Reuters reports that US Treasury Secretary John Show has proposed to sell the US gold reserve so that the country may finance the debt relief it has given to poor blocks. According to the same article, the US is the world’s largest stock of gold bullions. I’d imagine the plan sounds extremely reasonable to the poor debtors since it may encourage future debt relief. There is however opposition coming from the US states that produce gold.
The reason for such opposition is simple. Any move to sell the gold reserve by the US will bring the price of gold down as quantity increases. Producers of gold obvious don’t like the idea of seeing the price of the commodity going down.
I’m in the position of supporting the sale. While the sale of bullions will negatively affect the producers of gold, I see benefit outweighing the cost. Few benefits that I can think of are, one, of course, lower liability for the poor nations; two, providing the US with liquid asset that may be used for higher return investment – the bullions probably merely sits in the bank doing nothing; three, environment.
The sale of the bullions will force the producers of gold to cut down its production if they want to preserve the price of the gold. With lower production, polluting material used in the mining of gold such as mercury and cyanide will be reduced.
Let’s see who will win this one. I bet the proposal will be shot down almost effortlessly.
p/s – the Fed wants to rework the way the Federal Open Market Committee announces any of its intention. The powerful independent central bank wants to drop the usage of the magic word “accommodating” and, the better known “measured”. The article suggests that the interest rate might increase at a greater rate in the near future.
Already, upon that announcement, the price of T-bills is heading down – reason for such fall is that any hike in interest rate makes other investments offer better return than bond. With lower return relatively to other investment option, demand for current bond fall and, with falling demand, comes falling price.
And that happens because the Fed wants to drop the word “accommodating” and “measured” while the real hike hasn’t been done or even announced yet.
Feel the power of Alan “Invisible Hand” Greenspan’s Fed.
The federal fund rate right now and past rates, thanks to Wikipedia:
The rise has been steep for the past few years and if the hunch is true, the rise will be steeper soon. But nobody will do a Volcker, that’s for sure. Inflation is still in check despite the arising fear a year ago.
