Fed Lawyer Alvarez: “The Federal Reserve Does NOT Own Any Gold at All”

Gold News.Com ^ | June 2, 2011

[David]

The article is based on a summary of a testimony exchange between Dr. Ron Paul and Scott Alvarez, an attorney of house counsel to the Federal Reserve at a hearing before House Financial Services Subcommittee on Monetary Policy. The actual transactions involving ownership of US Gold which were implemented at the time the Federal Reserve Act of 1913 was adopted have been shrouded in an effort to obfuscate the long term rights of the parties. The historical received wisdom has been to believe that the Fed owned the US gold subject to a right in the Treasury to get the gold back in exchange for a price fixed by the statute. This testimony by counsel, if accurate, is that the Fed returned the gold to the Treasury in 1934 in connection with the FDR gold confiscation in exchange for "Gold Certificates" which constitute an obligation of some character of the Treasury. The testimony contains what appears to be new information about the ownership of the gold owned by the United States which if true would have a significant impact on US Monetary Policy.

[David]

Whatever you may think of gold as an investment, the facts are that the US Dollar credibility has historically been supported by ownership by the United States of around 8000 Metric Tons of gold.

In 1913 when the Fed was established, the US gold was transferred to the Fed pursuant to statutory authority to do so. The received wisdom has been that the fed still owns all the gold which may be in the possession of US agencies for safekeeping. This testimony tells us if true, that is not the case.

Dr. Paul's questions (and he is one of the knowledgeable authorities) indicate that he was not aware that the gold had been transferred back to the Treasury. I have been involved in looking at this issue many years ago for a client and the testimony is also new information to me.

What counsel says is that the gold was surrendered to the Treasury for gold certificates in 1934 in connection with the FDR gold confiscation.

The confiscation price was $20.67. Further, as I recall the initial 1913 statutory authority, the repurchase price was fixed at around $800mm +/- (my recollection only). In addition, counsel's testimony, if correct, is that the price has been adjusted up for subsequent statutory price increases--(the price was not adjusted to $35 in 1934); but was adjusted to $38 by the 1972 Act; and again to $42.22 by the 1973 Act.

According to a footnote, presumably to the Treasury's financial statement, the current financial obligation on the Certificates is $11.16bil.

In order to accomplish any of that, it would seem to me to require an appropriation by the Congress. According to counsel, this was done by authorization of the Secretary of the Treasury. It would not appear that the Secretary would have the authority to do this absent Congressional authorization which would appear to require an Appropriation Act under the Constitution.

I suspect this evidences some intention to change the existing relationship. Among other things, it would mean that even if an audit of the Fed were required by Congress, such audit will not confirm the amount of gold the US actually holds nor where it is held which is of course one of the significant issues.

[henkster]

I’m not convinced there is all that much gold there, and how much is owned by the US or by China.

[DuncanWaring]

Related, from Karl Denninger:

Are We Done With Goldbug Fantasies Yet?

[mamelukesabre]

At first I was thoroughly angry about the candor which the fed would admit such a thing, even though I suspected it all along.

But then I thought a little more. This should’ve been obvious. The whole reason FDR confiscated gold in the first place was because it was a dangerous competitor to the $US. Gold HAD to be eliminated to protect the government. Once people were sufficiently conditioned to not use gold as money, we were again allowed to own it.

This is not a free country and we are not free citizens.

[C210N]

1. The ultimate “OWNER” of the US Gold at any point in time is the current population of citizens in the USA.
2. There is little or no Gold in the hands of the supposedly “fiduciary responsible” US Government.
3. The Gold has been stolen over the years by highly placed government thugs, who shelled it out to foreign governments for secret deals.

[Mariner]

The United States Government hold the largest gold reserves in the world and the US Treasury knows where every bar and every coin is.

The Fed has no physical gold.

Why do folks find this somehow mysterious?

[rightwingextremist1776]

We haven’t been since the advent of the income tax....

[David]

I’m not convinced there is all that much gold there, and how much is owned by the US or by China.

If there is no gold left, it may be a non-issue.

Although I read the testimony as an explanation for why, if Congress does approve an audit of the fed, such an audit will not disclose anything about the amount of gold that is left or where it is located or who really owns it.

On the other hand, if this guy really knows what he is talking about, the oversight committee under Darrel Isa should have the authority to ask Mr. Geithner to come in and tell them exactly how much gold he owns; if any of it is loaned out; if so where, who etc.

[Lurker]

Because most people don’t know tht the Fed and the Treasury are separate entities.

