What's in store for gold?
Confiscation through purchase? Exorbitant windfall taxation? Big profits?
Jim Rickards writes in Currency Wars, "A prohibition on the hoarding or possession of gold was integral to the plan to devalue the dollar against gold and get people spending again."
"It is difficult to imagine such a scenario playing out today, although the legal authority of the president to seize gold still exists. The difficulty in imagining this happening lies not in the impossibility of a similar crisis, but rather in the political backlash that would ensue in an age of pervasive talk radio, social media, outspoken cable channel anchors and greatly diminished trust by U.S. citizens in their government."
When confiscation occured under FDR, "People were desperate and trusted FDR to do the right things to fix the economy."
"It is not difficult to imagine some future dollar collapse necessitating gold seizures by the government. It is difficult to imagine that U.S. citizens would willingly go along as they did in 1933."
Rickards does not predict confiscation of all private gold, but only that stored in depositories in New York . . . . .
"Among other actions, should the dollar crash, "All private and foreign-owned gold held in custody at the Federal Reserve Bank of New York or depositories such as the HSBC and Scotiabank vaults in New York will be converted to the ownership of the U.S. Treasury and transferred to the U.S. gold depository at West Point. Former owners will received suitable compensation, to be determined at a later time."
"All exports of gold from the United States are prohibited."
The government's purpose in these actions:
"By confiscating foreign official and most private gold on U.S. soil, the Treasury would now possess over 17,000 tons of gold, equal to 57% of all official gold reserves in the world. This would put the United States in about the same relative position it held in 1945 just after Brenton Woods . . . . Such a hoard would enable the United States to do what it did at Bretton Woods -- dictate the shape of the new global financial system."
A "new" dollar will be created at 10 times the value of the old dollar, after which, Rickards believes, "A windfall profits tax of 90% would be imposed on all private gains from the upward revaluation of gold."
According to Rickards, the government wants to obtain a lot of gold to back the new dollar and be top dog in the new world economic order. That makes sense, given the way the government has behaved in past financial dealings . . . .
He says that the US government will confiscate private and foreign gold held in New York depositories. That would not be surprising, considering past US actions toward foreigners, such as Nixon closing the gold window in 1971. Politicians won't want to hurt their Financial Elite buddies, who would be tipped off in advanced to remove their gold from New York depositories.
Confiscation-buying of gold by government from private parties all over the U.S. would be cumbersome, and generate a lot of resistance, unlike in the time of FDR when the public was willing to go along with it. Rickards implies that the U.S. would have enough gold to achieve world financial dominance simply by looting the NY stashes, without resorting to widespread private confiscation.
But then Rickards says that a 90% windfall profit tax would be inflicted upon anyone who sold gold after the devaluation, which seems to be a contradiction to what he said about confication. If there would be sufficient resistance to stop confiscation-buying of gold by the government, why wouldn't that same level of resistance rise up against a windfall tax on gold profits?
Whether it's confiscation or taxation, the government will attempt to get it's hands on the profits.
It really comes down to politics, and gold owners are in the minority. The majority, who do not have gold, would want gold owners also to suffer from the devaluation losses. After all, the People's old dollar is now worth only 1/10th of the new dollar, so why should gold owners escape the hit. Given that sentiment by the majority, politicians could easily pass either a gold confiscation law as FDR did . . . or a windfall profit tax on gold.
IS THERE A WINNING STRATEGY?
It would appear that all those who think they are saving themselves by owning gold will not, in fact, be saved.
According to Rickards, the crash will come suddenly, and without warning. It's like the last snowflake on a mountain that tips the balance and causes the avalanche. He says that it could only be a matter of a hours after the crisis began before the government bans gold export, and a matter of a day before the new dollar is instituted. A gold owner will have mere hours to gather their gold and hop on a plane out of the country. But . . . where would they go? If there is a dollar crash, there will be a world financial crash, and not many places will be safe financially, because all governments will be in the same predicament.
Anyone who sells their gold before the devaluation will not profit from the spectacular gains produced by devaluation, and likewise, anyone who is left with gold after the devaluation will not profit from the dollar devaluation, because their profit will be lost to tax.
So, what to do?
Here are some possibilities, none particularly appealing:
1) Hold gold for several years after the devaluation, hoping that the profits tax is reduced or abolished.
2) Hope that the profits tax has a threshold below which the tax will not take effect. That would allow gold owners to sell a small amount of gold each year under the threshhold, slowly cashing in their stash tax free over a period of years.
3) Have an open ticket to a "safe" country, and hop on a plane with the gold at the first inkling that the crash is immanent. Hope you won't get stopped at any borders and your gold confiscated. Hope that the government where you are moving to does not institute a windfall profit tax on gold.
4) Forego dreams of cashing in big on the crash of the dollar. Hold your gold for awhile as it continues to go up, but hope that you can sell your gold well before the crash and convert it into real items that will not devalue. Of course, you will have to take the hit from the current 28% collectibles tax on gold.
5) Keep you gold and hide it, assuming that there will be a black market in which you can sell your gold. Hope that the government does not offer rewards for reporting gold-tax evaders, and hope that whomever you sell your gold to is not a government informant. Accept that you may not get a very good price for gold, since it is illegal to sell it to avoid tax, so anyone buying from you will charge for that risk you are passing on.
6) Hope that the government will successfully "muddle through", and there won't be a crash.
7) Hope that the government will, for some unknown reason, let you get away with making obscene profits on gold. (Fat chance!)
I would like to hear what others think about all this.
Please amend, append, and/or criticize . . . . .