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Question of Gold Seizure Hits Radar Screen
By David L. Ganz, Numismatic News
October 02, 2008

With a $700 billion mortgage bailout package on the table, Wall Street investment bank Lehman Brothers in bankruptcy, brokerage giant Merrill Lynch sold and the appearance of economic chaos on at least three continents - North America, Europe and Asia - gold has moved to the forefront and with it issues that parallel 1933-1934, the time of the Great Depression.

The question fairly rises as to whether or not the U.S. government is moving to consolidate its economic power by an outright gold seizure or whether they are prepared to allow the free gold market to speak about the dollar bill and a gaggle of other foreign currencies. Some wonder if they are willing to let the dollar's purchasing power slip away entirely.

Cause of the initial crisis: bad bank loans. RealtyTrac® (realtytrac.com), a leading online marketplace for foreclosure properties, released its second quarter 2008 U.S. Foreclosure Market Report", which shows foreclosure filings were reported on 739,714 U.S. properties during the second quarter. The report also shows that one in every 171 U.S. households received a foreclosure filing during the quarter.

If the typical home owner has a $300,000 mortgage, the rescue package Congress will be asked to look at and approve virtually at the same time - unprecedented since the banking crisis of 1933 - would cover 2.1 million homes.

From March 14-18, 2008, gold topped $1,000 an ounce; then it began a slow settled decline into the $700s - still high by contemporary standards. As the evolving national financial crisis began around Sept. 11, 2008 - the seventh anniversary of the attack that took down the twin towers of the World Trade Center in New York gold started at $740, went to $750, then to $775, $779 and it was off to the races.

The change from Sept. 12 ($750) to Sept. 19 ($869) the rate of change was 15.8 percent - in just a week. Meanwhile, Lehman Brothers stock, which was $67 a year ago, was trading at 18.99 cents a share. Five thousand shares, which a year earlier had a value of $335,000 could be purchased for a mere $1,000.

Prior to 1933, "gold seizure" in the New York Times historical data base, yields six news stories all of which are parts of wars in South Africa and elsewhere. The story is different by early 1934 when President Franklin D. Roosevelt used executive orders - without congressional approval - to claim the nation's gold stock, including its coinage. (There were some exceptions).

The Jan. 13, 1934, New York Times had a series of articles whose headlines and sub-heads that tell the central points of the dispute. "Roosevelt Claims Power to Capture Reserve Bank Gold," the first headline began. The sub-point: "Believes He Has Ample Authority, but Does Not Disclose His Intentions."

How was this accomplished: with the connivance of the attorney general. Again the Times headlines: "Cummings Gives Ruling But Definite Word on the Attorney General's Conclusions Is Withheld." There is more to the headlines: "No Central Bank Plan," followed by "Roosevelt Declares That Such Reports of Aims Are Only Very Bad Guesses" and goes on to make the summary point: "President Claims He Can Seize Gold".

Over the next few weeks, there is more drama, more headlines: "Gold Bill Constitutional, Cummings Tells Senate; Early Passage Expected" is one thought. But there are those who claim that the seizure contemplated is unconstitutional - which headlines address, too.

"Committee Gets Ruling Eminent Domain Applies to Bank Gold, Says the Attorney General." Still, there was opposition. Sen. Carter Glass of Virginia was opposed, as the headlines of the day disclose. Says the Times: "Held for 'Public Service' Glass Is Not Convinced While Reserve Board Is Inclined to Give Up Profit Only. House Group Scores Point Beats Rival Committee to Floor with Bill - Stabilization Reports Persist. Reports Gold Bill Is Constitutional"

Carter Glass, Woodrow Wilson's Secretary of the Treasury, and also FDR's choice (he declined) had been U.S. senator from Virginia since 1920 when he did battle with FDR over gold seizure. Again, the Times summarizes in its headlines the problems of the day: "Glass Denounces Aims of Gold Bill; Silver Men Rally."

Glass's principal objection was taking gold from the Federal Reserve. He charged that Britain and Germany did not cripple their central banks when they went off the gold standard. That would be changed in the final executive order and the eventual custodian, which was the Fed.

Citizens once had the right to deposit silver or gold bullion with the Mint and receive, in return, a full measure of precious metal coinage, less the cost of coining. (The specifics are found in the original Mint Act of April 2, 1792, sections 14-15) The government and the population could thus control currency supplies.

The right to deposit these metals was called "free coinage," though this was hardly so since there was a modest charge by the Mint for the service. Free coinage of silver ended with passage of the Coinage Act of 1873; general circulation gold coinage itself was halted in 1933, when FDR acted on his announcement discussed above and created the first modern government regulatory function: controlling those numismatic coins that were exempted from an otherwise nation-wide recall of gold coins.

