What is this magical entity that pervades us all?
Why, it is the debtor’s friend and the savers enemy. It is inflation. Not official inflation, but real inflation. While everyone understands that inflation lowers the amount of good you’re able to buy, what is less understood is how our government (over decades, not years and certainly not through any conspiratal efforts) purposefully misstates the amount of inflation that we have.
Why?
If you had $54 trillion in obligations that you had to pay, and you were able to subtly manipulate the "official" inflation level so that you could inflate the dollars of promised payments, you would be a fool not to. If you want to see how this works, meander on over to shadowstats.com . I don’t run that site, John Williams does, but it is a fantastic resource to understand the true cost of inflation. Here is an article that also does a good job of putting it in perspective:
http://www.financialsense.com/fsu/editorials/amerman/2007/0404.html
Since the official government rate of inflation is so widely different from the actual rate of inflation, the government is going to be able to honor its obligations; it’s just that those obligations will buy fewer and fewer resources.
There will be cuts but the cuts will not be as devastating to us as a spread between actual inflation versus official government inflation. And as more people across the world get payments (Social Security, Medicare, Medicaid, food stamps, etc) from their governments the more incentive that governments have to alter how they measure inflation.
As I have posted before, I think we’re in a period of massive deflation right now but it will turn inflationary in the future. The $54 trillion question is, when?
Gak

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Hi, it is a good informative piece and well written.

I tend to think what ever lays round the next corner will be a credit system sooner or later spelling the end of paper Money. Mind you this is probably 35 - 45 years away.

Alan Greenspan, used to be a proponent of the gold standard. His words:
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other goods, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves."

Or to put it in context:

The Trilateral Commission, World bank, The Bipartisan Political Establishment has turned our government into a monster, which is eating out our substance, but failing to deliver on the promises the politicians make. Through the Internal Revenue Service, everyone of us, and every working American, is in the government files. Our economy is being crushed by a burden of debt, taxes and regulation. The last vestiges of our privacy rights are being eliminated as part of the War On Drugs. And now, the Trilateralists seek to police the world in alliance with a revived Japanese and German militarism.

 

15

Hello:
Yesturday I posted on the Daily Digest a paper written by Romer since she will be on the advisory board to President-Elect Oboma.
She, in my opinion, is the clean up crew along with Vockler. The Geithner’s will re-value the dollar turning its’ worth into fractions of pennies to pay off our 53 trillion "off balance sheet" debt and our 10.8++++ on balance sheet debt vis-a-vis hyperinflation.
She said in that article,

"There is a notable correlation between the time countries abandoned the gold standard (or devalued their currencies substantially) and a renewed growth in their output. For example, Britain, which was forced off the gold standard in September 1931, recovered relatively early, while the United States, which did not effectively devalue its currency until 1933, recovered substantially later. Similarly, the Latin American countries of Argentina and Brazil, which began to devalue in 1929, had relatively mild downturns and were largely recovered by 1935. In contrast, the "Gold Bloc" countries of Belgium and France, which were particularly wedded to the gold standard and slow to devalue, still had industrial production in 1935 well below its 1929 level. "
http://elsa.berkeley.edu/~cromer/great_depression.pdf Also, if you watch http://perotcharts.com/issues/ SLIDE #14 (thanks to someone who posted this on a past post a few weeks ago) you can see that "defense" spending is 50% of our Empire, I mean Republic, I mean Democracy. I seriously doubt our "democriaPhobes" are going to allow a standard that takes their military down to one general and one F-18 because they can't inflate the dollar. An inflated dollar to them is like steroids. They don't want to watch Chavez and Putin doing military exercises in the Chesapeake Bay. Face it, the world is what it is. The ONLY caveat that I can think of would be this:
  • The rest of the World goes to a gold standard because our dollar is de-pegged as the reserve currency and then we have to follow along or our funny paper is worthless and we can't import oil or flat panel tv's from China without a gold backed dollar.
I'm with Chris I'd worry more about the 401(k) and the worst part of that plan is:
  • The government gets 50% of your money when you die, your kids get the other 50%
  • They pay 3% above inflation - when you have Enron accounting determining inflation you might as well plan on starving to death in your older years
http://www.carolinajournal.com/exclusives/dems-target-private-retirement-accounts.html
Analysts point to another disturbing part of the plan. With a GRA, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts. For workers who die after retiring, they could bequeath just their own contributions plus the interest but minus any benefits received and minus the employer contributions.
Take care.
16

This would only work if the govt was actually making payments on the debt right?

