Another newsletter recently published an article concerning the possibility of future gold confiscation by government:
“Will they confiscate my gold? . . . No one knows. Here is my strategy . . . . The key word is diversification.”
The article recommended diversifying your portfolio to include gold bullion but also semi-numismatic gold coins, platinum, palladium and silver (which might not be seized if government confiscated gold), and some mining shares. That seems reasonable.
But the author goes on to say, “If you do own gold, you should strongly consider safely storing it out of the country. I prefer Canada because it is closer to me and easier to retrieve my metals.” (Coincidentally, this newsletter promoted and profited from a Canadian depository for protecting Americans’ gold.)
This article included much of a second article entitled, “The Greatest Threat to Gold Ownership”. That second article opined that,
“It’s an interesting thought that the greatest threat to gold and silver investment might not be the possibility of losing on the speculation, but the government taking it away from you.
“If the US and the EU 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 the private supply of their citizens, they would increase their holdings substantially in short order.”
Seriously? Are we to believe that our “big government” that’s been absolutely dependent on fiat, paper dollars for over forty years . . . a government that removed gold and silver as US monetary backing . . . will now seize Americans’ gold in order to destroy fiat dollars and issue a new gold-based dollar?! That’s nuts.
As for seizing a “large” or “substantial” volume of gold quickly, Wikipedia reports that the US gov-co holds about 8,133.5 tons of gold at Ft. Knox which (at $1900/ounce) is worth almost $500 billion.
I haven’t found a credible estimate of how much physical gold in the form of coins or bullion is privately-held by Americans. I shall therefore assume that the weight of all privately-held gold coins and bullion (but not counting jewelry) in the US is roughly equal to the alleged “official gold holding” for the US in Ft. Knox. (In fact, I doubt that assumption is true. I believe private Americans hold much less gold coin and bullion than is held in Ft. Knox.)
Based on my (generous?) assumption, private holdings of gold coins and bars in the US might be worth as much as $500 billion.
QE3 spends $48 billion per month ($576 billion per year) by simply spinning currency out of thin air. Plus, the first three months of QE3 are supposed to spend an additional $85 billion. I.e., QE3 is expected to spend $831 billion in its first 12 months. Thus, our current economic mess is so deep that all of the $500 billion in privately-held US investments in gold might only “kick the can down the road” for another seven months.
More, no matter what government does, it will not confiscate 100% of all gold coins and bullion. I think they’d be lucky to seize 50%—enough to “kick the can” for just three or four months.
Is gov-co dumb enough to risk considerable political backlash by trying to seize our privately-held gold even though they could only expect to “stimulate” the economy for an extra three or four months? I don’t think so.
Isn’t it easier and less politically dangerous to simply “spin” an extra $500 billion out of thin air by printing more currency than it is to put troops on the street to go door to door looking for gold?
If private Americans have only $500 billion worth of gold (and gov-co can’t hope to seize more than half of that), is confiscation worth the trouble? I can’t see how.
The article concluded, “If gold were to be confiscated, you do not want to own it here in the US. Since confiscation is possible, it is best to diversify and keep your gold stored outside of the US.”
Again, I doubt that government will seize your gold. Here are more reasons why:
1. According to Wikipedia,
“It has been estimated that all the gold mined by the end of 2009 totaled 165,000 tonnes. At a price of US$1900 per troy ounce . . . . The total value of all gold ever mined would exceed US$10.1 trillion at that valuation.”
The total national debt is variously estimated to be $16 trillion (US gov-co); $80 trillion (shadowstats.com) and $220 trillion (Congressional Budget Office; CBO). If gov-co could seize all the gold in the world ($10 trillion), what difference would that make in light of the magnitude of the national debt? If gov-co could only seize the gold that’s privately-held by Americans, gov-co would be lucky gain a “lousy” $500 billion.
$500 billion is only about 3% of the $16 trillion that government admits to owing. It’s only 0.6% of the $80 billion that shadowstats.com calculates as the national debt, and about 0.2% of the CBO’s $220 billion estimate of total national debt.
If gov-co could steal every ounce of privately-held gold in America, they probably wouldn’t reduce the national debt by more than 1%. 1% is a triviality; it’s almost a rounding error.
So, what’s gov-co’s motivation to confiscate Americans’ gold? There’s not enough privately-held gold in the US to make seizure worthwhile. In fact, there’s not enough gold in all the world to resolve our economic problems.
