The U.S. Wants to Sell Off Its Gold Reserves
Published in Nezavisimaya Gazeta
(Russia) on 17 May 2011
by Andrei Terekhov (link to original)
(Russia) on 17 May 2011
by Andrei Terekhov (link to original)
Translated from
by Timothy Riley.
Edited by Heidi Kaufmann.
America has exhausted its limit for borrowing to cover the budget deficit.
Yesterday the U.S. exhausted its limit for borrowing to cover its budget deficit. President Barack Obama has warned of the risk of a new serious recession in the United States and in the large global financial system if Congress does not allow the U.S. government to incur further debts. Economists in the United States suggest the use of federal assets and the government’s gold supplies in order to solve the problem of insufficient funds. However, experts suggest to Nezavisimaya Gazeta to not pay heed to alarmist sentiments.
The new warning from Obama came on Sunday on the program “Face the Nation.” If investors “around the world thought the full faith and credit of the United States was not being backed up, if they thought we might renege on our IOUs, it could unravel the entire financial system. We could have a worse recession than we’ve already had,” said the president.
The White House believes that a catastrophe may occur if Congress does not manage to raise the government debt ceiling.
In fact, Washington is afraid of a technical default. The current boundary of U.S. sovereign debt in the sum of $14.3 trillion was decided by a law, which was passed by Congress in February of last year. This law provides for a legal guarantee for securities issued by the Treasury Department. When this current limit is reached, the Treasury Department will lose the right to issue new debts. Meanwhile, it always needs money: In order to service its own obligations, the government needs around $125 billion a month. It is predicted that the budget deficit from the current fiscal year will reach a record $1.6 trillion. Therefore, the United States will be forced to continue to increase its debt.
The Treasury Department has warned, that with the help of “extraordinary measures” (which include borrowing from the state workers’ pension fund) they will be able to continue operating until Aug. 2. With this background in the United States, they are discussing various ideas about where to take the money from. However, as The Washington Post reminded us yesterday, the United States is far from being a poor country. The federal government has 650 million acres of land (about one-third of the country’s territory), 1 million buildings, energy companies and even an interstate highway system.
Finally, the legendary Fort Knox holds the gold supplies of the U.S. — more than 147 million Troy ounces (5,046 tons). Right now an ounce trades for $1,500. "Given the high price [gold] is now, and the tremendous debt problem we now have, by all means, sell at the peak," believes Ron Utt, a senior research fellow from the conservative Heritage Foundation. A similar opinion is shared by Chris Edwards, the research director for tax policy studies at the Cato Institute.
However, Russian experts suggest that the situation is not so dramatic. “It is not necessary for the United States to sell off its gold reserves and its sufficiently large federal assets,” said Dr. Elina Kirichenko, director of the Center for North American Studies at IMEMO to NG. “This would be a dangerous step, one which could undermine trust in the financial systems of the country.”
The correspondent to NG recalls that the U.S. Congress has never refused to raise the government’s debt ceiling. Approval from the legislators will come after complex bargaining between the Republicans and the Democrats, she believes. Loud, alarmist statements are important weapons in the political battle.
According to Kirichenko, the United States’ debt-to-GDP ratio is lower than in other developed countries. A large part of this debt, held by foreigners, is about a third of the total debt burden (the remaining two-thirds belong to American physical and legal entities, as well as government trust funds). In light of this, experts consider it unlikely that foreign investors in American debt will drop it quickly. There is no other attractive object for secure investments. In a period of crisis, these investments are perceived as less profitable, but without risk.
Yesterday the U.S. exhausted its limit for borrowing to cover its budget deficit. President Barack Obama has warned of the risk of a new serious recession in the United States and in the large global financial system if Congress does not allow the U.S. government to incur further debts. Economists in the United States suggest the use of federal assets and the government’s gold supplies in order to solve the problem of insufficient funds. However, experts suggest to Nezavisimaya Gazeta to not pay heed to alarmist sentiments.
The new warning from Obama came on Sunday on the program “Face the Nation.” If investors “around the world thought the full faith and credit of the United States was not being backed up, if they thought we might renege on our IOUs, it could unravel the entire financial system. We could have a worse recession than we’ve already had,” said the president.
The White House believes that a catastrophe may occur if Congress does not manage to raise the government debt ceiling.
In fact, Washington is afraid of a technical default. The current boundary of U.S. sovereign debt in the sum of $14.3 trillion was decided by a law, which was passed by Congress in February of last year. This law provides for a legal guarantee for securities issued by the Treasury Department. When this current limit is reached, the Treasury Department will lose the right to issue new debts. Meanwhile, it always needs money: In order to service its own obligations, the government needs around $125 billion a month. It is predicted that the budget deficit from the current fiscal year will reach a record $1.6 trillion. Therefore, the United States will be forced to continue to increase its debt.
The Treasury Department has warned, that with the help of “extraordinary measures” (which include borrowing from the state workers’ pension fund) they will be able to continue operating until Aug. 2. With this background in the United States, they are discussing various ideas about where to take the money from. However, as The Washington Post reminded us yesterday, the United States is far from being a poor country. The federal government has 650 million acres of land (about one-third of the country’s territory), 1 million buildings, energy companies and even an interstate highway system.
Finally, the legendary Fort Knox holds the gold supplies of the U.S. — more than 147 million Troy ounces (5,046 tons). Right now an ounce trades for $1,500. "Given the high price [gold] is now, and the tremendous debt problem we now have, by all means, sell at the peak," believes Ron Utt, a senior research fellow from the conservative Heritage Foundation. A similar opinion is shared by Chris Edwards, the research director for tax policy studies at the Cato Institute.
However, Russian experts suggest that the situation is not so dramatic. “It is not necessary for the United States to sell off its gold reserves and its sufficiently large federal assets,” said Dr. Elina Kirichenko, director of the Center for North American Studies at IMEMO to NG. “This would be a dangerous step, one which could undermine trust in the financial systems of the country.”
The correspondent to NG recalls that the U.S. Congress has never refused to raise the government’s debt ceiling. Approval from the legislators will come after complex bargaining between the Republicans and the Democrats, she believes. Loud, alarmist statements are important weapons in the political battle.
According to Kirichenko, the United States’ debt-to-GDP ratio is lower than in other developed countries. A large part of this debt, held by foreigners, is about a third of the total debt burden (the remaining two-thirds belong to American physical and legal entities, as well as government trust funds). In light of this, experts consider it unlikely that foreign investors in American debt will drop it quickly. There is no other attractive object for secure investments. In a period of crisis, these investments are perceived as less profitable, but without risk.