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Ted Butler: Demonizing the COTs
By Michael Kosares
Centennial Precious Metals, Denver
www.USAGold.com
Monday, August 22, 2005
That the government retains the power to confiscate gold has been
well-known to clients of this firm for some time. Gold ownership in
the United States is a privilege, not a right, and as distasteful as
that might seem, confiscation is a potential reality, like it or
not, so all prudent gold owners should incorporate into their
thinking.
Most of us who own gold do so for asset preservation purposes in the
event of a financial or economic crash. I would estimate that a good
75 percent of the physical gold owned in the United States is held
for this purpose. A confiscation, if there is one, will not come
when the economy is humming along on all cylinders. It won't even
come when the economy is bad. It will come when the economy is
horrible; when the gold owner needs his or her gold the most -- in
the early phases of a major currency collapse; when investors are
fleeing the banking system and Wall Street and looking for a safe
haven for their money.
Then, as was the case during the early Roosevelt years, the
government could react with primitive barbarism against gold and
gold owners. When it happens, gold confiscation won't be the only
atavistic act perpetrated by government. Curreny controls, market
closures, rigged asset and derivative pricing, bank shutdowns, the
suspension of brokerage functions, the freezing of financial
accounts -- all these and more will be on the table should an
economic breakdown become a reality.
Why do I believe that the U.S. government might react in this
fashion?
I believe this most invasive of reactions is possible because of the
way the government has reacted under similar circumstances in the
distant past as well as in the immediate past when markets were
closed, when currency controls were put into place, when derivatives
settlements were rigged, when banks were shut down, when gold was
confiscated ... and so on.
Let's face it. In his recent letter to GATA, the Treasury
Department's chief counsel for the Office of Foreign Assets Control
could have said, "We see this as a remote possibility," but he
didn't. Instead he essentially told us that the confiscation option
is alive and well at the Treasury Department, based on the same
national emergency protocols employed in the past. As one client put
it this afternoon in a telephone conservation: "It almost sounds
like they've been talking about it."
The letter GATA has received from the Treasury Department does not
surprise me in itself. Confiscation is an option few administrations
would be willing to take off the table in lieu of the serious
problems confronting the international economy and monetary system.
What surprises is me how willing the Treasury counsel was to
publicly state the policy and thus admit the bureaucratic mind-set
we have warned about for years here at USAGold-Centennial Precious
Metals. This should be viewed by gold owners as a profound warning
because it could amount to nothing less than the first volley in the
economic battle to come.
But before any of us should lose hope, I hasten to point out that
there is a way everyone who wishes to own gold can implement an
effective, low-cost, low-profile strategy within the current rules
of the game that greatly elevates the chances of surviving a
potential gold confiscation.
The most comprehensive, educative, and reliable work done on gold
confiscation was compiled by George Cooper (an attorney and client
representative at USAGold-Centennial Precious Metals). I played a
role in this study as co-author/content editor and by advising on
the structure of the monograph, but the legal research was largely
developed by Cooper, who has sustained a long-time interest in
constitutional issues as they relate to finance and economics.
For the most part, Cooper picks up where Ayn Rand's attorney, Henry
Mark Holzer, left off on this issue in the early 1980s. In the
monograph "How You Can Survive a Potential Gold Confiscation,"
Cooper republishes Holzer's original legal chronology and then
brings it current.
Like Holzer, Cooper does not deny the government's ability to
confiscate gold, nor does he sanction it. Instead, he confronts the
legal issues and then outlines a course of action that puts the gold
owner in the most favorable position should the government decide to
yank gold ownership as a portfolio alternative.
We would like to add GATA's recent findings to both the chronology
and the monograph's addendum. Holtzer's original research was
published under the title "How Americans Lost Their Right to Own
Gold and Became Criminals in the Process." Holtzer's work was
forwarded to me many years ago by the widely-respected Elizabeth
Currier of the Committee for Monetary Research and Education. As you
know, James Turk andJohn Rubino recommend "How You Can Survive a
Potential Gold Confiscation" in their important book, "The Coming
Collapse of the Dollar and How to Profit from It."
