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If Only

by John Rubino on January 20, 2010 · 22 comments

A Wall Street Journal columnist named Thomas Frank just made a great suggestion:

One Cross of Gold, Coming Up

How the government could get even with right-wing cranks.

These are polarized times, but one thing everyone agrees on is that it sure is great when government makes a profit.

Supporters of President Obama like to point to recent TARP-loan payoffs, plus interest, as an example of federal success. His opponents, by and large, have long held that government should be run like a business; their former leader, George W. Bush, once announced that “government should be market-based.”

It is a terrible idea. Were the government actually to begin understanding itself as a market-based, profit-maximizing enterprise, determined to bring down the deficit by whatever means present themselves, can there be any doubt what it would do?

It would sell gold. Oh, it would sell lots of gold. It would put Fort Knox on eBay. Mr. Obama could film the TV commercials.

The first reason for this is obvious: The price of gold is over $1,100 per ounce, near its all-time high in nominal dollars. At that price, the Treasury’s 261 million of ounces of gold would be worth nearly $300 billion. Meanwhile, the government’s enormous hoard of the stuff is valued by the Treasury—according to a Web page entitled, “Fun Facts About the United States Mint”—at only $42.22 per ounce. If they’re saving it for a rainy day, that day has arrived.

I know what you’re thinking: Stupid liberal, if the Treasury started unloading its gold—if it gave even the merest hint of doing so—it would send the price of that commodity plummeting.

Which brings us to reason two. The other day, as I watched the zillionth commercial for gold investments flicker by on Fox News, I thought to myself: What would happen to the American right if the price of gold suddenly tanked?

As anyone knows who has Googled the phrase, “FDR Gold Confiscation,” gold has long been the obsessive investment choice of a certain species of antigovernment crank. Its allure is especially strong for the disaster cohort—for those who believe that hyperinflation is just around the corner; that default by the U.S. government is a real possibility; and that democracy itself is something of a fraud, a populist Ponzi scheme pulled off by slimy politicians and the central bankers they’ve hired to run the printing presses.

One reason gold has been bid to its current stratospheric heights is because more and more investors and fund managers have signed on to this dark belief that America’s judgment day has finally come.

Were the administration to get started on the great gold dump, however, we’d come to a different judgment day very quickly. When the massively inflated price of that metal collapsed, it would probably take with it a hefty chunk of the portfolios of tea-party types, survivalists, Birchers, dittoheads, Objectivists and almost every imaginable species of secular end-timer.

Achieving such an effect might not even require selling the gold, either: The government could conceivably collapse the price merely by implying that it intended to sell the stuff.

Of course, it is an article of my corny liberal faith that government should never craft policy merely in order to damage its partisan opponents. But if you believe that government should be run like a business, then this, too, becomes thinkable. It was the supremely market-minded men of Republican Washington, after all, who made “Defund the Left” into one of their movement’s guiding principles. It was they who dreamed up the “K Street Project” and the other schemes that were designed to reward GOP loyalists and redirect the revenue streams of the Democratic Party.

If it’s all about profit, why not take a page from that playbook? Besides, the right already believes Mr. Obama to be an unholy amalgam of Machiavelli, Pol Pot, and Bathhouse John Coughlin, guilty of the worst deviltry Chicago has to offer. Why not serve a little up?

Just for fun, the administration could then smooth the whole thing over with some tactical libertarian cant. It might declare that the price of gold had been propped up artificially for decades by the state’s irrational hoarding. Privatization is a far better option, administration officials might purr. It lets the market speak.

And so, in an irony worthy of Oscar Wilde, it would be the gold-investing contingent of the right who would discover that they had risked their fortunes on the whim of the very government they distrust and despise.

But it is the opposite irony that probably ensures that a great gold-dump will not take place. In addition to denting the holdings of countless extremists, such a move would also deal a massive blow to the hedge funds that have reportedly made enormous bets on the barbaric metal. Their losses would then reverberate through the financial system, inevitably shaking the institutions deemed “too big to fail.” And before long, government would have to ride to the rescue of those who have wagered so much on the government’s collapse.

