Gold Daily and Silver Weekly Charts - What If?

There was intraday commentary on the dollar and gold/silver here.

This being the inactive month of May, nothing of note occurred on the Comex metals or the gold warehouses.

I had a few questions about 'confiscation' of precious metals again today, in response to the intraday comment.

It is one thing to recall your own currency, which in the 1930s was based directly on gold, and to a lesser extent silver, in order to devalue it.  And it is another thing to just go out and start confiscating purely private property en masse from a citizenry that is notoriously well-armed, and not favorably disposed to tyranny.

In the 1930s, how many people were actually prosecuted for refusing to hand over their gold?  Answer, one.  And this was a man who took the government to court in order to fight the constitutionality of the executive order.  Most of the gold was in the banks, and in circulation, and it was taken overnight, voila.   People were glad to cooperate because they were desperate, and they viewed these actions as equitable.

What if the government decided to give the weak and disabled a trip to the hospital for sterilization or a mercy death, and the ethnically disfavored train tickets to Nevada for resettlement? And tried to take away your children for re-education by the State?  What would you do then? What do you think would happen? 

What if the dollar was devalued 1000 to 1, and the $2,000,000 you had put aside for your retirement suddenly became $2,000.  What if the government confiscated your savings and gave them to the banks and gave you an IOU in return?  What if a meteor hit London, or the Yellowstone caldera erupted and took out most of the human activity west of the Mississippi?  What if...?

There are precedents for all of the above that make them possible, but life is a school of probabilities.

There are plenty of things worth worrying about.  And it does not hurt to have some contingency plans.  But it is better to focus on the real problems of the day, rather than to distract yourself with the sick pleasure of worrying about phantoms, and things that could be.  Since you cannot do anything about them, it is a form of escape, a way of avoiding the tasks and the issues of the day.  It is the narcotic of melancholy.

Take care of the day, and the years will take care of themselves.  Have a concern for the state of your soul, because one thing I can absolutely predict, without fear of error, is that all of us will one day leave this world, with nothing but our souls as we are.  Have a mind for that.

Have a pleasant evening.

Why the Fed and the US Government Confiscated Gold in 1933, And What They May Be Doing Now

"He who does not punish evil commands that it be done."

Leonardo da Vinci

I believe that this example of how the Fed and the US government 'directed' gold to preferred parties prior to a major revaluation is even more relevant now than I did when I first wrote about this in 2009.

As you know, I think that a new 'Bretton Woods' will be reconstituted at some point, and what we are seeing right now is a vigorous 'negotiation of terms' between the Anglo-American banking cartel and the developing countries, or at least those that cannot be cowed by force. The wild card is why China has been included so graciously and so deeply in the scheme, and what role they are expected to play.

This has been referred to here and other places for some time now as the 'currency war.'

There is plenty of propaganda, also known as semi-official 'advice,' being put forward in support of the various intentions of the worldly powers. China is clearly urging its people to buy gold for themselves, and the West is encouraging its people to turn their gold over to the Banks. To expect China to act in the interest of the Western peoples is a bit too altruistic to be credible.

And while I do not expect a 'hard confiscation' of gold and silver, given the likelihood of credible resistance at least in the States, I do think that expecting a 'bail-in' to occur, even from so-called allocated assets in storage in a few countries in the Banks' sphere of influence, from the US and the UK to their former colonies and client states, to be increasingly possible.

If this is correct, then the public of America and the UK, not to mention Europe and Japan, may be in for what is colloquially referred to as 'a royal screwing.' That is so dark that it seems to be almost impossible, inhuman. It would be taking money from innocent people, especially the poor and the weak, to bailout the Banks and the thoroughly corrupt monied interests. But based on what we have seen, it is certainly not out of the question.

Let's see how all this plays out.

The Last Time the Feds Devalued the Dollar to Save the Banks
14 January 2009

We dipped once again into the Federal Reserve Bulletin Publication from June, 1934 to take a closer look at the growth of the monetary base, and found an interesting graphic that shows the accounting for the January 1934 devaluation of the dollar and the subsequent result on Bank Reserves in the Federal Reserve System.

As you will recall, the Gold Act, or more properly Executive Order 6102 of April 5, 1933, required Americans to surrender their gold coinage and certificates to the Federal Reserve Banks by May 1, 1933. There were no prosecutions for non-compliance except one benchmark case which was brought voluntarily by a person who wished to challenge the act in court.

After a substantial portion of the gold was turned in by US citizens and taken from their bank based safe deposit boxes, the government officially devalued the dollar from 20.67 to 35.00 per ounce in the Gold Reserve Act of January 31, 1934.

