Could the US sell its gold reserves after the August 2nd debt deadline?
Posted on 17 May 2011 with 19 comments from readers
The US Federal Reserve sits on the world’s largest gold reserve in Fort Knox, while the Treasury Secretary Tim Geithner has just announced that the US debt ceiling will finally be breached on August 2nd.
Why not sell off some of this gold to keep the US Government going? Gold is after all the safe haven asset that central banks have for a rainy day, and it will be raining pretty hard after August 2nd if the US Government runs out of money.
Plausible scenario?
This intriguing scenario was suggested to ArabianMoney by a subscriber to our popular newsletter (click here) which has been taking a big interest in silver and gold investments recently. People forget it was Arab money behind the Hunt brothers in the silver bubble of 1980.
Now what impact would it have on the gold market if the US Government sold a couple of hundred tons of the stuff? Extra supply would immediately depress the gold market but the Fed would easily find buyers among the other central banks of the world, happy to exchange a depreciating paper currency for something trusted through the ages.
Indeed, that is exactly why the Fed would not dare to do it. For while gold would fall in price, it would gain enormously in credibility as a medium of exchange, and so by proxy would silver as poor man’s gold.
Everybody would then want gold and nobody would want the US dollar. The bond market would tank as investors fled for precious metals and the dollar become worthless. In one mad gamble the Fed would have destroyed its own currency, and the next thing to go would be the Federal Reserve itself – it’s not the first central bank in US history.
Therefore while we appreciate the novel concept, the idea that the Fed might start selling off its gold to pay for US social security entitlements is most likely rubbish, or at least we hope so for the future of the United States.
Budget crisis
This does, however, highlight the seriousness of the impasse now reached in US politics with Republicans pushing for deeper cuts in public spending to cut the deficit and Democrats still speaking as though reality only exists for other people. It also means that any thought of a QE3 economic stimulus is out of the question because it could never get past Congress.
So what will happen after August 2nd? Presumably the country and its financial system will be taken to the edge by Congress and pulled back, although there is plenty of margin for error, and the fundamental problems will still remain. The largest debt in history cannot be voted away.
It’s a formula that will take gold and silver prices very much higher as soon as this autumn. We still have silver as our top pick for 2011 and see no reason to change this (click here).
19 Comments posted by readers:
If the US unloads some of its Gold and Silver reserves the prices will come crashing down and the Dollar will surge. The DOW will also surge on this news as debt levels will be down lol..
“It also means that any thought of a QE3 economic stimulus is out of the question because it could never get past Congress.”
I didn’t think the Fed answered to congress or to anybody else for that matter. Helicopter Ben can crank up his printing press whenever he likes without the permission of anyone.
sounds like bernanke’s worst nightmare.
i agree, can’t imagine they would do that.
would lift gold prices after news sunk in alittle.
The USA will only get rid of its’ gold in exchange for oil in a post peak oil supply collapse. Things like an invasion of the very sparsely populated Western Canada, to grab the tar sand region, would precede the USA sale of its’ huge gold reserve. Obviously, such an invasion would be illegal and immoral, and would only happen if the Canadians decided to sell their oil to China, instead of to the USA, but the USA may not have the same form of government after the coming peak oil crisis that I expect to strike between 2015 and 2022.
If you think it is far fetched, ask yourself if you would have thought 10 years ago, that the Fed and Treasury would take money from the taxpayer, and use it for a different reason that that which they said it would be used for, TARP. “Oh, we changed our mind. We’re giving it to the banksters who caused this entire mess.” Don’t believe me, watch David Faber’s ‘House of Cards’ or read Matt Taibbi’s ‘The Real Housewives of Wall Street’ or the MANY other bankster articles he has written for Rolling Stone. It is all there.
If it defaults on its’ debt, which I don’t expect, the USA might have another form of government a lot sooner that 2022. Even the Republican demigod, Ronald Reagan, warned of the great danger of not raising the debt ceiling in a timely manner, with the subsequent loss of trust in the US dollar.
Imagine what the price of gold will go to if the USA misses even one interest payment. $3,000? $5,000? Who knows?
