Share this article:

Owning Gold: Will Executive Order 6102 be revived?

Today's Financial News - Posted February 27, 2009

Given the revived popularity that FDR’s top-down measures have enjoyed among Washington insiders, we can no longer regard a prohibition of the private ownership of gold as impossible.

Could it part of a longer-term plan to establish yet another workers’ paradise on earth? After all—some failed ideas just refuse to die…

by J. Christoph Amberger

“1. The class-conscious proletariat can give its consent to a revolutionary war, which would really justify revolutionary defencism, only on condition: (a) that the power pass to the proletariat and the poorest sections of the peasants aligned with the proletariat; (b) that all annexations be renounced in deed and not in word; (c) that a complete break be effected in actual fact with all capitalist interests. (…)

“7. The immediate amalgamation of all banks in the country into a single national bank, and the institution of control over it by the Soviets of Workers’ Deputies.

“8. It is not our immediate task to ‘introduce’ socialism, but only to bring social production and the distribution of products at once under the control of the Soviets of Workers’ Deputies.”

Vladimir I. Lenin: The April Theses: A Blueprint for Revolution (1917)

Baltimore—TFN: It’s official: The market has replaced the weather as the default subject of conversation among friends, colleagues, family. Even my father, long retired, began his last phone call with a question about the equity markets “over there”.

That’s not a small feat: His complaints about the weather, recited in a nasal Berliner headnote, have provided a suitable backdrop for updates on doctor’s visits and weeklong excursions to the Baltic Sea and the Mark Brandenburg for years.

Market talk is a valid indicator of people’s capitalist interest in the market and hence, their future.

Private ownership of companies, through equity, enables people to exercise limited control over the means whereby they earn their living. Wealth and income—as well as risk and potential losses—is distributed based on the degree of ownership.

If you have “skin in the game”, you’re naturally more inclined to pay attention to what’s going on.

On the other hand, the main tenet of state socialist policy is that the means of production, distribution and exchange should be owned by the state, to allow for “rational” allocation of wealth, and central planning or control of the economy.

Lots of people still have that direct capitalist interest: In 2005, a bit more than half of U.S. households—56.9 million out of 113 million—owned stock directly or through mutual funds. (Coincidentally, that’s about the same ratio on which the current distribution of power in Washington is based.)

They hold that interest in their trading accounts, their 401(k)s, their IRAs.

Interest peaked when the market collapsed. As long as there’s the hope for a restitution of previous values—through a rebound—it will continue…

Up to the point when confidence into the future evaporates. When even long-term optimism is overshadowed by short-term pessimism. At that point, a complete break be effected in actual fact with all capitalist interests, as Lenin put it: People will begin taking the losses they have incurred and turn their backs on the markets for good.

Doing so, they will relinquish their ownership stake in the economy. Their place will be taken by governments.

This voluntary dispropriation of stock ownership began some time last year as investors started selling. It accelerated during the crash in September and is likely to continue. Unless, of course, people with capital begin to see an upside to their future.

I’ve been looking at the proposed budget… the stimulus bills… and the rhetoric of the administration. And I cannot shed the impression that that “complete break with all capitalist interest” Lenin mentioned as a prerequisite for his socialist society is not at all irreconcilable with the long-term policy goals of the Obama Administration.

Depending on how successful they are in realizing these plans, the big-picture outlook for the U.S. equity markets is dark. While capitalist interest remains alive, however, there will be a number of opportunities to make money on strong (if short-lived) upside moves.

*** The first revisions to last quarter’s GDP numbers were released today. Gross domestic product decreased at a seasonally adjusted pace of -6.2% annual rate—down considerably from the original estimate of -3.8%

A year ago, there would’ve been hell to pay in the currency markets. After all, what could be worse than shrinking growth for the world’s chief debtor country?

But the dollar gained decisively against most currencies other than the yen—giving the lie to all those hard-money oracles that had predicted the Demise of the Dollar.

Because their reasoning was faulty: The positive trade balances and currency reserves of Europe, Japan, China, Australia, Brazil were due not to their own economic vitality. But to the willingness to spend of the American consumer.

World currencies are locked in what alternately resembles a suicide pact or mutually assured destruction. In this scenario, it’s the dollar who holds the most appeal, thanks to the sheer size of the U.S. economy.

In this situation, size is all that matters.

*** Mad Money guru Jim Cramer is advising that investors who fear government spending will their stock portfolios should now buy gold:

“Until Tiny Tim Geithner loses his fear of the cameras and comes out with a real plan to deal with the financials and with housing, I think that gold remains your best bet.”

German hyperinflation: Dollar bears forget that the Mark plummeted against the dollar and the pound!

The recent spurt in gold prices above $1,000, however, was not driven at all by dollar weakness or fear of inflation—the usual suspects for rising gold prices: Inflation fears are vague memories as commodities prices have crashed and labor is getting cheaper by the minute.

The recent spike was driven by European buying… driven by hope for super-charged gains: Gold was rising due to increasing demand. And since gold is denominated in dollars, its gains were magnified by currency gains if you bought in depreciating euros.

American investors should keep in mind that a government who attempts to interfere in the free labor market by setting prices (via minimum wage requirements and top-level salary caps) and takes control of key industries (the banking sector) may have a low internal resistance to setting prices of key commodities (such as gold) if they believe they can get away with it.

The last time this happened was under the “other” FDR: Executive Order 6102 was signed on April 5, 1933 by U.S. President Franklin D. Roosevelt “forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates.” It required all persons to deliver by May 1, 1933 all gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve.

Given the revived popularity that FDR’s top-down measures have enjoyed among Washington insiders, we can no longer regard similar steps as impossible.

Today’s Financial News - For the Capitalist in all of us

Owning Gold: Will Executive Order 6102 be revived?

Recommended Reading

Be the first to leave a reply.

Latest Headlines

Topics