Jim Sinclair's take on FDR's gold confiscation

[Ad Orientem]

Not sure I agree, but it's an interesting perspective.
http://www.jsmineset.com/2012/10/30/gol ... r-control/

[murphy_p_t]

His article does not seem to consider the idea that the gov't would need to re-monetize gold in the future. In that case, the gov't might need to top off the hoard @ Ft. Knox.

[AgAuMoney]

The most likely reason I could see for the gov't to confiscate gold is if it is financially required either to remonetize it as backing for our currency or if a trading partner to whom we owe a great deal demands payment in gold.

While the U.S. does have the largest gold stash (supposedly) in the world, we are even further above the norm in amount of currency units in circulation (not just paper money/coin but all the electronic and other equivalents).  In other words, if you figure gold:money coverage ratio the U.S. is a long way from numero uno.

If confidence in the (naked) dollar were to collapse on the international stage, other countries would (by definition) not be willing to accept dollars in payment.  If the U.S. were unable to procure imports with dollars, things would get ugly here very quickly and gold seems like it would be the most likely to be accepted form of payment for critical goods.

Either that or we could start selling off resources to China, et al like other countries do.  For example, there are some big producing mines out west that China might like, and there are many prospective mines in California that have been blocked from development.  Oh, and offshore oil resources most of the way around the U.S. could be sold to and developed by China in return for some immediate "made in China" goods and a future royalty stream.

[melveyr]

If confidence in the (naked) dollar were to collapse on the international stage, other countries would (by definition) not be willing to accept dollars in payment.  If the U.S. were unable to procure imports with dollars, things would get ugly here very quickly and gold seems like it would be the most likely to be accepted form of payment for critical goods.

I guess I don't see that situation quite as bad as you do. Worst case scenario if the international market doesn't want dollars then we are forced to have balanced trade with them. We would sell our widgets to them in their currency, and use their currency to buy oil or whatever it is we want. It's not as great as our current setup (paying for goods in a currency we have an infinite amount of) but it isn't catastrophic and I am not sure that backing our currency with gold would be advantageous to us in that situation. We would probably just export more to acquire foreign currencies.

[AgAuMoney]

Worst case scenario if the international market doesn't want dollars then we are forced to have balanced trade with them. We would sell our widgets to them in their currency, and use their currency to buy oil or whatever it is we want. It's not as great as our current setup (paying for goods in a currency we have an infinite amount of) but it isn't catastrophic and I am not sure that backing our currency with gold would be advantageous to us in that situation. We would probably just export more to acquire foreign currencies.

Yeah, that seems really optimistic to me.  Our trade deficit is so large right now, I just don't see how we could export enough more to keep ourselves afloat.

[murphy_p_t]

If confidence in the (naked) dollar were to collapse on the international stage, other countries would (by definition) not be willing to accept dollars in payment.  If the U.S. were unable to procure imports with dollars, things would get ugly here very quickly and gold seems like it would be the most likely to be accepted form of payment for critical goods.

I guess I don't see that situation quite as bad as you do. Worst case scenario if the international market doesn't want dollars then we are forced to have balanced trade with them. We would sell our widgets to them in their currency, and use their currency to buy oil or whatever it is we want. It's not as great as our current setup (paying for goods in a currency we have an infinite amount of) but it isn't catastrophic and I am not sure that backing our currency with gold would be advantageous to us in that situation. We would probably just export more to acquire foreign currencies.

might have to change the min wage from what...$8/hour...to $8/day(12 hours)

[melveyr]

Worst case scenario if the international market doesn't want dollars then we are forced to have balanced trade with them. We would sell our widgets to them in their currency, and use their currency to buy oil or whatever it is we want. It's not as great as our current setup (paying for goods in a currency we have an infinite amount of) but it isn't catastrophic and I am not sure that backing our currency with gold would be advantageous to us in that situation. We would probably just export more to acquire foreign currencies.

Yeah, that seems really optimistic to me.  Our trade deficit is so large right now, I just don't see how we could export enough more to keep ourselves afloat.