The proceeds from this devaluation were used to provide a significant boost to the Federal Reserve member bank positions as shown in the first chart below.

The inflation visited on the American people because of this action helped to take the CPI as it was then measured up 1200 basis points from about -8% to +4% by the end of 1933. To somewhat offset the monetary inflation the Fed also contracted the Monetary Base which served the nascent recovery in the real economy rather poorly and is viewed widely as one of a series of policy errors.

Considering that the actions did little for the employment situation this was painful medicine indeed to those who were dependent on wages.



Fortunately at the same time FDR was initiating the New Deal programs which, despite continual opposition from a Republican minority in Congress, managed to provide a small measure of relief for the 20+% public that was suffering from unemployment and wage stagnation.

People ask frequently "Will the government seize gold again?"

While there is no certainty involved in anything if a government begins to overturn the law and seize private property, one has to ask for the context and details first to understand what happened and why, to understand the precedent.

Technically, the government did not engage in a pure seize of private property, since at that time the US was on the gold standard, and much of the gold holdings of US citizens were in the form of gold coinage and certificates.

Governments always make the case that the currency is their property and that the user is merely holding it as a medium of exchange. The foundation of the argument was that the government required to recall its gold to strengthen the backing of the US dollar against the net outflows of gold for international trade. The devaluation helped with this as well, since dollars brought less gold for trade balances.

People also ask, "Why didn't the government just revalue the dollar without trying to recall all the gold from the American public?"

The answer would seem to be that this would have been more just, more equitable recompense for the public. The Treasury could have purchased gold from the public to support its foreign trade needs.

But it would have left much less liquidity for the banks.

One can make a better case that the recall of the gold, with the subsequent revaluation to benefit a small segment of the population in the Banks, was a form of seizure of wealth without due compensation. Hence the lack of active prosecutions.

So, will the government take back gold again to save the banks by devaluing the dollar?

Highly unlikely, because they not only do not need to this, since the dollar is no longer backed by gold, and is a form of secular property except perhaps for gold eagles, but they do not have to, because they are devaluing the dollar already to save the banks.

This time the confiscation of wealth to save the banks is called TARP. (And QE I&II, financial asset inflation, and gold leasing and suppression with the soft confiscation of price manipulation. - Jess).

If one thinks about it, US Dollars are being created and provided directly to the banks to boost their free reserves significantly, at a scale comparable and beyond to 1933-34.

The confiscation of wealth is being spread among all holders of US dollars and dollar assets, foreign and domestic, in the more subtle form of monetary inflation.

Granted, the government must be more opaque to mask their actions in order to sustain confidence in the dollar while the devaluation occurs, but this is exactly what is happening, and all that is required to happen in a fiat regime.

There is no need to seize widely held exogenous commodities like gold and oil, but merely dampen any bellwether signals that a significant devaluation of the dollar is once gain being perpetrated on the American people in order to save the banks.

Its fascinating to look carefully at this next chart below.



First, notice the big drop in gold in circulation of 9.8 million ounces, or roughly 36% of the measured inventory at the end of 1932. Think someone was front-running the dollar devaluation? We suspect that the order went out to start pulling in the gold stock to the banks.

The reduction in gold in circulation AFTER the announcement of the Gold Act in April would be about 3.9 million ounces, or roughly 22% of the gold remaining in circulation in March 1933.

Considering that all gold coinage held by banks in the vaults was automatically seized, the voluntary compliance rate is not all that impressive. We are not sure how much of this was being held in overseas hands by non-US entities.

But beyond a doubt, there was an unjust, if not illegal, seizure of wealth by requiring citizen to turn in their gold to the banks, which was then revalued at the beginning of 1934 by 69% from 20.67 to 35 dollars.

It would have been much more equitable to devalue the dollar and to change the basis for dollar/gold first, before requiring private citizens to surrender their holdings. But of course, this would have lessened the liquidity available for direct infusion into the Federal Reserve banks.

The New York Fed's Primary Dealers, Liquidity, Monetary Policy, Excess Reserves and Financial Dreadnoughts in Times of Currency War

Someone asked me about Primary Dealers today.   I think it was in regard to liquidity concerns.

Cutting to the punchline, however one wishes to characterize and attribute it, the financial system is once again over-leveraged, over-concentrated, fraught with interconnected with counterparty risk, and fragile.

This is because of the policy failure of the Treasury and the Fed which could be characterized as extend and pretend without engaging in significant reforms and law enforcement in the aftermath of what might be best described as a control fraud. 

