Pethokoukis

The Goldfinger Option: Here’s the latest goofy idea for avoiding the debt ceiling

011713goldfinger

We’ve had the 14th amendment option. And the trillion-dollar platinum coin option. Now there’s the Goldfinger option to avoid the federal debt ceiling, as explained by Art Cashin of UBS (via Business Insider):

The Platinum Coin Meets Goldfinger – The thesis that the Treasury could mint a trillion dollar coin to avoid the debt ceiling may have collided with the conspiracy theories around the German repatriating of gold bullion reserves. Out in the Lewis Carroll land of the blogosphere, the alchemists are at again – well sort of.

A new theory says that if the Treasury marked up its gold reserve to current market value (circa $1600), it would create enough of a windfall to allow the Treasury to keep spending despite the ceiling.

Right now, Treasury marks the value of its gold at about $42 an ounce, “the price settled on in 1973, two years after the United States scrapped the Bretton Woods System, which had held gold at $35 an ounce for decades,” explains a 2009 Washington Post story. And according to the Treasury department’s International Reserve Position statement, it holds 261.499 ounces of gold valued at $11 billion. Valued at current prices, though, that gold hoard is worth $445 billion.

So, I guess, Treasury could start selling it stash on the open market to raise some fast cash, is that the idea here? The WaPo piece raises some legitimate concerns:

Pouring it into the market would make prices crash. Even if the Treasury were to sell off gold a bit at a time, anticipation of future sales would exert a downward pressure on prices. Any transaction would also require deft political maneuvering and delicate negotiations, because other central banks plus the industry-backed World Gold Council wouldn’t be too keen on us holding a red-tag sale on our gold.

Again, better to just raise the debt ceiling, with spending cuts and entitlement reform if possible.

One thought on “The Goldfinger Option: Here’s the latest goofy idea for avoiding the debt ceiling

  1. Pouring it into the market would make prices crash. Even if the Treasury were to sell off gold a bit at a time, anticipation of future sales would exert a downward pressure on prices. ..

    This is not what happened in the 1970s. During that period gold was driven higher by large sales that allowed the big money players to take significant positions without risking an exponential rise. I expect that if the US government were willing to sell off its gold holdings it would find many takers for those holdings in the form of foreign central banks looking for a way to divest themselves of large USD holdings at a time when they fear the printing press actions taken by the Fed and the US government.

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