Thar's GOLD In Them Hills
Not For Sale Yet
In The Bad Idea Category
I was reading recently and hit a short blurb about the subject of selling all the gold in Ft. Knox to help pay off our national debt. So I hopped in my supersonic frog transporter and took a cruise to see who and what was behind this sort of proposal. As I read along here and there I remembered why I would be hesitant to vote for Ron Paul for President. He has some good ideas but this one falls into the "very bad idea" category. We might want to audit the Federal Reserve, which is a splendid idea, and audit the gold reserves in Ft. Know too since it has been over 50 years since a valid audit was done by all accounts. But sell all the gold in Ft. Knox to reduce the national debt? I don't think so and I'll explain why.
First, realize that the price of gold is at a historical high. The dollar is sliding and continues to slide due to this nation's economic outlook which isn't exactly rosy. There used to be a tie between gold and the US dollar and we were on the gold standard. I won't go into the reasoning behind our exit from the gold standard other than to mention that the federal government had to adhere to sound economic principles concerning printing more money and having more debt than the value of the gold in the vaults at Ft. Knox. It was more complex than that but I won't belabor the points here. The basic principle was having a "live within your means" federal government.
If these little grains of information don't point out the sheer gravity of the national debt that we are in to the "spend and tax" crowd then I'm not sure what will. You see, we have all that gold sitting in vaults and even if we sold it, not much of a dent would be made in the growing national debt that some seem intent on saddling our future generations with.
There's an outfit called the World Gold Council. You can find them @ http://www.gold.org/government_affairs/gold_reserves/ which is a fine source of information on gold. According to their estimates, the United States has 8,133.5 tonnes (metric tons) of the shiny metal of which approximately 4,600 tonnes are snuggled away in the Gold Depository at Ft. Knox. Now I have to admit that the word "approximately" causes me a bit of angst. We should know exactly how much of that precious metal we, the US tax payers, own.
The World Gold Council estimates that 165,000 tonnes is the total amount of gold ever yielded by the planet Earth in their latest report. But thar is more gold in them hills ya know? If you care to give a try at extracting it.
So now a little math is in order. I know, I know I don't care for it either, but we need to crunch some rather simple numbers to illustrate my point.
The Congressional Budget Office (CBO) is projecting a $1.5 trillion deficit for FY 2011. Thanks Obama and Congress, that's all we need. That's plus or minus billions upon billions of dollars because it is the CBO's estimate which aren't always that accurate.
Then factor in the national debt that stands at 14.3 trillion dollars depending on which second you look at the National Debt Clock. It's a moving target too.
The current value of gold is $1,500 an ounce, give or take a few dollars here and there, based upon world currency markets primarily. When gold goes up, the dollar goes down even though we aren't on the gold standard. If we were, rising gold would mean what? Lets use $1,500 as it is a nice round number.
Plugging in those numbers, you discover that if the country sold ALL of its present gold reserves only 29% of THIS YEAR'S federal deficit would be covered. You see exactly where we are presently in this economic debate about not reducing spending and upping the taxes? If you don't, I can't make it much clearer, but then again maybe I can.
A few conversions are in order to do the math and here they are:
1 metric ton = 35,273.96 ounces @ $1,500 an ounce that equals 52,910,943 per tonne. Don't you just wish you owned a tonne of the stuff right now. If you do, hang onto it as it will increase further in value as our out of control Spender-In-Chief continues his Voodoo economic act. . The dollar will continue to erode if something isn't done soon to decrease spending. The world is concerned about our excessive spending. The tax and spend crowd is concerned about raising our taxes so they can continue on their spending binge.
Lets extrapolate and play pretend like they do in Washington DC. Lets pretend that we owned all the gold in the world. The Democratic Party likes to play pretend a lot these days so lets give it a whirl ourselves. We now own the 165,000 metric tonnes in existence today. Don't ask me how we got it all because that isn't important. We just own it now.
The chart below, in LalaLand, illustrates what it would look like if we owned it all, flooded the world market with it, the proceeds from the sale and the percentage of the national debt that we could then pay off. That would be if, and only if, those professional pick pockets we call politicians could keep their cotton pickin' mitts off the proceeds until we could high tail it to the bank to pay off our astronomical debt they have created by trying to be everything to everybody.
This is broken down as illustrated by Tonnes/Value /% of Deficit/ % of Debt. The total mined gold relates to percentage of the national debt we could pay off in LalaLand. The Ft. Knox and US Holdings percentages relate to our current budget deficit.