[coloradan]

The United States Government hold the largest gold reserves in the world and the US Treasury knows where every bar and every coin is.

Do they? They do? How do you know this for a fact? Because some government agent said so? Do they ever lie? Why are they so resistant to auditing Ft. Knox?

[hosepipe]

The Pebble Mine in Alaska has many tons of GOLD... many tons.. and copper.. UNDEVELOPED GOLD.. whole mountains of it..

Must be being SAVED for the chinese when they take over here..

[DaxtonBrown]

I am writing a book and information about the amount of gold held and FDRs gold grab would be a crucial nugget.

[expatpat]

Lawyers! It depends on what the work “ownership” means. If they have a call position on the US gold, it is very close to ownership.

[David]

Related, from Karl Denninger:

Are We Done With Goldbug Fantasies Yet?

Denninger is well worth reading also. His economic analysis of the support for the fiat currencies is, in my view, correct.

Conventional wisdom is that even if the US dollar is not legally "backed by gold", it is a de facto gold backed currency because the US owns the gold and could revalue it and use it at par to fully back the dollar and pay off all debts. At $5000 an ounce, even if the US still owns all the gold, that is only about $1.28tril which is not enough to make much of a dent in $14til of debt. Maybe at $50,000 it might be doable but I tend not to expect $50,000.

However gold is still money. Denninger's stuff about it having been eliminated in 1934 also just isn't the real world. I can buy jet fuel anywhere in the world at par with any one of the mainstream gold coins--Eagle; Maple; or Kruggerand.

Banks can take gold as collateral. In Utah, it is legal tender--likely in a bunch of other states also in the near future.

At present gold is money. Maybe government could make attempting to use gold as exchange money a capital offense and discourage people from trying to do it. But at present, gold is money.

[LucyT]

Fed Lawyer Alvarez: “The Federal Reserve Does NOT Own Any Gold at All”

Check out article, and # 1.

In 1913 when the Fed was established, the US gold was transferred to the Fed pursuant to statutory authority to do so. The received wisdom has been that the fed still owns all the gold which may be in the possession of US agencies for safekeeping. This testimony tells us if true, that is not the case.

Dr. Paul's questions (and he is one of the knowledgeable authorities) indicate that he was not aware that the gold had been transferred back to the Treasury. I have been involved in looking at this issue many years ago for a client and the testimony is also new information to me.

What counsel says is that the gold was surrendered to the Treasury for gold certificates in 1934 in connection with the FDR gold confiscation.

Then see # 4 , and # 14.

"Looks to me as though this is an indication of the intention to change operation of the dollar reserve system. If so, would probably be one of the more important events of the period."

Thanks, David.

[Absolutely Nobama]

“Fed Lawyer Alvarez: ‘The Federal Reserve Does NOT Own Any Gold at All’ “

How much longer until the house of cards comes down ?

[Atlas Sneezed]

the facts are that the US Dollar credibility has historically been supported by ownership by the United States of around 8000 Metric Tons of gold.

---

Some quick math. There are 32,151 Troy ounces per metric ton, and at $1500 per ounce, that pile is worth $0.384 trillion dollars.

Basically, that’s a couple months of federal budget overruns.

About $5000 in gold per household (of 4 people). While the national debt and future unfunded entitlements like SS and Medicare represent $1.2 million debt for that same household.

It really doesn’t matter if there is any gold there or not.

It’s over, folks.

[David]

I see this as the most significant problem faced by the US. And your point demonstrates how much trouble the US is really in.

"Some quick math. There are 32,151 Troy ounces per metric ton, and at $1500 per ounce, that pile is worth $0.384 trillion dollars.

Basically, that’s a couple months of federal budget overruns.

About $5000 in gold per household (of 4 people). While the national debt and future unfunded entitlements like SS and Medicare represent $1.2 million debt for that same household.

It really doesn’t matter if there is any gold there or not.

It’s over, folks."

I don't see the "future unfunded entitlements like SS and Medicare" as the problem. At the point the country's survival is as stake, Congress will change the entitlement. We get there and that is a high class problem.

But your arithmetic demonstrates how serious the problem is to get to that point.

Lots of money managers and executives in the banking system believe it would not be unreasonable to see the fed and its allies permit or support (whatever word you want to use) the price of gold to get all the way to $5000. But your arithmetic points out the problem with that as a solution also--at $5k, that is $1.28tril; that isn't even 10% of your total debt of $14tril.

At a gold price of $50k, you are still a trillion and a quarter under water. And I don't see $50k gold as likely.

This really brings the monetary end game into focus. I don't see a real solution.