We have a trade deficit because foreigners like to accumulate dollars and we like to consume their real goods and services. You proposed that foreigners could spontaneously not want to accumulate dollars any more; I don't see how that wouldn't cause a reduction in our trade deficit, pushing us closer to balanced trade or becoming a net exporter. How would we hypothetically net import all of this great stuff if no one wanted our dollars any more?

[swank]

gold won't be worth a thing if the dollar collapses, not for A YEAR or more, while  90-99% of the US population dies of thirst, hunger, diseases, fire and infighting.  The only things of value, nobody is going to be trading during that year, because any sort of contact is going to be extremely dangerous, due to diseases and backstabbing. if you haven't got a stash of survival supplies and a lot of knowledge/skill, you will survive only by pure luck.

[murphy_p_t]

Swank...welcome to these boards.

The aftermath of Katrina and Sandy seem to confirm your point.

[Pointedstick]

You're right, swank. It breaks my heart to see videos of people pleading for aid in the aftermath of the storm... after only three days without power. Some people just seem to fundamentally underestimate the impact of disasters and fail to plan accordingly. These people could have filled gallon jugs with weeks' of tap water for free and stashed canned goods under their bed very cheaply, at the bare minimum. There was one lady who was appealing to Obama to send formula and diapers, seemingly unaware of breastfeeding and cloth diapering. So sad. 

[Ad Orientem]

gold won't be worth a thing if the dollar collapses, not for A YEAR or more, while  90-99% of the US population dies of thirst, hunger, diseases, fire and infighting.  The only things of value, nobody is going to be trading during that year, because any sort of contact is going to be extremely dangerous, due to diseases and backstabbing. if you haven't got a stash of survival supplies and a lot of knowledge/skill, you will survive only by pure luck.

On the contrary. Sandy and Katrina prove that breakdowns in societal order are rare in the extreme and short lived when they do occur. History has proven this over and over again. Crime has dropped by 1/3 in New York since Sandy hit. Aid is poring on from all over the country. There have been instances of hyperinflation before, even long ones. But societal order did not disintegrate. People did not revert to the law of the jungle. That is because people are inherently social animals who band together. And we are political animals as well. In the rare cases where a government collapses it has always been quickly replaced by some other one. Power abhors a vacuum.

People who see some reversion to a Darwinist everybody for themselves world have been watching too many Hollywood films or hanging out on websites that traffic in apocalyptic fantasy.

Can a mass catastrophe cause temporary disruptions in essential services or effective government? Yes. But barring a major war being fought in your area those disruptions will be temporary and almost certainly brief. Having an emergency stash of canned food and fresh water is prudent. However, having a years supply of food with a stockpile of guns and ammunition in a bunker is not prudence. It's paranoia.

[MediumTex]

Echoing some of the comments above, any time someone talks about a SHTF scenario, I think that they imagine it lasting longer than these things actually last.

After the storms mentioned above, there may be a period of days or perhaps weeks when things are in chaos, but it normally doesn't last a lot longer than that.

Even in a situation that is truly SHTF like Afghanistan, people go to work, got to school, get married, have kids, and basically just live life.  It's certainly more dangerous than other places, but it's not a Zombieland-type of existence that a lot of survivalists visualize when they think about these things.

Look at Lebanon, Yugoslavia, Argentina, Iceland, and even Zimbabwe--it certainly sucks when things fall apart, and leaving isn't a bad idea, but there isn't this complete reversion to the stone age that some people envision.

I am always amazed that people imagine that the U.S. will completely collapse when the same catalysts that people imagine will crater the U.S. are happening in dozens of countries around the world all of the time (i.e., political and economic corruption, currency crises, police state tactics, etc.) and people in those countries usually find a way to get by without turning into animals.

For all of the anti-government talk in the U.S., people in the U.S. are actually pretty compliant and tend to mostly do what they're told, in part because law enforcement in the U.S. is reasonably professional.  There are always abuses, but if you were to pull a sample of 1500 police officers from around the country you would probably have a group of people who are not corrupt, take their job seriously, and have the faith of most members of their communities.  When things fall apart, it makes a big difference to have this kind of infrastructure in place.

