In the latest of his regular appearances on Goldseek Radio, Peter Schiff takes on the question of the possibility of the U.S. government instituting a 1933-style gold confiscation against the American people—a tactic that crosses the minds of holders of gold who fear a desperate government will deploy desperate measures in the event of a Fed failure to save America from a serious collapse in the U.S. dollar.
First, Schiff clarified the event surrounding FDR’s Executive Order 1602, signed into law on April 5, 1933, which required U.S. citizens to deliver to the Federal Reserve all but a small quantity (more than 5 ounces) of gold held by them in exchange for $20.67 per troy ounce.
Contrary to myth, Exec. Order 1602, he said, didn’t include the threat of law enforcement knocking on doors and “ransacking” homes. Instead, citizens quietly volunteered to deliver their gold to their nearest Fed facility on their own. There was no rough stuff from the Feds.
The word, confiscation, as it has typically been termed to describe Exec. Order 1602 is really somewhat of a misnomer, according to Schiff. Even though penalties for not complying with the Order included stiff financial penalties, imprisonment, or both, it was not considered a realistic threat. At that time, Americans typically rallied around the president during times of trouble, and were more likely to sacrifice for the good of the nation.
Today, a cynical populous would most likely take another Exec. Order 1602 as a sign that the dollar was imminently in trouble, therefore most likely affecting an opposite reaction by the American people and global participants; the rush into gold would be fierce, and probably would be the trigger that collapses the greenback.
Other stories of banks allowing Treasury officials across the nation access to privately held safe deposit boxes are just another twist to the mythology.
In fact, safe deposit boxes held by individuals were not forcibly searched or seized under the order, and the few prosecutions that occurred in the 1930s for gold hoarding were executed under different statutes. One of the few such cases occurred in 1936 when the safe deposit box of Zelik Josefowitz, who was not a U.S. citizen, containing over 10,000 troy ounces (310 kg) of gold was seized with a search warrant as part of a tax evasion prosecution. In 1933 approximately 500 tonnes of gold were turned in to the Treasury “voluntarily” at the exchange rate of $20.67 per troy ounce.
Though another FDR-style confiscation wouldn’t work today, Schiff said, it’s not something gold investors should ultimately fear today. In fact, the government’s mission to devaluing the dollar has never been easier, he said.
“The reason we had confiscation in 1933 was because we were on a gold standard,” Schiff explained. “And Roosevelt wanted to devalue the dollar, but he couldn’t do that unless he took everybody’s gold first. Well, we’re not on the gold standard any more. We’re devaluing the dollar every day. Ben Bernanke just runs them off the printing presses. That’s what Quantitative Easing is. The government can devalue the dollar without confiscating gold.”
On the state of the gold market, Schiff senses a big move up in the price of gold is imminent and scoffs at the notion that gold is in a bubble. He said the opposite is true.
“I think the bull market is about to go into, or has just entered into a brand new phase that’s going to see even more profits made, particularly in the mining sector,” Schiff stated.
And, on the subject of the publisher of The Gartman Letter, Dennis Gartman, Schiff slammed the “sheep-in-wolves’-clothing” (as many in the gold industry refer to him) and former Goldman Sachs analyst, chiding Gartman for gold bubble talk as pure “nonsense.”
Schiff explained that for gold to be in a bubble, more than just talk of a bubble in the gold market would lend credence to the idea. Gold will enter a bubble phase when those talking about a bubble in gold, now, eventually become holders of gold themselves. But by then, he added, they won’t see the bubble in gold. That’s when a discussion on the subject of a gold bubble would make more sense to Schiff.