Total Mined Gold 165,000 / $8,730,305,570,250 60 / 84%
Fort Knox 4,600 / $243,390,337,110 / 16.23%
Total US Holdings 8133.5 / $430,351,153,670 / 28.69%
Therein lies the gravity of the situation in easy to understand terms. There isn't enough gold in Ft. Knox, private individual's hands or the entire amount in existence to undo what the idiots in Washington DC have been ALLOWED to do to this nation of ours.
Is it time to really make some "changes" now? I believe it is past time, and I don't mean just change the rhetoric. There is talk here and there of returning to the gold standard. That might be a fine idea but selling all the gold reserves that belong to the US tax payer isn't a sound idea at all. Nice try Ron Paul but no cigar from this frog.
I've had my say and what say you?
Have A Great Memorial Day.
As Always,
The Frog Prince
Things Are Indeed Bad!
Comments
Voted up but I just realized we need another click here. We have useful check; awesome check; you educated me today check.
Do you and I have a tonne of gold in jewelery maybe????
Since China and England seem to be the biggies on the gold and the US is a little guy here. Lets keep one of the few things we have left...Our Gold.
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I'm not at all looking favorably on the topic myself Donna, as you can plainly tell. What we should do is hold an auction of career, professional pick pocket politicians who have been warming those seats for decades fiddling away. We'll sell them to the LOWEST bidder. That's what they're worth. Whatever happened to statesmen in this nation folks?
"The world is concerned about our excessive spending." ... Yet, they are riding the same Spend Some On Me short bus! This is truly the zombie apocalypse, because one has to be brain dead to live outside the world of consequences and call it survival.
FP-Nicely done as usual. Wouldn't selling all our gold be the equivalent of pulling the last drain plug out of the bottom of a sinking ship? I can't believe anyone even proposed something this stupid.
Have a great Memorial Day, and thank you for you service to our country.
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GS - The rest of the world knows that Uncle Sugar is a sucker, especially the Sucker-in-Chief. He'd rather go around apologizing for us being the once mighty nation he doesn't care for and wants to fundamentally change.
I'm beginning to think that his idea of fundamental change is to drive us into bankruptcy and depression so that he can become the new FDR, only worse.
Ron Paul can come up with some hair brainers Poolman. I have a license to criticize both these political party apparatuses. But in reality, Ron is a libertarian disguised as a Republican. That's too laissez fair for even me.
Everyone have a great day. Traveling to the National Cemetery for a Memorial service in memory of my father.
Frankly, I'm surprised the federal reserve and the treasury didn't try to sell treasury notes and use that money to buy gold.
There,is story circulating online somewhere that there is no gold in fort knox.That it was transfered to various countries and ultimately to somewhere in the U.S.S.R back in the 1930's as the result of the bankruptcy of the Federal government.After the 1929 stockmarket crash people were taking gold out of the banking system because they didn't want to be left with worthless paper money like the south with their confederate money.The president was told that the people were hoarding gold so,the president declared a banking holiday and con-fescated all the gold and replaced it with certificates. Remember that? How can you be hoarding something that belongs to you?Apparently Minted gold coins didn't belong to the people.When in Rome do as the Romans did.Give unto Ceasar that which is Ceasars.The issue of gold and silver as a commodity.The banks will only give you the face value of gold and siver coins without consideration for the commodity value of the metal.
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someonewhoknows - More than one state is now attempting to make gold and silver the medium of exchange for rather obvious reasons. The dollar is becoming worthless.
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someonewhoknows - Right after my last reply to your comments I read this concerning Utah. There are other states making similar moves.
Would this mean we could all go back to carrying little leather pouches full of gold dust, and all the merchants would have scales on hand to weigh out our payments? Talk about going full circle, this would be a prime example. I can just hear my kids calling and asking to borrow half an ounce.
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Poolman - It seems "the full faith and credit of the United States" isn't what it used to be. But the sages on The Hill want to tell all the sheeple that everything is going to be almighty indeed. BS. They need to get off their asses and get to work. No recesses until the problems have been fixed. Right now we're playing them to play politics with everyone's future well being. I say again - BS.
Skills people, that is the real gold of the land. Get you some skills ... and I don't mean accounting, marine biology or web site construction ... LOL.
