–What would happen if the U.S. sold its gold reserves?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.

A reader of this blog asked, “What would happen if the U.S. sold its gold reserves?” It was such a timely question, I’d like to share the answer with everyone:

If the government sold its gold reserves, the price of gold would decline (supply and demand), and the total supply of dollars would decline (all money sent to the government is destroyed), which would increase the value of dollars (i.e., a deflation) probably leading to a recession or a depression.

So if anyone suggests the U.S. sell its gold to “pay off the debt,” (which is ridiculous in a Monetarily Sovereign nation), you can tell them what this foolish act would cause.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up my future.”


13 thoughts on “–What would happen if the U.S. sold its gold reserves?

  1. … but what if the government used the sale as a justification to create new money (to service debt, pay for entitlement, fund projects) for every dollar it receives and then destroys? So the supply of dollars is the same.

    That begs the question, why bother to sell the gold at all since a monetarily sovereign nation can meet its own obligations? But following that logic, why hold onto the gold? What function does it serve? Aren’t we wasting the allocation of resources to store and guard it?


    1. If the government doesn’t spend to “store and guard” gold, money will be removed from the economy. Why would you want to get rid of something that’s stimulative?


      1. Is this meant to read as sarcasm?

        If not then this would reinforce one of the major arguments against MMT… free money and bubble creations. The government is needlessly subsidizing the gold storage and gold guarding industry. Couldn’t we use a well dug ditch more than the maintenance of the gold deposits.


          1. I think you’re extending the philosophy of MMT too far. The government (the people) should get value for the services its paying for.

            Also having the “gold guards” on the government payroll removes them from the private workforce. Removing them from the supply of available workers for private sector jobs drives private sector salaries higher, making the cost of doing business higher for private companies.

            By you’re rationale, why not pay every citizen to guard a lamp post, because the government can “afford” it.


          2. Classic crowding out argument – which requires proper full employment before it is remotely applicable.

            It cannot apply if there is significant unemployment.

            Do you therefore consider that the US is at full employment at the moment?


  2. If the government created new money, the price of gold would go down and we would have less gold. In short, it essentially would be meaningless.

    As to your 2nd paragraph, I agree. Gold is nonsense.

    Rodger Malcolm Mitchell


  3. It is a wacko idea. It would not increase the real wealth of the nation, but it would remove money from the economy. No gain, all pain.


  4. Strkes me the recession causing effect would be limited because the private sector would not part with money it intended using for transactions in the next year or two. That is, money used to purchase gold would be “idle balance” money.


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