• Tag Archives Treasury Bonds
  • The Incredible Shrinking Relative Float Of Treasury Bonds

    Via Global Macro Monitor blog,
    Lots of hand wringing these days about the flattening yield curve. We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets. See here and here.
    Most of what is happening with the U. S. yield curve is technical. Sure, traders can get a wild hair up their arse, believing the economy is slowing and try and game duration by punting in the cash or futures markets. Given the small relative float of the U. S. Treasury bond market, however, it doesn’t take much buying to move yields. In the words of economists, the supply curve of outstanding Treasuries is very inelastic.
    This is illustrated in the following chart. The combined market cap of just Apple and Amazon at today’s close is larger than the entire the float of outstanding Treasury notes and bonds that mature from 2027-2027. We define float (US$1.16 trillion) as total Treasury securities (2027-2047) outstanding (US$1.73 trillion) less Fed holdings (US$575 billion).

    This post was published at Zero Hedge on Jun 23, 2017.


  • Bonds and Related Indicators (and more macro discussion)

    The target for TLT continues to be around 129. Treasury bonds are in bull trends (remember back a few months ago to all the bond hatred in the media). How does an eventual decline in bonds square with what we just noted above regarding Q4 2008? [work done in the preceding Precious Metals segment] Treasury bonds were a wonderfully bullish asset during Armageddon ’08 and who’s to say that an upside blow off may not be coming sooner rather than later amid massively over bullish sentiment? I mean, there is certainly no stop sign at our 129 target. Sentiment, as we are all too aware, can take a long while to manifest in pricing.

    This post was published at GoldSeek on Monday, 19 June 2017.


  • The Three Headed Debt Monster That’s Going to Ravage the Economy

    Mass Infusions of New Credit
    ‘The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.’ – John Steinbeck, The Grapes of Wrath
    Something strange and somewhat senseless happened this week. On Tuesday, the price of gold jumped over $13 per ounce. This, in itself, is nothing too remarkable. However, at precisely the same time gold was jumping, the yield on the 10-Year Treasury note was slip sliding down to 2.15 percent.
    In short, investors were simultaneously anticipating inflation and deflation. Naturally, this is a gross oversimplification. But it does make the point that something peculiar is going on with these markets.
    Clear thinking and simple logic won’t make heads or tails of things. For example, late Wednesday and then into Thursday the reverse happened. Gold gave back practically all $13 per ounce it had gained on Tuesday, while the yield on the 10-Year Treasury note climbed back up to 2.19 percent. What to make of it?
    With a little imagination one can conceive of where the money’s coming from to buy Treasury bonds. More than likely, it has something to do with central bank intervention into credit markets. Though, the Federal Reserve is not the only culprit.

    This post was published at Acting-Man on June 9, 2017.


  • Stocks, Bonds, Euro, and Gold Go Up – Precious Metals Supply and Demand

    Driven by Credit
    The jobs report was disappointing. The prices of gold, and even more so silver, took off. In three hours, they gained $18 and 39 cents. Before we try to read into the connection, it is worth pausing to consider how another market responded. We don’t often discuss the stock market (and we have not been calling for an imminent stock market collapse as many others have).
    The initial reaction in the US equities market (futures, as this was before the opening bell) was down. But it was muted, and then in a few hours turned around and the market ended even higher.
    Each stock represents a business. Presumably, if jobs growth was disappointing then this is bad for stocks on two grounds. One is that companies hire based on their revenue expectations. Slow or no hiring means slow or no revenue growth. The other is that people who aren’t hired don’t buy as much, and so there is a feedback loop into sluggish business revenue growth.
    However, the stock market disagreed. It said let’s cut the earnings yield a bit more, from 3.94% to 3.93%. This presumably means that earnings are set to take off (or it could mean that everyone from wage-earners who pour their surplus into the stock market to older speculators are not thinking about earnings yield).
    Not only did the stock market go up, so did the euro. As did US Treasury bonds. And, finally, gold and silver. What is the one thing that these all have in common?
    It is possible to borrow to buy these assets.
    We read this as a garden-variety day of credit expansion. Folks, this is how the monetary system is supposed to work, according to mainstream economic thought. Based on <insert story du jour>, people borrow to buy assets. This creates a wealth effect, as rising asset prices makes people (at least those who own those assets) feel richer. When they feel richer, they go out to eat more, buy more Rolexes and Porsches, and that employs everyone else. Or so their theory goes.
    Fundamental Developments
    Stock analysts have a wealth of material to study the fundamentals of public companies. We leave that work to them. We have a theory, model, and now a robust software platform to study and calculate the fundamentals of gold and silver.

