Gold (and silver’s) near meteoric rise in terms of dollar price over the past few months periodically rekindles interest in “monetizing” the gold stock that sits in the vaults of a number of central banks, in the belief that this will usher in a financial bonanza. In my most recent Substack article, I demonstrate why such a move won’t do anything of the sort.
…the proposal that the Treasury can unlock over a trillion dollars of capital, and borrow against it, by correcting a bookkeeping error…might work if the Treasury had not undertaken to rack up $36 trillion in debt in the period since 1973, but that’s clearly not the case today. Simply put, the gold stock has already been borrowed against. Creditors have lent this sum of money to the US government with the knowledge that the gold stock is already implicitly underpinning the debt, even though today it can only underpin a small portion of it.
The entire current market cap of the alleged Gold stockpile in the US wouldn’t cover one year’s interest charges on the rapidly growing debt.
Good job in putting “alleged” in front of gold stockpile.
One would think the government would have no problem performing regular audits and releasing the results if we really had the stockpile amount they like to claim.
Since I wrote this the debt now stands at something like $38 trillion.
Then there’s the theory that they will monetize the reserves proportionately to wipe out the overall US debt.
That requires a revaluation of that Barbaric Relic, to over $40K per ounce. The principle is somewhat based on FDR’s gold seizure in the 1930s, then revaluing it later to make the governments books look better.
Many people would become fabulously wealthy overnight….cough…..cough……
Alas, one can dream
If the market values gold at $4500 an ounce as it does now, the Treasury can’t simply revalue it to $40K an ounce and expect anyone to believe those values on their balance sheet. It could conceivably offer to purchase more gold above what it currently owns at $40K an ounce, and I’m sure lots of sellers would jump at that opportunity. But the Treasury would be paying almost ten times more than the asset is actually worth, and would have to expand its borrowing accordingly, which would also expand the its aggregate debt at the same pace. It’s a race they could never win.
You can’t have a gold-backed currency. It’s never been possible. All it does is limit growth. Gold does play a punishing role when countries abuse their fiat currency which is happening now.
A fiat currency is by definition not redeemable for gold. But gold redeemable currencies formed the backbone of the world monetary system during the 19th century, a period of incredible economic growth. The London gold exchange facilitated most of the world’s trade using only about 300 tonnes of gold.
Name a country where gold formed the backbone of its economy and I will name a country that abandoned gold and how it was just a temporary card trick.
Gold isn’t the backbone of anyone’s economy. It should be the backbone of a monetary system, however. The gold standard was abandoned because it made it impossible for governments to kick the can down the road when it came to paying for wars and then the welfare state and otherwise implementing a socialist agenda. That was actually a good thing.
The simple problem with gold is that economies expand exponentially and gold can’t be mined at the rate the world economy expands by. You would have no Internet, no smart phones, no Twitter, because you would run out of capital. The result of a fiat currency is the continuous devaluation of the dollar. Once you know this you can act accordingly.
You can’t have a gold-backed currency? And yet, you can have a diamond-backed rattlesnake…
In a related story … ALL US Stock market indices are UP UP UP again today … after massive gains since Monday’s TDS Greenland sell off.
https://markets.businessinsider.com/index/dow_jones?op=1
Headed for MORE all time highs in the coming weeks. Go TDS … Go Broke.
Meh, I like silver.
I bought a load way back when.
I think of it as the working man’s precious metal: practical, useful, affordable.
Used in all types of applications, it’s also some purty and it kills werewolves!
How do you get rid of the stuff without having to send giant cheques to our beloved federal government?
Good Q.
I don’t believe there are any taxes/confiscation on selling.
I also don’t know how the government could say you made a profit if they don’t know the price you bought it at.
As well, I could put the gain into my RRSP.
Sorry to burst your bubble, but,
Capital Gains are due on sales of PMs, yes, that includes coins.
There’s no sales tax on the purchase.
As for not being able to disclose a purchase price, then, your all knowing CRA will assign the lowest possible price they think you bought it for, and tax you accordingly.
Yes, CRA will do that, so best to try and find some evidence. It’s hard when it was cash purchases, many have done that.
Whoa. Back up.
What is money but a promise? We have faith that a dollar in hand can be exchanged for something real, tangible or useful in some way. A dollar is just an IOU that can be passed from hand to hand with no specific U.
Central banks “control” how many of those IOUs (money) may be in circulation by adjusting how easily banks may invent more of it. What’s that, banks invent money? They sure do considering that only a small fraction of transactions involve specie .. the rest, electronic. Governments give control over money supply to banks who then make loans of one kind or another to those governments. Fiat is all loosey-goosey and the banksters laugh all the way .. well, to their own banks. What is gold (aside from its commercial uses) except another promise, no better than the IOU? The system exists as it does because the people who stand to gain the most want it that way .. just like the legal system is the kludge that it is because the legal community jealously guards its power and pelf.