A 250th Anniversary Gift for Uncle Sam

Could it be actually happening? That is my question — and hope — for the flurry of comments and proposals emanating in recent days from President Trump’s new administration on the subject of the Federal Reserve and how it’s lost its way in the era of fiat money.What’s happening is that as the second Trump administration comes into focus people are starting to think that maybe we could have serious reform of what is by far the country’s biggest economic problem — the debasement of the dollar and the inflation it so often portends.Could this be the moment to set the goal for the issuance of a gold-backed long term bond? This is the idea, which I’ve nursed for years, of issuing a U.S. Treasury bond convertible into gold at maturity. What could better symbolize America’s vision for a new Golden Age than issuing gold-backed bonds on July 4, 2026 — America’s 250th birthday — to mature 50 years later on our country’s 300th birthday?It would establish a beachhead for America’s commitment to sound finances and sound money going forward at a moment when both goals are encountering flak. Just this week came news that the latest inflation number has perked back up above 3 percent, which is 50 percent above the Fed’s target.Notably, Elon Musk has come out for putting at the head of the Federal Reserve the former congressman Ron Paul. It’s hard to imagine that Dr. Paul would want that job, given that he thinks the Federal Reserve itself is unconstitutional. Yet Mr. Musk’s endorsement of Dr. Paul’s longstanding call for a broad congressional audit of our central bank speaks volumes.Meantime the Senate has confirmed President Trump’s former budget director, Russell Vought, to return as head of OMB. “I am not a huge fan of the Fed,” Mr. Vought has said. “They have existed with this notion that they have this priestly ability to make decisions. And in fact, I don’t actually think they’re that good at it.” Chatter is in the air about whether America should mark to market the price of the substantial gold reserves it holds on the nation’s balance sheet at a statutory price of $42.22 a troy ounce. That compares to gold’s current market price in excess of $2,900 a troy ounce. The chatter followed a recent Financial Times column that speculated on a role for gold in America’s financial future.Mr. Trump’s new treasury secretary, Scott Bessent, had vowed at an Oval Office event that “we’re going to monetize the asset side of the U.S. balance sheet for the American people.” Monetizing the 261 million troy ounces in gold held by the U.S. government by revaluing them would deliver a windfall gain of roughly three-quarters of a trillion dollars. It adds up.Different sages or speculators are offering ideas for using financial gains to be realized through a revaluation of America’s gold reserves. No less an authority on monetary matters than James Grant of Grant’s Interest Rate Observer sketches how the increased cash resources could be used to pay down existing Treasury debt in Hamiltonian fashion. Proponents of a strategic Bitcoin reserve, such as Senator Lummis of Wyoming, have launched a bid to finance Bitcoin acquisitions through gold revaluation. What a moment, though, to announce the establishment of an official link between the dollar and gold by issuing a Treasury bond that guarantees redemption in gold. It would be the realization of President Reagan’s earlier vow to fight crippling inflation caused by too much government spending.“We’ll never regain price stability until we restore some form of gold backing to the dollar,” the Gipper said in a campaign ad. “As president, my first priority will be to make the dollar the most trusted currency in the world.”Could President Trump make it happen where Reagan was unable to overpower the resistance? By revaluing the gold and then pledging American gold reserves as collateral behind the newly issued government bonds, America would set up a barometer for measuring progress toward monetary soundness.The Fed’s credibility in delivering stable prices would be reflected in the difference between the rate of return demanded by investors on a Treasury bond payable in debased dollars compared to a Treasury bond payable in gold. Were the Fed to exceed investors’ expectations in maintaining or even strengthening dollar purchasing power over the life of the bond, bondholders could opt for repayment at maturity in dollars versus gold, the ultimate victory. It is encouraging that the former director of the National Economic Council, Larry Kudlow, a close advisor to President Trump, has now begun advocating for the issuance of a long-term Treasury bond backed by gold. He is joined by Steve Forbes, who calls it a “brilliant idea” for reaffirming America’s commitment to sound money. It would be a tangible way for President Trump to underscore his resolve to launch a new Golden Age for America.

A 250th Anniversary Gift for Uncle Sam

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