How to pay all Treasury bills without increasing the debt limit


The news is rife with dire warnings about what will happen if Congress doesn’t lift the debt ceiling and the U.S. Treasury defaults on its debts.

Conservative House Republicans in the new Congress have pledged to block any increase in the debt ceiling without a deal to cut the government’s massive deficit spending. President Biden has vowed not to negotiate and says Congress needs to pass a clean bill that will only raise the debt ceiling.

Unless Congress raises the debt limit, Treasury Secretary Janet Yellen estimates that the Treasury will run out of money sometime in June and will not be able to pay all of its bills, leaving the outstanding debt of the U.S. Treasury in default.

It would be ridiculous, wouldn’t it, if the Treasury failed to pay its debts while owning more than half a trillion dollars of the most classic monetary asset there is: gold. If there is a way to convert the gold in the Treasury’s bank account into cash, the government can pay its bills through the end of fiscal year 2023 without an increase in the debt limit. There is a way, and it has been done several times in the past. All it takes is the passage of a bill that changes a few words to the existing law — a bill that both Republicans and Democrats should support.

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The Treasury holds a lot of gold: 261.5 million ounces, or more than 8,170 tons. The market price of gold is about $1,940 an ounce, so Treasury gold is actually worth about $507 billion. Due to a law passed in 1973, the Gold Reserve Act requires the Treasury to value its gold at $42.22 an ounce — a number 50 years out of date and unrelated to reality. Gold is, in fact, a hugely undervalued monetary asset of the Treasury. Contrary to the false idea that the Treasury is issuing a trillion dollar platinum coin, the gold owned by the U.S. Treasury is real; because of an outdated law, the Treasury simply values ​​it at an absurdly low price.

With the proposed change, the Treasury could simply issue gold certificates at the market value of its gold and deposit those certificates into its account with the Federal Reserve. The Fed will credit the Treasury account with an equivalent dollar value, and the Treasury can spend the money as needed. The Treasury has already deposited $11 billion in gold certificates with the Fed. If the Treasury revalues ​​its gold holdings to current prices, we calculate that it could deposit $494 billion in new gold certificates with the Fed – creating $494 billion in disposable dollars without creating an additional penny of Treasury debt.

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The Gold Reserve Act, as amended in 1973, provides that: “The Secretary [of the Treasury] may issue gold certificates against other gold in the Treasury. The secretary may prescribe the form and name of the certificates.” So the authorization to create gold certificates couldn’t be more clear.

Then come the words that need a change in the law: “The number of certificates outstanding must not exceed the value (before the issue of those certificates, of 42 and two ninth dollars per fine troy ounce) of the gold held against the gold certificates. .” New legislation is needed to amend the Gold Reserve Act and delete “42 and two ninth dollars” and replace it with “current market value (as determined by the Secretary at the time of issue).”

voila! The Treasury has $494 billion more in cash with no additional debt. The president’s budget proposed a deficit of $1.2 trillion for fiscal 2023 so the additional funds should take the treasury from the current June TUSEN to easily past the end of fiscal 2023 allowing the new majority of the Republican House and the Democratic Senate majority are given time to negotiate, in normal order, and approve a fiscal year 2024 budget with spending cuts, and approve a new debt ceiling of appropriate size to facilitate government financing in fiscal 2024 and beyond.

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By recognizing only the true market value of the Treasury’s gold supply, the intense embarrassment to the government and Congress of impending Treasury bankruptcy can be completely avoided. Indeed, it is ironic that in a world of inflated fiat currency and massive funding shortfalls, the government can remain solvent simply by recognizing the true value of the government’s gold reserves. There are no budgetary tricks involved. It has been done before and can work again.

Alex J. Pollock is a senior fellow at the Mises Institute and the co-author of the new bookSurprised again! – The covid crisis and the new market bubble. Paul H. Kupiec is a senior fellow at the American Enterprise Institute.


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