the 1933 Bank Holiday – Can it Happen Again?

 

Posted Mar 23, 2023 by Martin Armstrong

QUESTION: Marty there are a lot of people who seem to be trying to create a panic. Some are claiming the stock market will plunge by 50%. Others are saying nothing will survive other than gold. It seems like none of these people have any sense of what is really unfolding. They were saying the same thing for different reasons before the banking crisis. Can you offer any historical perspective?

Thank you. You seem to be the only real source these days.

Pete

ANSWER: The Bank Holiday took place the first week of March 1933. It began with governors closing down the banks in their states. Once one began, like COVID rules, they quickly jumped on the bandwagon. As reported by March 4th, 1933, some 41 states had already declared a banking holiday. Back then, the president took office in March – not January. Thus, Roosevelt was sworn in on March 4th, 1933. As the new president, FDR delivered what is arguably his best-known speech.

“So, first of all, let me assert my firm belief that the only thing we have to fear is…fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and of vigor has met with that understanding and support of the people themselves which is essential to victory. And I am convinced that you will again give that support to leadership in these critical days.”

The following day, Roosevelt declared a national banking holiday on March 5th, 1933. Then Congress responded by passing the Emergency Banking Act of 1933 on March 9th, 1933. This action was combined with the Federal Reserve’s commitment to supply unlimited amounts of currency to reopened banks. Back then, they effectively created a de facto 100% deposit insurance and this was before the FDIC was created.

However, what the history books have omitted because it revealed the real reason for the major banking crisis, was the confiscation of gold precisely as Germany did in December 1922 seizing 10% of all assets which unleashed hyperinflation in 1923.

In Herbert Hoover’s memoirs (1951), he documents the fact that Franklin D. Roosevelt (FDR) played a very dirty game of politics. There were rumors that FDR would confiscate gold in 1932 BEFORE the election. These rumors spread and people ran to banks to withdraw their funds. The night before the election in 1932, FDR denied that he would do such a thing. After FDR won the election, the real bank panic began. FDR would not take office until March 1933.

The run on banks began as the Great Depression started. In 1929 alone, 659 banks closed their doors due to mismanagement and speculation. Ironically, to save money on paper, it was also in 1929 when the currency was reduced in size to save money. This time, they want to move to digital and save 100% on printing money. Here in 2023, the failures are due to the WOKE agenda which has deprived the banks of risk management rather than speculation.

However, as the 1931 Sovereign Debt Crisis hit, the number of bank failures skyrocketed. Goldman Sacks and others were selling foreign bonds to Americans in small denominations., As Europe began to default, US banks holding foreign debt and individuals in need of cash led to a banking panic for external reasons. Here is a chart showing the listing of bonds on the NYSE. We can easily see the collapse in the bond market thanks to the 1931 Sovereign Debt Crisis.

By 1932, an additional 5,102 banks went out of business. Families lost their life savings overnight. Thirty-eight states had adopted restrictions on withdrawals in an effort to forestall the panic. By March 4th, 41 states had declared a bank holiday shutting down banks. Bank failures increased in 1933, and Franklin Roosevelt deemed remedying these failing financial institutions his first priority after being inaugurated.

However, it was actually the election of FDR that started the banking crisis post-1931. Hoover pleaded with FDR to please come out and address the gold confiscation rumors. People had been hoarding their gold coins fearing the rumored confiscation. Despite Hoover’s plea for FDR to come out and deny the rumors after the election, he remained silent. Given FDR’s manipulation of Japan and the attack on Pearl Harbor which he appeared to instigate with sanctions confiscating Japanese assets in the USA, denying the sale of any energy to Japan, and then threatening to use the fleet to block them from buying fuel from anywhere else, They Japanese attacked Pearl Harbor. There were Senate investigations afterward about FDR’s role because the US had already broken the Japanese code and knew in advance about the attack on Pearl Harbor. He did that to force the US into World War II.

It was in his character to remain silent and create the worst banking crisis in history before he was sworn in as president. FDR was a radical socialist and many viewed that he admired Lenin. If it were not for Mr. Jones exposing the truth behind Stalin, even the corrupt New York Times journalist promoting Stalinism was meeting with FDR. The run on the banks became massive when FDR won the election on November 8th, 1932. FDR allowed the banking system to implode with people rushing to withdraw the money in gold coins.

