We have so far progressed to the banking and coinage situation until FDR came into office. Before FDR, it was pretty honest, above board, and easily understood. Banks stored your gold or paper money, and one could write checks on the deposited funds, or redeem your paper money for gold. Silver coinage was honest also, and it was valued at one sixteenth as much as gold. The market crash came in 1929, but the depression didn’t really get under way until two or three years later, when America was really in the dumps. FDR was elected in 1932, and took office in March, 1933. Times were bad.
My parents lost money when banks went broke and defaulted. It was so honest, that when hard times came and people lost their jobs, they needed their savings. They went to the bank to withdraw their dollars, so they could survive. The unemployment rate was supposedly 25%, but most say it was much higher. (Governments have always doctored figures to their advantage.) That’s what savings were for. Save, so that when the eventual “rainy day” came, you could withdraw, and live on it till times were better. Many times it didn’t work that way, because the bankers had loaned saver’s money out for various things, and the loans went bad. When jobs are lost, and there is a financial collapse, builders and manufacturers are broke and bankrupt too, as there is no one to buy their goods or homes. The manufacturers, home builders and buyers, had borrowed savers’ money from banks, and payments weren’t being made, because they had no dollars to make payments. The banks then, ran out of dollars to pay the savers, when they wanted and needed their savings.
Bank “runs” developed. More and more people wanted their dollars, as represented by savings accounts. They needed them, because they were out of work. Banks paid the savers till their money ran out, and then word spread about banks running out of dollars. Panic spread, and thousands lined up at banks to withdraw their savings. Riots developed, when frantic people wanted their money, but were unable to get it. FDR declared a “bank holiday,” to give banks a chance to find the dollars to pay savers. Many banks never re-opened, and savers in them, lost all. Some banks survived, and paid every customer. FDR then started the FDIC, or Federal Deposit Insurance Corporation. He started this AFTER the failures. Bankers were required to deposit a certain percentage of their deposits into this fund, which would insure their deposits against future bank failures. Initially, the FDIC insured deposits for a tenth of what they insure them for now, because prices were a tenth of what they are now they say. Actually, prices are about fifty times what they were then, but the FDIC seal on a banker’s window, gave customers a sense of security. It still does.
FDR’s actions were understandable, but his next move, was absolutely criminal in every way. He must have decided that owning gold was honest, but in difficult times, honesty was out of the question. He then, by executive order, told everyone to turn in their gold coins, and exchange them for paper money. What was the difference? They’d soon find out! A gold double eagle was exchanged for a crisp new $20 bill, a gold eagle exchanged for a $10 bill, and a $5 half eagle gold coin for a $5 bill. The bills they were exchanged for, still said they were backed by gold, and in actuality they were. For a time, anyway. Then, FDR decided that gold was too cheap, and he raised the price of gold by 69.5% overnight. He knew in advance what he was going to do, without doubt. The saps who turned in their coins, suddenly found that they were worth 69.5% more, except they no longer had them. Those that didn’t turn them in, and could afford not to, suddenly found that they had increased in value by 69.5%. It was illegal to own them though, so they just put them away, knowing that they had saved themselves from one of the most hideous government thefts in history.
One must understand why most probably turned their coins in for paper money. It wasn’t because of FDR’s “executive order.” It wasn’t because of the fine, if one didn’t turn them in, as no one was ever fined. Times were tough, and money was scarce. Jobs were unobtainable, and men were standing on corners selling apples for a nickel. Life magazine photographers did a marvelous job of recording those tough times. The “dust bowl” started during the depression, some say because of the depression. Farmers were unable to tend, fertilize, irrigate and water their fields, because the demand for their products evaporated. Fields turned to dust, and the wind blew trillions of tons of topsoil away, never to be recovered. Hopeless, broke, vagabonds, traveled to California in hopes of getting work, and John Steinbeck’s novel “The Grapes of Wrath,” was written, to be filmed in dramatic black and white, with Henry Fonda as its star. People simply couldn’t afford to put gold coins in the dresser for future use or savings, as every dollar was important for very existence. Those who could afford to save their gold, I am certain did so. If everyone turned theirs in, there would be none for sale in numismatic coin shops today. If all were confiscated, there would be none for sale either.
By executive order, FDR reduced the value of the paper money by 69.5%, in terms of gold. Gold was, and still is, the metal which all values throughout history have been based, so hundreds of billions was stolen from holders of dollars, and there wasn’t a damned thing anyone could do about it. Did all of this help the depression? Not a bit. FDR then decided to do a lot of other things, which cost a bundle of debased dollars. Bureaucracy grew by leaps and bounds. Every alphabet soup, harebrained idea, He, his advisors, and Democrat Congress could concoct, was quickly placed into operation. It grew so outrageous, that the Supreme Court halted it. FDR then attempted to “pack” the Supreme Court with extra justices of his choosing, but that failed also. Most of the bureaucracy that survived, is still with us today, and costs hundreds of billions annually.
The banks which survived, proudly boasted about the FDIC insurance, which would prevent bank runs from ever happening again. Believe it or not, it has worked sort of. It has worked, because when the few banks which still go bust each year, apply for repayment for their depositors, it is paid. The FDIC has on deposit, for each $100 of “insurance,” about a nickel or less. This has worked so far, because bank failures aren’t that common, even though a few do go broke each year. If ever there were massive bank failures again, due to the same reasons of 70 years ago, the presses would run night and day to pay the depositors. By the time the smoke cleared, I am certain that due to the huge increase in the money supply, prices would have gone up 50%. Banks still loan depositor’s money, and if the loans went south, due to a stock market crash, housing crash, or massive depression with resulting layoffs, as in the thirties, massive bank failures could happen again. They probably will.
Banks used to be individually run, and rose and fell by their manager’s expertise and honesty. Gradually, banks decided that if one branch was good, more than one was better. It began with the big cities, when banks started new branches in the same city. Banks then decided to sell stock, and expand to other cities, using the stock sale proceeds to expand quickly. Still, the depression lingered, and nothing FDR was able to do, seemed to help. He spent like a madman, and started dozens of bureaucracies, which were supposed to ’light a fire’ under the economy. No fire resulted. The pressure of the depression was off the banks, because the FDIC didn’t start till the weak and poorly managed, were erased off the map. Bankers regained their prestige, built huge edifices, and operated at what became to be known as “bankers hours,” which were usually from 10AM to 3PM. Banks which failed, and their managers and presidents, were soon forgotten, and bankers became the new elite. They had federal insurance, usually many branches, and impressive buildings from which to work. More next week, but in the mean time, protect yourself!