June 25, 2020
Bahia Beach, Puerto Rico
On April 5, 1933 everyone’s favorite fascist, President Franklin D. Roosevelt, signed an executive order which outlawed the private ownership of gold.
To justify the seizure, FDR used wartime authorities under the “Trading with the Enemy Act of 1917”. The law was never repealed after World War One, so Roosevelt used it to declare a national banking emergency.
Roosevelt’s order demanded that all Americans must surrender their gold to a Federal Reserve Bank by May 1, 1933, less than a month after he signed the executive order.
Gold was a popular form of savings at the time; US dollars were convertible to gold, and many Americans, from wealthy business owners to rural farmers, owned gold as a form of savings.
So Roosevelt’s order affected a LOT of people.
Anyone who failed to comply faced up to ten years in prison, and a $10,000 fine– which was a huge sum at the time equivalent to several times a typical annual salary.
And the government actually prosecuted people who refused to turn over their gold.
One man, Louis Ruffino, was convicted of hoarding gold and went to prison. He also had his 78 ounces of gold confiscated by the government, without compensation. In today’s money, that would be over $135,000.
For people who did comply with the order, the government paid them $20.67 for every ounce of gold that was turned in.
But then, shortly after the deadline, Roosevelt raised the price of gold to $35, essentially stealing nearly half of the wealth of those former gold owners.
It wasn’t until the 1970s that gold ownership was once again legal.
But before that happened, in 1971 Nixon entirely divorced the dollar from the gold standard.
Throughout the next decade the US (and much of the world) was hit by terrible stagflation– a period of high unemployment, high inflation, higher taxes, higher debt levels, and pitiful economic growth.
When adjusted for inflation, the Dow Jones Industrial Average lost nearly HALF of its value during the 1970s.
And government bonds paid just 5.5%, at a time when inflation peaked at 10%. This means that anyone who owned bonds in the 1970s was LOSING more than 4% per year.
It was the same with bank accounts; depositors who held their savings in a bank account LOST money every year after adjusting for inflation.
Economists call this condition “negative real interest rates,” meaning that, after adjusting for inflation, the rate of interest is actually negative.
If your bank pays you 1% interest, but the inflation rate is 3%, this means that the purchasing power of your savings is actually losing 2% per year, i.e. the “real rate” is NEGATIVE 2%.
Coincidentally, this is the same situation we find ourselves in today.
For most of the last decade, in fact, REAL interest rates in the Land of the Free have been negative.
Wells Fargo, for example, offers a “Way2Save” savings account that pays a big fat 0.1% interest.
And it’s important to bear in mind that interest from your bank account is TAXABLE in the Land of the Free. So after accounting for taxes, you’re looking at around 0.08% interest.
The annual rate of inflation for 2019 was 2.3%. So this means that a depositor with a Wells Fargo savings account is LOSING 1.5% per year.
When you’re guaranteed to lose money, you don’t have a savings account. You have a dwindling account.
But GOLD is one of several assets that tends to perform very well when real interest rates are negative.
Gold has a 5,000 year history of maintaining its value; and back in the 1970s when real rates were negative, investors who bought gold made more than 10x their money over the course of the decade.
(And silver actually outperformed gold, rising from less than $2 in 1970 to more than $30 at the end of 1979.)
Gold and silver have been very attractive investments lately; in fact, gold just hit a 7-year high.
That’s not surprising given that the US national debt has increased by more than $1.2 TRILLION dollars just since the beginning of May.
And the Federal Reserve has expanded its balance sheet by nearly $3 trillion since the start of the pandemic.
These are insane figures that point to a deteriorating value for the currency… which is reason enough to own gold.
Personally, I keep some of my own precious metals on hand in a strong home safe– so there is no counterparty risk. I have it when I need it.
But as FDR’s confiscation shows, it also makes sense to consider holding some precious metals overseas in a safe jurisdiction.
It isn’t 1933 anymore. It’s perfectly legal (for now) to own gold. And it makes a lot of sense.
If you’re new to this and looking for a great resource on getting started, I’d encourage you to download our free Ultimate Gold and Silver Guide.
To your freedom,
