Trivia: What happened to the 1933 confiscated gold?
derryb
Posts: 36,809 ✭✭✭✭✭
After taking Americans' gold in 1933 with an executive order, then increasing it's value overnight from 20.67 to $35 an oz, (with a 69% devaluation of the dollar) Congress agreed in 1934 to create the Exchange Stabilization Fund (ESF) and initially fund it with $2 billion from the gold's "overnight" profits. The ESF is basically an in-house slush fund created for the US Treasury Department to use in bypassing required congressional approval of it's spending. It has become a widely used tool since 2008; you will find it in most "bailout" news stories. Hopefully the remainder of the overnight and all subsequent profits on the confiscated gold are still held on behalf of "we the people" in the Treasury vaults. Very unlikely.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Comments
@derryb .... I agree, highly unlikely. The government cannot 'hold on' to any funds... just spend, spend, spend... Cheers, RickO
And you forgot:
Raise Taxes
Mike
MIKE B.
Although Fort Knox and other depositories have gold, title to (and ownership of) that gold is another matter.
In 1933 Roosevelt bailed out the Federal Reserve Bank cartel by handing over to them the title to OUR gold.
I wrote about the details here:
moonlightmint.com/bailout.htm
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I don't think will ever see what's there in ft. Knox, fwiw
Ok, now you know better than that.
The Exchange Stabilization Fund has an annual report prepared by the Treasury. Latest ones are here:
https://home.treasury.gov/policy-issues/international/exchange-stabilization-fund/esf-reports
The rest of the gold is largely held at Fort Knox, KY...but some gold from the NY Assay Office is also held in the vaults below the Federal Reserve Bank of NY.
Following the GRA of 1934......the stock of monetary gold went from $3.9 BB to $8.1 BB. $2.5 BB of that came from the revaluation at $35/oz. $750 MM flowed in alone in February 1934 and a few hundred million more from Europe in March and April. By 1939 the U.S. controlled over $17 BB in gold as more and more flowed in from a wary Europe, fearful of Hitler's intentions.
You have it backwards. The GRA of 1934 gave all of the government and Federal Reserve gold to the U.S. Treasury. The Fed was stripped of monetary control for the next 17 years.
Nobody was "bailed out" except maybe debtors who didn't have their gold clauses activated. Bondholders got screwed though the SCOTUS disagreed.
GRA of January 1934: "All right, title, and interest and every claim of the Board of Governors of the Federal Reserve System, of every Federal Reserve Bank, and of every Federal Reserve Agent, in and to any and all gold coin and gold bullion shall pass to and be vested in the United States."
When debtors of all types (including the Federal Reserve, US Treasury, and corporations) were relieved of their obligation to pay back more than 10,000 metric tons of gold, that was ABSOLUTELY one hell of a "bailout".
Title to all the gold was given to the Federal Reserve during 1913-1933, in exchange for $20.67 in credits per troy oz.
That same gold was then apparently sold back to the US Treasury in 1934 for $35 per troy oz.
That's NOT what the Gold Clauses were about -- I even wrote a piece on that for publication this month.
And while I am sympathetic to the bondholders arguments....and dislike FDR's and Morgenthau's high-handed gold policies....including confiscation of gold coins.....and don't think this was necessary to reflate the economy....there was NOT a 60% drop in purchasing power so even while a simple reading of the Gold Clause contracts could be said to be activated, the financial harm and need for monetary compensation (not gold compensation) was definitely a windfall.
No, the gold belonged to the Treasury and U.S. Government....the Fed was merely an agent for both.
All profits from revaluation at $35 an ounce went to the creation of the Exchange Stabilization Fund, about $2 billion.
Read the book AMERICAN DEFAULT or some of the legal arguments on the gold clauses, Fed, and Treasury from Friedman/Schwartz, Hart (Harvard Law Review), Dam (U. of Chicago Law Review), Holtzer (Brooklyn Law Review).
You guys who read these Financial Conspiracy websites with this anti-Fed, worship at the altar of gold mentality.....these people are NOT serious scholars. They're basically carnival barkers who don't even have their history right.
You talked about the Fed being "bailed out" and seizing American's gold when in fact they got shafted, too. Here's FDR a few weeks before the GRA of 1934 basically saying that the Fed has to surrender their gold to the U.S. Treasury in a January 15, 1934 letter to Congress::
"...there remains . . . a very large weight in gold bullion and coins which is still in the possession or control of the Federal Reserve Banks, the President ask(s) that Congress by specific enactment . . . vest in the United States Government title to all supplies of American owned monetary gold."
