Bailout of the American Government

By Carl Watner

Why throughout American history were banks in the United States exempt from laws that were applicable to most other businesses? The simple answer is that they were essentially part of the federal government. In 1933, the federal government protected the banks so as to protect itself from bankruptcy and whatever consequences that might have entailed. How did the US Treasury’s gold reserves, then, compare to the amount of gold certificates it had in circulation? If gold ownership had not been prohibited could the government and banks have honored all their obligations? To buttress my argument that the government was sheltering itself from financial danger, here is a mini-chronology of special banking legislation during the early days of the New Deal. However. we must first remember that the Federal Reserve Act was signed by President Woodrow Wilson on December 23, 1913. The Act required 40% gold backing for all Federal Reserve Notes issued.

March 4, 1933 Franklin Roosevelt was inaugurated

March 6, 1933 Presidential Proclamation 2039 closed all banks in the United States until March 9, 1933

March 9, 1933 Emergency Banking Relief Act allowed the Federal Reserve to issue additional currency

March 9, 1933 Presidential Proclamation 2040 continued bank holiday

March 10, 1933 Executive Order 6073 authorized the Secretary of the Treasury to decide which of the nation’s banks could open, and prohibited the export of gold except under Treasury permission

March 13, 1933 Some, but not all, banks reopened

April 5, 1933 President Roosevelt signed Executive Order 6102 “criminalizing possession of monetary gold” and mandating that all (subject to certain exceptions) gold coin, gold bullion, and gold certificates be delivered to Federal Reserve banks by May 1, 1933

May 2, 1933 U S Treasury sold $500 million dollars of government bonds containing gold clauses, which were subsequently dishonored by decision of the Supreme Court in 1935

May 7, 1933 FDR’s Second Fireside Chat, in which he said the following:

Behind government currency we have, in addition to the promise to pay, a reserve of gold and a small reserve of silver [neither of them anything like the total amount of the currency]. In this connection it is worth while remembering that in the past the government has agreed to redeem nearly thirty billions of its debts and its currency in gold, and private corporations in this country have agreed to redeem another sixty or seventy billions of securities and mortgages in gold. The government and private corporations were making these agreements when they knew full well that all of the gold in the United States amounted to only between three and four billions and that all of the gold in all of the world amounted to only about eleven billions.

If the holders of these promises to pay started in to demand gold, the first comers would get gold for a few days and they would amount to about one twenty-fifth of the holders of the securities and the currency. The other twenty-four people out of twenty-five, who did not happen to be at the top of the line, would be told politely that there was no more gold left. We have decided to treat all twenty-five in the same way in the interest of justice and the exercise of the constitutional powers of this government. We have placed every one on the same basis in order that the general good may be preserved. [ See audio for words in brackets. For “private corporations” read “banks.”]

June 5, 1933 A Joint Congressional resolution confirmed Executive Order 6102

August 28, 1933 Executive Order 6260 declared “that a period of national emergency exists” and confirmed all previous Presidential and Congressional orders “relating to the hoarding, export, and earmarking of gold coin, bullion, or currency and to transactions in foreign exchange”

January 30, 1934 Congress passed the Gold Reserve Act which authorized the President to declare a new gold equivalent of the dollar. Subsequently, the President decreed the gold content of the dollar to be the equivalent of 1/35 (13.71 grains) of an ounce of fine gold, whereas it had been approximately 1/20 of an ounce (23.33 grains of fine gold).

1935 In three decisions, the Supreme Court abrogated the effect of gold clauses both in private and government contracts.

In trying to find confirmation of this, I found an article written and posted on the internet by Daniel Carr which can be found at It is titled “FDR’s 1933 Gold Confiscation Was a Bailout of the Federal Reserve Bank.” In short, Carr concludes that “At the very minimum, Federal Reserve notes to the tune of 20,000 metric tons of gold were ‘circulating naked’ in 1933. He begins his analysis by pointing out that at that time there were both United States Notes issued by the US Treasury which contained gold clauses, as well as paper notes issued by the Federal Reserve Banks (founded in 1913), which also contained promises to redeem in gold.

Carr pegs the total outstanding US Treasury Certificates to pay gold in dollars at about 10 billion, 750 million and about 35 billion 834 million paper notes payable in gold issued by the Federal Reserve. To prove that there was a dire shortage of gold to cover both US Treasury Gold Certificates and paper notes issued by the Federal Reserve one only need to look at the figures mentioned in FDR’s May 7, 1933 fireside chat: “all of the gold in the United States amounted to only between three and four billions [measured in dollars] and that all of the gold in all of the world amounted to only about eleven billions.” Against that we need to measure the total amount of gold (as represented in dollars) promised by the Treasury and the Federal Reserve which was in the neighborhood of over 46 billion dollars. In other words, calculating “that the gold reserves in the country in 1933 were 4 Billion dollars worth” there were more than 42 Billion dollars worth of Treasury and Federal Reserve notes which could not be redeemed.

No wonder that FDR had to close the banks and regain the confidence of the American people. Some Americans and some foreign governments sensed that something was drastically wrong and that there was no way the US government could fulfill its promises. “US Treasury Gold Certificates were no longer legal tender,” and although gold clause Federal Reserve notes remained in circulation, they could no longer be exchanged for gold. Had the Supreme Court upheld the gold clause in public and private contracts in 1935, FDR had prepared a script and planned to go before Congress to ask for the annulment of the decision. “To carry through the decision of the Court to its logical and inescapable end will so endanger the people of this Nation that I am compelled to look beyond the letter of the law … .”

In his book, THE PROMISES MEN LIVE BY (1938), Harry Scherman observes that over the long sweep of history there has been “a well-nigh universal welching on the part of governments in the deferred exchanges they had entered into with their own citizens and foreigners – both by direct repudiation and by monetary subterfuge.” (p. 249) When the ancient Psalmist wrote, “Put not your trust in princes,” he really gave us an expression implying that governments invariably break their promises. [Psalms 146:3]


“A Monetary Chronology of the United States,” ECONOMIC EDUCATION BULLETIN: Great Barrington: American Institute for Economic Research, July 1994.

“Executive Order 6102,”­ecutive_Order_6102.

“Executive Order 6260,”­ecutive_Order_6260.

FDR Proposed Statement – Feb. 18, 1935 ‘Gold Clause.’ (copy provided by the Franklin D. Roosevelt Library, Hyde Park, New York).

Henry Mark Holzer, “How Americans Lost Their Right to Own Gold – and Became Criminals in the Process,” 39 BROOKLYN LAW REVIEW (Winter 1973), pp. 517-559.

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