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US Reaches Debt Ceiling

The U.S. Reaches -- and Smashes Through -- the Debt Ceiling

May 17, 2011 5:25 PM

On World News Monday evening we looked at the U.S. government reaching and crashing through the $14.29 trillion debt ceiling:

The Treasury Department has taken some extreme measures to buy Congress time to negotiate an agreement in which spending is cut along with an increased debt limit. These steps include tinkering with or borrowing billions from special government funds that are used to:

* provide benefits to retired and disabled federal employees;
* stabilize the dollar or foreign currencies;
* or fund local and state securities.

Some conservatives are talking about extreme measures to reduce the deficit, such as selling off government assets like land, real estate, or even the 261.5 million ounces of gold -- mostly in Fort Knox that the Treasury department owns.

The Treasury Department values this gold at $11 billion, but that’s according to a statute saying the gold should be set at roughly $40 an ounce.

But the current market price is actually closer to $1,500 an ounce – doesn’t that mean we have $392 billion dollars in gold with which we can pay off our debt?

First of all, it’s important to consider that at the rate the nation is deficit-spending -- about $125 billion in new debt per month -- selling off all the gold the U.S. government has would only buy the nation three months of additional deficit spending.

And there are serious questions as to whether selling its gold would actually hurt the U.S.

Mary J. Miller, Assistant Secretary of the Treasury for Financial Markets, cautions that a “fire sale” of government assets “would be damaging to the economy, taxpayers, and financial markets. It would harm the interests of taxpayers, and would undermine confidence in the United States.”


It would “undercut confidence in the United States both here and abroad, and would be extremely destabilizing to the world financial system.”

Miller notes that then-Treasury Secretary James A. Baker said: “President [Reagan] and I are not prepared to take that step because it would undercut confidence here and abroad based on the widespread belief that the gold reserve is the foundation of our financial system, and because the Congress clearly has the power to prevent a default by assuming its responsibility with respect to the debt limit.”

When asked whether he would consider selling the U.S.’s gold, President Reagan told his budget director, James Miller, "absolutely not."

President Clinton’s Treasury Secretary Robert E. Rubin said, “We will not sell the nation's gold supply.”

Says Miller: “The infeasibility of asset sales can be illustrated by an analogy: a family that is struggling to make its monthly mortgage payment could try to sell all of its possessions within a week at a garage sale or on the Internet. But, of course, the family would receive much less than the value of its possessions. And once the next month came, the family would still need to make its mortgage payments -- yet all of its possessions would be gone.”

-- Jake Tapper