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Since I began writing about hyperinflation and depression, people have been telling me that during the Great Depression the federal government forced people to open their bank safe deposit boxes so the government could see if there was any gold there and confiscate it.
I don’t believe it. I think it’s an urban myth.
I read a bunch of books about the Great Depression. One—The Great Depression: A Diary by Benjamin Roth—says people took money out of their bank account in the form of cash and put it into their safe deposit box at the same bank. They trusted the box, but not the account. In the box, the bank could not lend it out. No other book that I read mentioned safe deposit boxes. During deflation, which is what the Great Depression was, cash in a safe deposit box earns a positive real return. It earns no interest but its purchasing power grows and tax free.
Seems to me that if the federal government systematically forced people to open their safe deposit boxes it would have been mentioned somewhere in a reliable source.
On April 5, 1933, about a month after he was inaugurated, by Executive Order 6102, President Franklin Roosevelt outlawed possession of circulating gold coins, gold bullion, or gold certificates. The order directed all U.S. residents to turn in such gold to the nearest Federal Reserve Bank by May 1, 1933. Failure to comply with this order was a criminal, not civil, offense carrying a prison sentence of up to ten years and or a fine of $10,000 ($168,000 in 2010 dollars). The gold was not confiscated as is often alleged. Rather, the government ordered residents to sell it to them for $20.67 an ounce which was below market. So they did steal the difference between $20.67 and the market price.
Was that law unconstitutional? Absolutely. But the U.S. Supreme Court said otherwise, probably because they were afraid of FDR’s popularity.
Can the U.S. government force a citizen to open their safe deposit box? As I understand the law, they can under certain extremely narrow circumstances.
Here is the Fourth Amendment to the U.S. Constitution:
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
In other words, the federal government can force you to open your safe deposit box in front of them if they have a warrant from a federal judge. To get that warrant, they have to show probable cause that you have broken a law.
A guy at my Freedom Fest speech on 7/10/10 in Las Vegas said his grandmother was forced to open her safe deposit box in front of a federal official during the Depression.
First, he had no written proof of that as far as I know. He did not look old enough to have been alive at the time. So his statement was what a court would call hearsay, perhaps double hearsay. That is, he heard he story from his mother or father, not from the grandmother.
Hearsay is generally not admissible in court as evidence. There are exceptions to the hearsay rule, but none would apply to this situation.
Also, as a journalist, I would not rely on a guy saying he heard his grandmother had to do something before he was born. My grandfather told me directly that he was from Leipzig, Germany. He died in the early 1960s. In 2009, we saw the 1930 census. In it he told the census taker that he was born in Budapest. Furthermore, his name was Franz Szemancsak, which is not German. In other words, for some reason, he lied to me about being German. So being told something by your grandparent is not persuasive evidence.
Here is a possible scenario in which the Freedom Fest audience member could have been right.
His grandmother deliberately violated Executive Order 6102—and publicly bragged about it. A person who heard the brag ratted her out. The federal authorities got the rat to sign an affidavit in front of a notary public and used it as probable cause to get a search warrant from a federal judge. Then they executed the search warrant by forcing the grandmother to open the box in their presence. They could also legally get the box opened without the grandmother’s knowledge or presence although that would require destroying the box door.
Forcing the grandmother to open the box pursuant to a valid search warrant signed by a federal judge would violate neither the law nor the constitution nor even any sense of morality or fairness—setting aside that the U.S. Supreme Court was wrong to decide that Executive Order 6102 was constitutional.
The fact that your safe deposit box is a very good place to keep your property is only a minor issue in my book How to Protect Your Life Savings from Hyperinflation & Depression. But there are a number of more important issues regarding hyperinflation, inflation, and deflation—like whether gold is worth a damn as an inflation hedge (it’s not)—that seem to engender similar anti-government paranoia.
That famous phrase is a crude but roughly accurate statement of physical property laws. It’s nice to have the legal right to get some property, but it’s even better to already have the property and also to have the legal right to possess it.
In theory, he who has legal right gets the property. As a practical matter, not having possession discourages many legal actions from even starting. And those that are started often fail for various legal and practical reasons like finding the property, laches, and so on.
