The history of gold price manipulation by the US government…

Many people have long believed that the Federal Reserve (and the US government) was manipulating the price of gold.

It is a hunch shared by many individual investors in the gold market.

The problem is that most people can only speculate about the Fed’s manipulation of the gold price without hard evidence, pointing to one or two sharp falls in the price of gold, thus turning the speculation into a laughing stock among professional investors.

But it seems to me that in real money investing, if there are millions of people who have a certain intuition at the same time, then that intuition has at least a fair chance of being correct.

However, the manipulation of gold price by the Federal Reserve and the US government is not as low-level as everyone thinks. It is more of a systematic project to serve the issuance of US Treasury bonds and the national interests of the US.

The first manipulation of gold prices by the U.S. government dates back to the Lincoln administration.

In 1861, when the Civil War broke out and money was running short, Salmon P. Chase, Lincoln’s Treasury secretary, went to the big banks in New York (remember, before the Federal Reserve, there were no national banks, they were private) and said the government needed $150 million in cash, so, Are you going to issue national bonds? !

When the banks see that the opportunity to make money comes, they quickly say yes, we are determined to fund China!

Historically, banks have been supportive of anything that increases the amount of base money in society. When the government issues bonds and gets the dollars, it’s going to spend them, and then it’s going to go back to the bank, but it’s going to have to go back and forth anyway.

What does a bank do?

Of course is to earn fees, earn the difference; the more money, the more circulation, the more money the bank makes. Yes!

People with such good credit (the government) want to borrow money, willing to pay interest, this can make money;

When the money is spent, people deposit it, lends it out, and makes money again;

The money lent out will still be saved by people, so that they can make money again;

As long as there is extra money in society, banking institutions as a whole will be the first to make the biggest pot of gold.

So the major banks responded to the Lincoln government’s call and subscribed to Treasury bills as much as they could afford.

What the banks didn’t know was that they were being screwed by the Treasury secretary and that they were losing a lot of money.

Since the founding of the United States in 1792, the U.S. Constitution has stated that the dollar is based only on gold and silver. But in practice, you certainly can’t use bulky gold and silver, but also use dollar paper transactions. New York’s private banks, in order to be trusted by the public, kept large reserves of gold and ensured the convertibility of paper money, which was basically fine as long as there were no massive runs on their big clients.

This Lincoln administration, after taking dollars from the banks, turned around and asked them to cash it in gold. The Lincoln administration then took the gold and went on the international market to buy large quantities of war supplies (the dollar was not an international currency at the time).

This meant that the gold that the banks had as reserves for paper money was suddenly withdrawn by the government, creating an overall gold shortage in the United States. The price of gold soared against the dollar, well above the legal price of gold ($19.4 an ounce at the founding of the United States, $20.67 in Lincoln’s time), but the price of gold in New York briefly rose above $50 an ounce, and the banks lost money.

The chart below shows the amount of gold that $1,000 would have bought over the past 300 years. We can clearly see the results of the US government’s manipulation of the gold price in 1861.

However, as the United States grew stronger and taxes increased after the Civil War, subsequent American governments converted all the extra dollars they printed into gold, so the price of gold returned to the original legal price of $20.67 an ounce.

By the way, Chase, the Treasury secretary who ripped off the big New York banks, is one of the most famous names in American history, not only as the founder of the modern Republican Party, but also as the name of a famous bank.

Because Chase’s ability to raise money was so important to the unification of the United States, a bank named Chase National Bank bore his name when it was founded in 1877.

In 1955, the bank merged with the Rockefeller family’s Manhattan Bank and became Chase Manhattan Bank;

In 2000, Chase Manhattan merged with the Morgan family’s JPMorgan Bank, creating the universe that now dominates global finance and knows everything about the Federal Reserve’s actions: JPMorgan Chase.

As we all know, the United States had a central bank when the Federal Reserve was founded in 1913. Since then, the Federal Reserve has been the sole printer of dollars (Federal Reserve notes) (originally, any bank could print dollars). But the Fed, at that time, was still strictly on the gold standard, and anyone who took a $20.67 bill could go to the Fed and exchange it for an ounce of gold.

The second blatant manipulation of the gold price by the US government undermines this principle.

After the outbreak of the Great Depression in 1929, the whole society fell into severe deflation, with falling prices. The gold of the Federal Reserve was also subjected to a crazy run by people — such a run meant that people returned paper money to the Federal Reserve, which resulted in an even greater shortage of dollars in the society and aggravated deflation.

In 1933, when Roosevelt came into office, this kind of social deflation, it had reached a point where it could not be repeated.

As soon as Roosevelt took office, he issued Executive Order 6102, which prohibited private stockpiling of gold and required everyone’s gold to be exchanged for Federal Reserve notes at the then official price of $20.67 an ounce. Anyone caught holding gold could be sentenced to ten years in prison. (In August 1948, the Chinese Nationalist government did the same. This was the “golden coupon” before the Kuomintang’s defeat.)

In 1934, less than a year after the confiscation, the Roosevelt administration issued the Gold Reserve Act, which directly re-established the legal price of gold at $35 an ounce. This manipulation of the gold price was blatant.

The effect of the Gold Act of 1933 on the value of gold can also be clearly seen in the chart above.

It was on the basis of $35 =1 ounce of gold that the Bretton Woods system was established under the leadership of the United States before the end of the Second World War in 1944, and the dollar made the final leap to have the status of “equivalent to gold” in the world, and began to act as the real “world currency” together with gold.

The American government’s third manipulation of Gold prices, called the “Gold Pool” scheme, came at a time when the Bretton Woods system was already in danger.

In 1960, when the Bretton Woods system had been in operation for about 15 years, the American economist Robert Triffen wrote an article called “The Gold and Dollar Crisis: The Future of Convertibility.” Through a series of logical inferences, he points out that the Bretton Woods system is not sustainable, and the reason lies precisely in the provisions of the Bretton Woods system:

1) The US dollar is pegged to gold, but in order to develop trade, countries in the world must use more and more US dollars as settlement and reserve currency, which means that the US must ensure that the balance of payments continues to exceed its income, and constantly “export paper money” to exchange for real goods;

2) In order to keep the value of the dollar stable, the United States cannot live beyond its means for a long time. If you keep trading paper for real wealth, people will surely come to you for gold. When you have less gold, it is impossible to maintain the value standard of $35 =1 ounce gold.

 

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