12.8.11

TAKE YOUR PROFITS.  I remember just enough macroeconomics to be dangerous, but evidently one thing that has not changed since I studied income accounting is the absence of a balance sheet for the United States.  One of the assets on the balance sheet is the gold reserve, which by law is carried on the books at $42.2222 the troy ounce although its market value is somewhat larger.  There's not enough gold in Fort Knox, even marked to market, to have much effect on the federal deficit or the national debt.  One analyst argues, accordingly, that the Treasury not cash in some capital gains.
Re-valued at today’s price of around $1,670, a sale of the US Treasury’s gold would only bring in around $430 billion. Again, in light of debt of $14 trillion, this would be a mere drop in the ocean. If the Treasury wants to pay of a significant amount of its debt with gold, the dollar must lose much more value relative to gold.

If the US government simply wants to pay for just the last half of the 2011 budget, the US Treasury would have to sell all of its gold at a re-valued amount at $3,155 per ounce just to make it to 2012.
Another analysis suggests that a harvest of capital gains might concentrate a few minds.
Even an orderly selling of the Treasury's gold could potentially devalue the commodity significantly, perhaps by as much as 50% of the reserves' current market value. This would result in about $220 billion in pure profit, or approximately 1.5% of the US' total debt burden, and proceeds of up to $400 billion, if done quietly. That cash could be used to provide working capital for the federal government as we work through our debt problems. This would also provide an impetus for many speculators to move from gold into other asset classes with tangible underpinnings, such as equities and bonds, thus helping boost investing nationwide.

Additionally, if markets actually relied on the value of these gold reserves on central bank balance sheets worldwide (note the 1934 Gold Reserve Act that essentially creates a paper exchange between the Fed and the Treasury, whereby the gold is now technically owned by the Treasury, but with its value accessible to the Fed), then the debt problems in Europe right now would be more easily rectifiable: Portugal owns approximately $20 billion in reserves and Italy owns around $118 billion. The magnitude of the European debt crisis seems a little less significant in light of this fact ... especially since one of the primary drivers behind central banks' possessing reserve assets is to stave off exchange rate manipulation.
The problem with precious metal assets is that they pay no interest and produce no income. There are other assets on the national government's books, including the air traffic control system, the interstate highways, and the national parks ... what income streams do those produce?

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