Given the desirability of possession, keeping your property in your safe deposit box or home is wise. The financial world is full of cases of people letting someone else hold their property, especially commodities including gold, and belatedly discovering that the custodian stole the property or faked possessing it or simply lied about having it. Whichever version applies, the investor lost all his money.
So many experts advise confirming the purity and weight of the asset in question then taking possession of it and storing it in a safe deposit box. I agree with them.
My book How to Protect Your Life Savings from Hyperinflation & Depression says it is generally a bad idea to trust institutions like government, banks, insurance companies, stock exchanges, and so on. Those with good reputations can be trusted in normal times. Your fire insurance company will almost certainly pay your claim if your house burns down. But hyperinflation and depression are uninsurable risks because if anyone has a “claim,” everyone does. And when everyone simultaneously has a claim, the claims will not be paid because the total amount due is too great. Hyperinflation and depression are nationwide phenomena. In the case of the U.S., they are probably also worldwide. That is, if the U.S. suffers hyperinflation or depression, the rest of the developed world probably will have some facsimile thereof at the same time.
During the Great Depression, there were many runs on many banks. FDIC insurance ended those, but the undeniable fact is that there was no hyperinflation during the Great Depression. If there was, there would have been a total run on every account in every bank in America at the same time. Think about it. During hyperinflation the dollars in your bank account are losing purchasing power in the range of double-digit percentages per month. Obviously, everyone will take their money out immediately so they can spend it before it becomes worthless.
FDIC does not cover hyperinflation. FDIC would pay the depositors the amount of their deposits initially,if the bank could not, but then they, too would run out of money. Indeed, as I write this, the FDIC already has less money than it is required by law to have on hand. They have a $100 billion line of credit from the Treasury but the U.S. Treasury has no money.They would have to sell even more bonds to get any money to use to bail out the FDIC. Fundamentally,very few institutions can keep their promises throughout hyperinflation or depression. So you cannot rely on them. That’s why having as much of your net worth as possible in your safe deposit box and/or home makes sense.
The government can search your safe deposit box and your home if they can get a warrant and they can get a warrant if they can show probable cause to the judge. To do that, they must convince a judge that you probably broke the law.
If you have not, you have nothing to fear from showing a federal official your safe deposit box contents. And if you refrain from publicly bragging about breaking the law, even a law-breaker can probably avoid federal search of his safe deposit box.
The notion that federal officials can force you to show the contents of your safe deposit box just by flashing a badge appears to be urban myth. They need a warrant and they need probable cause to get that.
Also, exactly what action are the persons who allege that federal officials forced people to open their safe deposit boxes advocating? Keeping valuables in your home?
That would subject them to risks like burglary, robbery, and fire.
Are they urging you never to take possession of valuables you buy—to let various custodians hold them in their possession? That strikes me as subjecting them to risks like malfeasance, misfeasance, fraud as well as fire and burglary. Furthermore, institutions and custodians of that nature would be the first targets of the federal government in a financial crisis where the government was desperately grasping for new tax revenue.
So what is the point of various people somberly warning that the federal government will force people to open their safe deposit boxes in front of feds?
Until there is some logical action plan that arises out of this terrible behavior of the feds, why even talk about it? Is it really anything other than pointless whining?
And I still would like to see some evidence that this safe deposit box opening at gun point actually happened other than in probable-cause warrant searches. If it happened, it ought to be documented in books, periodical articles, and/or court papers. Until I am told where to find such proof, I will continue to dismiss these stories as urban myths popular with gold bugs and conspiracy theorists.
Here is a Wikipedia article about what they call the “Safe deposit box seizure myth” and a “folk rumor”: http://en.wikipedia.org/wiki/Executive_Order_6102#Safe_deposit_box_seizure_myth
The other stuff I found on line when I tried to research this was generally knowledgeable people, like lawyers, saying what I said above, and others saying vaguely they “heard” the myth was true.
Show me the reliable proof. If you cannot, I suggest that you stop embarrassing yourself by repeating this silliness.