I'm putting together the follow up hub to my last one on the economy, and it will get into some more realities, then solutions, so I won't say much here, other than you're a machine Frog. Mighty good work!
jim
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jim - I read a lot.
Froggy, Excellent research, and explanation. I hope many can understand it, Americans aren't as sharp as they used to be.
Confession: I bought silver when it was $5 an ounce. That sounds great, but I only bought one ounce. That's a big HA on me. H
Frog I'm basically non-political for personal reasons and don't know 1/10th or more as you do on the political or economic scene. But I do know Paul has the best record in Congress that's been seen in many a moon. Still, he's a politician and they all say things they may try to implement or not given the power. In your opinion is there one potential candidate as near honest as this man? Thanks Frog and I do salute your father on this Memorial Day.
Alastar,
I'm going to throw my opinion at you. This is Frog's house, and I know he'll have some good stuff to give you. Here goes. Probably the most pure candidate we have is the one with the least experience. I'm talking about Cain. This guy is razor sharp, abundently successful in business, and has more integrity than all the rest put together. He needs to get on top of the funding, as his finances are low compared to the other candidates. If he comes in first or second in Iowa, which I think he could, he'll have plenty of money. Watch this guy.
jim
Hi Frog,
Selling gold to pay off debt is of course silly, as don't have nearly enough gold to do it, and we would probably get a lousy price unless we did it very gradually.
The bigger issue for me is proper monetary management. There is really no intrinsic reason why money has to be tied to a claim on precious metal or anything else of actual value. The critical thing is that the supply of money comports with the ratio of GNP to the turnover rate of cash in the economy.
If you make the money supply too small by this logic, you risk debt fueled asset bubbles at minimum (due to artifically low interest rates), and ruinous deflation that could bankrupt long term fixed rate debtors at maximum (this could cause a depression due to mass defaults).
Conversely, making the money supply too large by the above logic causes inflation, value erosion to long term fixed rate creditors, and depression of business investment and resultant loss of jobs (as high inflation makes ROI predictions unreliable).
A zero inflation policy fuels asset bubbles, as well as makes consumers feel poorer, as raises are limited, depressing consumption and thus GNP. I think the most logical thing is to target something like 2% annual inflation. This lets labor get annual raises of about 4-5% (inflation plus merit), and puts long term interest rates in the 8% vacinity (2% inflation, 2% risk premium to cover yield curve changes, 1% secular productivity charge, 1% population growth charge, and 2% for taxes), high enough to prevent asset bubbles.
Stu
Selling off your capital assets to short term cover your asses is hardly EVER a good idea.
And after the work done by the asses, we have way too little capital assets to cover all the asses. We are alot better at accumulating asses than assets.
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Alastar - What the nation needs right now, if not sooner, is a man or woman with executive experience whether as a Governor or in business. That limits who I am looking at presently. Then you use the word honest and politician in the same breath. You can be honest and misguided. Romney is a case in point with Romneycare. Very misguided move and it is busting Massachusetts's chops just like Obamacare will bust ours. Obama is dishonest and totally misguided. He never even ran a lemonade stand. Pawlenty isn't strong enough and it will surface shortly. So I look at Cain.
Personally, I like what I am seeing. The guy is right up front but he needs to study the issues and not offer platitudes like Obama sucked people in with. He understands businesses and how jobs are created. That is a real strength to me. He also has no political office experience which is a plus to me, not a minus. He also has strength of character and a measurable past.
Right now I am not endorsing anyone, I am watching the players and listening and researching. I did that the last election and what I predicted if Obama was elected has come to past. His inexperience, lack of executive qualifications and being in the negative numbers in true leadership qualities are disastrous.
McCain was the Old Guard Republicans fall back guy or should I say "fall to" guy. He really has no business being the POTUS either. Once again, as too many times in the past, it came down to the lesser of two evils. That type of choice is what we need to avoid at all costs but seem to be confronted with it too often because of the nature of the political party machines and those who run those machines.
There's my answer at this point. I won't vote for someone like Obama. It isn't his race, it is his policies. If the election was held today and Cain was the nominee then I would vote for Herman Cain. When I am accused of being a racist by someone I don't know I have to consider the source. This has nothing to do with the color of a person's skin and everything to do with where our country is headed. The majority of Americans, overwhelmingly at this time, believe the country is headed in the wrong direction. I agree with the majority and it needs to stop.
jim - You can swim in the pond any time you care to. I encourage "constructive participation" by all bloggers with emphasis on the word "constructive." The attack dogs are starting to surface more frequently and as we get closer and closer to the election their venomous activity will increase. This is going to be one dirty election cycle but I will again stick to the facts and research what I write and who I write about.