The Trading with the Enemy Act of 1917 authorized the President to regulate, investigate and prohibit "under such rules and regulations as he may prescribe ... any transactions in foreign exchange, export or earmarkings of gold or silver coin or bullion or currency ... by any person within the United States ..."

Prof. Henry Mark Holzer, in a 1973 article in the Brooklyn Law Review entitled, "How Americans lost the right to own gold  and became criminals in the process" wrote, "The war emergency and the President's duty to fight the war provided Congress with a convenient rationale for the Act.

The fact is, however, that the Constitution nowhere empowers Congress to prohibit dealing in gold-much less authorizes Congress to delegate that power to a coordinate branch of government."

First came Presidential Proclamation No. 2038 (48 Stat. 1689 (1933)) whose prefatory language sets up the explanation of national calamity.

"Whereas there have been heavy and unwarranted withdrawals of gold and currency from our banking institutions for the purpose of hoarding; and "Whereas continuous and increasingly extensive speculative activity abroad in foreign exchange has resulted in severe drains on the Nation's stocks of gold; and "Whereas these conditions have created a national emergency; * * * [and a banking holiday would be in the national interest] ...

"Now, THEREFORE, I, Franklin D. Roosevelt, President of the United States of America, in view of such national emergency and by virtue of the authority vested in me by said Act and in order to prevent the export, hoarding, or earmarking of gold or silver coin or bullion or currency, do hereby proclaim, order, direct and declare that from Monday, the sixth day of March, to Thursday, the ninth day of March, Nineteen Hundred and Thirty Three, both dates inclusive, there shall be maintained and observed by all banking institutions and all branches thereof located in the United States of America, including the territories and insular possessions, a bank holiday, and that during said period all banking transactions shall be suspended."

The order was then specific about coins and other items: "During such holiday, excepting as hereinafter provided, no such banking institution or branch shall pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever, of any gold or silver coin or bullion or currency or take any other action which might facilitate the hoarding thereof; nor shall any such banking institution or branch pay out deposits, make loans or discounts, deal in foreign exchange, transfer credits from the United States to any place abroad, or transact any other banking business whatsoever."

A generation after World War I and a few months after the initial shot across-the-bow, FDR issued Executive Order 6260 of Aug. 28, 1933, which recalled all gold coins, but exempted "rare and unusual gold coins." What was rare, or unusual, constituted a regulatory function of the Treasury Department in succeeding years. Millions of coins were melted.

With the 1933 gold recall, all but rare and unusual coins were required by law to be turned in to the government in exchange for paper currency. Executive Order 6260 provided in pertinent part that "no return ... [is required of](b) gold coins having a recognized special value to collectors of rare and unusual coin..."

There were other limitations. Because more than $1.5 billion in coins were melted, calculated at their face value, millions of coins were forever destroyed.

Collectors knew, of course, that by virtue of their status as a collector, they were able to continue to hold gold coins, even quarter eagles (though no more than four of each date and mintmark) while other citizens were forced to surrender their coins. Each of these pieces had been produced at a time when gold was valued at $20.67, and a $20 gold piece contained $19.99 worth of gold.

Simultaneous with the recall came a devaluation of the dollar, which meant that the price of gold was raised from $20.67 and ounce to $35. Since each $20 gold piece now contained $33.86 worth of gold, a significant advantage was attained by those collectors who retained their coins over those who patriotically turned them in as directed. (Actually, 1934 Proc. No. 2072, Jan. 31, 1934, 48 Stat. 1730 revalued the dollar to $35 an ounce (15-5/21 grains of .900 fine gold).

There are a host of laws that govern today's national banking and economic emergencies. Among them: title 12 of the U.S. Code (banking), section 4407 (national emergencies), which notes as a cross-reference: "The provisions of this chapter may not be construed to limit the authority of the President under the Trading With the Enemy Act (50 App. U.S.C.A. § 1 et seq.) or the International Emergency Economic Powers Act (50 U.S.C.A. § 1701 et seq.)."

The law lives on today as 50 App. USCA §5 (subsection (b)(1)) which still says that, "During the time of war, the President may, through any agency that he may designate, and under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise:

(A) investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payments between, by, through, or to any banking institution, and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities ..."

If this sounds like something forgotten 90 years ago, be aware that the legislative history tells another tale: it was most recently amended by Congress in 1977, 1988 and 1994. As the headlines play out, and begin to sound eerily repetitive with the 1930s, it is worthy of remembering that Americans were able to own gold abroad until the Kennedy Administration prohibited it - also by executive order.

By Dec. 31, 1974, Americans regained the right to own gold as Congress repudiated the declaration of national emergency - but none of that precludes a Presidential finding of an emergency that is obvious from reading the newspapers - even if it can be reversed by another executive order or congressional action. Put differently, gold seizure could happen again and it could happen to you.

 


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