• The Gold Standard was good, then banks lost trust and gold

• FDR took control of the gold supply - by force, barring exchange with citizens

• FDR set a fixed gold exchange rate

• The Federal Reserve never recovered its power, and neither did the US Dollar

The Gold Standard was an ingenious way to insinuate that a piece of paper could have value. An ounce of gold was set at the value of 20.67 Federal Reserve Notes (United States Dollars). This meant that you could take 20.67 USD into the bank and trade for 1 ounce of gold. The value was in the gold, not the piece of paper. The idea that the paper could be traded at any time provided peace of mind to citizens and business people.

 I would like to further clarify that only 40% of the money supply had to be backed by this system. This means the money supply was 20.67 USD/ounce of gold times 2.5 the Gold Backing. Gold would be deposited and withdrawn from the federal reserve as rates were raised and lowered, respectively. The excess gold, or the gold beyond the necessary 40% of the money supply, would held in case money supply would need to be grown suddenly. Raising rates, in tough times, would increase the gold, subsequently increasing the money supply.

 The thing they feared the most came upon them, and the gold reserves of Federal Reserve Bank of New York plummeted, resulting in the reserve note being backed by a measly 24% gold. Gold left the Reserve Bank to go to foreign banks, private hands, businesses and firms. The Federal Reserve was forced to temporarily suspend the gold reserve requirements, a peek into the fiat future. This was preceded by cash being withdrawn from banks at alarming rates increasing the circulating notes by 2 Billion USD. This is the type of collapse that test the nerve and the grit of a financial system.

Franklin Delano Roosevelt, arguably the most pivotal president of our nations history, committed an egregious act that should be more of a stain than we know. Mr. Roosevelt, like many of our best presidents, is accused of having dictatorial power. He qualifies more than others considering his extended tenure as president, prompting the 22nd Amendment. He did, in fact, cross the line into autocracy but it wasn’t where many accuse him.

 Mr. Franklin Delano Roosevelt called for a bank holiday, followed by the Emergency Banking Act. On March 12, 1933, his voice rang clear on many radios for his first fireside chat. The Banking Act gave him the right to back 100% of banking deposits. This gave the market some semblance of confidence, but it didn’t change the fact that the reserve note was in a free fall, and the word of one man, whose powers were delegated by congress, secured all the deposits in the country. The reality was there was not enough gold, and there was no way that deposits could be secured.

 This reality was answered by the the emergency power to control international and domestic gold activity, an over reach. Executive Order 6102 resulted in the confiscation of the gold of American Citizens, and in return they received less than the value of the gold in dollars. He dictated, on April 20th, that the gold standard would be suspended and the export of gold was forbade just as the conversion of currency to gold. This edict was held off, which to me is a private admittance that the act was one of a dictator, in hopes that his fireside chats would be enough to prevent gold movements.

In May, the president was able to back the dollar by significantly less gold and even substitute the backing with silver. June 5th, Mr. President banned any contracts that were to be paid back in gold. Soon thereafter, the Federal Bank Deposit Insurance Corporation was established on June 16, as if his warming words were materialized in a bureaucratic office. It promised all deposits up to 5,000 USD would be returned from the government in the event of a bank failure reducing the likelihood of a bank run. This once more was the first time paper was an empty promise, as with insufficient gold, the money didn’t have the agreed upon value, prior to the crisis. You received 5,000 pieces of paper. Over the course of the next year, and the repeated affirmation of his heartwarming words and his decrees, money and gold returned from America’s Mattresses back the to the reserve.

 We know that the pin of Gold to the USD was 20.67 USD/ ounce. This would suggest that a pound of gold was worth 330.72 USD. Due to the crisis we will assume that the price of gold took a natural increase in price to maybe 400 USD, of course this is a free market assumption. Roosevelt used this as an opportunity to deliberately devalue the USD. We will recall that the pinned value of Gold was suspended, so the administration began purchasing gold at progressively higher prices. This caused the free market price of Gold per USD to rise further than the free market placed. This lowered the dollars’ value in gold terms subsequently lowering the value of the dollar in foreign currency terms. This allowed any foreign trade that occurred to arbitrarily reflate the dollar to counter act the tariff inspired deflation that dug the trenches they called Hoovervilles. Reflation would lower American goods in hopes of a causing a demand for American goods abroad. This was done prior to the removal of the tariffs that inspired deflating goods (Reciprocal Trade Agreements Act).

