Gold Timing

November and December of 1933: President Roosevelt is having a meeting each morning with his newest economist, George Warren.  The task at hand; to arbitrarily set the gold price higher and higher – US currency policy at this time – in order to devalue the US dollar as much as possible without upsetting the whole economic balance.  In January of 1934, the price was finally set at US$35 an ounce, eventually devaluing the dollar by just over 40%.  The terrible deflation of the time was proving a great burden to the capitalist world economies…

The fall in the dollar was deliberately designed to get prices moving back upwards.  If this could be made to happen, the ‘burden of interest payments and the real cost of money were automatically reduced, making business more willing to borrow and consumers more ready to spend’.  But it did something else too…

‘In the 4 years after 1933, the value of gold held by the Fed almost tripled, to $12 billion, in part due to the higher value of the existing stock of gold, in part to new inflows of gold abroad…Some of this was drawn from other central banks.  But most came from the ground, as the higher price spurred the mining industry…A high fraction of this additional liquidity went into building up the reserves of banks, which, scarred by the years from 1931 to 1933, took a long time to regain their nerve.’  Lords of Finance, page 474.

The timing of gold, we had here  for subscribers.