GOLD for Preservation of Purchasing Power
Practiced By The Wealthy And Governments For The Last 5,000 Years
When it comes to capital preservation, few resources have been able to hold their value like gold. In the early part of this century gold remained quite stable. However, in 1971 Richard Nixon fully demonetized gold, detaching Federal Reserve notes (U.S. Dollars) from exchange at the predetermined price of gold. Money today is created by a privately owned central banking cartel. All U.S. citizens are forced to accept these fiat paper notes a payment for all debts, public and private, as a result of current legal tender laws.
Under the original agreement, these fed notes would always be exchangeable for gold and silver coin non bearer demand. From 1913 through 1933, Federal Reserve Bank branches would take gold on deposit from U.S. Citizens and issue in return Gold Certificates that could then be used in commerce. Profiting by collecting interest, banks lent the gold back to the public, keeping a fraction on hand in case some depositors wanted their gold back. Consumers would take gold on loan for tangible purchases beyond their current means. Upon purchase, the gold would transfer from buyer to seller and then get re-deposited, giving the banks repeated opportunities to loan us the same Gold. After several loans and deposits this pyramid scheme, called fractional reserve banking, would, on paper, turn one ounce of gold into several, leaving only a small amount of real gold for depositors.
Having the newly established power to lower reserve requirements, the Fed was able to fuel the largest economic expansions of all times: The Roaring 20s! Economic growth through the expansion of credit. What a party it was! Unfortunately, along with credit comes compounding interest. Member banks divested themselves from the exuberant market, raised reserve requirements and their greed ultimately caused the greatest depression of all times. A panic in the banking community was underhand! Depositors were demanding their gold back! Having only a fraction of the gold to disburse, bankers turned to their political friends and asked to be bailed out. Franklin D. Roosevelt responded with one of the largest defaults ever pulled on the U.S. public!
Government is the only agency that can take a valuable commodity like paper, slap some ink on it, and make it totally worthless. –Ludwig von Mises
On March 4 1933, (the day he was inaugurated) more than 12,000,000 people were out of work; 8,000 banks had failed, the U.S dollar (and almost every other currency in the world) was in trouble because people were losing confidence in paper currency. In fact, panicked people were draining all banks of much needed currency and people were hoarding gold and silver.
On March 6, he ordered every bank in the nation closed and prohibited banks from paying out withdrawals in gold or dealing in foreign exchange. On April 5, he issued Executive Order No, 6102 which stated in Section 2: “All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or branch all Gold coin, mold bullion and mold certificates now owned by them.”
Americans had less than a month to comply and received only $20.67 per ounce in fiat paper money and silver coin for their gold. Violation of the order was punishable by up to a $10,000.00 fine and/or up to 10 years in prison, plus confiscation of gold forfeited to the government.
However, Roosevelt knew he’d have trouble if he tried to confiscate all gold coins, especially those held by people for historical, cultural, or collector reasons. The hang up was the Fifth Amendment to the U.S. Constitution, specifically the Eminent Domain Clause, which states, “…nor shall private property be taken (by the government) without just compensation”. This meant the government would have to take every “collector coin” on a case by case basis to determine “just compensation” for all rare and unusual coin–an almost unfeasible task.
Realizing this, Roosevelt deliberately excluded all “gold coins having a recognized special value to collectors of rare and unusual coins” “from his executive order, figuring they would amount nothing more than a drop in the bucket relatively speaking. In June 1933, Congress, at the urging of Roosevelt, passed a joint resolution rescinding the use of gold clauses in all past and future contracts. This meant all contractual obligations had to be met with fiat paper currency. Gold no longer was king!
On January 15, 1934, Congress then passed the Gold Reserve Act which authorized all gold to be owned by the government as a precious metals base for its currency. This Gold Reserve Act also gave Roosevelt the power to devalue the U.S. dollar by raising the price of gold. So Roosevelt immediately raised the base price from (approximately) $20.67 per ounce to $35.00 per ounce, where it remained until 1971. In reality the price of gold did not almost double overnight—the value of the U.S. dollar fell by 59%. The ‘phraseology of his exemption becomes very important to us today as we contemplate what the current administration might be considering to help solve its own financial problems. Roosevelt exempt from the surrender requirement not the “owners, “holders,” nor “possessors,” nor even “investors” of such coins. Exemption was granted to just one classification:” “collectors” (for 5th amendment reasons discussed earlier). Keep in mind there is a clear distinction between “collectors” and “investors,” of rare coins. A collector’s primary interest in rare coins is enjoyment—it’s for historical, aesthetic or cultural attraction, whereas the investor’s interest is only financial to make a profit. It is clear Roosevelt intended to exclude only the collector. In a possible future confiscation collector gold coins would once again present unmanageable difficulties for the U.S. Treasury Dept because of the Eminent Domain Clause.