Stu - There is a reason to tie currency to something. We are seeing some of those reasons right now. Money right now is tied to the printing press and "the full faith and credit" moniker. I started out heading in the direction of being an econ major so I have a solid base of understanding the principles of the art. It isn't a science but rather an art. Like art, there are good artists and bad artists who yield the brush differently based upon the economic guru they hang their star on.
The Gold Standard helped keep the federal government in check. The Progressives didn't like it for that very reason. It tied the printing press to something of value. I don't disagree with using sound monetary policy in the least. But right now no one is using sound judgement, or very few are, who are occupying the seats of our federal government. Obama admits he knows nothing about the subject and it wasn't, and still isn't, the right time in this nation's history to have someone sitting there who doesn't at least understand the "art."
Ghost - The selling of your assets to cover your ass is rather short sighted indeed. If I did that I would be having a going out of business sale. Something to think about if you are thinking about the federal government doing it. If you have bloated assets then consider it. We're so far in the red right now that our debt is the only thing that is bloated and they want to keep bloviating about it rather than take the painful steps to cure the ill. It has to be done though. Overspending has become a disease on Capitol Hill.
The Frog
Hi Frog,
Money need not be a claim on any hard asset. It is simply a medium of exchange to eliminate the inefficiency of barter. The answer to the problem is to exercise sufficient fiscal restraint to eliminate our federal debt over time, removing the pressure on the Federal Reserve to print money to retire debt that isn't rolled over and debauching our currency.
Also, what do you do if the federal government does not own enough gold to support the proper money supply? Do we just permit deflation, credit defaults, and depression to result?
Stu
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Stu - The Federal Reserve needs two things. First, they need to be audited and I can only speculate why the powers that be don't want that to happen though I do have a pretty good idea why they resist. Then after the audit, it needs to be abolished.
If you don't own enough gold then you live within your means. That's what the average household is expected to do and I happen to live that way myself.
The Frog
Hi Frog,
I agree with the audit, but you still need some monetary authority to manage the money supply. Whether it's the currect Fed or something else I don't think is the real issue. The real issue is adhering to a logical money supply policy.
Living within your means certainly makes sense, but what bearing does the amount of gold owned by the federal government have on the correct amount of money in circulation? Again, money is just a medium of exchange to eliminate the inefficiency of barter. Money need have no intrinsic value; it merely has to be managed such that its "exchange value" for goods and services remains reasonably constant over time.
Stu
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Under the Gold Standard Stu, the printing press was tied to something other than the wish to spend more money. The Progressives didn't like the idea when they untied the two back when it was done. They still don't want any obstacles to cranking up the press today. I'm beginning to wonder if you understand that the "full faith and credit" concept has been a failure and the world is starting to give us the wake up call about our credit worthiness.
Hi Frog,
GOP's have been just as reckless as Democrats regarding printing money. But tying the money supply to an arbitrary stash of gold isn't the right fix. It simply keeps the money supply constant. Such a policy would ultimately lead to deflation as GNP grows, and possibly cause a depression due to mass credit defaults.
The correct solution is to maintain a reasonably constant relationship between the money supply and the GNP / cash turnover ratio. You want just enough inflation to keep interest rates high enough to discourage speculative hard asset hoarding on leverage.
Doing the above isn't impossible. Data on GNP and the velocity of money already is computed regularly. You just need someone in charge who won't cave every time Congress runs up against the debt ceiling.
Someone like Volcker could do what I'm talking about. Greenspan and Bernanke are like polar opposites, and represent extremes that caused us alot of harm. Greenspan was the tightest monetary hawk I can remember, and contributed mightily to the housing burst by making money to cheap. Bernanke is the exact opposite; he prints money out of thin air to fund bailouts and provide stimulus, without regard to whether the extra cash harms the value of the currency.
A really strong Fed Chairman not only would maintain a logical money supply, but would send an unmistakable message to Congress: if you want less debt, do your job and manage fiscal policy, because the Fed won't retire your debt with funny money. If he really wanted to, Bernanke could force the budget deliberations into higher gear by refusing to retire treasuries with new cash. Congress would hate him, because they would have to impose fiscal restraint instead of doling out stimulus to get reelected, but it would be in our long term best interest.
