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Two Letters Re: It Matters Not Whether We Face Inflation or Deflation--You Need to Protect Yourself

Mr. Rawles,
Just a quick comment on Gentleman Jim's excellent letter. He wrote:" [U.S. Silver Eagles] are obviously more valuable than the pre-1965 junk silver coins, and thus you can get a great store of value into fewer coins. ... Plus, they get very heavy very fast."

Silver is silver is silver. You shouldn't be too concerned with what particular impression or markings are on the coin, or where it was minted, or what year, etc etc. All those things have their place, but when it comes to investing in silver and gold for the type of wealth storage and protection we're discussing here, they are irrelevant at best and can in fact be a detriment. You're buying silver, period. The silver content should be your primary concern, and the coin/bar/ingot/whatever that allows you to acquire the greatest amount of silver at the lowest price per ounce should be your choice. Melt value is what matters.

Thus his comment that "you can get a great store of value into fewer coins" is somewhat misleading, and "they get very heavy very fast"—while being technically true from a mere scale standpoint—is missing the point. An ounce of silver is an ounce of silver is an ounce of silver. 100 ounces of silver in the form of Silver Eagles is no more or less valuable than 100 ounces of silver in the form of pre-1965 coins. Either way, you have 100 ounces of silver. True enough, 10% of the weight and space taken up by 90% junk silver coins is "wasted" on irrelevant [hardening, for circulation] metal content, and thus for a given dollar amount the pre-1965 coin stash will weigh a bit more, but for most folks the practical differences are moot. I'd rather pay a much smaller premium than be concerned with the marginally different storage and handling requirements. The same ["buy with the lowest premium"] principle applies to gold. - CH

Jim,
Regarding the "Jim from Colorado's" article I agree with his premise, however there are a few errors I'd like to correct.

He states:

"Look back to the 1930s in the United States.when the devalued dollar led to such extreme measures that in 1933, FDR confiscated nearly all of the gold in the country-and reimbursed owners at a fraction of the value of their gold (absolutely true statement; I have a copy of the Executive Order, if you'd like to read it).
o Yes, households were allowed to keep a small fraction of their holdings, no more than $100 worth of gold, and also numismatic collector's coins were exempted.
o Yes, industrial concerns and business were allowed to continue storing "appropriate" amounts of gold for things like making jewelry, etc.
o The point here is-the government literally came and took people's gold from them.at bargain basement prices."

The correct timeline for "confiscation" and subsequent devaluation of the dollar was as follows:

"March 6, 1933
Using a wartime statute passed in 1917, Mr Roosevelt issued a proclamation closing every bank in the U.S. for four days. The banks were closed from March 6 to March 9.

April 5, 1933
President Roosevelt, acting under the sweeping authority passed to him by Congress on March 9, signed Presidential Executive Order 6102 which invoked his authority to make it unlawful to own or hold gold coins, gold bullion, or gold certificates. The export of Gold for purposes of payment was also outlawed, except under license from the Treasury.

January 30, 1934
The "Gold Reserve Act" became law. It had passed through Congress in five days, with minimal debate. Under this act, the Federal Government took away title to all "Gold Certificates" and gold held by the Federal Reserve Bank (the independent Fed?) and vested sole title with the U.S. Treasury. The Fed banks were to be provided with "Gold Certificates" in return for their Gold, but these certificates had no specific value in Gold assigned to them.

January 31, 1934
The day after the passage of the Act, President Roosevelt fixed the weight of the Dollar at 15.715 grains of Gold "nine-tenths fine". The Dollar was thereby devalued from $20.67 to one troy ounce of Gold to $35.00 to one troy ounce of Gold - or by 69.3 percent. The Treasury, which had become the possessors of all the nation's Gold on the previous day, saw the value of their Gold holdings increase by $US 2.81 Billion. The Treasury now "owned" the Gold, and no one else inside the U.S. was allowed to own any Gold except by the express permission of the Treasury.

The new ratio of $US 35 [per ounce] was adopted at Bretton Woods in July 1944. The U.S. Dollar was made the world's Reserve Currency and the IMF and World Bank established in 1947. The now international ratio of 35 U.S. Dollars to one troy ounce of Gold lasted until August 15, 1971."

In short they called in the gold and paid $20.67/oz on April 5, 1933, but it wasn't until January 31, 1934 that they devalued the USD to $35/oz. And the so called "confiscation", never really was. They were simply ordered, under threat of imprisonment to turn it in and it was declared illegal. They never went door to door and took anything. There was IIRC only one attempt at prosecution and it involved millions of dollars in gold bullion. Many (most?) people never turned in anything. Also, from what I can gleam from passed down second hand stories the safety deposit box line from the Executive Order was not strictly enforced either. All the best, - O.E.

JWR Replies: You mentioned: "They never went door to door and took anything." Yes, that is correct, but only because government officials didn't have to. By declaring possession of gold coins illegal, they "smoked out" nearly all the gold coins that were in circulation. People dutifully exchanged their gold coins 1-for-1 (at face value) for FRN paper currency, knowing that they wouldn't be able to spend their gold coins after the new law went into effect. A $20 gold piece got them a $20 FRN. Wow, what a bargain! Only later were they stabbed in the back by the official revaluation of gold. This was larceny on a grand scale, committed by the FDR administration. There is no more powerful coercive force than that wielded by an ostensibly constitutional government, acting under color of law. In short, FDR did what was expedient, and his administration robbed the American people of their gold. What would be a felony for an individual to do was deemed "lawful" for a government to do.

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