Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / Why Government Gold Hoards Cost Taxpayers Billions
Transcript
- Lucas: There is a vault in Kentucky that holds more than half the gold in the United States government. And according to the balance sheet of the U.S. Treasury, that gold is worth about 42 dollars and 22 cents per ounce. Luna: Wait — 42 dollars? That's the price you'd have paid in... 1973? Lucas: Exactly right. The government last revalued its gold in 1973. At that time, the official price was set at 42 dollars and 22 cents per troy ounce. And since then — for more than 50 years — the Treasury has carried that gold on its books at that same price. Never marked it to market. Luna: So we're talking about roughly 261 million ounces of gold — over 8,000 tons — sitting in vaults at Fort Knox, West Point, and Denver. At the statutory price, that's about 11 billion dollars. At today's market price, around 2,000 dollars an ounce, that same gold is worth roughly 500 billion. Lucas: And that gap — 11 billion versus 500 billion — is the subject of today's episode. Because it's not just an accounting curiosity. It has real consequences for how we think about government assets, fiscal transparency, and even the national debt. Luna: Before we go further, I want to say: if walking through the economy with us has made something click for you, we keep this show ad-free because of listener support. If today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Seriously helps us keep going. Lucas: Appreciate that. And it really does make a difference. Now — let's dig into the history. The government's gold holdings date back to the Gold Reserve Act of 1934, when President Roosevelt raised the statutory price from 20.67 dollars to 35 dollars per ounce. The idea was to devalue the dollar and stimulate the economy during the Great Depression. Luna: And then in 1973, as part of the collapse of the Bretton Woods system, the price was raised again to 42.22. That's where it's stayed ever since. Lucas: Right. And here's the strange part: the government stopped redeeming dollars for gold in 1971. So the statutory price stopped having any real economic meaning. But it remained on the books. And for decades, nobody really cared, because gold prices were relatively flat. In 2000, gold was around 270 dollars an ounce. The gap was big but not enormous. Luna: Then the 2000s happened. Gold shot up to 1,900 dollars by 2011. Suddenly the government was sitting on a half trillion dollar unrealized gain. And no one was acknowledging it. Lucas: The Government Accountability Office — the GAO — looked at this in 2023. They calculated that if the Treasury had simply sold the gold at market prices in 2022 and invested the proceeds in Treasury bills, the government would have earned an additional 14 billion dollars in interest over the following year. Luna: Fourteen billion — that's real money. That's more than the entire budget of the EPA. So why hasn't the Treasury revalued or sold? Lucas: Part of it is tradition. The gold is seen as a symbol of national strength. There's also a political fear: if you sell the gold and then gold prices go even higher, you look foolish. And if you revalue it on the books, it would create a massive one-time gain that could be used to offset debt — which sounds good, but it would also reduce the perceived urgency of fiscal discipline. Luna: There's also a practical issue. The Treasury actually did sell some gold in the 1970s and 1980s. But those sales were tiny — a few million ounces — and they required an act of Congress. Any significant sale would need legislation. Lucas: And Congress hasn't been eager to touch it. In 2011, when gold was at its peak, there were proposals to sell some reserves to pay down the debt. They went nowhere. The political risk was too high. Luna: So we're stuck in this weird limbo where the government's biggest single asset is essentially invisible on its balance sheet. The official debt is 35 trillion dollars. But if you marked the gold to market, net debt would be 34.5 trillion. It's a rounding error in the scheme of things, but still — it's a half trillion dollar asset that the government doesn't count. Lucas: Other countries have handled this differently. Germany, for instance, had a huge gold reserve after reunification. In the 2000s, they sold about 1,200 tons over a decade, using the proceeds for research and education. The Netherlands sold 300 tons in the 1990s. Even the IMF has sold gold to fund debt relief. Luna: But the U.S. has never seriously considered it. One reason is that the gold is not just an asset — it's a legacy of the monetary system. The Federal Reserve still holds gold certificates, representing the gold owned by the Treasury. If the Treasury sold the gold, the Fed would have to cancel those certificates, which could affect the Fed's balance sheet. Lucas: And there's a deeper question: why does the government hold physical gold at all? The U.S. is on a fiat currency. Gold doesn't earn interest. It costs money to store and guard. Fort Knox alone has a dedicated military police unit. Luna: The standard defense is that gold is a hedge against inflation and a safe haven in times of crisis. But the government doesn't hedge — it's the issuer of the currency. If the dollar collapses, the government has bigger problems than its gold reserves. Lucas: So the argument for selling is strong: you get cash you can use to reduce debt, you avoid storage costs, and you stop pretending a 50-year-old price is meaningful. The argument against is mostly political and emotional. The gold is part of American lore. There are conspiracy theories about Fort Knox being empty — which it isn't, by the way, the Treasury audits it every year. Luna: The most recent audit was in 2024. They confirmed all 147.3 million ounces at Fort Knox are present and accounted for. But they don't assay the purity — they just count the bars. Lucas: And there's the rub. Even if we revalue the gold, we're still dealing with a commodity that can fluctuate wildly. In 2013, gold dropped 28 percent in a year. If the Treasury had marked it to market, it would have taken a 140-billion-dollar hit on paper. Luna: So maybe the right answer is not to revalue or sell, but to just be transparent. The Treasury could acknowledge the market value in a footnote or in the official financial statements. That would give investors and citizens a clearer picture of the government's net worth without the volatility. Lucas: That's essentially what the GAO recommended in 2023. They said the Treasury should at least disclose the market value in its annual financial report. So far, the Treasury hasn't done it. But the pressure is building, especially as the debt keeps growing. Luna: It's interesting that this is an issue that cuts across party lines. Fiscal conservatives want to sell to reduce debt. Some progressives want to use the gold to fund social programs. And libertarians just want the government to get out of the gold business entirely. Lucas: And nobody in power wants to touch it. Because the moment you propose selling Fort Knox gold, you get headlines about 'selling the family silver.' It's a third-rail issue in a way that the numbers alone don't justify. Luna: So what do you think should happen? Should we sell it? Lucas: I lean toward selling a portion — say, 20 percent — and using the proceeds to buy back Treasury debt. It would be a symbolic step toward fiscal responsibility, and it would test the market's reaction. But I wouldn't sell it all. There is value in having a strategic reserve, even if it's just psychological. Luna: Psychological or not, it's a strange situation. We have a massive asset that we pretend is worth 11 billion. And that fiction has persisted for 50 years. Maybe it's time to update the narrative. Lucas: That's the hope. Because whether you want to sell it, revalue it, or just disclose it, the current silence is not serving anyone. The gold is real. The market price is real. The only thing that's fictional is the number on the Treasury's books.