Yale Ph.D., And Former Fed Member Tells Obama To Pull A "Gordon Brown" And Sell All Of America's Gold

Tyler Durden's picture

Edwin Truman, a senior fellow in the Peterson Institute, who is of course a former Fed member, and of course a Yale Ph.D., writes in the FT, suggesting the brilliant idea that it is high time for the US to sell its gold. In other words do precisely what Gordon Brown did a few thousand percent ago, and now has to defend against allegations he did so merely to protect the LBMA cartel which was on the verge of being margin called into oblivion. And even if one ignores the fact for a minute that there has not "really" been an audit of the US gold holdings in who knows how long, who is to say that Goldman, of all people, may not be right and gold will be at $1,700 in a year? Or Dylan Grice for that matter, and it will be about 10 times higher. One thing is certain: converting real hard asset value into paper to patch up 2.25% of government debt as a % of GDP is easily the dumbest idea we have ever heard. Especially, since as we disclosed yesterday, the Fed will have to force Congress to increase its deficit, and thus debt funding needs, simply so that there are enough Treasuries for the Fed to monetize. We hope Mr. Truman is in the contention for next year's economic and peace Nobel prizes, because with articles such as this he has certainly proven he belongs to that unique category of brilliant economists that only Princeton, Yale and Harvard can produce.

From the article:

Gold is back in the news. Its price is soaring  in what some analysts say is a reflection of a weak economy and a lack of confidence in government policies. Naturally, investors are looking at a new sure thing in the expectation that prices will continue upward. My advice to the US government, however, is that this may be the best time – to sell. Doing so would help President Barack Obama and Congress reduce indebtedness, at little cost.

It is an article of faith in bullion markets that the US will be the last country to dispose of its gold stock. For 30 years it has had a no-net-sales policy for reasons ranging from resistance by US gold-producing interests to concerns about the international monetary system. That assumption may remain plausible. Yet the administration has an obligation to re-examine its policy.

And now for kicker #1: gold is up due to "fraud and misinformation" - oddly there is no mention of the fraud accompanying the Keynesian ponzinomics that the world is fighting tooth and nail to preserve:

The market price of gold has risen for more than a decade  propelled by low interest rates, the hype of the bullion dealers (holding large inventories) and no doubt the normal amount of fraud and misinformation accompanying asset price bubbles. The Financial Times has reported that the precious metals industry expects the price to increase by a further 11 per cent over the next year.

So here is Truman's modest proposal: take the gold, convert it to linen, and use it to patch up just over 2% of US debt. Brilliant

Meanwhile, the US Treasury holds 621.5m fine troy ounces of gold. The government has been sitting on that gold since the Great Depression, receiving no return. At the current market price of $1,300 per ounce, the US gold stock is worth $340bn. The Treasury secretary, with the approval of the president, has the power to sell (and buy) gold on terms that the secretary considers most beneficial to the public interest. Revenues from sales must be used to reduce the national debt.

If the US were to sell its entire gold stock at the current market price, it would reduce the gross government debt by 2¼ per cent of gross domestic product. Based on the average interest cost from 2005 to 2008, this reduction in debt would trim the budget deficit by $15bn annually. Thus, the Obama administration would be doing something about the US fiscal debt and deficit without reducing near-term support for the ailing economy.

Kicker #2: Truman had graduated from economist to financier, recognizing the importance of buying (or confiscating as the case may be) low and selling high:

This proposal has several other benefits. First, the US would be obeying
the maxim to buy low and sell high. Second, it would be performing a
socially useful function. Demand for gold exceeds normal production,
driving up the price. To the extent that the gold craze is being fed by
concern (rational or irrational) about government policies, public
welfare would be enhanced by giving citizens something tangible to hang
around their necks or place in safe deposit boxes. Third, if the price
is a bubble, as seems likely, the sooner it is burst the better for the
average investor.

Lest Truman be accused of being a biased idiot, he himself provides some counter arguments to his Darwin award worthy suggestio:

Some people point to possible costs. Aside from political pressures from those who want to protect the value of their holdings, above or below ground, two principal arguments are made against US gold sales. The first is that such sales would disrupt the market. But the US government can be cautious in its sales, avoiding disruption of gold sales programmes of other countries, as it has in the past. There is little risk. In recent years, sales under the Central Bank Gold Agreement have dwindled, and some other central banks are buying gold. (The US is not a party to the agreement.) Also the International Monetyary Fund has completed more than three-quarters of its own planned sales of 403.3 metric tons.

