(no subject)

[which_chick]

Today we're going to talk about Executive Order 6102, a feature of the Roosevelt administration that you might have missed due to falling asleep in high school history classes. Executive Order 6102 made it illegal for Merkins to own gold coins and bullion, a state of affairs that persisted for about forty years.



Here's the executive order. Owning gold was illegal basically because the government said so. (Unfortunately, that's the base reason for things being illegal. Sometimes things are also illegal because they're dangerous or unhealthful or whatever, but mostly stuff is illegal because the government says so. The government is frequently like parents, only more expensive.) The order contained exceptions for coin collecting and so forth as well as a $100.00 exemption for each individual, but basically, if you had gold coins or bullion, you had to turn it over to a bank that was a member of the Federal Reserve System forthwith and they'd give you paper money in exchange for your gold. They paid $20.67 an ounce for the gold and then turned around and set the price of gold at $35.00 an ounce shortly after EO 6102. However, Merkins were not allowed to try to sell their gold to anyone else for what the market would bear. They had to take their gold to the bank window and get paper money at the $20.67 per ounce exchange rate that the government said was OK. Estimates are that the government made about fifteen dollars per ounce of gold on this transaction, so odds are real damn good that they weren't paying a fair market price to their own citizens.

Turn around, bend over the desk and assume an accomodative stance, willya? Uncle Sam wants to get busy.

It remained illegal for Merkin citizens to own large piles of gold (coins or bullion) until the very end of 1974 when Public Law 93-373 removed bans to the trade in gold as a commodity.

Comments

[which-chick.livejournal.com]

Oh, hell, now stuff has to be apropos of something? Damn.

Okay. Since you asked...

Gold is interesting because it's shiny and yellow and goes *clink* but ALSO because it is a fairly reliable indicator of how fucked-up people think the dollar is. If the dollar's in pretty good shape, people aren't terribly pressed about gold. If the dollar is involved in a felch-o-rama, gold prices go up. This is particularly the case for when we might have an inflationary dollar.

Gold's been going up here lately.

I've mentioned previously that I suspect our government is going to continue to gradually raise interest rates, gently inflate the currency, and hope for the best as the housing sector slows down out of its irrational exuberance. They'll do it to ameliorate widespread unhappiness in the finances of everyday Merkins.

Of late, people have been fueling the economy by taking out the equity in their homes and either (a) buying newer, bigger homes or (b) buying other stuff like SUV's or vacations. The refinancing machine works nicely in a world where property values always go up and interest rates appear to be permanently low. (The average Merkin has an appallingly short financial memory. Interest rates were in the double digits for mortgages -- like eighteen percent -- in the late seventies. Given that mortgages are frequently *written* for thirty years, this is not a timeframe to ignore.) However, should the price of homes STOP going up and/or interest rates get off the floor, the refi machine is going to shut down and people won't be able to live large off their equity. Merkins have, as was recently reported, a negative savings rate. We are, as a population, spending money that we don't fucking have. This isn't good.

Yeah, yeah, and I'm fucking Chicken Little. Got any source material?

Happily, the WaPo has a nice page of informative graphics. See here (http://www.washingtonpost.com/wp-dyn/content/graphic/2006/01/23/GR2006012300504.html).

Interestingly, one of the things running around the more fruitbat areas of financial thought these days is the idea that the government (under the reassuringly-named Dept. of Homeland Security) is looking into, well, confiscating the contents of private citizens' safe deposit boxes in the event of a state of emergency. Yes, I understand that it's fruitbat territory.

Anyway, since more than a few of the people who own bulk amounts of gold keep their gold (or certificates thereof) in their safe deposit boxes, I immediately threw that idea right the fuck out the window. The government can't steal valuable stuff from its citizenry. People would never stand for it...

But they did.

FDR made it illegal to own bulk gold and Merkins, by and large, turned in their gold for fiat currency, like good little sheep.

[fooliv.livejournal.com]

Oh, jeez, don't go goldbug on me. People have been losing their minds and their shirts in that game since I was in diapers.

Yes, there's going to be a Chinese-Iranian attack on the dollar this year. The dollar will eat them both for lunch, and go on a short-term binge-diet for dinner. I fully expect to see Iranian oil terminals leveled by airstrikes, and the Chinese economy crash like a sumabitch. The butcher bills from the terror-campaign will probably be in the low thousands, and we'll probably see a serious Taiwan Straits face-off as the Chinese try to self-medicate economic disaster by going on the military-diplomatic equivalent of a meth-and-coke bender.

But check my logic: while the Iranian plan to re-price on the euro will cause an initial crash in the dollar of truly epic proportions, the resulting implosion of the Chinese export-economy will yank the carpet out from under the recent inflation in commodity prices other than energy. It'll also take away the source of the excess energy demand which has been *driving* the oil bubble. The Soroses of the world, who have the financial nimbleness to dance that particular fandango at the quick-step, will make a mint off of the double-crash, while anyone slower off the mark will get left holding a heavy bag full of overpriced, not particularly useful, shiny-yellow metal bars.

Gold isn't money, it's a metal used in the jewelry business. It's the commodity equivalent of the Brooklyn Bridge.

[cousin-sue.livejournal.com]

I have a krugerrand. I was surprised to see how small they actually are.