2. What classes of private people hold the most gold in this country?
A: 1) the rich; and, 2) the smart.
Who does Congress currently serve? Those who give Congress money.
Who gives Congress the most money? The rich.
Will Congress confiscate gold and thereby offend their rich benefactors?
Will Congress antagonize smart Americans by taking their gold?
I don’t think so.
A man who owns $1 million in gold may not want to bury it in mason jars in the backyard. It may be best to store most of such sums in some well-protected depository.
But for a man who owns $100,000 in gold, the backyard mason jar may be the best solution.
If gov-co decides to seize gold, will they go door-to-door, trying to find a few gold coins here, an occasional bar there? Or will they go after the US depositories that are known, few in number, and holding tons of gold? If the threat of government seizure is real, wouldn’t most gold bugs be safer storing their gold in their own back yards?
I also doubt that gold is best protected by storing in foreign depositories. Here’s why:
1. The IRS already pursues US taxpayers who reside in foreign countries. The US government already pressures foreign banks to reveal information on Americans who may use foreign bank accounts to hide income.
Does anyone suppose that if the US gov-co decides to seize the gold that’s held privately by US citizens, that gov-co won’t also try to seize gold held offshore? You can bet that if seizures begin, laws will be passed to authorize the seizure (or at least discovery) of gold held by US citizens in foreign depositories.
Suppose the IRS can’t seize your gold in a foreign depository, but can compel that depository to reveal your name and the quantity of gold you’re storing. Do you suppose that the IRS won’t be able to use the knowledge of how much gold you’re storing in Zurich or Shanghai to argue that you haven’t paid your “fair share” of income tax? Even if the IRS can’t seize your foreign-held gold, I guarantee that they can seize you.
The belief that foreign depositories can guarantee your anonymity is unreliable. If you’re storing your gold in the same vault used by 1,000 other Americans, I guarantee that vault will be a prime IRS target.
On the other hand, if you stored your gold, all by yourself, out in some deserted barn, that target would probably be unknown or not high on the IRS’ target list.
2. Gov-co will not try to seize your gold except as an act of desperation. Such seizure (as with that of A.D. 1933) is only likely in the midst of a national depression. But, also as in A.D. 1933, the next national depression will undoubtedly correspond to a global depression.
Therefore, if our government becomes sufficiently desperate to seize privately-held gold in the US, the governments of foreign countries will be at least as desperate to seize whatever gold they can find in depositories located within their borders.
If the US authorizes such seizures, who doubts that the governments of Canada, China or France won’t do the same? What reason exists to suppose that, during a global depression, privately-owned gold held in foreign depositories won’t be seized by foreign governments?
Why suppose that, in the event of a global depression, anyone’s gold will be safer in the hands of some foreigner located several thousand miles away, than it would be buried in your own back yard?
3. If the US gov-co seized Americans’ privately-held gold, what message would that send to foreign governments that currently store their gold with the New York Federal Reserve Bank? Would they begin to fear that the US might soon seize their gold, too? Would they withdraw their gold from the New York depository and return it to their home countries? Would they demand an assay of all of their gold bars to ensure that the US and/or Federal Reserve hadn’t swapped their gold for tungsten? Are these risks the gov-co is prepared to face as consequences of stealing a mere $500 billion in privately-held American gold?
I don’t think so.
John Maynard Keynes was the single, most influential economist of the 20th century. In A.D. 1919, in his book, The Economic Consequences of Peace, Keynes wrote:
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. . . . There is no subtler, no surer means of overturning the existing basis of society than to debauch [inflate] the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Forty-seven years later, Alan Greenspan (Federal Reserve chairman 1987-2006) wrote an article entitled “Gold and Economic Freedom”. In that article, Greenspan agreed that inflation confiscates the people’s wealth:
“[T]he gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.
“This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
Both Keynes and Greenspan warned that government confiscates wealth by means of inflation. As evidence, consider the prices of gold and silver since A.D. 1968 (when paper dollars stopped being redeemed 1:1 for silver dollars) and A.D. 1971 (when foreign-held paper dollars stopped being redeemed at $35 to one ounce of gold). Today, one ounce of silver costs $35 and one ounce of gold costs almost $1,800. Do the math and you’ll see that in just the last 40 years—as compared to the prices of both gold and silver—the fiat dollar has lost about 98% of its purchasing power.
