What Government Confiscation Means

Gold ownership is considered a privilege, not a right, in most countries of the world, this includes the Untied States. Throughout history, nation-states have moved against gold ownership whenever economic conditions are so drastic that public flight from the banking system or currency becomes a noticeable threat. The most conspicuous and often-cited example of such a flight occurred in 1933 when the threat of bank failures in the United States forced millions of its citizens to withdraw their funds in the form of gold coins. The recently elected president of that time, Franklin Delano Roosevelt, reacted to the panic by issuing executive orders that closed the banks and confiscated the gold. These measures were designed to maintain citizens’ savings in the banks, whether the owners believed the banks to be sound and their savings safe or not.

To further comprehend how conditions might be such that a gold confiscation could happen once again, 74 years after the the last one, all a person needs to do is to attempt to postulate how the massive federal debt (more than seven trillion dollars and still growing) and the outstanding international dollar float, resulting from massive U.S. budget and trade deficits) could be reconciled. In former sections, we examined how the U.S. dollar enjoys special status around the world as the primary reserve currency. This encourages, or better yet, forces central banks and individual investors globally to hold it.

Bypassing the many circumstances and potential scenarios mentioned previously, getting right to the heart of the situation: what might be the outcome if the props were kicked out from under the built-in dollar market, for whatever reason, and even a portion of the foreign-held Greenbacks were repatriated to the United States or set loose on world currency markets? Even more importantly, how would the government react to an economic emergency in which individuals who are beset either by a devastating domestic inflation or by a deflationary nightmare or both, were fleeing the banks and equity markets for gold as a means of preserving their personal capital? Beyond that, what would happen if our foreign creditors decided that the national debt should now be backed by something besides the government’s promise to pay, and forced the United States to to bring its gold reserves into play? Although we will never know with certainty how the United States government could react to such a dilemma, twentieth century U.S. history demonstrates that confiscation has been the option commonly used by the governments which were threatened with an economic breakdown, as gold is the last-resort asset for the individual portfolio, to do service in the most financially threatening times, so it is all too often the asset of last resort for troubled governments. As recently as 1997, during the Asian Contagion, both Thailand and South Korea implemented “voluntary” gold call-ins. The temptation presented by its citizens’ gold holdings was just too simple to resist.