The popping of a credit bubble is a deflationary event. In the case of the Great Depression it was massively so. A wave of foreclosure and bankruptcies swept across America and bank failures soared. In November 1930, 250 banks failed. In December, Bank of the United States with sixty two branches collapsed. A domino effect caused 352 more banks to fail that month alone.
In September 1931, Great Britain defaulted from the gold exchange standard, which threw the world into monetary chaos. As people lost faith in the dollar, a massive bank run commenced and a global flight from currency to gold began. It appeared as if the dollar would fall into oblivion.
In March 1933, President Roosevelt was inaugurated. Within days he declared a “bank holiday” which froze all foreign exchange and gold transactions. Then he signed the Emergency Banking Act of March 9, 1933. This was an amendment of the Trading with the Enemy Act of 1917 and essentially empowered the government to confiscate all gold products and certificates from the population of the United States. Citizens were required to hand their gold to the Federal Reserve in exchange for a paper note.
More legislation followed and by June congress was able to simply default on the gold clause in all contracts, past, present and future. On 28th August 1933, Roosevelt signed Executive Order 6260, outlawing the constitutional right of United States citizens to own gold. The effects of this were enormous. The dollar was devalued and all citizens holding currency lost 40 per cent overnight. Those who illegally held onto their gold realised a 70 per cent profit.
This entire event was a massive wealth transfer and gold was the outright winner. Gold is always the reset when fiat currencies are out of control. History gives a zero percent chance of survival to a fiat currency. Think about it – where are the currencies of civilisations past?
Our financial world today has entered a state of absolute madness. Global debt has soared to unprecedented levels, led largely by the US. Many major banks are fragile, some hopelessly insolvent. They are kept alive with frantic money creation by almost all the world’s central banks.
Bankruptcy is one of the few booming sectors in the US at the moment. But the moves are far beyond seasonal. In August, the worst August since 2013, bankruptcy filings were up 44 per cent from September last year and up 29 per cent from August last year.
Will gold once again provide the reset mechanism? Definitely! Will governments attempt to confiscate gold? Good luck to them!
Roosevelt is not the only representative of the people who followed this course of action. In antiquity, the Middle Ages and the 20th century, private gold ownership was often prohibited. Almost always it was done to stop the flight of capital from failing paper currency to gold.
By My Gold Platform