by Bill Bonner
Executive Order 6102
How exactly was the fix put in place?
In 1933, the matter first came before the Supreme Court. Franklin Roosevelt’s Executive Order 6102 made it illegal for citizens to own gold, except in the smallest of quantities.
It came to the Supremes in a series of disputes called the “gold clause” cases. “Where in the Constitution did the president get that power?” people wondered.
Back then, some investors recalled that the feds can play fast and loose with the dollar, as Lincoln had during the War Between the States.
Gold clauses in contracts protected them by insisting on gold as a means of settling up. Eliminating the gold clause meant taking away the ability to protect against inflation… and substantially altering the terms of the deal.
But the Supremes went along with it. Colleague Dan Denning tells the tale:
…First, let me quote a few brief passages from [Justice James] McReynolds’ dissent. They capture the spirit of his objection and the relationship between sound money and political liberty. McReynolds writes that:
“Just men regard repudiation and spoliation of citizens by their sovereign with abhorrence; but we are asked to affirm that the Constitution has granted power to accomplish both. No definite delegation of such power exists; and we cannot believe the farseeing framers, who labored with hope of establishing justice and securing the blessings of liberty, intended that the expected government should have authority to annihilate its own obligations and destroy the very rights which they were endeavoring to protect. Not only is there no permission for such actions; they are inhibited. And no plenitude of words can conform them to our charter.”
McReynolds went on to make the point that when you buy a bond or make a loan, “the creditor agrees to accept and the debtor undertakes to return the thing loaned or its equivalent.” Because Roosevelt’s Executive Order meant companies could be paid back in depreciated dollars instead of gold coin or gold equal to the value of the original loan, McReynolds recognized that this was a de facto default.
The gold clause guaranteeing creditors be paid back in gold or something of equal value, “prevents the borrower from availing itself of a possibility of discharge of the debt in depreciated currency.”
Congress went along with it, too. And then, still in the minority, McReynolds saw the handwriting on the wall. The feds themselves might be the main beneficiaries. Congress would be able to borrow… and then wipe out its own debt by inflation:
“We are dealing here with a debased standard, adopted with the definite purpose to destroy obligations. Such arbitrary and oppressive action is not within any congressional power heretofore recognized. The authority of Congress to create legal tender obligations in times of peace is derived from the power to borrow money; this cannot be extended to embrace the destruction of all credits. […]
For the government to say we have violated our contract, but have escaped the consequences through our own statute, would be monstrous. In matters of contractual obligation, the government cannot legislate so as to excuse itself. […]
Whatever may be the situation now confronting us, it is the outcome of attempts to destroy lawful undertakings by legislative action; and this we think the Court should disapprove of in no uncertain terms. […]
Loss of reputation for honorable dealing will bring us unending humiliation, the impending legal and moral chaos is appalling.”
With the gold clause out of the way, the coast was clear. The feds floated out one program after another, meddling in every aspect of human life.
There was now a third party in almost every transaction – the federal regulator.
By the 1950s, the fake wars had begun, too – major wars – with no declaration or funding from Congress.
By the 1960s, the Johnson team had a full-scale war in Vietnam (a country with no capacity or intention to harm the U.S.).
In addition, it launched a War on Poverty, too… intended to create a Great Society, where the lambs would lie down with the wolves and fruit would hang from every ghetto palm.
But humiliation was afoot. It was soon clear that the feds were going to run out of money.
And this time, it was the Nixon team that shirked its duty. Rather than admit that it had overspent, Nixon repudiated the last link with real money and the ability of foreign governments to exchange their dollars for gold at the promised rate.
Now, the feds had gone Full Paper. Their money was nothing but pieces of paper backed by what was soon to be the world’s biggest debtor.
And now, there was nothing stopping them… There was nothing to stop the chaos McReynolds foresaw.
Tune in tomorrow to see where it led.
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