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By Root 811 0

a buying panic to match the selling panic on the side of paper assets. The price of gold has now doubled overnight. One by one officials close the Asian and European stock exchanges to give markets a chance to cool down and to give investors time to reconsider valuations. But the effect is the opposite of the one intended. Investors conclude that exchanges may never reopen and that their stock holdings have effectively been converted into illiquid private equity. Certain banks close their doors and some large hedge funds suspend redemptions. Many accounts cannot meet margin calls and are closed out by their brokers, but this merely shifts the bad assets to the brokers’ accounts and some now face their own insolvencies. As the panic courses through Europe for the second day, all eyes slowly turn to the White House. A dollar collapse is tantamount to a loss of faith in the United States itself. The Fed and the Treasury have been overwhelmed and now only the president of the United States can restore confidence.

Military jargon is peppered with expressions like “nuclear option” and “doomsday machine” and other similar expressions used both literally and figuratively. In international finance, the president has a little-known nuclear option of immense power. This option is called the International Emergency Economic Powers Act of 1977, known as IEEPA, passed during the Carter administration as an updated version of the 1917 Trading with the Enemy Act. President Franklin Roosevelt had used the Trading with the Enemy Act to close banks and confiscate gold in 1933. Now a new president, faced with a crisis of comparable magnitude, would use the new version of that statute to take equally extreme measures.

The use of IEEPA is subject to two preconditions. There must be a threat to the national security or the economy of the United States, and the threat must originate from abroad. There is some after-the-fact notification to Congress, but in general the president possesses near dictatorial powers to respond to a national emergency. The circumstances now unfolding meet the conditions of IEEPA. The president meets with his economic and national security advisers and speechwriters to prepare the most dramatic economic address since the Nixon Shock of 1971. At 6:00 p.m. New York time on day two of the global dollar panic, the president gives a live address to an anxious world audience and issues an executive order consisting of the following actions, all effective immediately:

• The president will appoint a bipartisan commission consisting of seasoned veterans of capital markets and “eminent economists” to study the panic and make suitable recommendations for reform within thirty days.

• All private and foreign-owned gold held in custody at the Federal Reserve Bank of New York or depositories such as the HSBC and Scotiabank vaults in New York will be converted to the ownership of the U.S. Treasury and transferred to the U.S. gold depository at West Point. Former owners will receive suitable compensation, to be determined at a later time.

• All transfers of foreign holdings of U.S. Treasury obligations held in electronic book entry form in the system maintained by the Federal Reserve will be suspended immediately. Holders will receive interest and principal as agreed but no sales or transfers will be allowed.

• All financial institutions will record U.S. Treasury obligations on their books at par value and such securities will be held to maturity.

• Financial institutions and the Federal Reserve will coordinate efforts to purchase all new issuance of U.S. Treasury obligations in order to continue the smooth financing of U.S. deficits and the refinancing or redemption of any outstanding obligations.

• Stock exchanges will close immediately and remain closed until further notice.

• All exports of gold from the United States are prohibited.

This interim plan would stop the immediate crash in the Treasury bond market by freezing most holders in place and mandating future purchases by the banks. It would not offer