Don't need a conspiracy website to tell me dollar is mismanaged, inflation is high, dollar faith is low and that PMs will rise in such an environment. Note that many of yesterday's "theories" are today's unfortunate reality. Dropped off a laptop lately for repairs? LOL
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Betting against the United States in the long run is a bad short idea.
betting against a failing currency is not the same as betting against who issues it. On average, one's gold goes up while dollar purchasing power goes down. Not a safe bet? LOL
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
What you say may SOUND nice, but it is not something a person looking to invest $500 MM or $5 BB or $25 BB for a few days cares about.
Nobody is putting money of size with the Chinese Communist Party, an illiquid Euro system, or Putin's Russia.
So your view is that the Federal Reserve had no gold of their own and they were only an "agent" for the US Treasury.
One of the last Federal Reserve Weekly Balance Sheet reports published before Roosevelt's gold confiscation was 22 February 1933 :
https://fred.stlouisfed.org/release/tables?rid=481&eid=1217338&od=1933-02-28#
This report indicates "assets" of:
$0.70 Billion in "Gold held by Federal Reserve Banks".
$2.37 Billion in "Gold with Federal Reserve Agents".
$0.05 Billion in "Gold redemption fund with U.S. Treasurer / Treasury".
$3.12 Billion in TOTAL gold "assets" of the Federal Reserve.
If the US Treasury (or anyone else) owned that gold, it could not be legally listed as an "asset" on the FRB Balance Sheet.
No FRB gold-specific obligations are listed under "liabilities".
Under liabilities, this report indicates the total amount of Federal Reserve Notes in circulation:
$3.00 Billion.
However, reports by the Bureau of Engraving and Printing indicate that the total quantity of Federal Reserve Notes "issued" from 1914 to 1933 was actually $35.83 Billion. All of these notes had a "Redeemable in Gold on Demand" clause on them.
So something does not jive here. The BEP says $35.83 Billion in Federal Reserve Notes were issued leading up to 1933, but the FRB says only $3.00 Billion of these notes were in circulation.
Well, this is a precious metal forum for those who DO follow and invest in PMs. Your $500 million dollar investors don't come here for opinion.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
It's not my view, Dcarr, it's the view of the Chairman of the Federal Reserve Board who QUIT in May 1933 when he saw what was coming. Here's Eugene Meyer, later owner of The Washington Post (Kate Graham's father):
“The plain and unvarnished fact is that the Federal Reserve System of today is not the one established 20 years ago, any more than it is the system which existed a year back. The present organization has been shorn of its power to formulate an independent credit policy and it can no longer regulate the flow of funds into and out of this country, as it did when the United States was on the gold standard. The gold reserve act of 1934 not only took from the system all of its gold, but in doing so definitely deprived it of future control over gold movements, although of course that power had been lost as a result of the gold embargo and subsequent monetary manipulations. With the passage of this act, therefore, the central banking system of this country formally surrendered one of the chief privileges and duties which it had exercised prior to suspension of gold payments. … The Administration has assumed responsibility for defining our monetary policies” (Washington Post February 17, 1934, 8)
When some of the "experts" you guys cite attack the Fed with nonsense about them being a banking cartel and holding gold for themselves and their stockholders, it's like those who claim that WW II started when Poland invaded Nazi Germany (the official Nazi explanation in September 1939).
When you talk about reserve currency status and the U.S. losing it, I'm telling you it's not a valid argument at the present for those reasons.
One can like gold...think the U.S. has problems...and realize that a global reserve currency doesn't come along every few decades.
We don't need to bring the events of WW2 into this.
During the early years of the Federal Reserve, they were allowed to keep (and distribute to member banks) 100% of their profits. Later, that was changed to 6%. So, in the eyes of the FRB chairman, the FRB was no longer as it was before. Well, too bad for them. But they should have never been allowed to keep such profits in the first place. I am not surprised that the FRB chairman would lament this.
In 1935 there was a fire at the post office in Washington DC. To keep the fire from engulfing the entire building, boxes of paper documents were thrown out of windows onto the street. A large quantity of cancelled $10,000 gold certificates ended up in the hands of "spectators" (and later, collectors). This document (like many recovered from the street) indicates that the Federal Reserve Board did hold title to US Treasury gold. How was the Federal Reserve able to obtain these, and in a relatively short time after the Federal Reserve was founded ? :
Who should have gotten the profits from the Federal Reserve ? And the profits were minimal because Open Market Operations were nil.
Thousands of banks belonged to the Federal Reserve System. How much money do you think they each got ?