“As long as nobody asks me whether we are off the gold standard….that is all right, because nobody knows what the *&#* gold standard really is.”
–F.D. Roosevelt: March 8, 1933
With the stroke of a pen, President Roosevelt not only wiped out the value of the savings of many people, (who had at least been fortunate enough to get their money out of the banking system before it, too. collapsed) he effectively wiped out 59% of the government’s debt at the very moment he increased the value of the government’ supply of gold. ANOTHER PERFECTCRIME!
If you wish to own gold it would be wise to purchase it in the form of pre-1933 or Commemorative U.S. gold coins with a variety of dates, denominations and mint marks which could exclude them from any possible future gold confiscation. Gold British Sovereigns and Gold Francs are also protected under this law and good to own. The only individuals who watched the value of their assets increase by 59% when Roosevelt devalued the U.S. dollar were the people who owned gold coins having a recognized special value to collectors of rare and unusual coins.” In effect, individuals owning collector gold coins made a bundle.
Who were these people? Over the decades, many have alleged it was the super-rich, the elite, the inside members of the establishment. Is this true? Probably. The Rockefellers, The Mellons, and so forth, certainly benefited handsomely during the desperate times of the Great Depression. But isn’t that the way it always is? Politicians cater to the powerful who feather the nests the politicians who pass laws to protect the interests of the powerful.
Next came the confiscation of silver. On August 9, 1934, Roosevelt issued a Presidential Proclamation ordering all silver bullion be surrendered to the U.S. Treasury within 90 days. A 50% tax was also levied on all profits realized from the sale of silver. People were paid 50.1 cents per ounce.
From 1933 to 1971, the U.S. dollar was pegged to gold, with gold remaining at a fixed price of $35.00 per ounce. On August 15, 1971, after heavy gold buying by foreigners had drained billions of dollars worth of gold out of the U.S. Treasury at the price of only $35 an ounce, President Nixon “closed the gold window.” From that moment on not one single currency in the world was redeemable in gold.
Following in Roosevelt’s footsteps, Nixon saw an opportunity to liquidate more governmental debt by taking the dollar off the gold standard. Naturally he seized the opportunity, and in December 1971, he increased the official price of gold from $35.00 per ounce to $38.00 per ounce. This same phenomenon occurred again on February 12, 1973, when the U.S. dollar was devalued again for a third time with the official price of gold being increased to $42.22 per ounce.
For many decades now Americans have been allowed to own gold and silver. Although the “official” price of gold is still $42.22 per ounce, today the market price hovers around
$1006.10* per ounce while silver fluctuates around $16.77** per ounce. (The price of gold and silver peaked in 1980 at around $850.00 and $49.00 respectively. These price peaks came with the end of the inflationary phase of the long-term economic cycle.)
All holders of gold bullion coin should take the “official” price of $42.22 per 1oz very seriously when accumulating gold for protection. They could be setting themselves up for a hard lesson in how our government may treat that bullion in the future.
If you think this cannot happen read this:
In 1979 The Franklin Mint shipped a substantial number of Krugerrands on TWA. The shipment was lost by TWA, so the Franklin Mint sued to recover its loss at the actual market price of gold. In Franklin Mint Corp. vs. Trans World Airlines, the Supreme Court ruled that gold bullion values in commerce are limited to $42.22 an ounce. That’s all they received!
That means all confiscated gold could possibly be compensated at only $42.22 per 1oz. and not at the world market price. Don’t take this decision lightly. It was another blatant warning that the government may be contemplating grand larceny—AGAIN.
The United States has seen four different gold confiscations—the last of which was in 1933. Few people realize that when the freedom to own gold was restored in 1972, the president retained the power to require us to surrender our gold which he can do again any time (probably on a Friday) with the mere stroke of a pen. This is one reason why there are the reporting requirements for bullion transactions which, of course, don’t exist for so-called “collector” gold. Thus, “collector” coins provide your portfolio with the diversification you’ll need to protect yourself from a truly different kind of risk. Since 1979, the U.S. and world economies have, in real terms, been contracting. Using the value of the dollar as it stood in 1940, the Gross Domestic Product today is less than it was in 1940.