At 1:00 a.m. on Monday, March 6th, 1933, President Roosevelt issued Proclamation 2039 ordering the suspension of all banking transactions, effective immediately. Roosevelt had taken the oath of office only thirty-six hours earlier.

The terms of the presidential proclamation specified:

[N]o such banking institution or branch shall pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever, of any gold or silver coin or bullion or currency or take any other action which might facilitate the hoarding thereof; nor shall any such banking institution or branch pay out deposits, make loans or discounts, deal in foreign exchange, transfer credits from the United States to any place abroad, or transact any other banking business whatsoever.

For an entire week, Americans would not have access to banks or banking services. They could not withdraw or transfer their money, nor could they make deposits. The entire economy ran simply on cash in your pocket.

While the first phase of the banking crisis unfolded after 1929 due to speculation losses (hence Glass–Steagall Act), then the second phase was the 1931 Sovereign Debt Crisis, it was the third phase with the election of FDR that led to thousands of banks failing as there was a mad rush to withdraw your gold coin. But a new round of problems that began in early 1933 placed a severe strain on New York banks, many of which held balances for banks in other parts of the country. About 4,000 banks failed during this period alone bringing the total to over 9,000.

Much to everyone’s relief, when the institutions that could reopen for business on March 13th, 1933 saw depositors standing in line to return their stashed cash to neighborhood banks. Within two weeks, Americans had redeposited more than half of the currency that they had withdrawn post-FDR’s election on November 8th, 1932. This would prove to be a sneaky trick of FDR to get people to redeposit all the gold coins they had withdrawn – as we are about to explore.

The stock market was also ordered closed when FDR came to power. With the cleverness of a real con artist operating a Ponzi Scheme to gain the confidence of the people, FDR needed the gold coin to be deposited for Phase 4 of the banking crisis. On March 15th, 1933, (The Ides of March), the stock market was allowed to reopen. On the first day of trading, the New York Stock Exchange recorded the largest one-day percentage price increase ever.

The week before the closure, the Dow Jones Industrials fell to 49.68. The week following the closure, the Dow rallied to 64.56 – a percentage gain of virtually 30% over the banking holiday. The shorts who were better on the collapse of the market once it reopened were devastated. It was a major short-covering rally.

With the benefit of hindsight, the nationwide Bank Holiday and the Emergency Banking Act of March 1933, ended the bank runs that had plagued the Great Depression, but it also set the stage for the confiscation of gold. What you have to understand is that Franklin Delano Roosevelt’s (FDR) actions in 1933 were not directed simply at gold. He was embarking on what he called the New Deal, which was a Marxist Agenda that was very popular at the time. His New Deal would end austerity, whereby they were maintaining a balanced budget in the belief that they needed to inspire confidence in the currency.

It was this balanced budget philosophy that also inspired John Maynard Keynes who argued that in times of economic distress when the demand has collapsed, that is when the state needs to run a deficit and increase the money supply. There was a simultaneous international flight of capital from Europe to the United States in the face of European sovereign debt defaults.  That capital flight lasted for nearly two years until FDR won the election in 1932. There was much concern that Roosevelt would do what Germany did in 1922 in confiscating assets. That was the rumor about the possible confiscation of gold.

Milton Friedman criticized the Fed because the capital flows poured into the US but they refused to monetize it. We can see that as Europe defaulted on its debts in 1931, the capital rushed head-first into the dollar. Then we see that the dollar peaked in November 1932 with the election of FDR fearing that would weaken the dollar and exploit the economy. All this gold came to the USA pushing the dollar higher, but the Fed refused to monetize it, was Milton’s criticism. The backing of gold behind the dollar doubled in supply between 1929 and 1931.

So, you must separate gold and the devaluation of the dollar to comprehend what the issue was all about. FDR could have simply abandoned the gold standard, as did Britain, and not confiscated gold. However, that would have also been sufficient to end austerity. But the bankers would have profited and sold the gold overseas at higher prices. Roosevelt in his confiscation of gold was intended to deprive the private sector of profiting from his devaluation of the dollar which was rising the price of gold from $20 to $35. You must keep in mind that he even degraded Pierre du Pont (1870-1954) and called him the “Merchant of Death” because he produced arms for World War I and made a profit off of that war demand. Many saw Roosevelt as a traitor to his own class.

