I’m skeptical that revaluing gold would change much in the finances of the US government, or any other government for that matter, but I’m curious to hear what SDA readers think.
Here’s my take: despite a legislative quirk that pegs the dollar price of gold at a ridiculously low level, I’m quite certain that the creditors to Uncle Sam have already pegged it implicitly at it’s true dollar price. It’s as if your farm was valued at $2 million and you owed $1 million, but your balance sheet hadn’t been updated in years. It’s quite likely that your creditors would have already recalculated that balance sheet for you, or they would not have lent you the money in the first place. Readjust your balance sheet and you will find that you still owe $1 million.
US gold re-marking would have implications for both the Treasury & Fed balance sheets.
- US Treasury: assets would rise by the value of the gold re-marking & liabilities would rise by the size of gold certificates issued to the Fed.
- Federal Reserve: assets would rise by value of gold certificates & liabilities would rise by a crediting of cash in the Treasury cash balance (Exhibit 4). And here is the punchline: the Fed balance sheet impact would look like QE though no open market purchases would be required & Fed liability growth would initially be in TGA.
In other words, the best of all words: a QE-like operation, one which see the Fed quietly funnel almost $700 billion in cash to the Treasury… but without actually doing a thing!
