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- [00:00]
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Ben Parker
Thanks for watching. I am Ben Parker of the Bulwark, here with AEI economist and expert Stan Voyger to talk about the gold in Fort Knox. Stan, thanks for joining me.
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Stan Voyger
Of course. Thank you for having me.
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Ben Parker
Yeah, thanks. So the news is that co President Elon Musk and maybe actual President Donald Trump are going to go to Fort Knox this week to make sure that the gold is still there. Now, we have no reason to believe that the gold isn't there, but I was wondering, why is there gold in Fort Knox in the first place? What purpose does it serve?
- [01:47]
Stan Voyger
Well, it currently doesn't serve much of a purpose at all. It is there because the value of the dollar used to be explicitly linked to gold. It was expressed in terms of gold. And so until the early 1970s, not only was the value of the dollar expressed in gold, some counterparts were allowed to come to the US Government and say, we would, we have some dollars, we would like to exchange them for gold. Basically, foreign governments and central banks could do that. President Nixon ended that. He ended the system of fixed exchange rates that, that was built on that premise of dollar convertibility to gold. And ever since then, you know, basically we kept the gold and we don't do anything with it. It just kind of sits there as a symbol of our might and power.
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Ben Parker
Okay, so we once had a gold standard, meaning you could in theory take a dollar and say, I'd like $1's worth of gold, please. We no longer have that. But I Looked it up, and at the current price of gold, there's something like 400 to $500 billion worth of gold there. So even if we went back to a gold standard, there's not nearly enough gold to be useful for anything, right?
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Stan Voyger
Yeah. So it certainly wouldn't be enough to be able to guarantee the exchangeability of all the dollars out there. In fact, that's why we ended the system. It's because we didn't have enough gold to fully cover the value of the dollar. So we ended up setting an artificially low dollar price of gold that led to constant speculative attacks on the dollar. And that's why Nixon walked away from convertibility and from the Bretton Wood system, as they call it. No, that's right. Of course, one thing we could do with that gold and the other gold we have, I think in total, it's something like seven, $50 billion, is we could gradually sell it in an effort to lower the debt or something like that. It's not totally clear what the point of debt is. We would reduce the value of one asset and then reduce the value of some liabilities. It wouldn't make us richer because our.
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Ben Parker
Debt would be lower your credit card bill, you take your cash, you pay off the debt. It's net neutral, right?
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Stan Voyger
Yeah, that's right, exactly. But that's something we could do a little more at the next level of gimmick in this. You could revalue without selling and then say, because currently the dollars that we have are not valued at the market price of gold, they're valued at something like $40. And what do I know about the price of gold? It's significantly undervalued. So one thing that people have talked about is you could revalue up to the market value of gold, and that would create sort of an artificial capital gain for the US Federal government, which we could count as income, and then we could use that income to offset tax cuts or new spending or something like that, a little bit.
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Ben Parker
Why is the gold currently undervalued? Why don't we just value it?
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Stan Voyger
Because we never updated the price that we officially attached to gold, you remember? So under the Bretton woods system, there was an official dollar value of gold.
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Ben Parker
Okay.
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Stan Voyger
And so at some point, we just stopped devaluing the dollar officially and we kept some artificially low price of gold that's just been on the record ever since.
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Ben Parker
It exists for paper already?
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Stan Voyger
Yeah. Oh, yeah. Of course, it doesn't mean anything, but we could change that, and then on paper, we would have a Gain that we could then use in the gimmicky budget math way that Congress likes to offset new spending or tax cuts. Okay, but I'm not saying we should do that.
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Ben Parker
I'm saying yeah, because we're talking about like let's say you were talking about.
- [05:47]
Stan Voyger
Well, we could do it with all sorts of things the government owns. Government also owns a ton of real estate, for example. Right. Don't normally think of an appreciation in the value of public lands or there's new minerals that are found or if office buildings that the government owns here in D.C. when they go up or down in value, we don't usually think of that as affecting the federal budget in a year over year sense, but we could take that into account.
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Ben Parker
But even if we did that with the gold, let's say we were to say, oh, we just found $750 billion, whatever it was, the national debt is north of $30 trillion. Right?
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Stan Voyger
Of course, of course, yeah, yeah, yeah.
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Ben Parker
No, no, no, for sure, yeah. We're talking like tiny, tiny drops in the bucket.
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Stan Voyger
For sure, for sure. Tiny drop in the bucket for the debt. But it could be a meaningful offset for some of the new spending plans we have. For example, Republicans want to spend $175 billion in additional outlays on border security, on immigration and anti immigration measure, but that you could cover with the proceeds from the gold sale. It is that order of magnitude. It's not a meaning, doesn't matter.
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Ben Parker
But this is, this is where sort of economics always became really tricky for me. So you say this is not really.
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Stan Voyger
Economics, this is fake budgetary accounting. This is not so. Right.