 

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Bill85.
I know (assume?) the comment was made tounge in cheek, but it does bear mentioning that as of today, 11/30/08, the US gov’t has not defaulted on its debt. It has done lots of very bad things, but it has not defaulted on its debt. When, as Chris has pointed out, debt is the lifeblood of the gov’t, then the last thing that Treas will do is not pay back bond holders. In order to ease payments that they (Social Security, and HHS, etc) are contractually bound to make, then they have no other place to go but to use inflation to make their payments doable.
Inflation is the salve that soothes the insolvent. And when the invsolvent are creating economic policy and control the printing presses, watch out.
Gak

18

Good question Mike, and thanks for answering it with such clarity, Chris. I was wondering how real the risk of gold confiscation was, too, to determine if it even made sense to hold physical gold, and am glad to have your detailed thoughts in it.

Fogle, I saw an article a week or 2 ago that spoke of that devaluation of all currencies to reduce debt, etc., as you brought up. If I can find it again, I’ll post a link to it. I think it was on financialsense.com. But you’re right, they were talking about doing that relative to the price of gold , which I believe they said would be set to some high amount. It was a very interesting article, as it was a different angle on reducing debt than I’d seen. So let me see if I can find that article again and post the link to it.

 

19
Fogle (and others), I found that article (actually articles) I said I'd look for above. The idea they convey is that the G-20 may try to reduce debt by developing a new financial architecture that simultaneously devalues all currencies and reinflates all asset prices. This would be accomplished by raising the official central bank price of gold to a price that monetizes a large portion of the world's outstanding debts. The G-20's motivation per the author? ""If we can't print money fast enough to fend off another deflationary Great Depression, then let's change the value of money [devalue].""

It turns out the articles were not from financialsense.com as I’d thought, but were written by Larry Edelson at www.moneyandmarkets.com , Martin Weiss’s website. The first article, "The G-20’s Secret Debt Solution", dated 11-13-08, can be found at this link: http://www.moneyandmarkets.com/the-g-20s-secret-debt-solution-27996

A follow-up article, "More on the New Monetary System", dated 11-20-08, can be found at this link: http://www.moneyandmarkets.com/more-on-the-new-monetary-system-6-28166

Per the first article, Larry says he can’t know what price the G-20 would set gold at. But he hypothesizes that to monetize the following percentages of the outstanding public and private sector debt in the US, gold would have to be priced as follows:

  • To monetize 100% of debt in US, gold would have to be raised to $53,000 per ounce;

  • To monetize 50% of debt in US, gold would have to be raised to around $26,500 per ounce;

  • To monetize 20% of debt in US, gold would have to be raised to around $10,600 per ounce;

  • To monetize just 10% of debt in US, gold would have to be raised to around $5,300 per ounce.

One of the reason these prices get interesting is that if Larry’s right, gold could hit that much higher price that Chris mentions above, where he’d re-assess the likelihood of gold confiscation.

Larry makes the idea even more interesting by suggesting that the G-20 would move from a single reserve currency, the US Dollar, to 3 (possibly 4) new currencies, each with equal reserve status: a new dollar, a new euro, and a new pan-Asian currency (with the Chinese yuan as the possible 4th currency).

I should add that Larry’s background, per his blog at www.moneyandmarkets.com is 30 years experience analyzing and trading precious metals and natural resources. So I leave it to you to decide if that implies superior insight or, instead, bias. I don’t know the answer to that, but I enjoy reading Larry’s articles.

I’d be very curious to hear the opinions of others here on the plausibility of Larry’s ideas.

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a return to a gold standard would mean a return to periods of frequent boom and bust cycles and having to live through periods of high unemployment before returning to periods of gainful employment. in the past when we had a gold standard and endured long periods of high unemployment, citizens of this country turned to their farms and community for food, clothing, necessities, etc…

we no longer live in such a world, a return to the gold standard is fraught with high risk! we no longer live in a country capable of farming their way through a crisis, most americans live in a metropolis setting and own no land, they do not know their neighbors, communities of helpful people are scarce. it is far better to inflate your way out of a problem, that is what bernanke has said! in his writings he describes how the u.s. could have inflated their way out of the ‘great depression’. what do you think he is doing right now?

politicians would not allow a return to the gold standard because high unemployment would limit their ability to return to office after the next election. therefore, you must consider the political economy and realize that neither party is in favor of high unemployment and periods of recession.

i wouldn’t completely rule out a retun to the gold standard but i would put the probability at about 0.1%.