    This post was published at Acting-Man on June 6, 2017.


  • A Look at the Silver/Gold Ratio, Inflation/Deflation and the Yield Curve

    An email from a reader (of the eLetter, I think) calling me out on trying to make too many correlations in a dysfunctional market (I think that was his bottom line point, and he’s got a good point) got me thinking about the Silver/Gold ratio and some pretty interesting post-2011 dysfunction (so it seems) in the markets.
    Markets that made sense in certain ways prior to 2011 no longer make sense in the same ways. For instance, the S&P 500 used to be correlated to the Silver/Gold ratio, which itself was positively correlated to inflation and/or inflationary economic growth. Gold also liked for silver to be leading it, not the other way around.
    But in 2011 a Goldilocks environment was rammed home by Ben Bernanke’s decree (in September of that year) that the Fed would ‘sanitize’ (his word for manipulate, coerce and completely screw up bond market signals that had been tried and true) inflation and its indicator signaling right out of the picture. The Fed’s ‘Operation Twist’ buying of long-term Treasury bonds and selling of short-term Treasury bonds forced a yield curve that had been out of control to the upside, downward. Brilliant!
    In 2017 it’s the gift that keeps on giving, from dear old Ben as the resultant yield curve downtrend has been relentless and it has been stock bulls that have benefited despite the 2015 disturbance that temporarily shook a lot of people out of stocks. To be sure, Goldilocks has not only been Fed-induced, but also has benefited from global deflationary forces that now appear to be resolving toward an inflation phase in many global regions (here we again note Kevin Muir’s sound thought process about Europe potentially doing the US monetary policy thing).

    This post was published at SilverSeek on May 12th, 2017.


  • TBAC(o) Road: Treasury Borrowing Advisory Committee Against Mnuchin’s ‘Ultra-long’ Treasury Bond Idea (Competing with Japan, France, Italy)

    This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.
    While Treasury Secretary Mnuchin has been pushing extending the maturity of US Treasury Bonds beyond their current longest maturity of 30 years, the Treasury Borrowing Advisory Committee (TBAC) issued a warning against issuing ‘ultra-long’ Treasury bonds.
    Lastly, the Committee commented on the demand for ultra-long debt, noting that the regular and predictable issuance policy should remain the central consideration to minimize Treasury’s funding cost over time. While an ultra-long is most likely to be demanded by those with longer-dated liabilities, the Committee does not see evidence of strong or sustainable demand for maturities beyond 30-years. The Committee recommended that further work be done to study these demand dynamics to get a better sense of where an ultra-long bond might price, which could be above or below the longest maturity debt issuance based on the pricing of domestic ultra-long derivatives, ultra-long bonds abroad, and theoretical models.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ May 3, 2017.


  • DOJ Probing Goldman For Rigging Treasury Auctions

    While we doubt anything material will emerge for various obvious reasons, the NY Post reports that the DOJ is probing Goldman Sachs for alleged Treasury auction rigging: the charge is that Goldman, one of the 23 US primary dealers, won almost all Treasury bond auctions from 2007 to about 2011 even after the Treasury department established safeguards to maintain competitiveness. The case is said to center on chats and emails showing Goldman traders sharing price information with traders at other banks:
    Chats and emails believed to show Goldman traders sharing sensitive price information with traders at other banks are at the center of the case, according to sources familiar with the investigation.
    ‘They didn’t lose many bids,’ one person who has seen the bid data told The Post. The prices Goldman offered for Treasury bonds ‘would be very close’ but just above offers from other banks, and typically arrived ‘at the end of the auction.’
    While not the first time we have had news of a DOJ probe into Treasury market rigging – the Post itself reported last March virtually the same story, namely that “Goldman Sachs probed in alleged Treasury rigging“, and prior that in June of 2015 – the details are new, and suggest that collusion between the banks reaches far beyond merely FX. Also notable is the deference to Goldman by other banks, raising questions what was the quid pro quo. The timing is also notable, coming at a time when at least half a dozen Goldman Sachs alumni are in high levels of the executive branch. Which is perhaps why Goldman feels compelled to clarify that “No one has accused any bank, or Mnuchin or Cohn, of any wrongdoing.”

