Thread by @HenriArslanian

1/ A major milestone in the history of money took place last week. On April 5, 1933, FDR signed Executive Order 6102, which placed extreme limitations on gold ownership in the U.S.

What catalyzed this move? And what was its broader impact?

Time for a thread 🧵👇

2/ Upon entering office, FDR attempted to dramatically increase federal spending so as to stimulate the economy, which was rapidly sinking following the 1929 stock market crash.

3/ Yet his hands were tied by the Federal Reserve Act of 1913, which mandated that each banknote had to be backed by 40% of gold held in federal reserves. So for every dollar printed, the government would need to hold 40 cents of gold.

4/ But foreign and domestic holders of U.S. currency were rapidly losing faith in paper money and were redeeming dollars at an alarming rate for gold.

5/ In response, FDR declared a "national emergency" and ordered all banks to close over a four-day span in March 1933 so as to prevent “the export, hoarding, or earmarking of gold or silver coin or bullion or currency.”

6/ For that entire week, Americans would have no access to banks or banking services. They could not withdraw or transfer their money, nor could they make deposits. One month later, an executive order made private gold possession illegal.

7/ All Americans were required to turn in their gold on or before May 1, 1933, to the Federal Reserve in return for $20.67 of paper money per troy ounce, with violations punishable by up to 10 years in federal prison along with a hefty fine.

8/ The order was quickly challenged and made its way to the Supreme Court, where it was upheld...with one notable exception: dentists who could own up to 100 ounces of gold!

9/ Interestingly enough, many Great Depression-era photos capturing Americans waiting in long lines at banks were often characterized as people waiting to get their money out. But in many cases, people were standing in endless lines to hand their gold possessions in.

10/ Outlawing gold ownership was a central pillar that many argue made FDR’s New Deal programs possible. Without the ban, the government would have been in violation of its own laws against printing money.

11/ Fast forward to the 1970s when the U.S. was looking at another crisis in the works. At the time, foreign governments could trade the US dollars they received through trade back to America for gold at $32 per ounce.

12/ But with a trade imbalance and a ballooning federal deficit causing gold to drain out of its reserves, President Nixon took the dollar off of the Gold Standard, allowing the dollar to float freely against other currencies.

13/ The prohibition against gold continued to stand until 1974. But after seeing a pro gold advocate on TV, Gerald Ford reversed FDR's executive order and legalized gold ownership in the country. But gold would no longer be used to back up fiat currency.

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