A fascinating area of constitutional law deals with presidential authority during declared “national emergencies” and “time of war.” During wars, financial crises, or both, the relationships among the President of the United States, the Congress, the courts, and the public can be altered significantly.
Extraordinary presidential emergency powers raise fundamental questions about how free our financial markets really are, how secure your assets really are, and the meaning of the rule of law. This isn’t just an academic matter of history, in light of some recent words from President Barack Obama.
In late 2011, as the European financial crisis was flaring anew (and as MF Global was swirling down the toilet, threatening a lot of big financial players), President Obama referred to Congressional opponents of his half-trillion dollar jobs bill, saying, “I get fed up with that kind of game plan. We’re in a national emergency.”
When presidents use the “national emergency” words, they are using words opening doors into the use of extraordinary powers. Your money is then at risk in two ways – directly, and indirectly, through bailouts on the public purse. Obama’s use of the “national emergency” phrase during an intensifying time of trial for financial markets may have been just a coincidence but a coincidence worth noting in that extraordinary emergency authority can make bailouts easier.
Franklin Delano Roosevelt was inaugurated for his first presidential term on March 4, 1933. At the time, the Great Depression was intensifying, and widespread bank runs were underway. Some governors had already declared bank “holidays” in their states.
Two days after he was inaugurated, asserting that heavy withdrawals of gold and currency from banks had created a national emergency, FDR issued a proclamation declaring a nationwide bank holiday. Basically, he closed all the banks in America. For legal justification, he cited statute dating to the Trading With the Enemy Act of 1917. Penalties for violating his order included jail terms up to 10 years long.
FDR’s proclamation seemingly rested on a thin legal reed. Prior president Herbert Hoover and his advisors had considered the TWEA as a tool for closing the banks. But they believed the wartime statute meant what it said and did not apply during a peacetime financial crisis. When push comes to shove, though, what matters is power, not law. FDR asserted the authority, and Congress and the court system sanctioned it.
On April 5, 1933, FDR issued Executive Order 6102. Citing the “existing national emergency in banking,” FDR directed citizens to deliver their gold and gold certificates to the Federal Reserve, with violations punishable by fines and jail terms up to 10 years long. FDR again cited the TWEA for legal justification. In March, the Federal Reserve Board had already directed the Reserve Banks to prepare lists of people who had withdrawn gold or gold certificates from banks, a useful tool in tracking people down for what was to follow.
In late April, Congress passed Title III of the Agricultural Adjustment Act of 1933. This law authorized the President to re-price the pre-1933 gold standard. The Gold Reserve Act arrived in January 1934. The day after the Gold Reserve Act was passed, and after most citizens had turned in their gold, FDR issued a proclamation arbitrarily raising the official dollar price of gold from $20.67 to $35 per ounce. Citizens who had turned in their gold now had dollars whose value fell 40 percent (in terms of gold) as a result of this decision.
We’ve recently been through the worst financial crisis since the Great Depression, a crisis in the middle of an open-ended “war on terror.” Central authority over individual finances and gold ownership is a reality in light of history, current law, and a recent hint from President Obama.
Consider the bald language of 12 U.S.C. 95a, our current inheritance from the Trading With the Enemy Act of 1917. The first sentences are on the books as follows:
(1) During the time of war, the President may, through any agency that he may designate, and under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise—
(A) investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payments between, by, through, or to any banking institution, and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities, and …
This sweeping, broad language suggests that in financial markets, in “time of war,” the president may effectively do whatever he or she wants. These powers might be used productively, of course, and in a public-spirited way. But special interest group forces and corruption don’t go away during a crisis. They can actually gather in intensity.
Here’s another recent example. In late 2010, the Senate held a recess hearing on legislation that would have transformed private retirement accounts into government-managed “Guaranteed Retirement Accounts.” Summarizing, an October 2010 op-ed on the matter by Mark Hemingway in the Washington Examiner was headlined “Unions Target Your Private Retirement Savings.”
That bill was defeated, but the underlying intent hasn’t gone away. And past as well as recent experience suggests presidents can do extraordinary things on their own absent effective Constitutional checks and balances to the contrary.
William Bergman ([email protected]) is an economist who writes from Chicago.