    This post was published at Zero Hedge on May 3, 2017.


  • The Social Security Trust Fund Is Just a Stack of IOUs in a West Virginia Filing Cabinet

    The Social Security Trust Fund every retiree is relying on is not what most Americans believe it is.
    The brutal truth is this $2.85 trillion fund, which is supposed to keep the Social Security program solvent until the year 2033, has no money in it whatsoever.
    The entirety of the Social Security Trust Fund is held in ‘special obligation bonds,’ a type of government bond issued for a single purpose (in this case, the funding of Social Security benefits).
    In other words, this ‘fund’ is actually debt.
    And unlike marketable Treasury bonds, these special obligation bonds can’t be sold. They only have value if the U. S. government buys them back.
    They also differ from marketable Treasuries in that they exist in paper form. All of them are stored in two loose-leaf binders in a filing cabinet at the ‘Bureau of Public Debt’ in Parkersburg, W. Va.
    But what many people fail to realize is that what the paper bonds represent isn’t money that can be sent to Social Security beneficiaries, but debt owed by the U. S. government.
    President George W. Bush made that clear on a little-remembered visit to Parkersburg in April of 2005:
    ‘A lot of people in America think there’s a trust, in this sense – that we take your money through payroll taxes and then we hold it for you, and then when you retire, we give it back to you. But that’s not the way it works.

    This post was published at Wall Street Examiner on March 31, 2017.


  • Gold Prices 3% as Fed Rate Rise Lags Inflation, Dollar Falls, Greek Debt Deadlines Loom

    Gold prices rose further Thursday in London, gaining almost 3% in Dollar terms since the Federal Reserve raised US interest rates as expected yesterday, and also raised its forecast for interest-rate hikes ahead.
    Continuing to re-invest the central bank’s $4 trillion QE holdings of US Treasury bonds as they mature, the Fed’s Open Market Committee now sees its key rate ending 2017 no lower than 1.4% versus 1.1% at the December meeting.
    The Fed Funds rate will end 2018 between 2.1% and 2.9%, according to the FOMC’s March projections, higher from Dec’s range of 1.9% to 2.6%.
    “Inflation has increased in recent quarters,” said Fed chair Janet Yellen, announcing the clearly-telegraphed rise in rates to a ceiling of 1.00%.
    US headline inflation rose last month to a 5-year high of 2.7%.
    With the Dollar falling again on the FX market this morning, Asian and European stock markets also followed Wall Street’s strong gains after the Fed announcement, driving the MSCI World Index to new all-time highs.

    This post was published at FinancialSense on 03/16/2017.


  • Investing in Gold Stocks Will Offer 50.1% and 81.2% Returns

    Although prices have dipped 2.8% to $1,232 this month, investing in gold is still one of the best profit strategies this year. That’s because we expect gold prices to rise 13.6% to $1,400 by the end of 2017.
    You could buy some physical gold to take advantage of these gains, but there is a much better way to invest in gold and reap much larger returns. We’re talking about gold mining stocks, and we found two that could surge 50.1% and 81.2% by next March.
    Here’s why Money Morning Resource Specialist Peter Krauth says you should start investing in gold stocks in 2017…
    Why Investing in Gold Stocks Will Hand You Profits in 2017
    Krauth believes gold prices and gold stocks will rise this year thanks to one factor: rising inflation.
    Right now, the year-over-year inflation rate is at a five-year high of 2.5% as of January. This rate is going to continue upward as the stock market keeps hitting record-breaking highs and as yields on 10-year Treasury bonds increase.
    Inflation generally has an inverse relationship with a strong stock market. This means that a stock market rally causes the purchasing power of the U. S. dollar to plummet, which isn’t good for the overall economy.

    This post was published at Wall Street Examiner on March 16, 2017.