I’m just glad that I bought a stockpile of chlordane before it was banned, to keep the Formosan termites at bay. They were another present from the Federal Government to New Orleans at the end of World War II. If they can find ANY water source inside a building, they can live there without having to live underground like good patriotic American termites. That, by itself, probably justifies a violent overthrow of the Government. And Canada has very few termites. Hummm.
This is a very interesting commentary, & interesting remarks (including Bill’s remarks about Louisiana termites!). One of the many unknowns here is how much gold is there in Ft. Knox, because the American public is not “allowed” to demand an independent audit and no real audit has been done since 1952. But wait, what is so magical about 2nd of August?
… The Debt Limit Has Already Been Breached!
For info, go here:
http://www.reuters.com/article/2011/05/16/us-usa-debt-idUSTRE74E1HD20110516
and here:
http://www.zerohedge.com/article/treasury-confirms-debt-ceiling-be-breached-today-will-tap-pension-funds
How Much is Really There?
For sure, we know that the government does not have the amount of gold that is claimed to be there, because many years ago, the FED leased hundreds of tons on a “permanent basis” to the big bullion banks and others (so that they could freely manipulate/suppress the price of gold!), and strangely, they paid very little for this permanent lease (as I recall, it was at a very low price of 1% “interest rate” per year).
If Mr. Timmy Geithner took that step, it would be a huge gamble; but whenever I see this man speak, I see a charlatan and a coward, so I strongly doubt that he has the &^lls to do that.
Ed., if other central banks would easily buy US gold after August 2nd, and if they would do this because they would be “happy to exchange a depreciating paper currency for something trusted through the ages”, why are central banks allowing gold to fall in price at the present time?
In other words, if they are not sufficiently happy to exchange a depreciating paper currency for g and s now, since the price of these is falling and that of silver markedly, why would they be happy to buy US gold later?
Leaving aside the argument that gold could be cheaper later on, since your point about central banks buying up US gold is not dependent on its price but on its availablity for purchase, how can we assume that the same central banks, who are not buying up the gold that is already in the market, would want to do so any more after August 2?
If they can’t relate a depreciating paper currency to something trusted through the ages in May, why should they suddenly do so in August?
Given the continuing price fall in both g and s, I am sceptical of reports that central banks are buying bullion or intend to do so soon. I am sceptical also because the reason given for the fall in price of g and s is because people are buying the dollar, which is, without any doubt, a depreciating paper currency over time.
Why they are buying up the dollar is beyond me in terms of medium to long term investment but since they are, why should central banks outside the US take an interest in US gold in the months to come?
Consequently, I feel reassured that they will either not buy US gold in large quantities or, if they do, then the scenario of damage to the US economy and bond markets, which you have described, will prevent the US from offering it for sale in the first place.
Still, why everybody would want gold then and not the dollar, when everybody seems to want the dollar now and not gold, puzzles me. The dollar is debasing now and presumably would be one reason why the US might consider sellling its gold after August 2. So, since the dollar is becoming worthless now, why don’t they buy gold now, when they will do so after August 2 on the grounds that it is becoming worthless.
Ed Note: The website is there to answer such questions!
@ Bill near Slidell
Have you ever been to Canada?
The current U.S. debt ceiling is $14 trillion, while its entire gold reserves is estimated at 9000 tones or $0.4 trillion at current prices. Even if they sell ALL their gold, it’s a measly 3% extension of their debt limit. Truly a bankrupt ‘nation’!! .
@roger.. So so true!! The U.S. will lead entire global economy to ruin!!
@aylin = > So so true!! The U.S. will lead entire global economy to ruin!!
No. Beg to differ. Hubris, lies, criminals in state office, easy corruption of entrenched fat cats, a corrupt finance sector, empire building, the bilderberger globalists, and the idea that world can be conquered, owned, managed, by a one world corporate clan, will lead the US to into three letter world condition that does not begin with ‘r’. After that, comes the ruin stage.
The idea of the power group who own the media thinking ‘we create reality’ will lead the US to ruin. And if it doesn’t, we have a bigger problem than even Eric Arthur Blair imagined.