Now we arrive at my favorite part of this struggle in human history to establish a stable medium of exchange. The Gold Reserve Act of 1934. It is likely the most powerful act in US history. The Gold - USD exchange rate was cut almost 60% to 35 USD per ounce of gold. This act also took citizen’s ability to exchange gold for dollars. Now the paper money is no longer in place of gold, but solely a representative of the government’s gold supply. The gold that was allowed to circulate had to be less than 15 ounces and required government approval when exceeding this amount. Even gold teeth at the dentist required some form of policing.

 The US Treasury received funds from the sudden raise in the price of gold to use in the open-market tor preserve the price of the USD. The president then received the right to establish the gold value of the dollar, and he was quick to do this with the purpose of stabilizing domestic prices and preserve foreign commerce. This was followed by a letter to the Federal Reserve saying that the two (The Fed and the president), were on the same page. This was followed by a famous paper from a former reserve president at the time who wrote with the tone of a Eulogy. Mr. Eugene Meyer simply stated that the death of the Federal Reserve system was cemented with the Gold Reserve Act because the Central Bank could no longer independently dictate policy. Although few presidents invoke this right, when it happens I always think back to the Eulogy of the Fed.

“The plain and unvarnished fact is that the Federal Reserve System of today is not the one established 20 years ago, any more than it is the system which existed a year back. The present organization has been shorn of its power to formulate an independent credit policy and it can no longer regulate the flow of funds into and out of this country, as it did when the United States was on the gold standard. The gold reserve act of 1934 not only took from the system all of its gold, but in doing so definitely deprived it of future control over gold movements, although of course that power had been lost as a result of the gold embargo and subsequent monetary manipulations. With the passage of this act, therefore, the central banking system of this country formally surrendered one of the chief privileges and duties which it had exercised prior to suspension of gold payments. … The Administration has assumed responsibility for defining our monetary policies” (Washington Post February 17, 1934, 8).

 This was a very important moment in history. The first major test of the Federal Reserve resulted in the nation’s executive taking the bank’s prerogative. I will admit that the bank was very young and the act of central banking was in fact immature. The sudden loss of trust in the money system, while it affects the banks first, has major political implications. Very few are willing to sit aside and put their trust, and the fate of their administration, in the hands of an appointed central banker who has less of a dog in the fight.

 The powers of the executive expanded greatly. Now, added to the list of the already attested value, the president was to defend the nation’s ability to print as much money as it wanted. People also grew expectant of government support.

• The Gold Standard was good, then banks lost trust and gold

• FDR took control of the gold supply - by force, barring exchange with citizens

• FDR set a fixed gold exchange rate

• The Federal Reserve never recovered its power, and neither did the US Dollar

The Gold Standard was an ingenious way to insinuate that a piece of paper could have value. An ounce of gold was set at the value of 20.67 Federal Reserve Notes (United States Dollars). This meant that you could take 20.67 USD into the bank and trade for 1 ounce of gold. The value was in the gold, not the piece of paper. The idea that the paper could be traded at any time provided peace of mind to citizens and business people.

 I would like to further clarify that only 40% of the money supply had to be backed by this system. This means the money supply was 20.67 USD/ounce of gold times 2.5 the Gold Backing. Gold would be deposited and withdrawn from the federal reserve as rates were raised and lowered, respectively. The excess gold, or the gold beyond the necessary 40% of the money supply, would held in case money supply would need to be grown suddenly. Raising rates, in tough times, would increase the gold, subsequently increasing the money supply.

 The thing they feared the most came upon them, and the gold reserves of Federal Reserve Bank of New York plummeted, resulting in the reserve note being backed by a measly 24% gold. Gold left the Reserve Bank to go to foreign banks, private hands, businesses and firms. The Federal Reserve was forced to temporarily suspend the gold reserve requirements, a peek into the fiat future. This was preceded by cash being withdrawn from banks at alarming rates increasing the circulating notes by 2 Billion USD. This is the type of collapse that test the nerve and the grit of a financial system.

Franklin Delano Roosevelt, arguably the most pivotal president of our nations history, committed an egregious act that should be more of a stain than we know. Mr. Roosevelt, like many of our best presidents, is accused of having dictatorial power. He qualifies more than others considering his extended tenure as president, prompting the 22nd Amendment. He did, in fact, cross the line into autocracy but it wasn’t where many accuse him.

 Mr. Franklin Delano Roosevelt called for a bank holiday, followed by the Emergency Banking Act. On March 12, 1933, his voice rang clear on many radios for his first fireside chat. The Banking Act gave him the right to back 100% of banking deposits. This gave the market some semblance of confidence, but it didn’t change the fact that the reserve note was in a free fall, and the word of one man, whose powers were delegated by congress, secured all the deposits in the country. The reality was there was not enough gold, and there was no way that deposits could be secured.