 

The confiscation of the gold was for two reasons. First, FDR was changing the monetary system from one where there was no distinction domestically from internationally to a two-tier system. Gold would freely circulate without restriction only internationally. Therefore, the confiscation of gold was altering the monetary system moving to a two-tier monetary system with gold only used in international transactions.

Consequently, FDR confiscated gold to move to a two-tier system and to deprive Americans of any profit from his devaluation. What FDR then did was confiscate gold from all institutions ordering them to turn over whatever they had. Ironically, this move was intended to target bankers rather than the public. FDR did not have people knocking on every door demanding all their gold. That is why there are plenty of US gold coins that have survived. If individuals possessed them rather than an institution, then they kept what they owned

Therefore, Roosevelt was able to seize whatever gold existed in banks. He declared all contracts void that had gold provisions for payment. It was in Perry v. United States – 294 U.S. 330 (1935) that the US Supreme Court ruled that Congress, by virtue of its power to deal with gold coin as a medium of exchange, was authorized to prohibit its export and limit its use in foreign exchange. Hence, the restraint thus imposed upon holders of gold coins was incidental to their ownership of it, and gave them no cause of action. id/P. 294 U. S. 356.

The Supreme Court held that it could not say that the exercise of this power by Congress was arbitrary or capricious. id/P. 294 U. S. 356. They held that even if the Government’s repudiation of the gold clause in the government bonds was unconstitutional, it did not entitle the plaintiff to recover more than the loss he has actually suffered, and of which he may rightfully complain. id/P. 294 U. S. 354. Therefore, the Joint Resolution of June 5, 1933, held:

“insofar as it undertakes to nullify such gold clauses in obligations of the United States and provides that such obligations shall be discharged by payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts, is unconstitutional.” id/P. 294 U. S. 349.

Yet, swapping gold for dollars created no loss that was cognizable even though the taking of gold was unconstitutional. Clearly, the Supreme Court did not consider the loss in terms of foreign exchange. The Court reasoned:

“Plaintiff has not attempted to show that, in relation to buying power, he has sustained any loss; on the contrary, in view of the adjustment of the internal economy to the single measure of value as established by the legislation of the Congress, and the universal availability and use throughout the country of the legal tender currency in meeting all engagements, the payment to the plaintiff of the amount which he demands would appear to constitute not a recoupment of loss in any proper sense, but an unjustified enrichment.”

In my understanding of the law, those who argued before the Court made purely a domestic argument. A dollar was still a dollar in domestic terms so there was no cognizable loss and the Court did not reach the constitutional question. Had they argued that their loss was with respect to some debt owed in British pounds, they there was a loss. Purely domestically, the only loss would have been to inflation and the Court would never rule against the government on such an issue.

All of that said, there does not appear to be any historical precedent for the stock market to collapse by 50%, all tangible assets to turn to dust, and only gold will survive given a banking crisis where Biden and Yellen sit on each other’s hands and do nothing. Trust me. Every major Democratic donor will be screaming. And as for those claiming the Fed will reverse its position, say inflation is suddenly no longer a problem, and monetize everything in sight, this is even too big for the Fed. have to create QE and absorb all the debt, there to things have changed. If the Fed does that, it will also lose all credibility. It squarely understands that inflation comes from handing Ukraine a black check to the most corrupt government in the world. The Fed raised rates yesterday for it cannot back down. It is choreographing the best it can but the bankers do not listen.

If they simply stand behind all the deposits, then there will be no panic. That is what they did in 1933 and the market rallied in confidence thereafter.

Bonds & the Fate of the Future - 2025

Posted Oct 3, 2022 by Martin Armstrong

The 30-year bond elected a major long-term Quarter Bearish Reversal on target. This confirms the long-term outlook that we had warned back at the high that we were establishing a 5,000-year low in rates (high in bond prices). The sell signals on bonds at the end of September are very profound. This is also why you have witnessed Klaus Schwab telling everyone you will own nothing and be happy because what he is really saying is that all debt will be wiped out trying to make it sound like they are doing this for you when it is the next sovereign debt default in history.

The last Sovereign Debt Default was 1931 when Europe, South America, and Asia defaulted. Even Britain went into a moratorium on debt payments. Our models turned up on this level in March 2021 and the next Sovereign Debt Default on a grand scale is likely to unfold by 2025.

The Quarterly closing was a confirmation that we are looking at both a liquidity crisis in addition to a banking crisis that is most likely with an epic center in Europe.

