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US To Trade Gold Reserves For Cash

“Dollar Caught in Catch-22: Default or Debase?” via Minyanville

“G20 Summit: Gold Falls on IMF Sales Fears” via Telegraph:

The spot price of gold hit a session low of $893.24 an ounce on Thursday after Prime Minister Gordon Brown said the G20 would ask the International Monetary Fund (IMF) to bring forward its gold sales programme.

included with “Russia Backs Return to Gold Standard to Solve Financial Crisis” in the Telegraph.

…like it’s 1849. (HT to GR)

76 years ago today, President Roosevelt signed into law a bill passed by the US Congress that outlawed gold held by citizens.  Keep in mind that private ownership of gold was not decriminalized until the 1970’s.

Here is an excerpt from Wikipedia on the Emergency Banking Act of 1933:

The Emergency Banking Act (also known as the Emergency Banking Relief Act) was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. The act allowed a plan that would close down insolvent banks and reorganize and reopen those banks strong enough to survive.

On March 5, 1933, the day after Roosevelt’s inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.

The bill also gave the Secretary of the Treasury, William Hartman Woodin, the authority through an amendment to the Trading with the Enemy Act to confiscate the gold of private citizens, excluding dentists’ and jewelers’ gold and “rare and unusual” coins. These citizens received an equivalent amount of paper currency which was subject to later devaluation with relation to gold. Ultimately, the US dollar was devalued by approximately 40%, ending the deflationary spiral the American economy was experiencing.

Within 3 days of the act’s passage, 5,000 banks had passed inspection and were reopened. Roughly two-thirds of U.S. banks quickly reopened under this act, and faith in banking institutions was somewhat restored.

This act was a temporary solution to a major problem. The 1933 Banking Act passed later that year presented elements of a more permanent solution, including formation of the Federal Deposit Insurance Corporation (FDIC).

For additional info, see also:

• LAT reports “Roosevelt Closes All Banks; Congress Meet Thursday” from March 5, 1933.
• WSJ reports “Bill Seeks to Let FDIC Borrow Up To $500 Billion” from March 6, 2009.

Jim Rogers spoke with CNBC on February 9, 2009.  Among comments about the UK and other topics, he related:

• I’m buying gold just because periodically I buy gold. I do expect it to be much higher over the next decade.
• Btw, if the IMF sells their gold — and the IMF is dying to sell their gold to bail everybody out — then gold could go down a fair amount.  But that would be the bottom for gold if the IMF does.  Now, I hope the IMF does sell their gold for two reasons: 1. We would get a low price for gold, and 2. then we could get rid of the IMF because, after they sell all their gold, nobody else is going to give them any money, and then the IMF would have to dissolve somewhere down the road.

If only.

The WSJ reported on February 27 that “US To Take Big Citi Stake and Overhaul the Board:”

As a condition, the government is demanding that the New York company overhaul its board of directors, the people said. Treasury will call for Citigroup’s board to be comprised of a majority of independent directors. Chief Executive Vikram Pandit is expected to keep his job under the agreement.

The government will convert its stake only to the extent that Citigroup can persuade private investors such as sovereign wealth funds do so as well, the people said. The Treasury will match private investors’ conversions dollar-for-dollar up to $25 billion.

The size of the government’s new stake will hinge on how many preferred shares private investors agree to convert into common stock. The Treasury’s stake is expected to rise to up to 40% of Citigroup, the people said.

An agreement would mark the third time since October that Washington has come to Citigroup’s rescue. Twice last fall, the government pumped a total of $45 billion into the company, and also agreed to protect Citigroup against most losses on $301 billion of assets. That gave the U.S. a 7.8% stake in the company.

The WSJ reported on February 25 that “Bernanke Again Pushes Back Against Nationalization:”

In response to a specific question about Citigroup Inc.’s current woes, Mr. Bernanke told the House Financial Services Committee, “We will see how their test works out and we’ll see what evolves.” Nationalization, he said, misses the point.

Asked if the Citigroup could end up nationalized, Mr. Bernanke said he doesn’t see that happening. “It may be the case that the government will have a substantial minority share in Citi or other banks, but again we have the tools… to make sure that we get the good results we want in terms of improved performance” without the negative effects of a bankruptcy process or seizure, which would be disruptive to the markets, Bernanke said.

He added that he defines nationalization as the government taking over 100% of a firm and zeroing out stock. “I don’t think we want to do that,” he said. “I don’t think we need to do that.”

So, it’s not “nationalization” according to the Fed Chairman unless one government controls the entire 100%? How convenient.

The US will match other sovereign wealth funds dollar for dollar to acquire up to a 40% stake in Citigroup for the Feds.  Call it what you will, e.g. call it “Unicornization,” but Citigroup is a private organization no more.  It’s been nationalized.