It, like the rest of my stockpile of gemstones, are courtesy of my Mom going places and buying me souvenirs. Something she only started recently when she started traveling the world.

[teflon-tim.livejournal.com]

Okay, now I understand the context of the history lesson. But I think the fear of a repeat of EO 6102 is unfounded, and the main reason is the climate we're in now.

When FDR enacted EO 6102 we were in the middle of the Great Depression (as any good schoolboy/girl would know). Lots and lots of people were in a situation where their next meal was not always a given. Selling one's gold at a loss vs. eating; hmmm... not a tough choice there.

More importantly, people are less trusting of their government than they were in FDR's time. Invoking the specter of 9/11 doesn't have the impact it once did, and people are less willing to take the government's word at face value. You think people are up in arms about wiretapping our phone calls? Just try and come after our assets and you'll see just how much we cherish our 2nd Amendment rights.

[fooliv.livejournal.com]

The starving and hungry weren't generally in possession of a rattlingly large stock of gold, or else they wouldn't have been hungry. As such, a semi-confiscatory forced gold-exchange would have been sold as a class-warfare sort of thing - 'how dare you weeble about a perfectly equitable currency-exchange program, or demand better terms for conversion of your filthy lucre into good, honest greenbacks, you cheese-paring plutocratic despoiler-of-the-masses?'

And I don't think that Jessica meant that she was worried about the return of that particular set of policies. The above is sort of a sidling towards the idea "gee, wouldn't gold be a good hedge against the possible, comprehensive, total collapse of the dollar?"

That might be putting words in her mouth, though.

[cousin-sue.livejournal.com]

Not Roth IRA?

[which-chick.livejournal.com]

I don't entertain thoughts of the government confiscating people's Roth accounts. That's more for my benefit than for any real belief that this administration (or any other we're likely to get) can consider any action ill-advised, unethical, or just plain wrong. Roth doesn't enter into it, in my book.

[which-chick.livejournal.com]

I don't know that we have a situation where we are looking at the possible, comprehensive, total collapse of the dollar. If it ever does become a concern for me, I'll be sure to mention it here.

At the moment, I'm more concerned that my (quite pitiful, in the grand scheme of things) pile of money will be eroded away as the government inflates its way to consumer satisfaction for the bulk of Americans. People in debt (most Merkins) LIKE inflation. Inflation, for people in debt, provides them with at least the illusion of progress. They'll get wage increases and they'll be able to pay off their big debt (houses and cars), debt that they incurred using old, expensive dollars, with their new, cheaper (and worth less, if not worthless) dollars. They will probably think they're winning.

Inflation tells a different story for people who are net creditors (me and other bloated plutocrats) as well as for anyone with a moderate-to-large pile of money about the place. For people like that, inflation fritters away their wealth and basically punishes them for being good, hard-working exploiters of the underclass. I mean, hell, what on earth am I saving money for if the government's just going to piss the value of the dollar away? Why the FUCK did I bother?

The only saving grace in an inflationary environment is that interest rates tend to go up. They just don't ever go up fast enough to keep the big-piles-of-money from shrinking. *sigh* Traditionally, one of the things people have done with big piles of money in inflationary environments is to put it in gold OR stuff it into a different, not-so-inflationary currency. (It is my considered opinion that all paper currencies inflate. All of them.)

Gold, at the moment, is interesting because it's going up and can be considered a pretty good indicator of what people-with-money think about the dollar. (I'm not terribly interested in what people-without-money think about the dollar. Generally, it's been my experience that they don't.) I don't adore it as a hedge against inflation, mostly because it's inert. You don't get interest on your gold. All that gold does for you is mark time -- you get out of it pretty much what you put in, but there's no opportunity for your money to grow while it's off being gold. I don't see it as an inherently losing strategy, but it's not a winning one, either. I don't think things are bad enough at the current time to merit the various costs of dumping capital into an inert situation.

If I were concerned about the imminent and total collapse of the dollar, I'd be out stocking up on things that could be considered valuable that were NOT little pieces of green paper backed by the full faith and credit of the United States. Gold is a pretty good thing for that. Most everyone agrees that gold has value and the world has, historically, maintained a pretty lively market in gold. You'd probably be able to find a buyer for your gold no matter where you were. Gold is reasonably portable and compact (not like, say, wheat or cotton). Five hundred dollars in gold fits easily in the palm of my hand. (I own one Canadian Maple Leaf which contains 1 troy oz of gold. It was a gift. Prices today were around $550 an oz.) It's nonperishable. It comes in convenient carryable sizes suitable for fleeing the country. You could do a lot worse, really. Plus, it's pretty.

[fooliv.livejournal.com]

But what I was getting at was that the Seventies was the last big mega-inflationary (or even moderately-inflationary, by third world hellhole standards) burp, and the goldbugs got mangled, eventually. Gold is *traditionally* a useful hedge against inflation, because it's got worth, traditionally. In modern practice, I don't see that it's of intrinsic worth beyond its value in portability terms, and all that means is that if you're dumb enough to store it under your bed, and the Bad Men find out about it, if there's social trouble there's a good chance they might be coming through the door for you. A position in wheat futures might be more difficult to slip into your back pocket, but the temptation to horde wheat futures like Smaug under the mountain is pretty much nil.

I guess I'm saying that gold seems to attract sticky-fingered hobbits, in finances as well as fiction.