The "confiscation" memo, as we refer to it, was first published in
2000. It has served as a guiding light for a large number of
sophisticated investors -- so much so that pre-1933 gold coin
ownership, the recommended course of action against confiscation,
has become the primary business of USAGold-Centennial Precious
Metals. There is no perfect, all-encompassing solution to the
potential problem of confiscation, and pre-1933 gold coin ownership
is not a magic bullet. But of all the alternatives, it is the one,
in our opinion, with the best chance of seeing people through a
potential confiscation.
There is long precedent -- first established in 1933 and going
forward from there -- favoring these coins as collectors' items.
They were in fact "legalized" after the last gold confiscation in
1933 in a follow-up executive order recognizing that government
confiscation had to be at fair-market value. Few people know that
gold ownership was completely legal in the United States between
1933 and 1975 (when gold bullion was re-legalized), and it was legal
in the form of pre-1933 gold coins.
Holzer makes reference to the monetary crisis that began in the late
1960s, when gold bullion ownership was still illegal in the United
States, as a time when pre-1933 European gold coins skyrocketed in
value. "In May 1968, " he points out, "the German 20-mark piece had
been selling at a 75 percent premium. In May 1971 the premium was
175 percent." The German 20-mark gold coin (.2304 net fine ounces)
is well known to USAGold clientele. (Interestingly, the premium on
that particular coin has risen about 5 percent in recent weeks.) I
would add that the German 20-mark gold coin was not the only pre-
1933 gold coin that appreciated markedly during the last full-blown
monetary crisis. Most other items in this genre experienced rapid
premium growth as well.
The original confiscation executive order was issued by President
Franklin Delano Roosevelt as one of his initial acts as president to
turn around the Great Depression. The order went hand-in-hand with
the closing of the national banks (also directed by executive
order). Roosevelt derived the authority for this action under the
Trading with the Enemy Act. Roosevelt in essence declared a national
emergency and used that as legal leverage to confiscate gold. All of
this is covered in detail in the "confiscation" memo.
I believe that any future confiscation will be preceded by a banking
and international monetary crisis. It will come as a means to keep
the public from fleeing the currency for gold. If there is no
monetary crisis, it is unlikely that there will be any gold
confiscation.
Gold confiscation will not occur because "the government needs the
money," as many have proferred over the years, but to eliminate gold
as an avenue of escape. Once you incorporate that concept into your
thinking, you understand why a government might confiscate gold. It
boils down to politicians acting in what they believe to be a
reasonable fashion when faced with a breakdown of the financial
system.
I am sure that if Roosevelt were questioned today on gold's
quarantine in 1933, he would respond that it was "in the public
interest" and "for the greater good" of all the American people. I
am not defending Roosevelt's actions; I am speculating as to how he
might defend his actions. That's why the privilege to own gold has
not become a right.
GATA is to be commended for its determination in bringing this issue
forward and getting an answer out of the Treasury Department. But
investors should not lose heart in response to your findings. There
is an alternative and a reasonable course of action that will put
gold owners in the best position to weather potential government
action.
I know that this is an controversial subject among gold owners and
one some would rather bury out in the back yard along with a coffee
can full of gold coins. But, in my view, the better course of action
would be to become fully informed on the subject, form your own
opinion, and act accordingly. As George Cooper says eloquently and
succinctly, "Don't get mad; get even."
"How You Can Survive a Potential Gold Confiscation" is available as
part of USAGold's online introductory information packet here:
http://www.usagold.com/Order_Form.html
For personal consultation I recommend contacting our Trading Desk at
1-800-869-5115, Ext. 100. Ask to speak with one of our
representatives -- all knowledgeable in pre-1933 gold coins. Those
now holding bullion gold coins might under the circumstances
consider a trade -- a course for which we have provided guidance and
utility for a number of years.
I invite all readers to repost this anywhere they see fit.
As our old friend, Friend of Another, used to say: "Thank you for
reading."
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http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
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http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
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Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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