Debt? No Prob

Come tomorrow or whatever, the government may not open. (They’re closing down all “non-essential” offices, such as the Department of State: we’ll be leading from way behind. Any office that doles out money will remain open.) Soon in this theater: the debt ceiling, and more needless contretemps. The easy solution comes (as often) from my buddy Alex Pollock. In this case, he cheerfully concedes that the idea wasn’t his but President Eisenhower’s, way back in 1954:

In order to keep making payments, the Treasury increased its gold certificate deposits at the Federal Reserve, which it could do from its dollar “profits” because the price of gold in dollars had risen. The Fed then credited the Treasury’s account with them, thereby increasing the Treasury’s cash balance. Treasury then spent the money without exceeding the debt limit. By the spring of 1954, Congress had raised the debt ceiling from $275 to $280 billion (2 percent or so of today’s limit), so ordinary debt issuance could continue.

The Secretary of the Treasury still is authorized to issue gold certificates to the Federal Reserve Banks, which will then credit the Treasury’s cash account. This is correctly characterized as monetizing the Treasury’s gold, of which it owns more than 8,000 tons. An old law says this gold is worth 42 and 2/9 dollars per ounce, but we know the actual market value is about 38 times that, at more than $1,600 per ounce.

Do the math: we ought to be okay until at least Thanksgiving. All with a bookkeeping transaction—provided it’s legal.

Michael S. Greve

Michael S. Greve is a professor at George Mason University School of Law. From 2000 to August, 2012, Professor Greve was the John G. Searle Scholar at the American Enterprise Institute, where he remains a visiting scholar. His most recent book is The Upside-Down Constitution (Harvard University Press, 2012).

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  1. Philip W says

    Just a small quibble: Alex’s proposal clearly came from a little while ago. Today, market price of gold is ~$1,330 per ounce. Still would be a very nice (if legally dubious) boost.

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