Why Ron Paul Is Pushing For a US Gold Sale

By Aaron Krowne

founder, ML-Implode.com

The New York Sun is reporting, as part of the debt ceiling debate, that Rep. Ron Paul (among others) is actually calling for a US gold sale to ameliorate the situation:

Dr. Paul told the Sun today that he reckoned the sale of gold reserves would be “a good and moral decision. An individual would have to do the same.” The sentiment is echoed by another big name in the debate on monetary reform, Edwin Vieira Jr., who told the Sun he has little hope of the government moving to sound money and would prefer that it coin its gold holdings in pieces marked with their weight and use them to pay off debts, particularly individuals — who might be owed, say, tax refunds.

Mr. Vieira is a proponent of what he calls the “absolute separation between currency and debt.” He considers specified weights of gold and silver as the only constitutional currency. “Redeemable currency,” he says, “is an oxymoron.” And given that America is in an era of fiat money with no plans on the government’s part to mount a reform, he says of the government: “They don’t need the gold. They’ve just been sitting on it since Roosevelt stole it.”

But wait a minute. Isn’t “Ron Paul for a gold standard”?

Actually, no. To any that have bothered to listen to him (rather than simply caricature him as “America’s crazy uncle in Congress”), Ron Paul has stated clearly and repeatedly (at least in the last decade) that he is in favor of letting the free market decide what money to use. In practical terms, this would mean private citizens and businesses would be free to use gold, silver, nothing, or anything else as money, without fear of reprisal from the federal government (which it is not supposed to be doing anyways).

So clearly there’s no need for the government to be holding gold to provide a currency (especially with the formally-unbacked fiat dollar we have now) — and there is definitely no need for it to be holding gold as a “portfolio asset”, to increase its credibility or for any other reason.

But Paul’s advocation of selling the US’s gold hoard is more interesting for other reasons. Astute observers may note that Rep. Paul is doing something very shrewd here. Note that he is also sponsoring legislation to audit the US’s gold reserves (this was mentioned in the Sun article). My guess is Paul thinks that not all the gold is there. Then pushing to sell it is essentially calling the federal government’s bluff.

So won’t he be red-faced if the gold actually is there?

Not likely. If the gold (about 8000 metric tonnes of it — the largest claimed cache in the world) is there, there is really no practical way to “sell” it in bulk or any otherwise budgetarily-useful quantity. Basically all we can do is hand it over to the Chinese and/or Arabs in return for cancellation of debt. This would end up turning into an interesting opportunity to do a “market price discovery” of the dollar relative to gold, which is probably the last thing the US authorities want to see. Not to mention, handing it over to our creditors is likely to prove politically unpalatable.

In other words: pushing this issue leads to the rapid destruction of the dollar any way you slice it; either due to the revelation that we have no gold “backing” it, or in the process of discovering how much of it our creditors want in exchange for all of their trillions of Treasury bonds. Go Ron!

And no, selling the gold off gradually on the open market (if it is there, that is) isn’t a possibility — it wouldn’t raise enough money to make a dent in the deficit, plus every ounce of gold sold would be counter-acted by the shrinking of the dollar’s implicit gold “backing”. So a “slow sale” wouldn’t solve either of the government’s big twin monetary problems.

Check and mate, Dr. Paul. Well played.