Whatever those historical Gold Certificates say, Federal Law takes precedence. The Gold Reserve Act of 1934 is controlling, not the terminology on a piece of paper. The Fed transferred all their gold to the Treasury. The Treasury controlled the gold...the Treasury controlled the dollar....the Treasury controlled monetary policy.
If you read the actual quotes from Fed Chairman Meyer, it's pretty clear who was in charge. It was NOT The Fed !!
Here's where the gold holdings were in mid-1932, guys:
Assistant Treasury Secretary James H. Douglas: "...as of June 30, 1932 U.S. Mint and Assay Office vaults held $867,053,739 in U.S. gold coins or a value equal to more than eighty percent of post-war coinage. Most of the coins were stored at the three mints, with the Philadelphia Mint holding $212,629,925, San Francisco $386,269,325, and Denver $230,077,590, while the New York Assay office had $33,924,200 in its coffers. The Treasurer’s office in Washington had $4,152,698.58 with another $2.2 million in transit from one location to another, and $100 million in joint custody of Federal Reserve banks and agents in New York. Commercial and National banks held another $30 million mostly as reserves."
So even BEFORE the Gold Reserve Act of 1934, the Fed only had possession (for the Treasury/govt) of about 10% of the nation's gold coins. The Philly, SanFran, and Denver Mints -- under DIRECT Treasury control -- had over 80% of the coinage.
I am talking about pre-1934.
The FRB held title (in the form of Gold Certificates) to a lot of gold. How did they obtain those ?
If they actually bought any of it, it would have been at the $20.67 price per ounce, using Federal Reserve Notes that they issued at will with no backing.
Then in 1934 they sold it all to the US Treasury for $35 per ounce. Nice profit (that they were able to keep for themselves).
Why should one bank (the FRB) have such favorable connections (and profits) with the US Treasury when other banks do not ?
It would be like a defense contractor that got all the best contracts without having to go through competitive bidding. It is a monopolistic, anti-competitive, and anti-capitalist system.
The fair solution would be to fully nationalize the Federal Reserve Bank.
The government bought the gold at $20.67, not the Fed. The Treasury did the actual buying. They also set the price, too.
Your banking/central bank suggestions are unworkable and defeat the purpose of having a strong central bank.
Where is all the gold? FDR took it with him to his tomb. (Think King Tut)
I just posted (above) proof that the Federal Reserve Board had title to US Treasury gold.
The $10,000 Gold Certificate is just one of many examples that were saved from the post office fire.
It says right on there that the the gold, deposited with the US Treasury, was payable (in gold) on demand to the "Federal Reserve Board" (others say payable to the "Federal Reserve Bank"). So how did the FRB gain title to this gold ?
It is often claimed that a central bank needs independence and should not be nationalized because their decisions would be tainted by the desires of the government. But the track record of the FRB is not good. A government-run (nationalized) central bank could hardly have done worse. Some central bank independence could be tolerated, but it should absolutely be required to remit 100% of their profits (not 94% as it is currently) to the US Treasury. The central bank should also be subjected to a thorough audit each year. That they incessantly resist being audited does not instill any confidence in their actions.
No you didn't. There are Federal Reserve branches and banks throughout the country; there aren't Treasury branches except Post Offices which couldn't handle gold transactions.
The Fed was an agent for the Treasury until 1951. This is Fed History 101, if you don't know this, we can't help you.
The Fed didn't have title to the gold, Dcarr. If they did, they wouldn't have bitched and moaned in 1933 and 1934 and resigned in protest over FDR's actions.
You once again don't know the Fed operates. Tens of billions each year are swept into the Treasury from the Fed and GSEs. The 6% dividend to banks ceased years ago and is miniscule, a rounding error to large Wall Street banks.
The Fed sends the Treasury $60 billion a year.....they keep $4 billion (maybe)....they pay it out to a few hundred banks who each get MAYBE $20 MM each (maybe)....and you're concerned that the government didn't get 100% ?
Good Grief......
Here's another example of the Treasury telling the Fed what to do with gold holdings after World War I
"...although wartime embargos were officially lifted in 1919, it was only in 1922 that the Treasury Department informed (Federal) Reserve Banks throughout the country that all objections to the release of gold have been lifted. Double eagles struck in 1920 and 1921 had been consigned to 'reserve funds' and remained stored in government vaults for several years."
I like Goldfinger.
Knowledge is the enemy of fear
What does that note say on it ?
"Gold Certificate"
"$10,000 deposited with the Treasurer of the United States"
"Payable in Gold ... to the order of The Federal Reserve Board".
And you are saying that does not constitute title to gold ? You apparently don't know what a "Gold Certificate" is.