Another counter argument is that the US should hold on to its stock in anticipation of the return to a monetary system based on gold by itself or with other nations. Returning to the gold standard would reinstate a system that has not existed for a century, however. It is not going to happen. The gold standard was associated with unstable prices, wages, output and employment. The current official discussions of the reform of the international monetary system do not include any advocates of a return to gold, and the IMF articles of agreement prohibit doing so. The sooner thoughts of a return to the gold standard are laid to rest, the better. A related argument for retention of the US gold stock is as a “rainy day” precaution. But after the recent economic and financial crisis and with the prospect of further misery for several more years, how much more rain must pour before the US acts?

So now you know - the gold standard "is not going to happen." What else is there to say - arguing with such brilliant logic which sees the benefits in 100 years of dollar devaluation, coupled with the greatest credit bubble ever, which has led the world to the precipice of all out currency, trade and soon, actual, war and assumes that the barbarous relic is actually worse than this is, well, pretty much pointless.

 

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SheepDog-One's picture

I'd inspect that 'gold' VERY carefully coming out of Ft Knox if I were the buyer of it! Bunch of tungsten filled gold leaf is what I highly suspect resides in those vaults, if anything at all.

Sucks_to_be_Smart's picture

Gold looks pretty crappy compared to this guy's 100 floor Ivory tower.  Jesus, can these Econ Ph.Ds stop massively embarassing the entire profession?  You would think by now, they would shut up, stop writing things, and fall in line behind Jan, who actually knows what he is talking about. 

Great job Edwin!

G-R-U-N-T's picture

To think that some actually believe that sophisticates like Truman whom come from the most prestigious universities are exempt from being as dumb as a sack of rocks.

SteveNYC's picture

Yes, hock the one true and tried "currency", real "money", for 3 months worth of Ben's QE bucks?

Truman = tool.

dlmaniac's picture

Poor Truman didn't know all there is left in Fort Knox is tungsten. How do you sell when you don't have it.

Wait... that's what's going on @ CRIMEX everyday. Never mind.

SWRichmond's picture

Asset stripping is what the banksters do best.

99er's picture

Ph.D.s "that unique category of brilliant economists that only Princeton, Yale and Harvard can produce."

Don't forget Chicago...home to brilliant Nobel Peace Prize winners too!

Turd Ferguson's picture

"Turd Ferguson, a Senior Fellow at the Arrogant-Wiseass Institute, thinks that Edwin Truman is a complete and total douchebag".

Shameful's picture

lol thank you.  If I ever get involved in giving money to a school then I will demand it go towards setting up the Arrogant-Wiseass Chair of Economics.

sharkbait's picture

I think he is a pillowbiter

chopper read's picture

so the gold that was taken by gunpoint from our grandparents should not be returned to those who hold $US, but rather sold for more $US. 

...wait, you're saying, ...what are you saying?

ebworthen's picture

Exactly.

If they need more gold they can simply pull an FDR and confiscate privately held gold all over again.

Why do you think they passed that $600 transaction form for the IRS?

A'yup!

Buy any gold or silver coins at $599 or below in batches folks!

Shameful's picture

Won't go to the average American.  They will have a hard time confiscating gold that gets sold to Russia and China.  Americans are not the big players in this market.  Besides I seriously doubt that A. America has not sold/leased a lot of gold already. B. Assuming they had some left it's not super likely they sell it all as it would give an asset for our creditors to buy that they really want without smashing the price up.  I can assure you China would love to see America sell it's remaining gold.

zaknick's picture

Actually, this act could be interpreted as an all in backed by a nuclear threat if "imf articles of agreement" gold standard prohibition is violated thereby maintainin reserve currency status at the barrel of a gun, again.

Bob's picture

God, what an ignorant tool.

Popo's picture

Not only ignorant, but illogical too:  

Without knowing how much gold the US actually has, it is illogical to predict what effect the sale might have.

For all he knows, selling "all" the U.S. gold might yield enough fresh capital to pay the electrical bill at the White House for 1 month.

 

 

lsbumblebee's picture

I think Edwin Truman is just bucking to become Prime Minister of the United States.

Bananamerican's picture

"I think Edwin Truman is just bucking to become Prime Minister of the United States."

