Jim Rickards: Nobody Talks About It, But Our Whole System Is Based on Gold
Earlier this week, US Treasury Secretary Steven Mnuchin paid a rare official visit to Fort Knox to check out the nation’s gold stash. He made headlines when he quipped about the possibility of the gold not being there. Later, the secretary assured the world the US gold is safe and sound.
But why exactly does the US hold more than 8,000 tons of gold?
As we’ve explained, gold is money and there is economic power in owning gold. But nuts and bolts reasons also exist that help explain why the US holds so much gold, and most people aren’t aware of them. Jim Rickards did a good job of explaining it in a recent article on the Daily Reckoning. He argues that the whole American system is still based on gold.
So who actually owns America’s gold?
That question is a little more complicated than you might think.
Physically, the US Treasury owns the gold. But the Federal Reserve also has a claim on it. And at the end of the day, the US military controls it.
In the 1930s, President Franklin Roosevelt ordered everybody to turn their gold over to the Federal Reserve. The central bank required all commercial banks to surrender their gold as well. Then, under the Gold Reserve Act of 1934, the government ordered the Fed to turn the gold over to the Treasury. Rickards explains why this move was tricky.
Now, this is key: The Federal Reserve is actually a private system, while the Treasury is an arm of the US government. And the Fifth Amendment of the Constitution prevents the government from taking private property without just compensation. To get around that legality, the ‘just compensation’ was a gold certificate the Treasury issued to the Fed in exchange for its physical gold. To this day, the Fed carries that gold certificate on its balance sheet.”
The Treasury officially values its gold at $42 per ounce, the price in 1973. If you take the face value of that gold on the Fed’s balance sheet and do the math to figure out the number of ounces, it comes to about 8,000 tons. In other words, the Treasury has to keep at least 8,000 tons of gold to back up the paper certificate held by the Federal Reserve. Rickards nails the ramification.
So the secret to the Fed’s balance sheet is its ‘hidden gold asset,’ that gold certificate it received from the Treasury in the 1930s. Nobody talks about this or admits it. But our whole system is based on gold.”
So, what about the military?
Well, the Treasury has a little more than half of its gold stored at Ft. Knox. The rest sits in vaults at West Point. Both of these are Army facilities. As Rickards points out, the Army has the gold under lock and key, but it technically belongs to the Treasury.
Some people argue that Mnuchin was hinting at the truth when he joked about the gold not being at Ft. Knox. The Treasury hasn’t audited its hoard since 1953. Some conspiracy theorists offer this as proof the gold isn’t there. Rickards doesn’t buy it.
If you are the Fed or the Treasury and you want people to think that gold is unimportant — which they do — why would you audit it?
“You audit things that are important. You do not audit things that are unimportant. If the Fed doesn’t want you to think that gold is important, it follows that they would not audit it. Auditing it pays gold too much respect.
“I am in favor of an audit, just to be clear. But the fact that the government does not audit the gold does not tell you that the gold is not there. They just do not want you to pay any attention to it.
Rickards is right. The powers that be don’t want you to pay attention to gold. That means you would probably be wise to pay a lot of attention to gold!
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