I also postulated years ago that when push came to shove, the Fed would gather around itself a few 'friendly banks' which would act on its behalf in private to enforce certain policy decisions in markets in which the Fed and Treasury do not wish to openly operate.  

It is hard to think of any other somewhat moral reason for the government to babysit and subsidize these very expensive and dangerous TBTF monstrosities, except as instruments of policy to provide some degree of freedom to shape events and responses. 

If you want to wage a currency war, you need to have some dreadnoughts packing serious financial throw-weight, and economic muscle.  Think of economic hitmen on steroids.   It may be Machiavellian,  counter-democratic, and expensive, but that is the dictate of strategy if you want to control things and wield power to do what you will, both at home and abroad. 

Is a corollary to the currency war a financial arms race and the construction of institutional behemoths?  I think it might be.  Or it could just be widespread ignorance and corruption amongst the ruling class which certainly is conceivable.  Or some of both.  Why do governments sometimes engage in corporatism?  Take your pick.

So putting that bit of editorial fuss and postulating out of the way, let's talk about some loosely related details of what Primary Dealers are all about.

The Fed uses Primary Dealers to manage monetary policy and its market in Treasury transactions,  first and foremost.   

These operations are both 'temporary' and 'permanent' transactions involving Treasuries, involving repos/reverse repos and purchases/sales respectively. 

I cannot stress enough that in a period of ZIRP, some things are not quite the same and do not carry the same significance as they might imply in 'normal times.'   I think the last chart show the Fed's Adjusted Monetary Base and Excess Reserves helps to illustrate this.

Although the analogy is a bit strained and far from perfect, I think what Bernanke has been doing with the Fed's monetary base and the excess reserves is roughly comparable to what had been done in 1933 with the removal from gold from private hands, and it revaluation afterwards in order to re-capitalize the banks with what was essentially seignorage.

They used gold instead of a platinum coin.  There is no need to confiscate gold when you are not on an external standard, the only constraint being the Fed's willingness to expand its balance sheet, and of course, the value at market of the bond and the dollar, which some conveniently forget when it suits them.

And the 'platinum coin' was a political rather than a monetary play. It is important to keep the two separate, although both are dysfunctional these days. Corruption ranges far and wide.

Certainly Bernanke and Paulsen/Geithner have been much less selective in spreading the wealth to banks, and never engaged in the sort of reforms and bank holiday that the FDR Administration had done.

The management of liquidity in the banking system with particular member banks, non-banks, and foreign entities is not relevant to the Primary Dealers list per se.

I am not sure why they wanted to know this, but since it has been some time I have written about them,  here is a current list of the Primary Dealers from the NY Fed.

"Primary dealers serve as trading counterparties of the New York Fed in its implementation of monetary policy.

This role includes the obligations to:

(i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and

(ii) provide the New York Fed's trading desk with market information and analysis helpful in the formulation and implementation of monetary policy.

Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account holders."

Here is some additional information about the nature of the Primary Dealer relationship with the NY Fed.

As one can easily see not all banks, including member banks of the Federal Reserve, and not only banks, are primary dealers.  For example, MF Global was removed from this list in October, 2011.

An institution is not required to be a Primary Dealer to borrow funds from the Fed's various lending facilities including the Discount Window. 

And being a Primary Dealer, or a member bank of the Federal Reserve for that matter, does not oblige a Bank to engage in money laundering or rigging LIBOR, or any other markets. That sort of activity is largely engaged at the discretion of the Bank.

There is a distinction therefore, between the management of monetary policy and the Treasury sales, and the Fed's other operations with banks including reserves, excess reserves, and discount lending among other things.  So one has to have some care about drawing broader conclusion from their activities.

With the advent of ZIRP, the role of excess reserves held at the Fed, and the payment of interest by the Fed to the banks on those reserves, has taken on an added importance in the management of monetary policy and system liquidity. 

In regard to foreign dollar transactions, the Fed typically arranges swap lines with foreign central banks,  as they did in the case of the dollar short squeeze we had seen in Europe for example.

At one time I kept detailed spreadsheets of most of the Fed's weekly operations.  I gave that up around the time of the financial crisis, when the Fed's activities became much more convoluted and even less transparent than they already had been.


Current List of Primary Dealers

Bank of Nova Scotia, New York Agency
BMO Capital Markets Corp.
BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mizuho Securities USA Inc.
Morgan Stanley & Co. LLC
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.

