A comment to one of my blogs recently came my way. The original blog posting was about a year ago.
Do I read such a delayed reaction comment and then just go about my business?
Do I somehow weave it into something else?
I have been pondering that in the back of my mind during my various tasks in the last couple of weeks.
The comment related to a posting I made recommending that the American gold reserve in Fort Knox and other places should be used and not simply stored and ignored.
However, the way I suggested to use it was as interest on a new 20-year gold loan.
As you remember, last year at this time there occurred the big debt ceiling debate in Congress and many people were wondering if the United States was still a good credit risk.
I suggested that the new form of gold loan be created where the annual interest would come in the form of a gold one-ounce American Eagle.
Because interest rates are very low, I said the market would probably assign a rate of one-half of one percent.
Gold was at $1,500 an ounce at the time so the math was convenient with the exception that the sums have many zeroes.
The math worked out so that the principal amount of each bond entitled to the gold coin interest was $300,000. The maximum that could be covered was a sum of $3.9 trillion, or more than a quarter of the current national debt.
To pay the interest each year the Mint would have to crank out 13 million American Eagles, which would be quite a logistical challenge, I admit.
That would use up the 260 million ounces of gold in the U.S. reserves over 20 years.
The $300,000 principal amount would be paid off in currency, the same form in which it was borrowed.
This I suggested would add a little more security for lenders to the United States.
Times have moved on. The U.S. government is paying lower rates of interest now than it did then even without the gold kicker.
But the reader suggested using the Fort Knox gold simply to pay off that part of the national debt that we owe China to be free of any obligation to that country.
Unfortunately, that cannot work simply because the numbers don’t add up.
The national debt owned by China is over $1 trillion.
The current value of the Fort Knox gold, (if we use $1,600 as this year’s price) works out to $416 billion, or quite a bit less than half of what we owe China.
So our financial obligations to that country will have to continue along much as they have been.
However, both scenarios are simply exercises in playing with a calculator. Neither course of action is ever likely to be seriously contemplated.
But thanks for the comment. I enjoy the thought process.
Buzz blogger Dave Harper is editor of the weekly newspaper “Numismatic News.”