  • Ten Economic Ideas That Reduce Your Wealth

    Our country is beset by a large number of economic myths that distort public thinking on important problems and lead us to accept unsound and dangerous government policies. Here are ten of the most dangerous of these myths and an analysis of what is wrong with them.
    Myth #1
    Deficits are the cause of inflation; deficits have nothing to do with inflation.
    In recent decades we always have had federal deficits. The invariable response of the party out of power, whichever it may be, is to denounce those deficits as being the cause of our chronic inflation. And the invariable response of whatever party is in power has been to claim that deficits have nothing to do with inflation. Both opposing statements are myths.
    Deficits mean that the federal government is spending more than it is taking in taxes. Those deficits can be financed in two ways. If they are financed by selling Treasury bonds to the public, then the deficits are not inflationary. No new money is created; people and institutions simply draw down their bank deposits to pay for the bonds, and the Treasury spends that money. Money has simply been transferred from the public to the Treasury, and then the money is spent on other members of the public.
    On the other hand, the deficit may be financed by selling bonds to the banking system. If that occurs, the banks create new money by creating new bank deposits and using them to buy the bonds. The new money, in the form of bank deposits, is then spent by the Treasury, and thereby enters permanently into the spending stream of the economy, raising prices and causing inflation. By a complex process, the Federal Reserve enables the banks to create the new money by generating bank reserves of one-tenth that amount. Thus, if banks are to buy $100 billion of new bonds to finance the deficit, the Fed buys approximately $10 billion of old treasury bonds. This purchase increases bank reserves by $10 billion, allowing the banks to pyramid the creation of new bank deposits or money by ten times that amount. In short, the government and the banking system it controls in effect “print” new money to pay for the federal deficit.
    Thus, deficits are inflationary to the extent that they are financed by the banking system; they are not inflationary to the extent they are underwritten by the public.

    This post was published at Gary North on February 25, 2017.


  • Ten Great Economic Myths

    Our country is beset by a large number of economic myths that distort public thinking on important problems and lead us to accept unsound and dangerous government policies. Here are ten of the most dangerous of these myths and an analysis of what is wrong with them.
    Myth #1
    Deficits are the cause of inflation; deficits have nothing to do with inflation.
    In recent decades we always have had federal deficits. The invariable response of the party out of power, whichever it may be, is to denounce those deficits as being the cause of our chronic inflation. And the invariable response of whatever party is in power has been to claim that deficits have nothing to do with inflation. Both opposing statements are myths.
    Deficits mean that the federal government is spending more than it is taking in taxes. Those deficits can be financed in two ways. If they are financed by selling Treasury bonds to the public, then the deficits are not inflationary. No new money is created; people and institutions simply draw down their bank deposits to pay for the bonds, and the Treasury spends that money. Money has simply been transferred from the public to the Treasury, and then the money is spent on other members of the public.
    On the other hand, the deficit may be financed by selling bonds to the banking system. If that occurs, the banks create new money by creating new bank deposits and using them to buy the bonds. The new money, in the form of bank deposits, is then spent by the Treasury, and thereby enters permanently into the spending stream of the economy, raising prices and causing inflation. By a complex process, the Federal Reserve enables the banks to create the new money by generating bank reserves of one-tenth that amount. Thus, if banks are to buy $100 billion of new bonds to finance the deficit, the Fed buys approximately $10 billion of old treasury bonds. This purchase increases bank reserves by $10 billion, allowing the banks to pyramid the creation of new bank deposits or money by ten times that amount. In short, the government and the banking system it controls in effect “print” new money to pay for the federal deficit.

    This post was published at Ludwig von Mises Institute on Feb 22, 2017.


  • Dazed & Confused… Treasury Buying Versus Asset Valuations?

    I’m dazed & confused…economists and the consensus all acknowledge 2001 and 2007 were low interest rate, debt driven financial and economic bubbles. However, somehow today’s even lower interest rate environment resulting in an additional $9.5 trillion in equity valuation from the last bubble peak…this one is legit and isn’t a bubble???
    What I’m even more confused about is who, exactly, is buying all the Treasury debt while simultaneously buying all the equity’s (and real estate, and and and)? The chart below shows average monthly Treasury issuance over different periods and how much was purchased by the US domestic public (pensions, insurers, banks, institutional buyers, and private citizens). I’m astounded that somehow the domestic public is able to push equity prices up by over $16 trillion from there ’09 lows while simultaneously buying record quantities of Treasury debt. The TIC data (Treasury International Capital system) combined with Fed data and further Treasury data show the public is presently purchasing nearly $70 billion a month (average) of still near record low yielding debt?!? The only previous period that the domestic public bought even 2/3rds the present amount, asset valuations were in free fall from 2008 to 2010 as money rotated from risk to perceived safety.
    From 2009 through 2014, during Quantitative Easing, the Federal Reserve was buying up to $45 billion in Treasury debt on a monthly basis. During the 2014 QE taper, the Fed was reducing their monthly purchases until they ceased altogether at years end. The end of Fed buying via QE was the trigger for foreigners to do likewise and cease buying and begin net selling US Treasury debt.
    So, the Federal Reserve and foreigners have ceased buying and Intra-Governmental surplus have been muted by demographic and population shifts…that means nearly $70 billion a month domestically being spent on low yielding Treasury bonds instead of stocks, instead of corporate bonds, instead of RE or CRE. This should represent anti-QE or fiscal tightening. However, in the face of what essentially amounts to billions in monthly tightening of the money supply, assets (excluding commodities, the foundation of all economic activity) are ramping upward?!? Clearly, something else is happening.