Here is the Yearly Chart from 1798 to 2015 that we published back in 2016. The peak came precisely during the 1st Quarter of 2020 with the major turning point on the ECM 2020.05 reaching 191.69 on the 30-year bond. We will be focusing on this triple crisis of liquidity, banking, and Sovereign Debt Crisis at the WEC on November 11-13th, 2022.

As I have said many times, what bottoms or peaks with the ECM major turning points is typically very profound. That has been vindicated once against by the bond market peaking the first quarter of 2020 with the turning point. We have entered the STAGFLATION mode since March 14th as we head into April 2023.

The European Debt Crisis 2023-2024 - EU will NOT reduce its balance sheet

 

Posted Jun 16, 2022 by Martin Armstrong

The European Central Bank has announced that it plans to create a new tool to tackle the risk of eurozone fragmentation, which is the new term for divergence among member states. They are adopting this tactic out of fears of a new European debt crisis that is inevitable. From the very beginning when the EU Commission was charged with designing the Euro can to our conference in London in 1997, I warned that the promises that everyone would be paying the same rate of interest merely because they were creating a single currency was a complete fantasy. I further warned that this would lead to the collapse of the Euro if not the entire EU.

I explained that they were comparing the Euro to the Federal Debt of the US when the failure to consolidate the debts of the EU meant that the real outcome would be like the USA at the state level. A single currency did not mean that every state paid the same interest rates in the USA and that would be the ultimate reaction of the free markets. We are now in the 24th years of the Euro and its survival because deb stable post-2024.

 

The ECB’s decision has come as a surprise following an emergency meeting to address higher borrowing costs for many European governments on an uneven playing field. The ECB made a statement:

“Since the gradual process of policy normalization was initiated in December 2021, the Governing Council has pledged to act against resurgent fragmentation risks.”

“The pandemic has left lasting vulnerabilities in the euro area economy which are indeed contributing to the uneven transmission of the normalization of our monetary policy across jurisdictions,” 

The comments are trying to explain the recent surge in bond yields over the past week or so as capital is starting to smell a rat. ECB has implied a more aggressive policy tightening is coming but it still failed to deliver any new measures that would support the growing unrestrained debt load. With Green governments seizing power, and the absurd sanctions on Russia, it is hard to see where there is any understanding of fiscal management on the horizon.

European capital is now very concerned about financial “fragmentation” meaning the disparity among member states in interest rates. There is clearly a rise in rates in Southern Europe compared to northern. The ECB is now saying that it will “reinvest redemptions” from its emergency bond-purchasing program. So in other words, it will NOT reduce its balance sheet concerning bonds that are under pressure for that will force greater disparity ahead – i.e. fragmentation.

The ECB claimed that its commitment to the euro is its anti-fragmentation policy. They have said that this commitment “has no limits.” Previously, Southern EU states faced materially higher borrowing costs in the wake of the sovereign debt crisis back in 2011. This is a complete disaster for the failure to have consolidated the debt meant that their idea of one monetary policy for 19 different fiscal positions cannot possibly work. I tried to explain to them from the beginning that the 12 original branches of the Fed were independent and they would raise or lower rates depending upon the regional impact. It was Roosevelt who usurped that authority and created one rate for all in 1935 creating the new head branch in Washington.

The yield on the Italian bonds traded over 4% and has broken through the Downtrend Line. While people hope that the ECB’s announcement in this unscheduled emergency meeting means they will be in control, this is more like the 5-time-divorced soul getting married again for the sixth time confirming that hope can triumph over experience. The broader long-term is that borrowing costs will have nowhere to go but higher.

The ECB’s decision to reinvestment what it previously bought merely confirms that there is a serious sovereign debt crisis unfolding.

Have Central Banks Crossed the Line into Tyranny?

 

Posted Sep 17, 2021 by Martin Armstrong

Spread the l

With all the conspiracy theories that somehow the bankers are the real culprits in creating excess money supply, there has been an evolution in central banks that has finally crossed the line since 2019. The Federal Reserve was, once upon a time, responsible. The Fed was originally designed as an authority to create money, which was an elastic money supply. That made perfect sense when the Fed was designed in 1913.

