There is increasing worry that The U.S. and other governments may confiscate citizens' gold holdings and use them to help mitigate the Global Financial Crisis. Julian Phillips discusses
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Many of the leading fund managers in the U.S. and elsewhere are expecting that governments will confiscate their citizen's gold. This will not be for the same reasons used in 1933. It will be to facilitate loans, swaps lower interest rates, and shore up international confidence in the turbulent, stressed paper-currency world in which we live. Each nation issues paper as money, dependent on the trust that nation can engender at home and abroad. But is this going to be sufficient, moving into an ever more turbulent 2012?
TRADITIONAL USE OF GOLD IN RESERVES
When gold was deemed money in the world under the Gold Standard, money was issued against the stock of gold a nation had -this formed the basis of the money supply. In 1933 as the Depression wreaked damage to the U.S. economy, the government needed to expand the supply of money to the economy, dramatically. The first step was to confiscate their citizens' gold at a price of $20 per ounce. Two years later in 1935, the U.S. government devalued the dollar by 75% to $35 an ounce. This expanded the U.S. money supply by far more than 75% because of the additional gold in government vaults.
As U.S. influence spread abroad after the war, the need for a vast increase in global money supply and, in particular, the number of dollars outside of the U.S. (then limited to the amount of gold in U.S. coffers) the restraint on money supply was unbearable on the U.S., so it eliminated gold from its active role in...
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