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Confiscation of Gold: My 2 Cents

Confiscation of gold, I've given it some thought and here is what I think.

People who value gold as an investment vehicle have for years had to endure the financial press talk about the "overhang" of gold in the gold markets. The gold held by central banks have been the gold bug's nemesis. Well lets face it, if the central banks were motivated to use their gold to "overhang" the gold markets, we couldn't stop them. It was their gold, or gold under their control. But let us look at this concept of "overhang" for a minute and look up to see what is overhanging the markets today. By overhang I mean something that was once bought and now can only be sold.

I see US debt instruments of all sizes, shapes and colors overhanging the markets, stocks too, and all of these "assets" are really only different manifestation of the US dollar. What's a US dollar? Well in 1933 when they confiscated gold from the average citizen, the dollar was understood by everyone to be so much gold. And the problem was that the Fed got a little carried away with the printing presses during the twenties. This resulted in there being to many paper dollar in circulation to convert the paper Federal Reserve Notes that the government said were back by US monetary gold, into gold. Someone had to get screwed, so who? Citizens of the US or foreigners? Well that's an easy one to figure out, screw both of them, but one worst than the other.

So the dollar was split into two, one for US citizens and one for everyone else; one that could be converted into another paper dollar and another one that could be converted back into gold but about 1/3 less gold than before Uncle Sam made his adjustment. But this next point is very important; even the paper dollar circulating in the US was said to be worth $35/ oz of gold, if not to a US citizen then at least to someone else, somewhere else. This implied link of the US dollar to gold was seen as a check on the ability of the US banking system to inflate the US money supply.

This is no longer true! Gold is said by those in control of the world's monetary system to be no longer money but only a commodity like corn or pork bellies, a commodity that has much less utility than food. I'm not belittling food but isn't that the reason why the central banks are selling and leasing this "dead" asset is that as far as modern finance is concerned gold has no value other than as something to sell to someone else for paper dollars? It is a point of faith in new age banking dogma that gold is not money and of real value only to people who are outside the financial arena. The underlying thesis of new era banking is that gold is only valuable to people like jewelers and women who like pretty things. To the wizards of modern monetary policy, gold is something that forces them to pay for warehousing expenses. So gold isn't money to the central banks, rather, gold is something from prehistory that they are stuck with that costs them money and so they want to lower their costs. Or so the story goes.

Well go back to that "overhang" of all of that debt, payable in paper US dollars. Regardless of the pain of the unavoidable fall the US dollar will face in the years to come and rising interest rates a weaker dollar will bring to the demigods of the banking system; what would happens if at some point the central bankers should admit that gold is money, or even if there were rumors that a gold confiscation was being considered? I think they would lose all of their "credit". I think there would be a such a run on the dollar and the US bond markets that only the force of arms and an imposition of a feudal, totalitarian economic system could stop the run. In such a instance, try as they might, warming up the cold cadaver of the US dollar will not make it a wanted international bill of exchange if the bubble of "faith and confidence" of the fiat US dollar were to be pierced. It would be checkmate, the end of game for the paper dollar.

Could there be a gold confiscation? Yes there could be. Will there be one? I don't know. It would be an act of desperation by the fiat money cartel and it would be seen as such by the international currency and bond markets. The effect of * ANY * move towards gold as money would be incalculable by those in power and there would be no turning back. The current powers that be would no longer be serviced by fiat money, and possibly even fractional reserve banking system could end as a basis of banking. How could this not trigger a world of gold money?

I'm not sure of anything that is as cloudy as this issue is in my crystal ball, but to confiscate gold is to demonetize paper! What else could gold confiscation mean? And isn't this exactly what the central banks are committed to prevent at all cost?

I heard said and have found to be true that "the things one worries about the most are the things least likely to happen". Could this also apply to gold confiscation? I think it could very well be.

Mark J. Lundeen

11 February 2001