Stu
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Untying the dollar to that stash of gold you allude to and the establishment of the Federal Reserve wasn't a good fix either now, was it?
Hi Frog,
In our experience, it certainly wasn't. But I still can't see the logic of a stationary money supply (assuming the gold reserve is constant). As GNP grows, wouldn't you ultimately experience ruinous deflation causing debtors to default, and possibly have a financial wind-down that leads to a depression?
Stu
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Stu - Did you miss the point of this Hub entirely?
Jim, thank you for your response, its very appreciated. Frog,thank you sir for your enlightening and awesome with a capital A reply. Herman Cain is a man I intend finding out more on post-haste. Perhaps it's time to leave the personal reasons behind and jump in the pond.
Hi Frog,
No, I understood the Hub. Your facts are correct. I just disagree with the solution. Tying the money supply to a fixed store of value will either decimate GNP by injecting barter inefficiency into masses of transactions, or alternatively lead to ruinous deflation, either of which could cause a depression.
Maintaining a correct money supply is basically a math formula. If you just run the numbers, and limit the money supply to a formula which generates very mild inflation (about 2% annually) to make interest rates high enough to avert debt fueled asset speculation, you'll be fine. The problem isn't fiat money; it's the way fiat money is managed. Once you use fiat money for "stimulus" or debt liquidation purposes, you debauche the currency, cheat fixed rate creditors, and depress business investment and jobs (because high inflation makes ROI's unpredictable for both capital investors and lenders). Basically, monetary policy needs to be TOTALLY separated from politics, like stoking short term economic growth and pushing off debt ceiling issues. A "politics neutral" monetary policy will ultimately FORCE Congress to implement the fiscal reform we so badly need.
Stu
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I didn't propose a solution Stu.
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Alastar - Not sure what your personal reasons are but jump on in, the waters as fine as frog hair.
What an irresponsible government we have! This helped my understanding. (Finances are not my strong point, so appreciate the help :)
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Ms Dee - Stick with me and you'll gain a better understanding.
Hi Frog,
You may not have proposed a solution as to how best to manage the money supply, but you did conclude that tying the money supply to a "basket of value" was the correct thing to do. Question: what do you do if your federal "basket" is too small to prevent the need for barter, and/or leads to deflation? The gold standard only works if the federal gold stash grows to keep pace with the GNP to cash turnover ratio.
The US holds about $425 billion in gold reserves at today's spot rates. To support our GNP of $15 trillion, the velocity of money would have to be an astounding 35 turns per year to prevent deflation leading to a debtor collapse and depression, unless massive reversion to barter could pick up the slack, which is doubtful (you'd need too many multi-party transactions to bring about the effect of all the single item purchases people actually want to make). The reality is that the economy would crash.
Stu
FP,
The "water's as fine as frog hair." Beautiful use of double entendre! I love that form of humor!
Stu
frog,
selling off our gold is like selling our house to pay the mortgage....WTf does anyone else see the idiocy in this....lets throw out our computers so they dont get a virus WTF
wHAT THE FROF FROG...
th
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Stu - What has been done has been done. It's too late to go back to the gold standard. It was a mistake to leave it in the first place. You're reading way too much into it.
Hi Frog,
I guess we'll have to agree to disagree on this one. I really do understand your issues about currency debauchment and inflation, but deflation and debtor defaults are equally and possibly more problematical.
At the end of the day, the real issue isn't whether money is asset backed or fiat; the real issue is that the quantity is managed so you avert two extremes: (1) asset bubbles and deflation, and (2) excessive inflation that chokes off business investment and credit markets. Either of the above extremes can cause an economy to spiral into stagnation.
Stu
Good math. It puts into perspective how huge the debt truly is. If they dumped all the gold they'd only succeed in temporarily driving down the price of gold... something about supply and demand.
I also heard that if you confiscated all the money made by the supposed rich this past year, it wouldn't even be enough money to run the government a half a year.
You are so right, the government has a spending problem not an income problem!
Yes 5 months AND DROPPING mY MOTHER USED TO SAY "MY BROTHER SPENDS MONEY LIKE A DRUNKEN SAILOR, BUT oBUMA HAS CREATED A NEW A NEW HRASE-"Spending money like power drunk Kenyan- no offense meant to other Kenyans"
TH
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