Cryptocurrency: USA Has Defaulted, Stolen, Rebased, Repriced, Defrauded, and Enslaved Many Times Before

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"Weird Gold Trick" Could End Debt-Ceiling Showdown

https://dailyreckoning.com/weird-gold-trick-could-end-debt-ceiling-showdown/

Authored by James Rickards via DailyReckoning.com,

The phrase “X-Date” may remind readers of the TV drama The X-Files or
the superhero X-Men. It actually refers to the date when the U.S.
Treasury goes broke.

The problem arises from the fact that issuing U.S. Treasury debt
beyond a certain ceiling requires approval from the U.S. Congress. The
amount of outstanding debt today is at the current debt ceiling.

The Treasury is allowed to issue new debt to roll over maturing debt
as long as the ceiling is not breached. Since the U.S. is running
large budget deficits, the Treasury has to increase the total amount
of debt outstanding in order to pay the government’s bills for
everything from F-35 fighter jets to food stamps.

Treasury has already hit the debt ceiling but has been able to scrape
by with some positive cash flow (due to tax payments around April 15)
and some other revenue sources including excise taxes and tariffs.

The Treasury also has a slush fund called the Exchange Stabilization
Fund (created with the profits made in 1933–34 when FDR confiscated
gold and raised the price from $20.67 per ounce to $35.00 per ounce –
one of the great insider trades of all time).

Still, the Exchange Stabilization Fund has been used lately to prop up
the FDIC insurance fund that has been depleted by the bailout of
Silicon Valley Bank. You get the picture.
X-Date Could Be Just Three Weeks Away

The government can shuck and jive and scrape the bottom of the barrel,
but the bottom line is there comes a time when the Treasury is
actually broke. That’s the X-Date. And the X-Date could be June 1,
just three weeks away. The source for this date is Treasury Secretary
Janet Yellen.

Of course, Yellen cannot be completely trusted. She could just be
trying to scare Republicans into raising the debt ceiling without
getting spending cuts in return. Yellen actually doesn’t know much
about fiscal policy or a number of legitimate and previously used
techniques to create additional spending power for the Treasury
without violating the debt ceiling. She’s really just a flunky for the
White House so she says what they tell her to say.

Still, there is an X-Date out there somewhere. Right now, the House of
Representatives and the White House are playing a game of fiscal
chicken to see who blinks first. Maybe we’ll find out the hard way
when the bond market and the U.S. economy drive over a cliff.

But it can all be avoided with just one simple phone call. How? One
phone call from the Treasury to the Federal Reserve could reprice the
Treasury’s gold from $42.22 per ounce (historic cost) to a market
level of $2,042 per ounce (today’s price).

That would pull over $550 billion of new spending power out of thin
air — without issuing any debt. This was actually done by the
Eisenhower administration in the 1950s under similar circumstances.

That’s right. Most people don’t realize that there’s a way gold can be
used to work around the debt ceiling crisis. I call it the weird gold
trick, and it’s never seen discussed anywhere outside of some very
technical academic circles.

It may sound weird, but it actually works. Here’s how…
The Weird Gold Trick, Explained

When the Treasury took control of all the nation’s gold during the
Depression under the Gold Reserve Act of 1934, it also took control of
the Federal Reserve’s gold.

But we have a Fifth Amendment in this country that says the government
can’t just seize private property without just compensation. And
despite its name, the Federal Reserve is not technically a government
institution.

So the Treasury gave the Federal Reserve a gold certificate as
compensation under the Fifth Amendment (to this day, that gold
certificate is still on the Fed’s balance sheet).

Now come forward to 1953.

The Eisenhower administration was up against the debt ceiling. And
Congress didn’t raise the debt ceiling in time. Eisenhower and his
Treasury secretary realized they couldn’t pay the bills. What
happened?

They turned to the weird gold trick to get the money. It turned out
that the gold certificate the Treasury gave the Fed in 1934 did not
account for all the gold the Treasury had. It did not account for all
the gold in the Treasury’s possession.

The Treasury calculated the difference, sent the Fed a new certificate
for the difference and said, “Fed, give me the money.” It did. So the
government got the money it needed from the Treasury gold until
Congress increased the debt ceiling.

That ability exists today. In fact, it exists in a much, much larger
form, and here’s why…
Marking Gold to Market

Right now, the Fed’s gold certificate values gold at $42.22 an ounce.
That’s obviously not anywhere near the market price of gold, which,
again, is about $2,042 an ounce.

Now, the Treasury could issue the Fed a new gold certificate valuing
the 8,000 tons of Treasury gold at $2,042 an ounce. They could take
today’s market price of $2,042, subtract the official $42.22 price and
multiply the difference by 8,000 tons.

I’ve done the math, and that number exceeds $500 billion.

In other words,the Treasury could issue the Fed a gold certificate for
the 8,000 tons in Fort Knox at $2,042 an ounce and tell the Fed, “Give
us the difference over $42 an ounce.”

The Treasury would have over $500 billion out of thin air with no
debt. It would not add to the debt because the Treasury already has
the gold. It’s just taking an asset and marking it to market.

It’s not a fantasy. It was done twice.

It was done in 1934 and it was done again in 1953 by the Eisenhower
administration. It could be done again. It doesn’t require
legislation.

Would the government consider the gold trick I just described? All I
can say is don’t count on it.

You shouldn’t expect it to happen because no one in power wants to
recognize the role of gold as a monetary asset. They don’t want anyone
to even talk about gold, except as a “barbarous relic” that belongs in
the dustbin of history.

Instead, expect this game of chicken to continue. You can brace for
the worst by buying gold and building up cash reserves that you can
redeploy at a later date.

The stock market may be in for a rocky road.