Having a middle class is also very politically stabilizing.  In a lot of these unstable regions of the world, there are the poor and the elite, without much in between.

[AgAuMoney]

How would we hypothetically net import all of this great stuff if no one wanted our dollars any more?

That's just it, we couldn't.  We would have to do without or come up with another way of paying (e.g. gold).  That's why things would get really ugly, really quickly.

[melveyr]

How would we hypothetically net import all of this great stuff if no one wanted our dollars any more?

That's just it, we couldn't.  We would have to do without or come up with another way of paying (e.g. gold).  That's why things would get really ugly, really quickly.

I think before paying in gold we would probably just sell goods and services to acquire foreign currency. Doesn't that sound more likely than going back to a gold standard?

[AgAuMoney]

I think before paying in gold we would probably just sell goods and services to acquire foreign currency. Doesn't that sound more likely than going back to a gold standard?

Perhaps.  That does seem overly optimistic.

If we have things to sell, why don't we sell more today?  Could it be they are not competitive on the world market and so nobody wants to buy them?  Would they become competitive if the dollar collapsed?  The German industrialists in 1922-23 sold a whole lot of stuff that suddenly seemed very competitive (a steal even) on the world market, but reality caught up with them and it didn't turn out so well.  And Germany was a country operating on exports, not imports, so it wasn't until France occupied the Ruhr that they found out just how bad it was trying to import when their currency was collapsing.

[melveyr]

I think before paying in gold we would probably just sell goods and services to acquire foreign currency. Doesn't that sound more likely than going back to a gold standard?

Perhaps.  That does seem overly optimistic.

If we have things to sell, why don't we sell more today?  Could it be they are not competitive on the world market and so nobody wants to buy them?  Would they become competitive if the dollar collapsed?  The German industrialists in 1922-23 sold a whole lot of stuff that suddenly seemed very competitive (a steal even) on the world market, but reality caught up with them and it didn't turn out so well.  And Germany was a country operating on exports, not imports, so it wasn't until France occupied the Ruhr that they found out just how bad it was trying to import when their currency was collapsing.

I don't think it is overly optimistic, the scenario I laid out would be very painful.

I think we have different interpretations of imports/exports. From your language I am under the impression that you think that exports are an inherently positive thing.  In my mind, exports are a real cost and imports are a real benefit. The strength of the dollar has given us the luxury of the world sending us more real stuff then we send them; they merely get digits in accounts at the fed. We are nice enough to sell them Treasuries so they can see those digits slowly increase each year. Just zoom out and picture watching this as an alien: we get the stuff and they get digits in our spreadsheets at the Fed which we have total control over. Who would you say is in the advantageous position in that relationship? Who looks like the empire? Who looks like the servants?

You pointed to a currency collapse, where foreigners are not satisfied with digits at the Fed. In that instance we would be  FORCED to export in order to buy foreign goods. We would have to contribute in real terms (export) to benefit in real terms (import). I think that would be very painful and our standard of living would be sharply reduced.

[Wonk]

I think before paying in gold we would probably just sell goods and services to acquire foreign currency. Doesn't that sound more likely than going back to a gold standard?

Perhaps.  That does seem overly optimistic.

If we have things to sell, why don't we sell more today?  Could it be they are not competitive on the world market and so nobody wants to buy them?  Would they become competitive if the dollar collapsed?  The German industrialists in 1922-23 sold a whole lot of stuff that suddenly seemed very competitive (a steal even) on the world market, but reality caught up with them and it didn't turn out so well.  And Germany was a country operating on exports, not imports, so it wasn't until France occupied the Ruhr that they found out just how bad it was trying to import when their currency was collapsing.

I don't think it is overly optimistic, the scenario I laid out would be very painful.

