Dear Friend of GATA and Gold:
Doug Casey's colleague at International Man, Jeff Thomas, today ruminates on the possibility that in a currency crisis, such as one prompted by an anti-U.S. bloc's creation of a gold-backed currency, the U.S. government will resort to some form of confiscation of gold from investors.
After all, as Thomas notes, the United States has attempted confiscation before. In 1998 South Korea undertook a remarkably successful campaign to persuade its people to donate their gold to the government as a matter of patriotism to avert default on the country's debt to the International Monetary Fund.
China may be providing for a similar emergency. As money manager Willem Middlekoop and others have noted, the Chinese government's recent encouragement to its people to buy gold may be part of a policy of "storing gold with the people."
Thomas writes: "If the U.S. and the European Union could come up with a large volume of gold quickly, they could issue a gold-backed currency themselves. It’s a simple equation: The more gold they have = the more backed notes they can produce = the more power they continue to hold. By seizing upon the private supply of their citizens, they would increase their holdings substantially in short order.
"Either that or they could just give up their dominance of world trade and power. What would you guess their choice would be?
"It is entirely possible that the U.S. government (and very likely the EU) has already made a decision to confiscate. They may have carefully laid out the plan and have set implementation to coincide with a specific gold price."
Maybe, but any currency purporting to be "gold-backed" would probably not gain much credence unless it was convertible to gold for whoever held it, or convertible
somewhere, if only among governments. Otherwise what would "gold-backed" really mean except another confidence trick when confidence already has been lost?
In any case, the currency of any country with gold reserves is already "gold-backed." For example, in its annual reports the Reserve Bank of Australia used to acknowledge candidly the market-rigging purpose of gold reserves, as in the RBA's report for 2003.
"Foreign currency reserve assets and gold," the report said, "are held primarily to support intervention in the foreign exchange market":
The bank's more recent annual reports, like last year's, are not as explicit, subsuming gold with the bank's "foreign reserves," which "are held to give the bank the capacity to intervene in the foreign exchange market." The bank adds reassuringly, "Such interventions occur rarely." (You know -- only when investors seem about to profit at the central bank's expense.)
But it's all plain enough. Any gold reserves are potentially backing for a currency, if there is convertibility somewhere -- and the necessity for convertibility somewhere, if only among governments rather than investors, would seem to limit the potential for confiscation.
Thomas' commentary is headlined "Don’t Dismiss the Possibility of Gold Confiscation" and it's posted at the International Man site here.
For whatever it may still be worth, 16 years ago GATA went to the source about confiscation. We pestered the U.S. Treasury Department long enough to obtain a formal statement of policy.
Essentially the department replied that upon proclamation of an emergency by the president of the United States, pursuant to the Trading with the Enemy Act of 1917 and the International Emergency Economic Powers Act of 1977, the Treasury Department would have the power to seize or freeze any gold or silver or any gold- or silver-related asset, like shares of mining companies. But, the Treasury Department added, investors in the monetary metals shouldn't get too paranoid about this, because pursuant to the same laws and proclamation, the department would claim the power to seize or freeze any damned thing it wanted to. (That's not what the anthem means when it comes to the part about "the land of the free and the home of the brave.")
GATA's correspondence with the Treasury Department about confiscation is here.
Nine years ago, GATA noted that Australian law already provides for confiscation of gold and silver.
Other nominally democratic, free-market countries may have similar laws. Do they have citizens prepared to resist totalitarianism? Or could they be persuaded, as South Koreans seem to have been, that expropriation to compensate for government's financial mismanagement is actually patriotism?
Maybe the first conclusion to be drawn from all this, as government finances become more reckless, is that people should amass as much monetary metal they can and then find a safe planet to keep it on. (Thanks if you can alert your secretary/treasurer to any such planets.)
This really isn't investment advice -- more like advice for life in an increasingly crazy world.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
About the author
