Dear Reader,
Freshly crowned United States Treasury Secretary Scott Bessent:
“Within the next 12 months, we are going to monetize the asset side of the U.S. balance sheet.”
What on Earth does he mean?
For answers we must first examine the profit and loss statements of the United States government.
These are not actual profit and loss statements. These you will find in the private sector… where profit and loss statements hold weight.
Yet let us proceed to an investigation of United States profit and loss.
Where’s the Beef?
The United States government boasts some $5.6 trillion of assets.
These include “cash and other monetary assets”… “inventory and related property, net”… “loans receivable”… “property, plant and equipment”… “investments in “Government-Sponsored Enterprises”… and “other.”
Against the asset portion of the ledger we find the liability portion of the ledger.
This portion outweighs — vastly — the asset portion.
The liability portion runs presently to $45.5 trillion.
The heaping majority of liabilities sort under the category of “federal debt and interest payable.”
How can the United States government “monetize” the asset portion of its balance sheet… to partially offset the gaping asymmetry?
Options
Uncle Samuel is the largest landowner within these shores. He holds some 650 million acres within his expansive grasp — nearly 30% of all United States territory.
He could present significant swaths of it to auction.
The proceeds from which would deliver him a handsome harvest.
He could likewise unburden himself of Government-Sponsored Enterprises such as Fannie Mae and Freddie Mac.
Yet a third option presents itself.
It is an option that Freedom Financial News contributor Jim Rickards has detailed at length.
This third option centers upon atomic number 79 — gold.
Gold Is Only Worth $42.22?
The United States government claims to hold approximately $11 billion of golden substance.
Yet therein lies a vast tale.
By statute, the gold in its possession 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 $2,950 the ounce — some 68 times the statutory price.
What if United States government gold was revalued to present prices?
It would have a lovely windfall on its hands.
And it would not require the issuance of fresh debt.
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 $2,950] per ounce (today’s price).
- That would pull over [$688 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 it 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).
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 $2,950 an ounce.
- Now, the Treasury could issue the Fed a new gold certificate valuing the 8,000 tons of Treasury gold at $2,950 an ounce. They could take today’s market price of $2,950, subtract the official $42.22 price and multiply the difference by 8,000 tons.
- I’ve done the math, and that number exceeds [$685] billion.
- In other words,the Treasury could issue the Fed a gold certificate for the 8,000 tons in Fort Knox at $2,950 an ounce and tell the Fed, “Give us the difference over $42 an ounce.”
- The Treasury would have over $685 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
Could this be the plan to which the Hon. Treasury Secretary Bessent refers?
I do not know. Yet I concede the scheme is enveloped by a reasonable plausibility.
It would hand the United States government some $700 billion to misspend — at no cost whatsoever.
As the folks of Zero Hedge style it:
- (It would be) a QE-like operation, one which sees the Fed quietly funnel almost $700 billion in cash to the Treasury… but without actually doing a thing!.. Indeed, just like a QE but without the actual QE.
This, at a time when the same United States government confronts a debt roof crisis.
It is expected to deplete all available funds by perhaps March 14… should Congress fail to elevate the debt roof.
If it does not, this “weird gold truck” could keep the United States a going concern — 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.”
Why Not?
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 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