- [07:06]
Ben Parker
So you say, oh, well, on paper this amount of gold went from being, you know, $20 million to being $400 billion or whatever it was. Therefore we have all this extra money, but the gold is the same.
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Stan Voyger
Oh for sure, yeah. Of course. Now in fairness, it's not like we use the gold for anything. Right. It's really only there as a store of value.
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Ben Parker
Okay. So it's basically useless. And I imagine we're paying some amount of money to keep it secure there. So I mean, maybe actually the best thing to do is to gradually sell it off. I don't know. At least then we wouldn't have to pay to guard it. Right?
- [07:38]
Stan Voyger
Yeah, no, I think that's probably a reasonable thing to do. It's really for historical reasons, I think there's probably a large enough subset of the population that really thinks that if we sell off the gold, it means the end of civilization is nigh and so that's why we're not selling it up. Or that kind of symbolic argument. Cultural decline, financial system is still based on gold, but yeah, there's no reason not to sell it out. Right. It's not really a vogue anymore. But of course, privatization was a big deal for a while in the 80s and 90s, and you'd sell off airports and roads and those kinds of things. This is much easier to sell off than those things because you don't have to worry about what people are going to do with the gold once they have it. Whereas if you sell off an airport, someone still has to run it. And there's all sorts of operational questions that follow. Whereas if we just sell the gold, then we've sold the gold.
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Ben Parker
Right. And there's someone makes jewelry out of it or whatever.
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Stan Voyger
Yeah, that's right.
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Ben Parker
Well, that's all super interesting. I'm so glad they're going to go confirm that the useless gold is still sitting there, being useless.
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Stan Voyger
Didn't Mnuchin go there to look at the eclipse during Trump's first term?
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Ben Parker
Yeah, I think he did. I think Mnuchin was the first person like in 40 years or something to go and actually go to Fort Knox, you know, first person who doesn't normally work there. The gold is there, so it's there. Just why? Okay, so some of the other loony ideas that we've seen, I don't know, you'll tell me whether or not they're loony. They sound loony to me. One of them.
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Stan Voyger
It's probably better, honestly. It's hard to think of better ways for Trump and Musk to use their time that to go to Fort Knox for a few days, you know, at least they're not doing damage actively while they're there.
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Ben Parker
I assume that is a great point. I take it all back. They should spend all of their time at Fort Knox. They should never leave the vault. I.
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Stan Voyger
You're right.
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Ben Parker
You totally changed my mind. They should go there. Okay, so there are a few other maybe wacky economic ideas that certainly sounded wacky to me that Trump and Musk have put forward. One of them was Trump said he wants to create a strategic cryptocurrency reserve. Now, I know we have a strategic petroleum reserve, which is a bunch of billions of barrels of oil, or however many it is, in case there are, in case there's war, in case there's a hurricane in the Gulf of Mexico, shocks of supply. It's like, okay, we have a little extra oil saved. How would that work? With bitcoin?
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Stan Voyger
Well, it wouldn't. But the people who currently own bitcoin, they would benefit if we bought a bunch of bitcoin because the price of bitcoin would go up. And that's what they want. The people who are heavily invested in bitcoin, the whole use case for bitcoin is speculation. They want the price of bitcoin to go up and so they would benefit from a massive purchase by the federal government. And so that's what they want. And then they have backfilled that idea with nonsense arguments in favor of a strategic bitcoin reserve. One is somewhat similar to what you sometimes hear about gold, which is that if we are in an economic downturn or the reserve position of the dollar is undermined, perhaps bitcoin would appreciate and so we'd be able to hedge our losses somehow. It's never totally clear why. Yeah, that's not totally clear how that would work. The other one really is something like if civilization crumbles, we can use bitcoin as a, as a payment device. And so it's, it really is like the oil.
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Ben Parker
Right.
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Stan Voyger
If we run out of other ways to make our payments, we can use the bitcoin distributed bit. But it's really, it's always.
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Ben Parker
But we all still have computers and ways to charge them and you know, ways to guarantee transactions online and things like that. Yeah, but amidst generational collapse, sure.
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Stan Voyger
If the, if the apocalypse were to come, surely the gold, this gold would be more useful than bitcoin, I think.
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Ben Parker
Right.
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Stan Voyger
I just say no, it's all nonsense. But the idea is, I think for them to just get a bailout as an industry, I'm sure they wouldn't. And once we have a strategic bitcoin reserve, of course they would say, oh, but we need a strategic ethereum reserve. We need a strategic, you know, et cetera. The whole thing is to just keep pumping up the price of their, of their, of their. Of their assets.
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Ben Parker
Great. Well, that doesn't sound corrupt at, at all. So glad we're doing that. Okay. And the last one, now if there.