Those who saved $1,000 back in A.D. 1971 in the form of a paper debt-instrument have (as compared to gold & silver) lost 98% of their purchasing power. Compared to gold and silver, their $1,000 is now worth about twenty bucks. That theft is almost impossible to believe because, if you lost $980 in purchasing power, who got the money? Where’d that $980 go? Because we can’t see the thief, we can’t believe that there’s been a theft.
Which is exactly why Keynes warned that “not one man in a million” can “diagnose” the confiscation that’s achieved by government by means of monetary inflation.
Who’s been the persistent but invisible thief for the past 40 years? The gov-co. They’ve been robbing us for most of our lives, and most of us haven’t yet caught on.
Again, I don’t believe that gov-co will try to seize privately-held gold in the foreseeable future. There’s too little to gain ($500 billion), and too much to lose politically.
But just because gov-co won’t steal your gold, doesn’t mean that gov-co isn’t determined to rob you. Consider:
Gov-co currently claims the inflation rate is about 1.7%.
John Williams (shadowstats.com) claims the real inflation rate is about 10.3%.
The Federal Reserve stopped publishing M3 (total US money supply) in March of A.D. 2006.
John Williams estimates that the current M3 is about $15 trillion.
Therefore, if inflation is a means of confiscating wealth, and if the “official” inflation rate of 1.7% is correct, then gov-co is currently “confiscating” about 1.7% times $15 trillion = $255 billion per year from those holding their wealth as paper-debt instruments. That’s about $800 per year per American. The average family of four is being ripped off to the tune of $3,200 annually by inflation. That’s not good, but it might be tolerable.
However, if the official inflation rate is false and the real rate of inflation is (as shadowstats.com claims) about 10.3%, then the gov-co may be currently confiscating about 10.3% times $15 trillion (M3) = $1.5 trillion per year—about $4,800 per year per American. The proverbial family of four is losing almost $20,000/year to inflation. Such losses can’t be survived and, of course, the economy is collapsing.
If John Williams’ inflation rate is correct, your government is already—right now—confiscating (stealing) $1.5 trillion per year from Americans who store their wealth in a media based on fiat dollars.
And nobody’s complaining!
If there’s no more than $500 billion in privately-held gold in the US, why would gov-co risk an overt, one-time seizure of a mere $500 billion (in privately-held gold) and thereby ignite a political firestorm—when they can already secretly confiscate $1.5 trillion this year with inflation, and then seize another $1.5 trillion next year with the same inflation rate, and then seize another $1.5 trillion the following year, etc., etc.—without causing any significant domestic or foreign protests?
In sum, seizing privately-held gold is a fool’s errand and therefore improbable.
Nevertheless, if the US gov-co did seize, foreign governments could be expected to do the same. Therefore, foreign depositories aren’t likely to be any safer than US depositories.
Possibilities vs. Actualities
Can I or anyone else guarantee that the US or foreign governments won’t seize your gold? No.
But when we talk about the threat of gold confiscation, we’re talking about a possible event that only might take place two, three or five years into the future.
When we talk about “confiscation of wealth,” we’re talking about inflation that’s taking place right now. Those of you who store your wealth in the form of paper debt-instruments denominated in fiat dollars are being robbed right now. You’ve been robbed by government for most of your life. You’ll continue to be robbed as far into the future as it’s possible for gov-co to sustain inflation or even hyperinflation (hyper-confiscation).
Even so, some Americans are more frightened by the possibility of being robbed of their physical gold at some time in the future, than they are about the actuality of being robbed of whatever wealth they’ve stored in paper debt-instruments, right now, by inflation
Both Keynes and Greenspan warned that inflation is a means by which government “confiscates” its own people’s wealth. Keynes also warned that “not one man in a million” can properly “diagnose” government confiscation by inflation. While many may fear the possibility of being robbed of his gold in the future, “not one man in a million” fully recognizes and fears the actuality of being robbed of his wealth right now by means of inflation.
That’s just stupid.
According to Alan Greenspan, the most reliable defense against the confiscation by inflation is ownership of physical gold. If you want to escape the current confiscation, buy gold, keep your mouth shut, and store it close to home. Deal with actual threats now. Let the possible threats of the future take care of themselves.