Ask the Federal Reserve if they want to permanently give up their statutory 6% profit retention. If it really is "miniscule" to them, then they should have no problem in giving it up.
Even if the Federal Reserve Bank hasn't skimmed their full 6% in recent years, by statute they could resume doing so at their discretion. And it is not entirely about the 6%. The unfair advantage that the Federal Reserve member banks receive is worth a lot - more than a share of the potential 6% profit. Why should Wells Fargo, Citibank, Goldman Sachs, JP Morgan Chase etc receive special treatment that other banks don't receive ?
If the Federal Reserve was nationalized, there would no longer be any member/owner banks. All banks would compete on the same level playing field.
That's EXACTLY what I am saying and how the government operated. And just like the courts sided with the government on the Gold Clause Cases, the terminology used on currency is not legally binding.
The Fed is in charge today. It wasn't before 1951.
Why are you so obsessed with that ? Who cares ? You think Chairman Powell has a slush fund or something ?
The surplus helps fund Fed operations (it's the only government department that is self-funded) and builds up the ESF among other things.
They don't receive any "special treatment" -- this is another non-existent issue you never fact checked. Other banks have the same access to borrowing facilities from the Fed, FHLB, FFCA, etc.
It IS nationalized. It's the central bank. And banks already compete on the same level playing field.
Not sure what you object to or want. You jump from one conspiracy theory to another.
So, begs the question: Why do private bankers own and control a central bank that sets public monetary policy?
Voters have a say in who sets ALL other public policy, and literally own every asset used by those elected officials.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
What happens when the Fed lose money:
Conclusion
In this note, we showed that net income is likely to turn negative temporarily, resulting in a deferred asset to be recorded on the Fed's balance sheet in the near-term under a range of potential macroeconomic outcomes. We project the deferred asset to remain on the balance sheet for a few years under the baseline scenario and potentially longer under scenarios with higher interest rate paths and shorter under scenarios with lower interest rate paths. While the expansion of the Fed's balance sheet in response to the pandemic may have increased the risk of the Fed's net income turning negative temporarily in a rising interest-rate environment, the Fed's mandate is neither to make profits nor to avoid losses. In all its actions, the Fed seeks to achieve its congressional mandate of maximum employment and stable prices. If the Fed had not taken these actions, the risk of experiencing a period in which net income turns negative would be lower than it is at present, but the economic position of households, businesses, the U.S. government, and taxpayers would be far worse off. In line with its strong commitment to return inflation to its 2-percent objective, the Fed has been increasing the target range for the federal funds rate since March 2022. The possibility of income turning negative temporarily in the near-term is arising from the need to raise interest rates expeditiously to address the ongoing inflationary pressures. While the rising interest rates have ancillary effects for the Federal Reserve's income and the unrealized position of the SOMA portfolio, none of these effects impair the Fed's ability to conduct monetary policy or to fulfill any of its other responsibilities.
https://www.federalreserve.gov/econres/notes/feds-notes/an-analysis-of-the-interest-rate-risk-of-the-federal-reserves-balance-sheet-part-2-20220715.html
Yes, Melua, Fed "earnings" have lately dropped to nothing and even gone negative. 2023 will not be a good year for profit repatriation.
not gonna be a good year for many banks as well. High interest rates are killing their returns on treasury bond investments. I guess it is like 2008 real estate expectations - the party never ends. But when it comes to markets the party always eventually ends. Thanks to the FED it's always boom or bust.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Remember the golden rule. He who has the gold makes the rule.
If the FRB was actually nationalized, then by law 100% of their profits would always belong to the US Treasury, not the current 94% as written. And the people would have some say (vote) as to who is running it. There would be no member/owner banks. The people would own it. Member banks absolutely have an unfair competitive advantage.
Not only do you not know what a "gold certificate" is, you also apparently don't know what is, and what is not, circulating currency. That $10,000 document I posted is NOT a piece of circulating currency. Actual US currency states "legal tender" on it. This $10,000 certificate does not ! It is a title document, for $10,000 worth of gold, held by the US Treasury but owned by the Federal Reserve Board.
Prior to 1933, the gold clause on currency was legally binding. The laws changed.
2023 will not be a good year for profit repatriation.
What is "profit repatriation"? It seems to imply that the Fed is entitled to something, when it's not.
I knew it would happen.
From Jim Rickards:
The Weird Gold Trick
When the Treasury took control of all the nation’s gold during the Depression under the Gold Reserve Act of 1934, it also took control of the Federal Reserve’s gold.
But we have a Fifth Amendment in this country that says the government can’t just seize private property without just compensation. And despite its name, the Federal Reserve is not technically a government institution.
