June 5, 1933: The Dollar’s Day of Infamy

After the bombing of Pearl Harbor, President Franklin D. Roosevelt called Dec. 7, 1941, “A date that will live in infamy.”

When it comes to the US monetary system, June 5, 1933 should share that ignoble title, because that date marks the beginning of a slow death of the dollar.

Eighty-two years ago, the US went off the gold standard when Congress enacted a joint resolution erasing the right of creditors to demand payment in gold. The move was the culmination of actions taken by Roosevelt that year.

In March 1933, the president prohibited banks from paying out or exporting gold. In April of that same year, Roosevelt signed Executive Order 6102. It was touted as a measure to stop hoarding, but was in reality a massive confiscation scheme. The order required private citizens, partnerships, associations and corporations to turn in all but small amounts of gold to the Federal Reserve in exchange for $20.67 per ounce.

As Peter Schiff points out in his Classic Gold Scams report, despite hefty fines and long prison terms, the government did little to enforce the confiscation order:

Even in the heat of Roosevelt’s confiscation scheme, government troops did not break into people’s homes… Ironically, all the gold actually collected by the Treasury was willfully surrendered in a wave of misguided patriotism, while many ‘law-breakers’ simply kept their gold.”

That’s an important point to keep in mind when coin dealers try to convince you that only their gold coins will remain safe in the next wave of confiscation. Fears of confiscation in today’s world are blown far out of proportion and should not dissuade you from protecting your wealth with highly liquid gold and silver coins.

The purpose of Roosevelt’s executive order was to remove constraints on inflating the money supply. The Federal Reserve Act required all notes have 40% gold backing. But the Fed was low on gold and up against the limit. By increasing its gold stores, the Fed could circulate more notes.

The very next year, the government raised the price of gold to $35.

President Richard Nixon put the final nail in the coffin when he slammed the “gold window” shut in 1971, severing the last ties the dollar had to gold. Nixon uncoupled gold from its fixed $35 price and suspended the convertibility of dollars into gold.

Roosevelt’s moves in 1933 set off a dollar devaluation that continues to this day. A paper offered during the American Economic Association’s 2013 Annual Meeting by Carmen Reinhart and Ken Rogoff reveals the devaluation of dollar after 1933.

In 1913, prices were only about 20% higher than in 1775 and around 40% lower than in 1813, during the War of 1812. Whatever the mandates of the Federal Reserve, it is clear that the evolution of the price level in the United States is dominated by the abandonment of the gold standard in 1933 and the adoption of fiat money subsequently. One hundred years after its creation, consumer prices are about 30 times higher than what they were in 1913.”

An article we recently published on the minimum wage illustrates the practical impact of dollar devaluation in our daily lives.

In 1964, the minimum wage stood at $1.25. To put it another way, a minimum wage worker earned five silver quarters for every hour worked. Today, you can’t even buy a cup of coffee with those five quarters. But the melt-value of those five silver quarters today stands close to $15!”

As David Stockman put it, Roosevelt’s moves culminating in the June 5 congressional resolutions “initiated a process of monetary deformation that led straight to Nixon’s abomination at Camp David, Greenspan’s panic at the time of the 1998 Long-Term Capital Management crisis, and the final destruction of monetary integrity and financial discipline during the BlackBerry Panic of 2008.”

The legacy of June 5, 1933 continues today. The dollar continues to devalue. That means over the long-term, the price of gold in US dollars will almost certainly continue to rise.

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