Authored by GoldFix
Over the last two weeks, Luke Gromen has been talking about how the gold market, the price of gold, could be used to facilitate or offset our debt and at the same time make peace in the trade wars with China.
We agree fully with him and we’d like to offer some insight into how the mechanics of that could be happening right now, how the plumbing for that could be being built right now, and how the plumbing for that will mesh or intermingle to make what he’s talking about happen.
The story this has to do with that describes the plumbing underlying what Luke is talking about is titled Judy Shelton’s Gold Bonds May Have Found Their Moment, which describes the bonds and how they would work for people who bought them and how they would work for the U.S. government.
Her proposal, 50-year zero-coupon bonds redeemable in the owner’s choice of either dollars or gold bullion, could become an instrument in negotiations with China.
Domestically, this idea is to use gold to make treasuries more attractive and reduce our borrowing costs. Investors get a treasury bond essentially with a gold option embedded in it.
Internationally, There’s another possibility. If Treasuries take Shelton’s proposal seriously, and they should, (and her hiring also suggests it deserves attention), Eric Yeung, Luke Gromen, and I, from different points of view, see an opening.
The U.S. could approach China and say, you want to make gold more liquid, correct? We can help by offering gold-linked Treasury bonds as collateral in your system.
That could help turn China’s initiative into a global system with the U.S. participating and gold playing the larger role that it should.
China would benefit if the arrangement supported higher gold prices, which it will. The U.S. would benefit by connecting gold’s appeal to the liquidity of the Treasury market.
That’s the potential bargain. China expands gold’s financial role while the U.S. strengthens demand for its debt.
I’m not saying this will happen. I’m saying that it’s feasible. And if we want to do this and we take what Judy Shelton is talking about seriously, something like that can be done.
This plays into something that Eric Young and I talked about specifically over the last several months, and that is the fact that China... China wants gold to be a repo-able asset.
China wants gold to be HQLA, a high quality liquid asset, internationally recognized, not just regionally recognized. And one of the ways to do that is for the U.S. to come in and say, well, we’ll let you make gold an internationally recognized high quality liquid asset if we bond it with the U.S. Treasury bond, because the U.S. Treasury bond is a high quality liquid asset.
And if you take our 50 years zero coupon gold bonds, In your system, or Judy Shelton’s TTBs, Then what you have is you have the best of both worlds and you basically can create a hybrid situation where using gold’s appeal makes treasuries more attractive.
Using gold, using treasuries liquidity makes gold more liquid. And you have a market that’s much more robust and internationally appealing it makes concepts like m-bridge obsolete.
Continues here
Free Posts To Your Mailbox
