Why Tim Geithner Ruled Out Selling U.S. Government-Held Gold

According to a CNN Money report, there have been some suggestions that the U.S. Treasury sell the gold it holds if the debt ceiling isn't raised. Tim Geithener has ruled a sale out, and there are three reasons why. First of all, as explained by assistant secretary of the Treasury Mary Miller, doing so would reduce confidence in the U.S.' currency. Secondly, there would be a huge logistical difficulty in selling a lot of the Treasury's gold: who would buy it? How long would it take for the gold to be sold? The IMF found central-bank buyers of more than half of the 400 tonnes it sold starting in late 2009, but the rest of the gold took more than a year to sell on the open market. At today's prices, 400 tonnes is worth about $19.4 billion.

The difficulty of selling the gold in a timely manner ties into the third reason: even though the U.S. treasury has a huge amount of gold, the amount pales in comparison to the spending the U.S. government undertakes. Even moving a small amount of the Treasury's gold would only buy a little time - it the gold could be sold in time.


Another suggestion is selling the bonds held by the Federal Reserve to raise the needed cash. On the face of it, this suggestion is more practicable because debt-securities markets are much more liquid and the Fed's portfolio is much larger than the Treasury's gold hoard. The barrier to this approach is legal. The Fed is not a subsidary of the Treasury, so it can't just transfer the proceeds to the U.S. government. In fact, the central bank's selling of securities is offset by the monetary base shrinking: the proceeds are erased. Legally, the only way for the Fed to help out would be to loan the Treasury the money...which would violate the debt-ceiling law, since it would be legally equivalent to the Treasury floating more bonds.

Tim Geithner Rules Out Gold Sales

As the U.S. Treasury approaches its authorized debt ceiling yet again, the question of the U.S. government selling some gold to make ends meet has been raised. In a letter to Congress, Treasury Secretary Tim Geithner ruled out that option.

Geithner states that selling reserves of Gold Bullion “would undercut confidence in the United States both here and abroad”.

The Treasury Department predicts the US will reach the debt limit no later than May 16.

The US government – the world’s largest single holder of physical gold – has not sold Gold Bullion, other than small amounts for coinage, since 1979....

"Turbo Tax Timmy" has come in for a lot of criticism, but it's hard to criticize him for this decision even if it conforms to precedent. I suppose there was a worry that he'd threaten to do it in order to pressure the Republican House to raise the debt limit; if so, then that worry is unfounded.

More Taxes Coming On Mines In The U.S.

Bigger items in the Obama Administration's budget have naturally attracted more notice, but there's also an attempt to extract more money from mining companies therein. One of the items is a proposed 5% royalty on minerals extracted from lands owned by the U.S. government, which is expected to bring in only a few million dollars' worth of revenue annually. It's justified as bringing the mining industry into line with the purportedly undertaxed oil and gas industry, as well as with the coal industry.

The other is a demand for 200 million extra dollars per year from mining companies for cleanup of old mining sites, particularly the ones in the "Superfund" list of polluted places.


Luke Popovich of the National Mining Association had this to say:

“It’s virtually a statement that we don’t want to see any more minerals or metals mining beyond what exists,” he said.

“It’s the wrong direction for the highest cost mining region in the world,” he added. “This would really stifle new investment. In our case what’s particularly short-sighted about it — the United States has enormous mineral resources but we are increasingly importing the minerals.”

Well, there's always Canada. For those who like to keep score, the most mining-friendly jurisdiction is the province of Quebec.

A Significant Deadline

Treasury Secretary Tim Geithner said, in a letter to Harry Reid, that the Treasury debt ceiling of $14.3 trillion may be hit as early as March 31st, and will be hit before May 16th.

Normally, this bump-up would be a mere housekeeping measure. As "John Galt" wrote in the book Dreams Come Due, the real debt ceiling is infinity. There is, however, a new party in charge of the House. Already, there's talk of the Republican majority withholding authorization for yet another increase until President Obama plays ball with some of their agenda.


Say what you will about the Republicans, they're not the politicians that Democrats are. None of them seem to have thought of using the same technique to repeal Obamacare that's used for earmarks and Democrat pet projects: sticking it in an omnibus bill that the President is all but obliged to sign, and some opposition senators are all-but-obliged to vote for. It's up to you to decide whether this differential makes the Republicans more principled or less professional than the Democrats.