I think we have different interpretations of imports/exports. From your language I am under the impression that you think that exports are an inherently positive thing.  In my mind, exports are a real cost and imports are a real benefit. The strength of the dollar has given us the luxury of the world sending us more real stuff then we send them; they merely get digits in accounts at the fed. We are nice enough to sell them Treasuries so they can see those digits slowly increase each year. Just zoom out and picture watching this as an alien: we get the stuff and they get digits in our spreadsheets at the Fed which we have total control over. Who would you say is in the advantageous position in that relationship? Who looks like the empire? Who looks like the servants?

You pointed to a currency collapse, where foreigners are not satisfied with digits at the Fed. In that instance we would be  FORCED to export in order to buy foreign goods. We would have to contribute in real terms (export) to benefit in real terms (import). I think that would be very painful and our standard of living would be sharply reduced.

This.

There's no way in hell the U.S. sells anything of real value such as mines and land to China to pay off debt.  The U.S. is the master and China the servant in this relationship.  Getting real goods in exchange for electronic promises is a pretty awesome trade if you ask me.

[smurff]

Echoing some of the comments above, any time someone talks about a SHTF scenario, I think that they imagine it lasting longer than these things actually last.

After the storms mentioned above, there may be a period of days or perhaps weeks when things are in chaos, but it normally doesn't last a lot longer than that.

This is correct, at least for NJ/NY/CT superstorm Sandy. 

There wasn't really a lot of chaos here because there was lots of organization in terms of warning people in advance and then shutting down vulnerable parts of the infrastructure--closing schools, shutting down the trains, closing the tunnels, etc.  Later there was lots of organization toward restoring power, restarting the transit systems, continuing rescue and recovery, delivering food/water/ice, providing heat via generators, etc.  There was lots of bonding together and sharing of physical and knowledge resources.  Restaurants and supermarkets gave away food.  Stores like Home Depot set up free charging stations inside so people could keep their phones, laptops, and iPods going.  The NY Public Library cancelled all late fines and operated as a read-only library until power was restored throughout the city.  Donors all over the country gave money to help rebuild, and fundraisers held.  (I found out after the fact that Bruce Springsteen and other musicians held a telethon concert, for example.  My power outage lasted 12 days, so I missed a lot of electronically transmitted information.)  And people poured in as volunteers from  Canada, the United States, Mexico, and other places, just to help out. 

Even banks got in on the acts of kindness, telling their customers that it was okay to overdraft their accounts and be late with this month's credit card payment--just call and let them know.  Macy's even came out with a special program that gives affected people 20% discounts through May 2013 on all the kinds of goods needed to restock a home.  Just bring your FEMA application/insurance claim form to the store and we'll hook you up. 

The reality was that instead of being hostile and defensive, people--including strangers--helped one another.  They also cut each other a lot of slack. 

In other words, it was a SHTF scenario where violence and chaos did not prevail, and very few people (there will always be that few) reverted to malthusian/darwinian behavior.  Even those residents angry with the Long Island Power Authority did not resort to shooting them for their lack of preparation and general incompetence. 

I remember the same sentiments and behavior prevailing after 9-11.

If this SHTF scenario is any guide to what might happen with future such scenarios, it is likely that there will not be chaos if there is advance preparation.  After the main event, we will simply pick ourselves up, wipe the dust from each other's faces, and do our best to fix things and make them right again, since that's what we do.

[Libertarian666]

One major difference between Sandy and a collapse of the dollar is that in the case of Sandy the rest of the country was unaffected and could send help.

If (when) the dollar collapses, the whole country will be in the same mess; thus, there won't be an unaffected part to send help to the affected part.

[smurff]

If the dollar were to collapse, you're right--the whole country would be in a mess. But it would be different messes in different parts of the country depending on the weather and season. For some places it would amplify a mess already underway. The California Mess would look different from the Maine Mess, which would be distinct from the Alaska and Hawaii messes. Still, people would reach out as I suspect there would be an even bigger sense of "We're in this together.". And even if they could not provide direct aid and  help, they would express their hope for the situation getting better, and during crises sentiments like that do matter.