ML-Implode News - Selling Gold at Fort Knox Emerges as Next Big Question in Debate on Federal Debt Limit

Dr. Paul told the Sun today that he reckoned the sale of gold reserves would be "a good and moral decision. An individual would have to do the same." The sentiment is echoed by another big name in the debate on monetary reform, Edwin Vieira Jr., who told the Sun he has little hope of the government moving to sound money and would prefer that it coin its gold holdings in pieces marked with their weight and use them to pay off debts, particularly individuals -- who might be owed, say, tax refunds.

Mr. Vieira is a proponent of what he calls the "absolute separation between currency and debt." He considers specified weights of gold and silver as the only constitutional currency. "Redeemable currency," he says, "is an oxymoron." And given that America is in an era of fiat money with no plans on the government's part to mount a reform, he says of the government: "They don't need the gold. They've just been sitting on it since Roosevelt stole it."

This is very interesting -- astute observers may note that Rep. Paul is doing something very shrewd here. Note that he is also sponsoring legislation to audit the US's gold reserves. My guess is Paul thinks that not all the gold is there. Then pushing to sell it is essentially calling the federal government's bluff.

On the other hand, if the gold is there, there is really no practical way to "sell" it in bulk or any otherwise budgetarily-useful quantity. Basically all we can do is hand it over to the Chinese and/or Arabs in return for cancellation of debt. This would end up turning into an interesting opportunity to do a "market price discovery" of the dollar relative to gold, which is probably the last thing the US authorities want to see. Not to mention, handing it over to our creditors is likely to prove politically unpalatable.

In other words: pushing this issue leads to the rapid destruction of the dollar; either due to the revelation that we have no gold "backing" it, or in the process of discovering how much of it our creditors want in exchange for all of their trillions of Treasury bonds. Go Ron!

And no, selling the gold off gradually on the open market (if it is there, that is) isn't a possibility -- it wouldn't raise enough money to make a dent in the deficit, plus every ounce of gold sold would be counter-acted by the shrinking of the dollar's implicit gold "backing". So a "slow sale" wouldn't solve either of the government's big twin monetary problems.

Relevant:

Selling Gold at Fort Knox Emerges as Next Big Question in Debate on Federal Debt Limit