President Obama lies to our faces about earmarks with easy self-confidence.  His Fed Chairman follows his lead to openly proclaim with confident detachment utter nonsense.

Do you trust these people?  If so, why?  Without question, they are lying constantly.  You cannot believe the words.  That’s not possible if you are honest.

Despite the lies, do you believe in the goodness of the intent behind the lies — that these leaders, so-called, are deceiving us with a wink and for our own good?  Is that your view?  Have you even thought about it?  Or are you also complicit in all this dishonesty by actively deluding yourself?

On a related note — do you believe the dollars in your pocket?  If so, why?

Have you ever bought a gold coin?  Have you held a bar of silver?  I relive my first experience each time I acquire more.  Holding these items always strikes me as an odd thing.  What is different?  Why do these objects seem special?  What is this feeling?

Oh. This is money.

The other junk we keep in our pockets represents the lies of our leaders rendered into print in such a manner that we can all participate in the delusion.  For Americans, it’s been a wonderful setup for decades because the whole system is so ruthlessly rigged in favor of the US dollar.  What happens if this massive shared dream ends?

What if the ideas of the Austrian school of economics are correct?  If so, what happens next?

What builds trust?  What destroys it?  What store of value is safe?

Excerpts of “While Rome Burns” by John Mauldin (emphasis mine):

• Even a 10% impairment (highly optimistic) would bankrupt the Austrian financial system, says the Austrian finance minister, Joseph Proll. In the US we speak of banks that are too big to be allowed to fail. But the reality is that we could nationalize them if we needed to do so. The problem is that in Europe there are many banks that are simply too big to save.  In essence, there are small countries which have very large banks (relatively speaking) that have gone outside their own borders to make loans and have done so at levels of leverage which are far in excess of the most leveraged US banks. The ability of the “host” countries to nationalize their banks is simply not there. They are going to have to have help from larger countries. But as we will see below, that help is problematical.

• It is East Europe that is blowing up right now. Europe’s governments are making matters worse. The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan — and Turkey next — and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights. Its $16bn rescue of Ukraine has unravelled. The country — facing a 12% contraction in GDP after the collapse of steel prices — is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia’s central bank governor has declared his economy “clinically dead” after it shrank 10.5% in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

• …said Lars Christensen, at Danske Bank. ‘There are accidents waiting to happen across the region, but the EU institutions don’t have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU.’

• This is the sort of level that stokes popular revolt.

• So we watch and wait as the lethal brush fires move closer. If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?

• We are going to find out this year whether the European Union is like the Three Musketeers. Are they “all for one and one for all?” or is it every country for itself? My bet (or hope) is that it is the former. Dissolution at this point would be devastating for all concerned, and for the world economy at large. Many of us in the US don’t think much about Europe or the rest of the world, but without a healthy Europe, much of our world trade would vanish.  However, getting all the parties to agree on what to do will take some serious leadership, which does not seem to be in evidence at this point.

• It may be that the current problems will push the euro to parity much sooner, possibly this year. While that will be nice if you want to vacation in Europe, it will have serious side effects on international trade. It clearly makes European exporters more competitive with the rest of the world, and especially the US. It also means that goods coming from Asia will cost more in Europe, unless Asian countries decide to devalue their currencies to maintain an ability to sell into Europe, which of course will bring howls from the US about currency manipulation. It is going to put pressure on governments to enact some form of trade protectionism, which would be devastating to the world economy.  Large and swift currency swings are inherently disruptive. We are seeing volatility in the currency markets unlike anything I have witnessed. I hope we do not see a precipitous fall in value of the euro. It will be good for no one. It is a strange world indeed when the US is having such a deep series of problems, the Fed and Treasury are talking about printing a few trillion here and a few trillion there, and at the very same time we see the dollar AND gold rising in value.

[photo source]

Historical Fiatch: FDR in 1933 and 1934 on mortgages, gold, reflation, and labor.

Historical Fiatch: President Nixon talked about “new prosperity” on August 15, 1971.

“Mr. Housing Bubble” from Wealth Is Not The Problem examines the untethered quality of today’s political macroeconomy, which makes vulnerable each household microeconomy:

At the end of the article, Westley brings up a point I have not seen elsewhere. Just why has home ownership taken on the importance it has? Because, without a gold standard to anchor the value of our money, people need something else to protect against the savings-destroying inflationary policy of the government.

Presidential candidates this year will wax ad nauseam that home ownership is the American Dream and that this dream is now too expensive for average Americans. What they won’t talk about is how government policies, and specifically monetary policies, help bring this situation about…Housing was the middle class’s best hedge against a growing government intent on expanding its scope and power by inflating the money supply.

The size of our government is not supportable and yet on it grows.  Ever-expanding public and private debts as well as inflationist, interventionist policy threaten households across the country.  What store of value is safe from this relentlessly rising force?  Talk about unsustainable development.

[photo source]