...worked for Brown...onward and upward and all that

Mongo's picture

Ehum... what gold?

rapacious rachel wants to know's picture
rapacious rachel wants to know (not verified) Mongo Oct 12, 2010 9:44 AM

exactly!

BWAHAHAHAHAHAHAHAHA!!!

Lemme see, now where did I put that gold. Oh! here's a receipt and some official looking documents...

Here, I sell you my paper, bitchez!

His Dudeness's picture

Tyler,

Don't forget the University of Puerto Rico! They have an economics elective class second to none!

Course prereq: Flying out 2nd story windows 101.

GoinFawr's picture

On the "flying out of 2nd windows" meme: the guy in this vid has it all figured out, almost.

http://www.youtube.com/watch?v=Q2ZunA1ZI_Q

 

"i believe I may have overreached myself... whatever."

Regards

SheepDog-One's picture

$340 billion worth of gold, hell thats only a few weeks worth of Bernanke POMO money laundering/monetization activity.

Gordon Freeman's picture

Yes!!  PLEASE sell us the gold, bitches...

Internet Tough Guy's picture

Exactly! That is the only way any American will ever benefit from the gold. Otherwise they will never see a gram of it.

Of course, if they did sell the gold, we wouldn't see a gram of it either. They would trade it to China for iPads.

RichardENixon's picture

They could sell it to us for $1350 and then confiscate it back. That kind of plan would actually make some economic sense.

sschu's picture

This tells you how stupid/foolish they think Bam has become / is.  And they just might be correct .... :-)

Someone once said, and I paraphrase ... some ideas are so absurd that only an intellectual could come up with them ...

sschu

 

schaefdogschaef's picture

They can't sell the gold in Fort Knox as it will be seen that the US doesn't have those approx. 275 mln ounces anymore....A Ph.d. is nowadays def. NOT a signboard, eh?! What a joke....

buzzsaw99's picture

sell it to me bitchez!

wiskeyrunner's picture

Stock not allowed to fall. There is ZERO risk buying stock from the long side, ZERO NADDA NONE!

wiskeyrunner's picture

Oh look the 100 point fall in the Dow was just a dream, now only down 28.39.

Bankster T Cubed's picture

Thank you, ZH

you are currently mankind's only defense against these fuckers

snowball777's picture

Skull and Crossbones educated idiot states that America can kill itself faster by aiming for major arteries.

I'd love to buy the dip this asinine suggestion would cause.

Sancho Ponzi's picture

This is yet another sign that certain folks (JPM, anyone?) are getting desperate

RockyRacoon's picture

Hey, Sancho, are you upside down in your house?  Your comment about JPM may be closer to the mark than you think.   It's a case of eating your seed corn.  Bad juju, bwana.

 

Sancho Ponzi's picture

Negatory, just a sign of the times. 

Rodent Freikorps's picture

Ph.d = Piled higher and deeper.

 

nontaxpayer's picture

LOL unbelievable, what a tosser, too.

DosZap's picture

The SUPPOSED US Gold holdings are in four locations.

Knox

West Point

Fed Bank of NY

And one more,I cannot recall.

rapacious rachel wants to know's picture
rapacious rachel wants to know (not verified) DosZap Oct 12, 2010 9:56 AM

I got yer fourth place right here!

Maos Dog's picture

The mint locations hold the balance

ATG's picture

Denver Mint, where the Shadow Government resides.

A lot of that gold is coin melt worth less.

What's more interesting is this:

In terms of Gold Reserves and %Forex Reserves backing,

US second to EC, and Portugal and Greece actually have more gold as a % of Fx than US, third.

Hey, if CA can sell the Reagan and other State Buildings to Houston and Antarctica, why can't Bomba sell the family silver and gold?

http://www.usmint.gov/about_the_mint/mint_facilities/?action=DV_facilities

http://en.wikipedia.org/wiki/Gold_reserve#Officially_reported_gold_holdings

chopper read's picture

great info, ATG.  thanks.

swamp's picture

 

according to Bernake, the Fed Reserve Bank in NY is in a "foreign country" but he did not name the country. Absurd, but true, on the record in one of Grayson's youtube gruelings wherein he laughs at Bernake over the coincidence comment. So that supposed gold in not in the U.S.

Shameful's picture

I thought the name was Ponzitopia the capital of Fraudania. If memory serves teh Fed is also holding about half of Germany's gold.  Gold they are not going to get back.