2 cents
@ James M
Yes, I have been there a long time ago. It is a beautiful country full of industrious people. I might move there if it wasn’t so cold. I can remember about 40 or so years ago when the folks in the Western provinces were toying around with the idea of succeeding from the East and joining the USA, because they were tired of the rules and taxes coming out of Ottawa.
I don’t advocate any invasion of Canada. It would be a dumb move. But dictators do dumb things for their own reasons. Look at Hitler attacking Russia and trying to run the attack himself instead of listening to his brilliant commander (whose name escapes me right now). And I would be shocked if it ever happened, but it is not impossible to envision a scenario where it could happen, only because the USA now imports so much of the oil it uses, and because China has a real wealth surplus to pay for its’ oil imports. Soon that may no longer be the case for the USA, especially if we default on our debt.
It has been done a few times before this; fix the gold price and make it illegal to hold gold privately. Wht not? It has worked before and will again. Changing the paradigm is the facile way to solve the money problem,
Gotta chime in here once again.
@ Robert:
I strongly doubt that the US government would be so bold as to do such an egregious thing as FDR did in 1933 (i.e. gold confiscation). But I’m also not naive.
They will surely panic when the masses decide it’s time to own physical gold and silver, rather than the paper gold and silver that is peddled by the corrupt Wall St. banks (e.g. HSBC selling GLD and JPM selling SLV).
The government’s Most Likely Reaction:
“Tax the hell out of any and all gold sales! Make it very costly for folks to own it.” That’s what I think they’ll do . . . but then again, that action will create the unintended consequence of a new black market bartering system, where folks will buy and trade consumer goods as well as precious metals.
These corrupt governments . . . oh, what tangled webs they weave!
@ James M.:
“Hubris, lies, criminals in state office, easy corruption of entrenched fat cats, a corrupt finance sector, empire building, the bilderberger globalists, and the idea that world can be conquered, owned, managed, by a one world corporate clan … etc.”
Well said, my Canadian e-friend!
Be prepared for a world recession like we have never seen before, new ways of doing business and -maybe,if we are lucky- policies that put survival of human kind ahead of short term profits
IT’s nice to see that this commentary from May 2011 still has “life.”
@ 2pence:
I believe we’re already in a big recession that is in its infancy (US & Europe primarily). As for “policies that put survival of humanity ahead of profits”, I strongly doubt it. The Power Elite are not about to surrender their power, nor their quest for global one-world government; they will continue to push egregious and corrupt policies that serve no useful purpose except for the Power Elite themselves . . . James M. said it best, and it’s worthy of being quoted:
“Hubris, lies, criminals in state office, easy corruption of entrenched fat cats, a HIGHLY corrupt finance sector, continuous empire building, the bilderberger globalists (i.e. part of the Power Ellite, and the idea that world can be conquered, owned, managed, by a one world corporate clan, will lead the US to into three letter world condition that does not begin with ‘r’. “ The boldface above is mine!
i think us should open up its property markets.relax imigration rules and let capital and deserving visionary people enter us and help it to grow.there are many people in the world like me who have revolutionary ideas that can change the whole economy of the country given the opportunity…i believe that every problem can be tackled if thought of and worked towards in a planned and creative manner.the biggest achievers are those who think different are way ahead of their times and use their creativity and vision instead of following the herd. leaving things to a bunch of so called educated lot who cannot judge the pulse of the economy and who have no practical knowledge but just book knowledge will only magnify the problem of us instead of solving it.think think think……
a country like china is slowly gaining ground……becoming strong…how? it converts the sweat and effort of the people into tangible investments like gold……….on the other hand a country like us is becoming weak economically why? because the tangible assets of the people are being converted into elements that will reduce the sweat of the people…the scales will soon tip and the situation will be difficult to control….us currency will plummet given an alternative .not very soon but gradually over a very long period…..
selling of gold by us will therefore be a very stupid idea ..instead us can get people who own gold and who contribute to the economy into the country.if india can get foreign investments why cant us ??but the red tape and high and mighty attitude of us has to go .it has to be replaced with a selective soft stand accompanied by a world wide systematic search for people it thinks will be able to help us grow.
If the us has so much gold ,why did they pay china with fake gold.and got discovered when the chinese tested it