    This post was published at Zero Hedge on Feb 22, 2017.


  • The Coming Crisis in Central Banking

    The question of when will central banks fail is a popular one that comes in. Suffice it to say, the turmoil will hit Europe first. While so many people blame the Fed for all sorts of things, you must realize that Roosevelt usurped the Fed during the Great Depression and imposed a single interest rate administered from Washington. It was during April 1942, when the Department of the Treasury requested the Federal Reserve formally to commit to maintaining a low interest-rate peg of 3/8% on short-term Treasury bills. The Fed also implicitly capped the rate on long-term Treasury bonds at 2.5%. This became the known as the ‘peg’ with the express goal to stabilize the securities market and allow the federal government to engage in cheaper debt financing of World War II, which the United States had entered in December 1941. Today, we have extraordinary low rates of interest that have funded government, but has wiped out the real bond markets insofar as being a viable market long-term. The World War II accord to maintain low rates was followed by a collapse in bonds after 1951 once the accord ended. We will see the same outcome moving forward.

    This post was published at Armstrong Economics on Feb 2, 2017.


  • US Financial Markets – Alarm Bells are Ringing

    A Shift in Expectations
    When discussing the outlook for so-called ‘risk assets’, i.e., mainly stocks and corporate bonds (particularly low-grade bonds) and their counterparts on the ‘safe haven’ end of the spectrum (such as gold and government bonds with strong ratings), one has to consider different time frames and the indicators applicable to these time frames. Since Donald Trump’s election victory, there have been sizable moves in stocks, gold and treasury bonds, as the election result has strongly boosted certain market expectations.
    The chart below compares three of the associated ETFs, namely SPY, TLT and GLD:

    This post was published at Acting-Man on January 18, 2017.


  • 7 Federal Reserve Tools and Why They’re All Flawed

    In recent decades, the Fed has engaged in a series of policy interventions and market manipulations that have paradoxically left it more powerful even as those interventions left a trail of crashes, collapses and calamities.
    The following is a survey of seven Federal Reserve tools in the Fed toolkit to stimulate the economy if recession or deflation gains the upper hand and why their toolkit is flawed.
    Helicopter Money
    The image of the Fed printing paper money, and dumping it from helicopters to consumers waiting below who scoop it up and start spending is a popular, but not very informative way to describe helicopter money. In reality, helicopter money is the coordination of fiscal policy and monetary policy in a way designed to provide stimulus to a weak economy and to fight deflation.
    Helicopter money starts with larger deficits caused by higher government spending. This spending is considered to have a multiplier effect. For each dollar of spending, perhaps $1.50 of additional GDP is created since the recipients of the government spending turn around and spend that same money on additional goods and services. The U. S. Treasury finances these larger deficits by borrowing the money in the government bond market.
    Normally this added borrowing might raise interest rates. The economic drag from higher rates could cancel out the stimulus of higher spending and render the entire program pointless.
    This is where the Fed steps in. The Fed can buy the additional debt from the Treasury with freshly printed money. The Fed also promises to hold these newly purchased Treasury bonds on its balance sheet until maturity.

    This post was published at Wall Street Examiner on January 16, 2017.


  • Think Your Pension Is Safe? Think Again!