How can this be? The purchasing power of today’s dollar is worth just two cents when compared to the dollar of 1940!
The government continues to devalue your dollar by increasing the supply of dollars available to enable everyone to borrow way into prosperity without increasing interest rates. Another grand illusion not seen (in America) since the infamous Roaring 20’s. Of course, we know what the debt binge of the 20’s brought: a soaring stock market, mushrooming debt in both the public and private sectors, and an eventual crash and subsequent Great Depression.
Today Americans (and all the other people of the world) find themselves standing right back in the same shoes of their forefathers. The stock market (after soaring on lower interest rates and then on borrowed money) is in serious trouble. More people are losing faith in the stability of the world’s paper currency system! (*1)
HISTORY REPEATS ITSELF
In 1982, as interest rates, crude oil, and commodities were finally declining from cyclical highs, investors were bailing out of mutual funds at a record rate, and convinced that stocks were “stupid” they had lost three-quarters of their real value in the previous 16 years Money surged into bank CDs, money markets, and hard assets. Today, as interest rates, crude oil, and commodities are finally rising from cyclical lows, investors are pouring into mutual funds at a record rate, convinced that stocks are “the place to be.” Money is surging out of banks CDs, money markets, and hard assets. Investors are truly inveterate followers of the thundering herd. Assuming that profits and dividends continue to grow at the same average rate that they have grown for the past thirty years, or even one hundred years, the stock market will decline by 82% by thy next bear market bottom assuming that the dividend yield at that point 7.5%, its historic average for a bottom. Since high tops are usually followed by low bottoms, a prediction of a 90% drop is probably too conservative. It has been a wild party, and the stock market a most gracious and generous host, but it’s time to go home before you are trampled by the herd rushing to leave. (*2)
Prolog: This article was written In August 2008 5 months prior to last September. Since then the economy is in a critical situation and many have lost more than 40% of their worth. They are projecting a second dip in this current recession and that is predicted to happen sometime by the end of the first quarter on next year. The markets will appear to level off until then and may show a slight upward tick. But with all the Billions of dollars the government has printed and bail outs etc… It will come into play soon and our economy will hit brick wall unlike any other seen. China is buying gold and silver like it is going out of style and for the exact same reason you should be buying gold and silver. To protect your wealth. China knows there is a good chance that the almost Trillion dollars it holds in American debt maybe become worthless and the only way to hedge their bet is buy using that money to buy gold and silver. Exactly what you should be doing right now be for the demand out ways the supply.
As an example: if you have let us say $100,000 is paper liquid assets then you should have $15,000 to $30,000 in precious metals. If you have $10,000 then 30% of that. You get the idea. You when you buy gold and or silver I highly advise you take physical possession of the gold and silver so you have control in case there is a bank holiday or economic collapse. Precious metals are your insurance on your money, your wealth and have been that way for over 5,000 years. You have insurance on your car and home and gold and silver is your insurance on your money. But unlike insurance on your car or home where you cannot get all those years of premiums back, you can cash in your gold and silver and done at the right time you could me ahead of where you started.
One Last thing about China. China has just started a program to encourage its citizens to every payday to buy some gold or silver. China knows that gold and silver are hard solid assets and is trying to make sure its citizens and the wealth they are building is sound and secure. You do not hear our government giving us that good advice. And if just 10% of China’s 1.3 Billion citizens do this the demand for gold and silver will skyrocket and that means so will the cost of gold and silver.
I highly recommend you seriously consider getting more information about buying gold and silver very soon to protect what you have right now before you lose more. And remember you really are just converting a % of your paper money into to something that will hold its value and can go up in value in these economic times.
If you have any questions about owning gold and silver and what is right for your particular situation please feel free to call. It cost you nothing. I can be reached at Colonial Resources; we are out of Minneapolis Minnesota. My name is Terry Sachetti and I am a Sr. Precious Metals Advisor. I would be happy to talk to you and send out information if you like. 763-219-8895 please let me be of help to you.
We are in unchartered waters with this current economic crises and your future depends on you informing yourself on how you can preserve what you have today from what may happen tomorrow. 5,000 years have proven this method works.
* 1 Michael W. Haga, “The Economic Outlook”, April, 1996
*2 Steven Jon Kaplan, Gold Mining Outlook, 1998
*Spot Price of Gold 9/11/2009 **Spot Price of Silver 9/11/2009