Some thoughts:

  • Mr. Frank doesn’t really get the whole money thing.
  • The gold’s not there. Research by GATA and others indicates that much of what is purportedly in Fort Knox has been lent to bullion banks and sold on the open market. So in a sense Treasury has already taken Mr. Frank’s advice, but secretly.
  • By depressing the price of gold, the world’s central banks actually did the gold bugs a huge favor by allowing a whole generation of intelligent investors to load up at bargain prices.
  • If — and this is the great thing about Frank’s plan — the U.S. dumped its gold on the open market it would be seen, correctly, as the final unmooring of the dollar from even the pretense of being backed by anything other than our faith in the competence and honesty of Ben Bernanke, Nancy Pelosi, Chris Dodd, Barney Frank, et al. Gold would fall for a couple of months as the technical traders were once again suckered, and then it would soar as the implications became clear.
  • So by all means let’s open up Fort Knox, list what’s there on eBay and let the market do its thing.

 

  • Gerald Hill

    The $300 billion the government would receive at today’s price seems small relative to the $1.5 trillion budget deficit, the $14 Trillion debt, the $100 trillion contingent liabilities and China’s $2.3 trillion in reserves. You just made the case to buy gold.

  • henry1coulter

    I’ve read many of your books Mr Rubino. Let me tell you they’ve helped me a lot, I’m very grateful but the most amazing thing about this article is your admission that you listen to Fox News, besides you’re not a liberal but a Libertarian, big difference there.

  • henry1coulter

    Sorry, I get it. It’s Frank who’s the liberal not you, what a relief.

  • samIam

    300 billion? Gerald’s right…that’s a drop in the bucket (if it were there). I’m sure the Chinese would gladly exchange their worthless fiat dollars for the whole shabang.

  • John King

    I like the idea. With over 8000 tons (officially, if indeed it does exist) of gold to sell, the U.S. government could truly drive the price down substantially, hopefully into only the double digits. Sales to Americans only should be mandatory. That would give people like me the opportunity to load up on that “barbaric relic” for a pittance. Then, when the printing presses really begin to roll to extinguish that $100 trillion debt (probably 300-400 trillion for all governments worldwide), the federal reserve note (I won’t give it the respect of calling it a dollar) will be highlighted for what it really is, a worthless piece of paper with absolutely nothing but a bankrupt populace to back up its value. After which, the price of gold would once again hit the afterburners. I can’t think of a more intelligent thing for the ruling elite to do. I can’t wait. Lets suggest it to Congress.

  • Clark

    And what’s stopping the bankers from buying up all the treasury’s gold?

  • http://paperpoverty.blogspot.com/ paper is poverty

    There seems to be a PR campaign to convince people that gold is somehow right-wing, and is purchased only by wingnuts who are rooting for the demise of the country because (one assumes) they’re too racist to abide a black president. Salon, Politico.com, and the Steven Colbert show have said as much in the past couple of months, and now this highly annoying tripe in the WSJ. The Salon piece actually says “The market value of the commodity has been climbing steadily since Obama took office back in January,” as if the gold bull market is brand new, just a hateful reaction to Obama.

    I guess it’s one way to make people ignore the canary in the coal mine that is the rising gold price. Tell them it’s all because of Glenn Beck’s advertisers, and any talk of hyperinflation is unpatriotic (and possibly racist) fear-mongering. There are masses of people who will shut their ears to any talk about the future of the dollar, once they get this idea into their heads.

  • John King

    To Clark

    The Treasury officially turned over all of its gold to the Federal Reserve. The bankers don’t have to buy the gold. They already control it.

  • Johnny Oxygen

    I don’t know when I’ve ever read a more uninformed article.

    I suppose the premise is that if the government wanted to bring down the deficite it would sell gold. Is that right?

    First of all the author looks at gold in a myopic fashion. Gold is a globally traded commodity and is therefore exposed to global market forces not just the US economy.

    How would selling gold for the propsed #300 billion even begin to cover $134 Trillion of unfunded liabilities, $700 trillion of virtually worthless OTC derivatives (that someone is going to have to take a loss on very soon), $3 trillion of immediate debt and cover the $10 – $20 billion the government is printing every day?

    The author wrote:
    “I know what you’re thinking: Stupid liberal, if the Treasury started unloading its gold—if it gave even the merest hint of doing so—it would send the price of that commodity plummeting.”

    Alan Greenspan has publically admited that if the dollar was to ever be threatened with high inflation that the government would do just that, dump a bunch of gold on the market, not to drop the price of gold as much as to remove the threat of gold to fiat currency. But it wouldn’t dump physical gold it would issue more phony paper gold to do it.

