The Golden Road Out of the Debt Crisis

The value of a dollar has sunk to a new low, less than 1/3,000th of an ounce of gold. Yet according to a woefully outmoded American law, the federal government must account for its more than 8,100 tons of gold at a completely irrelevant valuation set more than 50 years ago, when the dollar’s value was much higher — about 1/42nd of an ounce. That outdated number stems from the precise language of the 1973 Act to Amend the Par Value Modification Act, still in force, legally stipulating that the gold value of the dollar is fixed at “forty-two and two-ninths dollars per fine troy ounce.” In other words, the law values the dollar at 1/42.22nd of an ounce of gold.Yet in the gold market, the dollar is fetching less than a 3,000th of an ounce — another way of saying that gold is trading at more than $3,000 per ounce, about 71 times the statutory price. In other words, the statutory price is less than 2 percent of the market price. How does this antique artifact survive?Whatever was the case in 1973 when Congress reduced the legal value of the dollar — to 1/42.22nd of an ounce of gold, from 1/38th of an ounce — for us in 2025, after a further half-century of depreciation of American paper money, the statutory price makes no sense at all. It comes from a law passed 52 years ago in a different world of political finance. Why hasn’t it been updated with a more realistic relationship between gold and the dollar? Gold’s value in terms of the dollar, having dropped to a 3,000th of an ounce from a 42.22nd of an ounce, has gone up by about 7,000 percent from the statutory price. That means in terms of gold, the value of the dollar has plunged by more than 98 percent. In accounting terms, this means that the Treasury has what amounts to a giant capital gain on the gold it owns. Although the gain is unrecognized on the government’s books, it has already happened and is already real. At a market price of $3,000 per ounce, this capital gain, in round numbers, amounts to $2,958 per ounce on the Treasury’s 261.5 million ounces of gold. That translates, theoretically at least, into a total unrealized profit of about $773 billion. That is a big enough number to get anybody’s attention, and for any Secretary of the Treasury to think about.When Treasury Secretary Bessent recently said, “We’re going to monetize the asset side of the U.S. balance sheet for the American people,” many financial commentators immediately thought of the Treasury’s gold and how it might be turned into a big realized gain and spendable cash. This can certainly be done, but not in any case until Congress amends the official dollar value set by the 1973 act.The possibilities are important for the fundamental theory and politics of money, because they would reintroduce some monetary role for gold a half-century after America led the world into its current inflationary, pure paper money system in 1971. That was when President Nixon ordered the Treasury to default on the international commitment of the United States to redeem dollars for gold.Suppose that Congress brought the official price of gold up to reality. The Treasury would immediately realize a $773 billion gain on the government’s books. To turn the gain into cash it would not have to sell any gold, but could borrow against it.For example, the Treasury could issue gold bonds, as it did historically, and as monetary theorist Judy Shelton, in her book “Good as Gold,” has suggested it do again. (The Treasury would have to overcome the issue of having defaulted on its former gold bonds in 1933.)With a more radical return to historical practice, the Treasury could issue gold-backed currency in competition with Federal Reserve notes. This, though, would take further controversial legislation.Much simpler and more direct would be for the Treasury to issue Gold Certificates, which are already authorized by the Gold Reserve Act of 1934, but now would be based on the current value of its gold. The profit on the gold could then be easily monetized by depositing these certificates in the Federal Reserve, which would correspondingly credit the deposit account of the Treasury with the Fed. Voila! Money ready to spend without issuing more Treasury bonds.As Paul Kupiec and I have previously pointed out, this would be an efficient way to create interim financing for any future debt ceiling crisis.We should certainly bring the finances of the United States current with the reality of the vast rise of the value of its gold with respect to the dollar and the vast fall of the value of the dollar with respect to gold. At the same time, we could open our monetary theory and practice up to a renewed monetary role for gold.To do so, Congress could immediately amend the Par Value Modification Act by enacting a “Gold Value Modification Act of 2025” that deletes the former official price of “forty-two and two-ninths dollars,” and replaces it by “the fair market value of gold as certified by the Secretary of the Treasury.”

The Golden Road Out of the Debt Crisis

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