Gold Repricing of 1933 Was Just A Debt Default

About a week ago, we wrote about two new IMF papers who discuss a savings tax. The topic and the idea is gaining traction after the IMF described the effect of a one-time 10% tax on all savings recently.

In one of the latest two papers, Bron Suchecki brought up another interesting point from the paper. On his personal blog, he extracted a quote from the paper which proves that the repricing of gold in 1933 was nothing more than a debt default. An interesting view which has been underexposed.

“… the United States had already defaulted on its sovereign debt in April 1933 to domestic and external creditors alike. The abrogation of the gold clause in conjunction with a subsequent 40 percent reduction in the gold content of the U.S. dollar (January 1934) also amounted to a debt haircut amounting to about 16 percent of GDP.”
Bron Suchecki writes:
Nice to see mainstream economists calling a spade a spade and a handy link to use next time someone says the US never defaulted on its debt.
The rest of the paper is a depressing read, with Reinhart and Rogoff concluding that a “mix of austerity, forbearance and growth” will not get advanced economies out of their debt overhangs and that they will have to “resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression.”
While this is all stuff gold followers are aware of, it is the continued appearance of this financial repression narrative and related bail in and other talk in mainstream circles that I think is more important. As it becomes accepted wisdom that this the path we are on, then we will see money move into gold. However, while the mainstream continue to believe that we don’t have a big debt overhang and with a bit of taper here and there it will all end up peachy pie, we are going to see gold languish.

This forced repricing has been discussed extensively by Jim Rickards in the last few years. He expects the government to be forced to return to a form of gold standard and, by doing so, reprice gold. His latest expectations, as described in his newest book to be published soon, are gold going to $9,000 in that process.

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