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I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations…

~ President Franklin D. Roosevelt, April 5, 1933

Well, they went and did it.

Proving that they have learned nothing from history, Congress passed the massive $700 billion "bailout" bill that is allegedly going to save our insolvent banking system. I was hoping against hope that a populist rebellion might somehow stop the oligarchy from helping itself to the taxpayers’ wallets, but it was not to be. In the end, the plutocrats got their money.

Frankly, the logic behind the House of Representative’s final vote was incomprehensible. When the bill was a straightforward handout to the banks, they rejected it. But after the bill went through the Senate — which added dozens of pork-barrel spending projects and granted new Orwellian powers to the IRS — the House approved it.

How on earth could anyone rationalize voting for the second bill after they had voted against the first one?

Beats me.

Either way, our government took a fateful step down the road to perdition. This payment won’t be the last, since the solvency problem is much bigger than a mere $700 billion. By some accounts, trillions of dollars of bad mortgage-backed paper is sloshing around in the financial system. Most of it has no market, because no one knows if any of it is actually worth anything.

What’s more, the federal government is bankrupt. By any honest accounting, this year’s budget deficit was already heading toward the $600—700 billion range. Since the government can’t pay its existing bills, where will it get the money for this bailout?

The feds will either have to find new suckers to loan them more money, or they will have to turn on the printing press and ignite a nasty bout of hyperinflation.

But the scary truth is that still more disasters are lurking just over the horizon. First, as Senator Harry Reid let slip the other day, our insurance industry is teetering on the brink. AIG has already gone under, and at least one more major company is allegedly about to give up its ghost. Once that domino falls, who knows how many more will follow?

And close on the heels of the insurance meltdown is the impending debacle in commercial real estate. Greenspan’s bubble not only inflated residential housing prices far above rational market levels, it also created a similar bubble in office buildings and shopping malls. Many banks and investment houses are just as awash in bad commercial real estate paper as they are in subprime mortgages.

Is the federal government going to take on these bad loans too?

If that isn’t enough to raise the hair on your neck, the horror doesn’t stop there. Since most state governments rely heavily on property taxes, their balance sheets are starting to drown in red ink. When housing prices drop by 25 or 30% and commercial real estate goes belly-up, so do tax receipts. Yet, unlike the federal government, the states do not control the printing press. They can’t inflate their way out of their predicament.

Governor Schwarzenegger of California has already asked the feds for a multi-billion dollar "loan." He won’t be the last. (After having thrown huge piles of cash at banks and insurance companies, can the feds refuse to rescue a bankrupt state government? Politically speaking, I seriously doubt it.)

Also waiting in line at the pig trough is a gaggle of corporations. During last week’s chaos, not many folks noticed that the big-three automobile manufacturers got a multi-billion dollar handout from the taxpayers. And now that a precedent has been established, look for other industries (the airlines, for starters) to belly up to the taxpayers’ bar for a shot of free "liquidity."

Can the government possibly do this? Can it absorb the entire residential and commercial real estate losses, bail out dozens of state governments, resuscitate the insurance industry, and hand out cash to unprofitable corporations?

Not hardly…at least not without resorting to the printing press, which will set off a tsunami of hyperinflation. As history has shown over and over, governments that spend themselves into a corner will inevitably try to escape their predicament with counterfeit money. Although this scam works in the short run, it causes much bigger problems down the road. Hyperinflation destroys the very basis of economic growth by poisoning the value of money. Without a stable currency, businesses and individuals cannot make long-term plans, since no one knows what anything will cost even weeks or months into the future.

Which brings us to gold.

Libertarians and paleoconservatives have been discussing just such a hyperinflationary scenario for years. For the most part, the consensus opinion has centered on precious metals. Since governments can’t counterfeit metal, gold generally holds its value whenever fiat currency is debased.

While this investment strategy is a good one, it comes with one major risk.

The reason governments inflate their currency is to surreptitiously confiscate wealth from those individuals who store their wealth in that currency. If too many citizens shield their wealth by investing in gold, they nullify the entire scam. Inflation "works" because citizens are forced — by legal tender laws — to store their wealth in a medium controlled by the government. As a government counterfeits its currency, it sucks wealth from all of those people who hold that currency.

The government cannot tolerate too many of its citizens successfully evading inflationary confiscation. In a worst-case scenario, a headlong rush into gold would destroy the dollar completely as individuals replaced it with gold as a medium of wealth storage and exchange.

This cannot be permitted under any circumstances, since it would undermine the very foundations of our governing elite’s power.

That is not to say that hyperinflation is the government’s only option. When faced with bankruptcy, the government could behave responsibly. It could bring its expenditures into balance with its revenue. It could slash the welfare state, defund the military-industrial complex, and withdraw it forces from the overseas Empire.

Unfortunately — from the plutocracy’s perspective — such a policy would also massively undermine its power and is, therefore, completely unacceptable.

If responsible management of public finances is a non-starter, the only other alternative is to rescue the dollar by banning private citizens from buying or owning gold.

Given these two options, does anyone doubt which one the government will choose?

If history is any guide, those individuals who have correctly predicted that our government’s policies will end in disaster — and who invest heavily in gold — will be demonized as "hoarders" and "extremists." In keeping with the theme of our age, such investors might even be accused of "terrorism" (Which, in a twisted way, makes sense. After all, if the government is going to continue to fight the "War on Terror," it needs money. And if the only way it can get money is by confiscating gold, then those who resist the confiscation are "aiding and abetting terrorism.")

Ominously, this logic would permit the government to invoke the Patriot Act and the infamous Military Commissions Act.

In practice, actual confiscation would be easy. Most gold is held in ETFs or bank vaults. The government could simply order these institutions to hand their gold over to the US Treasury. In return, the depositors would be issued compensation in the form of increasingly worthless Federal Reserve Notes (probably at an exchange rate that heavily favors the government. After all, the feds couldn’t allow "hoarders" to make "windfall profits").

Those citizens who hold physical gold would be somewhat more problematic. They would presumably be given a "grace period" to hand over their stash. After that, the feds might have to get a bit rough. Since many folks would probably try to hide their gold, President Obama would ultimately have no choice but to send federal agents into the countryside and seize it. Given the recent demise of quaint Anglo-Saxon legalisms — such as search warrants and Habeas Corpus — this enterprise might not be as difficult as one might think. (Maybe this could be a job for those creepy, Mugabe-style youth brigades that have been popping up around the county.)

I realize that a potentially violent government seizure of private property seems farfetched — or even apocalyptic — but those who dismiss it out of hand should remember their history. After all, our government has done this before.

The Best of Steven LaTulippe