Buying Back its Own Gold
By Patrick A. Heller
On April 16,
U.S. President Obama wrote a letter to
congressional leadership seeking support for the
U.S. government to loan the International
Monetary Fund $100 billion. This is part of a
plan for the IMF to expand its New Arrangements
to Borrow (NAB) program from $50 billion to $500
President Obama is portraying this loan as an
investment rather than an expenditure when he
stated in the letter, "Such participation
effectively represents an exchange of assets
rather than a budgetary expenditure, and it will
not result in budgetary outlays or any increase
in the deficit. That is because when the United
States transfers dollars to the IMF under the
NAB, the United States receives in exchange
another monetary asset in the form of a liquid,
interest-bearing claim on the IMF, which is
backed by the IMF's strong financial position,
including its significant holdings of gold."
The supposed purpose of the increase in the NAB
is to help combat worldwide financial crises.
The United States would provide 20 percent of
the assets for this purpose. China has already
committed to lend $40 billion.
There is a small chance that the
difficult-to-understand language in President
Obama's letter could be taken at face value.
But, I don't really think so. There are a lot of
implications to this proposed loan beyond what
appears on the surface.
There is growing pressure on the IMF to actually
sell some or all of its supposed gold holdings.
If this pressure becomes strong enough that
action is taken, there are a number of potential
problems that could be exposed:
" The IMF does not physically hold the gold. It
has been pledged by member nations who, in
theory, have delivered the gold to one of four
countries designated as depositories. The United
States and United Kingdom are two of the
designated depositories. It is entirely possible
that one or more nations might, if called to
turn over their gold, default on delivering
their gold commitment.
" Although the IMF tries to pretend that it
audits the gold holdings, it then immediately
contradicts itself by reporting that holdings in
depositories are not audited by the IMF.
" There is significant suspicion that some of
the gold pledged to the IMF has been leased. If
the IMF were to try to sell it, that could force
the recall of some gold leases.
" It is also possible that some of the gold
pledged to the IMF has conflicting ownership
" The IMF only theoretically has 3,217 tons of
gold, which at $920 gold spot is worth only $95
billion. Where would be the collateral for the
other $400 billion of planned borrowings?
I'm not saying that there is any outright proof
of the existence of any of these above problems.
However, when the Gold Anti-Trust Action
Committee made multiple attempts to clarify the
nature of IMF gold holdings. The IMF's answers
simply did not respond to the questions asked by
GATA. If there were no problems with any of
these issues, I would have expected the IMF to
make straight statements to that effect.
Another implication is that the U.S. government
is holding the gold it has pledged to the IMF as
part of the collateral for the "loan." At the
most extreme, this may be a sneaky way for the
U.S. government to accomplish two goals -
increasing its gold position by reducing its
gold liability to the IMF and increasing its
physical reserves, and to latch on to IMF gold
rather than let China purchase all of it. Under
these scenarios, the "loan" would never be
repaid in U.S. dollars.
If the U.S. government is really trying to find
a way to acquire more gold, and trying to do so
in a way that the public does not know about,
the implication is that, at today's levels, the
U.S. dollar is significantly overvalued. Also
implied is that gold is underpriced today.
The known fact is that President Obama has asked
congressional leaders to pass legislation to
enable this $100 billion loan. The rest is
speculation as to what is really occurring, when
placed in the context of all the other global