The “weird gold trick” to fund the government…
What kind of a “relic” is this?...
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Dear Reader,
The United States government confronts partial closure at midnight this evening, in the absence of a bipartisan accord.
“Non-essential” government services will not receive funding.
Yet could the federal government hand itself an immediate $990 billion windfall… to keep it in funds for a good stretch?
The answer is yes — it is possible. And it centers upon what Freedom Financial News contributor Jim Rickards labels the “weird gold trick.”
What weird gold trick?
I have described it before under similar conditions. Today I describe it again.
Why Is the Government Gold Only $42.22?
The United States government holds in its possession over 8,000 tons of gold.
By statute, that gold is valued at $42.22 the ounce.
This value was established in 1973… when old Dick Nixon scissored the dollar’s final tethers to gold.
Yet gold presently fetches roughly $3,860 the ounce — some 91 times the statutory price.
What if United States government gold was revalued to present prices?
It would have a lovely windfall on its hands, fanned into existence at a pen’s stroke.
It would not require the issuance of fresh debt.
$990 Billion Out of Thin Air
How would the transaction function? Mr. Rickards:
One phone call from the Treasury to the Federal Reserve could reprice the Treasury’s gold from $42.22 per ounce (historic cost) to a market level of [around $3,860] per ounce (today’s price).
That would pull about [$990 billion] of new spending power out of thin air — without issuing any debt. This was actually done by the Eisenhower administration in the 1950s…
I call it the weird gold trick, and it’s never seen discussed anywhere outside of some very technical academic circles.
It may sound weird, but it actually works.
Gold and the Fifth Amendment
Please, Mr. Rickards, elaborate. How would the weird gold trick work?
When the Treasury took control of all the nation’s gold during the Depression under the Gold Reserve Act of 1934, it also took control of the Federal Reserve’s gold.
But we have a Fifth Amendment in this country that says the government can’t just seize private property without just compensation. And despite its name, the Federal Reserve is not technically a government institution.
So the Treasury gave the Federal Reserve a gold certificate as compensation under the Fifth Amendment (to this day, that gold certificate is still on the Fed’s balance sheet).
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This gold certificate is the chestnut behind the transaction:
Right now, the Fed’s gold certificate values gold at $42.22 an ounce. That’s obviously not anywhere near the market price of gold, which, again, is about $3,860 an ounce.
Now, the Treasury could issue the Fed a new gold certificate valuing the 8,000 tons of Treasury gold at $3,860 an ounce. They could take today’s market price of $3,860, subtract the official $42.22 price and multiply the difference by 8,000 tons.
I’ve done the math, and that number approaches [$990] billion.
In other words,the Treasury could issue the Fed a gold certificate for the 8,000 tons in Fort Knox at $3,9860 an ounce and tell the Fed, “Give us the difference over $42 an ounce.”
The Treasury would have about $990 billion out of thin air with no debt. It would not add to the debt because the Treasury already has the gold. It’s just taking an asset and marking it to market.
It’s not a fantasy. It was done twice. It was done in 1934 and it was done again in 1953 by the Eisenhower administration. It could be done again. It doesn’t require legislation.
QE Without the QE
The gentlemen and ladies of Zero Hedge style it as:
A QE-like operation, one which sees the Fed quietly funnel almost $990 billion in cash to the Treasury... but without actually doing a thing!
On net, a gold re-marking would increase the size of both Treasury & Fed balance sheets… Meanwhile, the Fed and Treasury magically conjure some $990 billion out of thin air to be spent on whatever, all because the Treasury agrees that the fair value of gold is... the fair value of gold.
Again, this “weird gold truck” could keep the United States government up and doing — for a spell at least.
Not an extended spell given its extravagant profligacy.
Yet perhaps an adequate spell to keep the show running until Congress can sink its internal differences… and strike a “deal.”
Never Has a “Relic” Been More Useful
I do not predict that the United States government will perform the weird gold trick here described.
In every likelihood, it will not.
I merely present the possibility.
I depart with a question.
Gold’s critics label it an obsolete and barbarous relic.
They file it into the same category as Model T’s, monocles, tophats and spats.
Yet in recent years central banks have been collaring gold at prodigious rates.
And so my question is:
What obsolete, barbarous relic has ever commanded so much authority?
I refer you to the 1912 argument of John Pierpont Morgan:
“Gold is money. Everything else is credit.”
And central banks know it.
Regards,
Brian Maher
for Freedom Financial News
P.S. One book can’t make you rich. We all know that.
And I’m not necessarily saying that this book released by President Trump and Robert Kiyosaki will automatically make you rich.
I would never — ever — say that. But…
What you read on pages 33 and 243 alone just could help you get rich.
How?