So the Treasury gave the Federal Reserve a gold certificate as compensation under the Fifth Amendment (to this day, that gold certificate is still on the Fed’s balance sheet).
Now come forward to 1953.
The Eisenhower administration was up against the debt ceiling. And Congress didn’t raise the debt ceiling in time. Eisenhower and his Treasury secretary realized they couldn’t pay the bills. What happened?
They turned to the weird gold trick to get the money. It turned out that the gold certificate the Treasury gave the Fed in 1934 did not account for all the gold the Treasury had. It did not account for all the gold in the Treasury’s possession.
The Treasury calculated the difference, sent the Fed a new certificate for the difference and said, “Fed, give me the money.” It did. So the government got the money it needed from the Treasury gold until Congress increased the debt ceiling.
That ability exists today.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Derry, you split hairs over nothing and it's stuff that doesn't help anybody make any $$$. ZeroHedge is fun to read, but their history of the Fed and Treasury are wrong. Accounting irrelevancies don't matter for monetary policy OR the debt limit.
Profits from the Federal Reserve Banks are swept back to the Treasury each year, less the amount needed to run the Fed. The Fed is the only self-sustaining government agency.
Because of the large number of bonds purchased with low coupons and the much higher rates paid today on bank reserves, Fed earnings will drop a ton this year.
Accounting makes a big difference with the national debt and with the value of the US's gold.
As Rickards pointed out in the link, "One phone call from the Treasury to the Federal Reserve could reprice the Treasury’s gold from $42.22 per ounce (historic cost) to a market level of $2,042 per ounce (today’s price). That would pull over $550 billion of new spending power out of thin air — without issuing any debt. This was actually done by the Eisenhower administration in the 1950s under similar circumstances."
With half a trillion in new spending power, Treasury could delay the debt crisis at leas another week. LOL
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
We have been over this before.
The current laws allow the Federal Reserve to retain up to six percent of their profits (AFTER all expenses are figured in). Any such profits are distributed to the shareholder (owner) banks of the Federal Reserve Corporation. The quantity of profits distributed to member/owner banks (as reported by the FRB) in any given year can range from 0% to 6%.
Again...SO WHAT ? 6% of $75 billion in profits is $5 billion.....divided by a few hundred banks....is maybe $20 MM per bank.
JP Morgan Chase earns that in less than 1 hour.
Actually about 3.5 hours last qtr.
Knowledge is the enemy of fear
Ownership of the FRB is not spread evenly. A few very large banks own the vast majority of shares. So they would receive the vast majority of dividends.
If the dividends really are small, then the member banks shouldn't care if the law is changed to require 100% of FRB bank profits be remitted to the US Treasury. But I expect the big owner banks would vehemently pull every puppet string they have to prevent that from happening.
At who's expense ?
$12.6 billion in Q1 2023....I guess it depends on if you go by weekends and holidays....if you go by 91 days in a quarter and 24/7 earnings strength....$5.7 MM per hour so 3 1/2 hours is fine by that figuring.
Less days and hours, then it falls to under 1 hour.
No, dividends are skewed to SMALLER banks under $10 BB in assets as of 2016:
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20161123a.htm
Dividends are LESS THAN 6% since the 10-year Treasury yield is less. Only when the Treasury yield is greater than 6% will the dividend yield be 6%. It's the lesser of the two.
And no Wall Street banks have taken dividends in years, electing to build up capital at the NY FRB.
Yeah, and Jamie Dimon is going to kill corporate purchases of K-cup coffee cups because that will really juice the stock price.
Nobody's. They earned the money. Do you earn a living at someone else's expense, Dan ?
Keep in mind that every American could keep up to $100 in gold coin and additional gold coins that had numismatic value.
This was not well publicized at the time and I think it was purposeful.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
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Who owns those capital reserves at the NY FRB ?
Not the US Treasury.
It seems like what you are stating is that if the banks deposit those dividends into their collective bank, then it doesn't count as profits or dividends. But it is.
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Like sticking it to the Denver Public School system (and Denver tax payers) for $270 million.
What you want is a perpetual financial monarchy. I do not.
A credit-based economy moves economic growth forward in time at the expense of future production. Over time this causes the "monarchy" to gain more and more wealth and control over everyone else.
Its like student loans. As Peter Schiff pointed out, making loans readily available for college has the effect of bidding up the cost of going to college until it becomes too expensive for most people to go without borrowing (and thus, becoming a slave to debt). If student loans were eliminated, colleges would have to adjust to the realities of the market, making it cheaper to go to college, and young graduates wouldn't be starting out their adult lives deep in debt.