The Bank Holiday and the One Trick Pony

Posted on August 31, 2009
Filed Under General Insanity |

To understand why a bank holiday is coming you have to look at the last bank holiday we had in May, 1933.

On March 5, 1933 President Franklin Roosevelt declared a US Bank Holiday and closed all the US banks for 4 days. During this time, President Roosevelt successfully stopped the runs on US banks that was his primary intent. He also was able to push through Congress the Emergency Banking Act in that same four days. Passed by Congress on March 9, 1933 the act handed the president a far-reaching grip over bank dealings and “foreign transactions.” On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 to be turned in for other money.  He also took the US off the gold standard allowing the US currency to inflate, which it could not do if backed by the price of gold. After the Bank Holiday was over, one third of US banks did not reopen. (http://www.history.com/this-day-in-history.do?action=Article&id=5755)

What many do not realize is that when the runs on banks occurred in 1933, many depositors demanded their payment in gold, as they no longer trusted the US dollar as being sound. Foreign banks were also demanding payment in gold from the US banks as well as the US Treasury. This was gold that the US Treasury simply did not have. In order to cover the US obligations for gold, Roosevelt took the first steps in moving US currency away from the gold standard. In 1969, Charles de Gaulle, President of France (1959-1969) demanded gold in exchange for all the US dollars in the French Treasury which the US paid, but this action pretty much ran the US Treasury out of gold. In May 1971, inflation-wary West Germany was the first member country to leave the Bretton Woods system. They also demanded payment in full in gold from the US Treasury. The US Treasury did not have enough gold to cover this call because of the previous payoff to France. Finally, on August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem currency for gold. This voided the US obligation to pay gold for US dollars to West Germany as well as other nations and permanently set the US dollar up as a fiat currency.

In 1933 and in 1971 the US was a creditor nation. Today we are debtor nation with China alone holding nearly $2 Trillion of our Federal Debt.

Precious metals, especially gold and silver have had their prices artificially manipulated for many years (http://news.silverseek.com/GoldIsMoney/1210798485.php and http://www.gata.org/node/11). If gold and silver rose to their true exchange values, it would cripple the entire US banking system as most of the large banks trade in precious metals again (like in 1933) at much greater shares than what physical gold and silver actually exist in the world. These foreign governments, including China, that hold our debt are going to eventually call in payment on all those Treasury Notes they hold and they will want their payment in gold. When they do not get paid, they will dump US currency in mass doses deflating its value and creating inflation in the US. When this happens, there will be a lot of scared people trying to get their money out of these quickly collapsing US banks. Bank runs will be the result.

“A policy to raise inflation could, if successful, trigger serious problems in the bond markets. Inflation is a transfer of wealth from creditors to debtors – essentially from China to the US. A rise in US inflation could easily lead to a pull-out of global investors from US bond markets. This would almost certainly trigger a crash in the dollar’s real effective exchange rate, which in turn would add further inflationary pressure…” (http://www.washingtonsblog.com/2009/08/trying-to-inflate-our-way-out-of-debt.html) Wolfgang Münchau

The day of the US bank runs is nearly upon us. If the US government is not pro-active and does not call for a bank holiday to head this off first, it will eventually call the bank holiday after the crash of the US dollar. I expect this to happen in the next few months and major players who make a lot more money than I do have been saying the same for some time. (http://prudentinvestor.blogspot.com/2009/06/newsletter-us-embassies-are-advised-to.html) Take your cash out now, buy gold and silver with it and make sure you have at least 12 months of food stored as it is going to get very expensive.

Years ago, when my kids were small I would ask them to do some chore such as wash the dishes. They invariably would find ways to put this off until I became weary of the excuses. I would then say, “You have two choices, you can wash the dishes now or I can beat you first and then you can wash the dishes. Pick one.” They would then hang their heads and wash the dishes as ordered. I never once had to actually beat my children, something I would never do anyway, I only had to threaten them with it. The US government is now in the same position as my children were and time has run out. They are going to have to pay on their debt or they are going to get beat first then have to pay on the debt. Even a one trick pony like our federal government can see the wisdom of moving ahead now before they get beat up on this debt. They will declare a bank holiday to fix the US banking and currency system. What will come out the other side of this bank holiday will be anyone’s guess, but I am fairly confident this is going to happen in the next few months.

Clayton

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