    The way the government is going to handle this crisis is by devaluing the dollar. Its what FDR did and it is what the Obama administration is going to do. You don’t do that with gold you do it with the printing press.

  • SoundMoney21

    Thank you for responding to Thomas Frank’s article yesterday. Your response was right on the money (pun intended), especially the part about Frank not getting “the whole money thing.” Frank’s drivel is in the same genre as the following recent nonsense:

    http://www.thestar.com/business/article/742619–olive-don-t-believe-hype-over-gold

    http://www.walletpop.com/blog/2010/01/15/save-your-money-12-things-you-shouldnt-buy-in-2010/?icid=main%7csearch3%7cdl5%7clink7%7chttp%253A%252F%252Fwww.walletpop.com%252Fblog%252F2010%252F01%252F15%252Fsave-your-money-12-things-you-shouldnt-buy-in-2010

    As you know, these people do not understand the nature of money. They live in the mainstream paradigm that considers gold to be just another commodity, such as sugar, coffee, copper, nickel, aluminum, oil, gas, etc., and not money. And if it is just a commodity, then the question of whether to purchase it depends solely on its attractiveness as an investment. Since they cannot understand why anyone would want to own gold (i.e., why there should be significant demand for it), except to wear as jewelry, they cannot understand why its price in fiat currencies has risen so dramatically over the last decade, and their conclusion is that the cause must be irrational purchasing by lunatics with apocalyptic visions. Thus, they reason, the gold “price” has to be a bubble.

    Based on the same paradigm, the mainstreamers also do not understand why governments and central banks continue to own gold; to them it has no purpose and just takes up storage space in vaults. That manner of thinking allows someone like Frank to make the reckless suggestion that the United States should dump its remaining gold reserves on the market.

    The fact that these people still represent mainstream thinking and are as vocal as they are tells me that the gold bull market still has a long way to go. Perhaps someday they will exhibit some sophistication and realize that gold is money, and therefore the correct comparison is not between gold and a stock or other productive investment, but rather between gold and fiat currency. The question is not whether one should buy gold or GE, but whether one should use fiat currency or gold as a store of value over time. If people like Frank start to answer that question correctly, only then will I start to think that the gold bull market has topped-out (but I won’t hold my breath). Perhaps Frank should wonder why central banks do not take his suggestion, why they continue to hold gold and in some cases even purchase more. It cannot be because they derive pleasure from storing “barbarous relics.” They do it because it is a monetary asset. There cannot be another reason.

    Keep up the great work.

  • Peter J. Ritter

    Hi John,
    They might just announce that they will sell all, or whatever part is already gone, of their gold to the “free market”, but probably to their cronies. That would hurt the price. And, importantly, it would cover their previous gold machinations. The revenues “earned’ for this sale could easily be created on a computer or printing press, although no real sales would take place. Thus they could hit the gold bugs and anti-government people for free, and then make a show to invite auditors in to count the remaining bars, if any.
    Your scenario is not that far out.
    Regards, Peter

  • tyler

    Wake up people fox news, fox business, the wall street journal they don’t want you to own gold. I hear them put it down all the time. John Stossel said more peoYple at fox news donated to democrats than republicans last election. I consider myself a right winger and proud of it, but I sure as heck won’t get my news from fixed news or the wall street journal. You should be very careful about supporting media conglomerites whether you like them or not your not really hearing the truth. As for gold being a relic like the haters like to say I don’t know but I do know I just sold half of my gold and bought silver. I don’t mind the volatility in the silver market and it has a lot more upside than gold.

  • Andy

    Mr Frank does not understand gold buyers.

    The price of gold would not collapse because the fundamental reason for high gold prices would not have changed. i.e. the deficits with no will to tackle them, the unfunded government liabilities, banking problems etc

    If they unloaded all that gold then people from the tea partiers, the hedge funds and governments like china and india would load up on gold at the reduced prices. $300 billion could easily be absorbed by all these interested buyers.

  • http://www.viewsflow.com David Smith

    What’s the matter with Thomas Frank?

  • CyniKal

    Go ahead Frank, make the US sell all of their (our) gold.

    China will buy it…

  • pAT

    It seems to me that the Wealthy Elite [Council on Foreign Relations members] are manipulating the gold price down through its banks, Goldman, JPM, Citi, in order to shake as many people out so they can steal the gold too, and run up the price…just as they have done with the stock market, bonds, derivatives etc.

    It was done in the thirties, so they got rid of Glass-Steagall to do it again.

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