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Stan Voyger
One thing we do have, I think really what they want to avoid. So the, the federal government owns a lot of bitcoin right now, like 20 billion worth of it that we've seized from various criminals. Because of course, yeah, there's a lot of criminals who use bitcoin. And so I think really their sort of more minimalist desire as far as not to sell off that 20 billion in Bitcoin and instead for the federal government to Just keep it. If we sell it up, that puts downward pressure on prices.
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Ben Parker
Yeah. Okay.
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Stan Voyger
So I think that's the more minimalist version of the, of the agenda.
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Ben Parker
Okay, well that's maybe marginally better from a corruption point of view. Okay. So the last thing we wanted to talk about is Trump's executive order directing the heads of the Treasury Department and the Commerce Department to establish a sovereign wealth fund. So this is a thing that a bunch of other countries have. Where my understanding is it's basically like an investment fund for the government. Right. I mean, you can explain it better than I can. Sure. Does it make sense to make one? I don't know.
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Stan Voyger
Yeah. I mean, so the countries that are most often associated with this are countries that have, that run large budget surpluses, smallish oil and gas producing countries that just on a year over year basis run large surpluses. And so just like we have a national debt, they have a national stockpile of past surpluses. And that's usually you have to do something with it.
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Ben Parker
Right? That's usually because they have like a government company that sells petroleum products or whatever it is. Right. Like it's a national, a national monopoly that sells gas and oil. Right. Which we don't have.
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Stan Voyger
Saudi Arabia or UAE or the, or Norway is sort of the most famous western country that has one. And so that's what they are, that's what they're trying to mimic. Of course, the US does not have these year over year large surpluses that we need something to do with. And so that justification I think is not really reasonable here. The other context in which other countries have these large asset managers, for lack of a better word, is in the pensions context where you have a large funded pension fund. Right? So where people pay in on those payments, then sit in the fund until they're paid out. That often leads to large accumulated amounts of funds as well. So for example, the California public sector employee fund has large amounts of assets in it at the federal level. The Medicare trust fund and the Social Security trust fund have large amounts of asset in it. So the Social Security trust fund is about, I think 2.5 trillion. Right. So that's real money. And so right now at the federal level, those are basically invested in treasury bonds in risk free government debt. You could pursue a more aggressive investment strategy there. That's what Norway does with its sovereign wealth fund. That's what a lot of pension funds do. CalPERS, a California pension fund, invests much more aggressively than the Social Security trust fund. The Netherlands has a large public sector pension Fund that also invests much more aggressively than Social Security trust fund. Now the question is, is that wise? I would say no. Right. So the reason why you can get higher returns by investing in other assets that are not suffering debt, that are not treasury bonds, is because those assets are riskier. So you're really just, you're taking more risk with these investments. You have a higher expected return, but also a higher risk of losses. Now, the only reason to make that kind of shift is if you think that the people who will be doing the investing for the federal government are better at assessing that risk return trade off than market parties. And that's just quite implausible, I think, especially because having the federal government do it comes with a pretty obvious set of downsides. One, once you start using, say, the Social Security trust fund to invest in private companies, the federal government would become a very large shareholder in a lot of private companies and could start demanding that those companies do all sorts of things the government wants them to do. That could also just be straight up corrupt ways of using the money. You funnel it to your political allies. I think, you know, we're already, I think, seeing enough of that that I don't know that we, we need to expand the, the, the scope for that dramatically. But of course, Trump and some of his allies would like to dramatically extend the scope for those kinds of corrupt actions.
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Ben Parker
What about on the other side? It seems to me that if you have two point whatever trillion dollars in the Social Security trust fund, that basically you're in a way sort of forcing Americans to, to buy government debt. Right. Because it's their money that they're paying into the trust fund, at least in theory. Right. And then they have to sell the.
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Stan Voyger
Debt to someone else. That's right.
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Ben Parker
And so does that make it easier or harder for the government to borrow money? Because like they have to, they'd have to actually go out and sell it.
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Stan Voyger
Right.
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Ben Parker
As opposed to forcing it.
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Stan Voyger
It'll make it harder. Exactly right. Because now we would not have this, this, we would not have these intra government holdings of sovereign debt. Instead, we'd have to sell, you know, those bonds on the open market. Yeah, that's right. And so that would make it harder, probably put some upward pressure on interest rates. Yeah, it's hard to see major advantages to this scheme.
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Ben Parker
Okay, so it sounds like we're over three. It sounds like the gold in Fort Knox doesn't serve a purpose. The strategic Bitcoin reserve doesn't serve any useful purpose. And the federal sovereign wealth fund also doesn't really make a lot of sense for a country like the United States that runs massive budget deficits. So over three, you agreed?
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Stan Voyger
That's right. Though I think we agree that it would be good for Trump and Musk to spend significant amounts of time at Fort Knox.
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Ben Parker
Yes, we totally agree, one for one on that. Stan Voyger, thanks so much for joining me and explaining this all to me to everyone watching the Bulwark.