    This is a syndicated repost courtesy of The Daily Reckoning. To view original, click here. Reposted with permission.
    Pension funds take money set aside for retirement and invest that money into safe securities. The goal is to grow that money so there is enough capital to pay retirees down the road.
    These pensions must protect their capital, because losing money for their retirees would be disastrous. But they also must grow their investments. Otherwise, there won’t be enough money to pay employees when they retire.
    In the past, these funds could buy safe investments like Treasury bonds or highly rated corporate bonds. The yields on these safe securities would help the pension funds grow their accounts just enough to be able to pay retirees.
    But all of that changed since the Fed has lowered interest rates and kept them near zero for the better part of a decade. Yes, the Fed raised rates last month. But they’re still hovering just above zero.

    This post was published at Wall Street Examiner by Zach Scheidt ‘ January 5, 2017.


  • Global Recession and Other Visions for 2017

    Conjuring Up Visions
    Today’s a day for considering new hopes, new dreams, and new hallucinations. The New Year is here, after all. Now is the time to turn over a new leaf and start afresh. Naturally, 2017 will be the year you get exactly what’s coming to you. Both good and bad. But what else will happen?
    Here we begin by closing our eyes and slowing our breath. We let our mind role back into the gray matter of our brain. We wait patiently for new neurological connections to open up. Then, ever so subtly, visions of the year ahead come into focus.
    Will stocks go up or down? What about gold and Treasury bonds? Will the economy expand or contract? Are we fated for World War III? Who will win the Super Bowl? These are the questions – and more – we intend to answer.

    This post was published at Acting-Man on December 31, 2016.


  • 2016: A Year for Contrarians; 2017 Shaping Up That Way as Well

    2016 was the year I finally decided to codify my niche as a psychology-focused market contrarian, putting the Alice, Red Queen and Rabbit components of NFTRH’s logo right there on my inner forearm, forever.
    This is because I love the imagery and themes of NFTRH’s guiding metaphorical story, Alice in Wonderland, and because the weird technical tools I use are generally in service to one thing; being right when the herds are going the wrong way. The concept originally came to me as the markets were beginning their descent into the crash of 2008 as the newly launched market management service needed a view that was apart from the emotional herds then preparing to go down the drain. Alice’s quote (Lewis Carroll), a portion of which occupies my other inner forearm was perfect in this regard…
    ‘If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?’
    2016 was a year that fit NFTRH’s niche to a tee and it is no coincidence that it has been a good one, performance wise (though in full disclosure, the last couple of weeks have taken a chunk of profits back as I give the markets some leeway through the ‘Santa’ seasonal). Let’s take a stroll through 2016 before taking a brief look ahead to 2017.
    The year started with the topping pattern (that wasn’t, or isn’t yet) in the S&P 500. For all the world it looked like a top, walked like a top and quacked like a top. But it wasn’t a top! That was proven when SPX rebounded from its lower low to the 2014 and 2015 lows and then rose to cross the 20 and 50 week exponential moving averages back up again. This was similar to the 2011 whipsaw, but on a grander scale. Now of course, the would-be topping pattern may be a left shoulder to a bearish Head & Shoulders pattern in construction. But even if so, the ultimate high could be well higher (ref. the 1998-2000 situation). As of now, the market is bullish. Period.
    But considering that Casino Patrons are momo’ing the market and dumb money is strongly over bullish, and the market is over valued (one important valuation metric being the greater interest being paid on ‘risk free’ Treasury bonds vs. the S&P 500) as the media TRUMPets a new promotion; namely bond-eroding inflation as far as the eye can see due to coming fiscal policy changes. The Treasury bond bull market is DEAD trumpet the mainstream financial media. Well, for another view, let’s compare what the public was doing last summer during the NIRP! hysteria vs. today.

    This post was published at GoldSeek on 28 December 2016.


  • Clarification on India’s Gold Confiscation

    To make it clear, India is not going door to door to confiscate gold any more than FDR did. The reason so many $20 gold coins have survived is because there was no door to door confiscation. Banks and corporations who had records of gold were forced to turn their gold over and then FDR superseded all contracts overriding what was known as the ‘gold clause’ in contracts. In 1935, the Supreme Court heard constitutional challenges to the abrogation of gold clauses in contracts and Treasury bonds. Gold clauses guaranteed that creditors would receive payment in gold dollars as valued at the time a contract was made. Due to the deflation that followed the Great Depression, this meant that debtors were forced to pay back much more than they owed originally in purchasing power.

    This post was published at Armstrong Economics on Dec 23, 2016.