Debt ceiling: Selling gold isn't the answer

The U.S. Treasury currently holds over $400 billion worth of gold in its reserves.

But what about selling the nation's deep gold reserves?

After all, the U.S. Treasury has 261.5 million ounces of the precious metal in Fort Knox, Kentucky.With gold selling at roughly $1,655 an ounce, the government has $432 billion worth of the shinymetal just collecting dust.

But even before anyone succumbs to the temptation of suggesting the gold option, U.S. TreasurySecretary Tim Geithner has nixed the idea. The optics of the U.S. holding a fire sale of assets such asgold would damage the country's reputation and have global implications, he said.

"Selling the nation's gold to meet payment obligations would undercut confidence in the UnitedStates both here and abroad, and would be extremely destabilizing to the world financial system," hewrote in a letter to Congressional leadership last month.

President Obama also chimed in at a press conference on Monday, saying there are "no magictricks" or "easy outs" to the debt challenge.

It would certainly buy Washington more time at a time when lawmakers can't seem to agree onanything. There are only two months left for politicians to debate over the terms under which theyraise the debt ceiling, and the U.S. has already reached its legal borrowing limit.

Selling the gold could serve as an additional revenue stream without running up any more debt,which would relieve pressure on Congress to come to a consensus by March.

Related: America's Debt Challenge

But experts say getting rid of the Treasury's gold won't work for many reasons.

The first is that though the sale would generate upwards of $400 billion, it would barely make a dentin paying the nation's bills. The government currently borrows about $100 billion each month,meaning that the sale would only cover the U.S.' debt obligations for about four months.

"At its best, it would just be a temporary stopgap," said Chris Blasi, president of Neptune GlobalHoldings, a boutique precious metals firm in Wilmington, Del. "If you really wanted to solve ourproblems long-term, this is not a solution."

Another problem: gold prices are bound to crash if the U.S. Treasury were to flood the market. Thatwould reduce how much the government could collect.

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He said prices could retreat immediately by about 12%.

A larger issue is the signal it would telegraph to theworld financial markets that the U.S. is gettingdesperate.

"Confidence would plummet and it would really hasten the demise of the dollar," he said. "If you getdown to a point where you're hocking your gold, that's it. You're all done."

Related: Debt ceiling: Welcome to Fight Club

These drawbacks haven't stopped people from suggesting this as a viable solution in the past. Thesame idea was kicked around last year when Washington slogged through debt ceiling negotiationsin the summer of 2011.

The British did it more than a decade ago. Former Prime Minister Gordon Brown sold off nearly twothirds of the United Kingdom's gold, or nearly 13 million ounces between 1999 and 2002. Brown,who was the nation's chief finance minister at the time, believed he was getting rid of a uselessasset.

But his timing was off; the sale happened before one of the biggest bull runs in gold prices. Themetal, at the time, was selling at near-record lows of an inflation-adjusted average of $275 an ounce.

The sales amounted to about $3.5 billion. Today, the sale would have been worth about six timesmore.

"When Britain did it, it was just a ridiculous move, selling off reserves at the complete bottom," Blasisaid. "But the ramifications would be far greater if the U.S. did it ... We'd be admitting to the worldthat we're willing to sell whatever we have."

CNNMoney (New York) January 14, 2013: 12:43 PM ET

http://money.cnn.com/2013/01/14/news/economy/gold-debt-ceiling/