The Last Time the Feds Devalued the Dollar to Save the Banks

The Last Time the Feds Devalued the Dollar to Save the Banks
14 January 2009

We dipped once again into the Federal Reserve Bulletin Publication from June, 1934 to take a closer look at the growth of the monetary base, and found an interesting graphic that shows the accounting for the January 1934 devaluation of the dollar and the subsequent result on Bank Reserves in the Federal Reserve System.

As you will recall, the Gold Act, or more properly Executive Order 6102 of April 5, 1933, required Americans to surrender their gold coinage and certificates to the Federal Reserve Banks by May 1, 1933. There were no prosecutions for non-compliance except one benchmark case which was brought voluntarily by a person who wished to challenge the act in court.

After a substantial portion of the gold was turned in by US citizens and taken from their bank based safe deposit boxes, the government officially devalued the dollar from 20.67 to 35.00 per ounce in the Gold Reserve Act of January 31, 1934.

The proceeds from this devaluation were used to provide a significant boost to the Federal Reserve member bank positions as shown in the first chart below.

The inflation visited on the American people because of this action helped to take the CPI as it was then measured up 1200 basis points from about -8% to +4% by the end of 1933. To somewhat offset the monetary inflation the Fed also contracted the Monetary Base which served the nascent recovery in the real economy rather poorly and is viewed widely as one of a series of policy errors.

Considering that the actions did little for the employment situation this was painful medicine indeed to those who were dependent on wages.



Fortunately at the same time FDR was initiating the New Deal programs which, despite continual opposition from a Republican minority in Congress, managed to provide a small measure of relief for the 20+% public that was suffering from unemployment and wage stagnation.

People ask frequently "Will the government seize gold again?"

While there is no certainty involved in anything if a government begins to overturn the law and seize private property, one has to ask for the context and details first to understand what happened and why, to understand the precedent.

Technically, the government did not engage in a pure seize of private property, since at that time the US was on the gold standard, and much of the gold holdings of US citizens were in the form of gold coinage and certificates.

Governments always make the case that the currency is their property and that the user is merely holding it as a medium of exchange. The foundation of the argument was that the government required to recall its gold to strengthen the backing of the US dollar against the net outflows of gold for international trade. The devaluation helped with this as well, since dollars brought less gold for trade balances.

People also ask, "Why didn't the government just revalue the dollar without trying to recall all the gold from the American public?"

The answer would seem to be that this would have been more just, more equitable recompense for the public. The Treasury could have purchased gold from the public to support its foreign trade needs.

But it would have left much less liquidity for the banks.

One can make a better case that the recall of the gold, with the subsequent revaluation to benefit a small segment of the population in the Banks, was a form of seizure of wealth without due compensation. Hence the lack of active prosecutions.

So, will the government take back gold again to save the banks by devaluing the dollar?

Highly unlikely, because they not only do not need to this, since the dollar is no longer backed by gold, and is a form of secular property except perhaps for gold eagles, but they do not have to, because they are devaluing the dollar already to save the banks.

This time the confiscation of wealth to save the banks is called TARP.

If one thinks about it, US Dollars are being created and provided directly to the banks to boost their free reserves significantly, at a scale comparable and beyond to 1933-34.

The confiscation of wealth is being spread among all holders of US dollars and dollar assets, foreign and domestic, in the more subtle form of monetary inflation.

Granted, the government must be more opaque to mask their actions in order to sustain confidence in the dollar while the devaluation occurs, but this is exactly what is happening, and all that is required to happen in a fiat regime.

There is no need to seize widely held exogenous commodities like gold and oil, but merely dampen any bellwether signals that a significant devaluation of the dollar is once gain being perpetrated on the American people in order to save the banks.

Its fascinating to look carefully at this next chart below.



First, notice the big drop in gold in circulation of 9.8 million ounces, or roughly 36% of the measured inventory at the end of 1932. Think someone was front-running the dollar devaluation? We suspect that the order went out to start pulling in the gold stock to the banks.

The reduction in gold in circulation AFTER the announcement of the Gold Act in April would be about 3.9 million ounces, or roughly 22% of the gold remaining in circulation in March 1933.

Considering that all gold coinage held by banks in the vaults was automatically seized, the voluntary compliance rate is not all that impressive. We are not sure how much of this was being held in overseas hands by non-US entities.

But beyond a doubt, there was a unjust, if not illegal, seizure of wealth by requiring citizen to turn in their gold to the banks, which was then revalued at the beginning of 1934 by 69% from 20.67 to 35 dollars.

It would have been much more equitable to devalue the dollar and to change the basis for dollar/gold first, before requiring private citizens to surrender their holdings. But of course, this would have lessened the liquidity available for direct infusion into the Federal Reserve banks.