 This reality was answered by the the emergency power to control international and domestic gold activity, an over reach. Executive Order 6102 resulted in the confiscation of the gold of American Citizens, and in return they received less than the value of the gold in dollars. He dictated, on April 20th, that the gold standard would be suspended and the export of gold was forbade just as the conversion of currency to gold. This edict was held off, which to me is a private admittance that the act was one of a dictator, in hopes that his fireside chats would be enough to prevent gold movements.

In May, the president was able to back the dollar by significantly less gold and even substitute the backing with silver. June 5th, Mr. President banned any contracts that were to be paid back in gold. Soon thereafter, the Federal Bank Deposit Insurance Corporation was established on June 16, as if his warming words were materialized in a bureaucratic office. It promised all deposits up to 5,000 USD would be returned from the government in the event of a bank failure reducing the likelihood of a bank run. This once more was the first time paper was an empty promise, as with insufficient gold, the money didn’t have the agreed upon value, prior to the crisis. You received 5,000 pieces of paper. Over the course of the next year, and the repeated affirmation of his heartwarming words and his decrees, money and gold returned from America’s Mattresses back the to the reserve.

 We know that the pin of Gold to the USD was 20.67 USD/ ounce. This would suggest that a pound of gold was worth 330.72 USD. Due to the crisis we will assume that the price of gold took a natural increase in price to maybe 400 USD, of course this is a free market assumption. Roosevelt used this as an opportunity to deliberately devalue the USD. We will recall that the pinned value of Gold was suspended, so the administration began purchasing gold at progressively higher prices. This caused the free market price of Gold per USD to rise further than the free market placed. This lowered the dollars’ value in gold terms subsequently lowering the value of the dollar in foreign currency terms. This allowed any foreign trade that occurred to arbitrarily reflate the dollar to counter act the tariff inspired deflation that dug the trenches they called Hoovervilles. Reflation would lower American goods in hopes of a causing a demand for American goods abroad. This was done prior to the removal of the tariffs that inspired deflating goods (Reciprocal Trade Agreements Act).

Now we arrive at my favorite part of this struggle in human history to establish a stable medium of exchange. The Gold Reserve Act of 1934. It is likely the most powerful act in US history. The Gold - USD exchange rate was cut almost 60% to 35 USD per ounce of gold. This act also took citizen’s ability to exchange gold for dollars. Now the paper money is no longer in place of gold, but solely a representative of the government’s gold supply. The gold that was allowed to circulate had to be less than 15 ounces and required government approval when exceeding this amount. Even gold teeth at the dentist required some form of policing.

 The US Treasury received funds from the sudden raise in the price of gold to use in the open-market tor preserve the price of the USD. The president then received the right to establish the gold value of the dollar, and he was quick to do this with the purpose of stabilizing domestic prices and preserve foreign commerce. This was followed by a letter to the Federal Reserve saying that the two (The Fed and the president), were on the same page. This was followed by a famous paper from a former reserve president at the time who wrote with the tone of a Eulogy. Mr. Eugene Meyer simply stated that the death of the Federal Reserve system was cemented with the Gold Reserve Act because the Central Bank could no longer independently dictate policy. Although few presidents invoke this right, when it happens I always think back to the Eulogy of the Fed.

“The plain and unvarnished fact is that the Federal Reserve System of today is not the one established 20 years ago, any more than it is the system which existed a year back. The present organization has been shorn of its power to formulate an independent credit policy and it can no longer regulate the flow of funds into and out of this country, as it did when the United States was on the gold standard. The gold reserve act of 1934 not only took from the system all of its gold, but in doing so definitely deprived it of future control over gold movements, although of course that power had been lost as a result of the gold embargo and subsequent monetary manipulations. With the passage of this act, therefore, the central banking system of this country formally surrendered one of the chief privileges and duties which it had exercised prior to suspension of gold payments. … The Administration has assumed responsibility for defining our monetary policies” (Washington Post February 17, 1934, 8).

 This was a very important moment in history. The first major test of the Federal Reserve resulted in the nation’s executive taking the bank’s prerogative. I will admit that the bank was very young and the act of central banking was in fact immature. The sudden loss of trust in the money system, while it affects the banks first, has major political implications. Very few are willing to sit aside and put their trust, and the fate of their administration, in the hands of an appointed central banker who has less of a dog in the fight.

 The powers of the executive expanded greatly. Now, added to the list of the already attested value, the president was to defend the nation’s ability to print as much money as it wanted. People also grew expectant of government support.