Yes, the bankers owned the shares BECAUSE the Fed was actually designed to do what JP Morgan did in herding the bankers together to save the day during the Panic of 1907. Morgan convinced the bankers that if they did not chip in money to bail out the troubled banks, panic would unfold, and ALL the banks would be hit as a contagion. They listened and joined his effort to stem the Panic of 1907. The design of the Fed was to recreate what JP Morgan put together. The shareholders were the bankers because it was a bail-out fund for the bankers, and TAXPAYER money should not be used to bail out the bankers.

Democrat President Woodrow Wilson signed the 1913 Act, creating the Federal Reserve as well as the income tax. Wilson signed the Revenue Act of 1913, which lowered average tariff rates from 40 percent to 26 percent. It also established a one percent tax on income above $3,000 per year; the tax affected approximately three percent of the population. The Federal Reserve, as designed, was independent, and thus there was the Fed policy v fiscal policy set by Congress.

The elastic money was a brilliant idea where the Fed would buy-in corporate paper to provide lending of the last resort when the bankers could not lend due to the hoarding of cash in a crisis. The corporate paper was typically 90 days. When World War I came, Congress ordered the Fed to buy its paper because they would need to issue a lot of debt. They never returned the Fed to its original design to “stimulate” the economy by directly purchasing corporate paper to prevent companies from laying off employees. Therefore, the structural alteration of the Federal Reserve for World War I transformed the theory of Quantitative Easing into an INDIRECT stimulus rather than DIRECT. When the Fed bought only corporate paper, it directly stimulated the economy. When it was instructed only to buy only government paper, which the government NEVER pays off, any idea of the stimulus was wiped out, for at best, it became INDIRECT.

Then Roosevelt came, and he wanted to control everything. He seized the Federal Reserve and took the power of all the branches, and consolidated it into Washington. Section 203 of the Banking Act of 1935 changed the name of the “Federal Reserve Board” to the “Board of Governors of the Federal Reserve System.” Roosevelt’s Banking Act of 1935 also made major structural changes increasing the number of members of the Board appointed by the president from six to seven to ensure he now controlled the Fed. He created for himself the authority to designate one of the persons appointed as “chairman” of the Board and one as “vice-chairman” of the Board, each to serve in such role for a term of four years.

 

As I have explained in “Manipulating the World Economy,” there was a huge confrontation between the Federal Reserve and the White House. The Fed was directed during World War II to maintain par on US government bonds to fund the war. The Fed was ordered to engage in what we call Quantitative Easing. Then the Korean War came, and the Fed rebelled. They refused to continue to engage in Quantitative Easing. The Fed asserted its original independence over politics.

Politics began to creep back in during the Financial Crisis of 1998. The Federal Reserve then stepped in to bail out Long-Term Capital Management in 1998, a failed hedge fund, because if it did not, it would have taken down Goldman Sachs. So instead of allowing that, the Fed bailed out the hedge fund when they really had no authority to do so. That abuse of power led the Fed to then support the bankers who were engaged in manipulating markets to create guaranteed trades. The bankers warned if they failed, then the government would be broke for it was the bankers who bought the new debt and resold it.

 

Then the Financial Crisis of 2007-2009 took place when the bankers got AIG to guarantee their dodgy mortgage-backed securities. When that all collapsed, the Federal Reserve again bailed out AIG, an insurance company that was operating from London, instead of the US banks. They claimed they did not have the authority to bail out Bear Stearns and Lehman Brothers, which were competitors of Goldman Sachs and investment banks. But they apparently had the authority to bail out an insurance company in London, which again saved Goldman Sachs. I believe they deliberately let two of the 5 investment banks fail to help Goldman Sachs rise to the top.

Now, the automated clearinghouse (ACH) system is changing to allow direct deposits from non-banks – i.e. Big Tech in repayment for censorship. On December 23, 2019, the Board approved modifications to the Federal Reserve Banks’ National Settlement Service and Fedwire Funds Service to support enhancements to the same-day ACH service preparing for digital currencies. On September 25, 2020, the Board amended the implementation date for certain modifications. They are preparing for a digital currency, but this means two things.

By this Fed expansion, they are planning for the long-term for the elimination of public debt, in which case there will no longer be primary dealer banks, and hence no need to bail out the banks when they blow up on trading, assuming they will still be allowed to trade in the future.

Once the Fed moves to create its own digital currency, it is no longer the independent entity it was once supposed to be. Welcome to the new 21st century of a hybrid central bank, end of primary dealers, and the elimination of government debt. All for your security, so you do not revolt when the government system collapses.