Wednesday, September 28, 2011

The Fed Responds: We Don't Own Any Gold

The Federal Reserve has responded to one of two "Herman Cain Letters" I have sent (See here and here). The response was to my inquiry relative to the Fed's listing on their H4.1 weekly release of a line item: "Gold Stock" 0f $11.041 billion. I had asked to see the gold, or have it audited. The Fed responded: "The Federal Reserve Board does not own gold."

Their full reponse would have made Bernie Madoff proud. I reproduce it in full below and also reproduce my follow up "Herman Cain questions".

The Fed's response (My bold):

Dear Mr. Wenzel:

Thank you for your inquiry. The Federal Reserve Board does not own gold. Therefore, the Department of the Treasury is best situated to respond to your questions. With regard to your reference to gold stocks, the information to follow, from the Board's website, should be helpful. It appears in an interactive guide to our weekly balance sheet (the H.4.1.) and describes why we have a line item on Table 1 for "Gold Stocks."

"The gold stock of the United States is held by the Treasury and consists of gold that has been monetized: the Treasury has issued certificates reflecting the value of the gold to the Federal Reserve in return for a credit for the same dollar value to the Treasury's accounts. The gold stock also includes unmonetized gold, against which certificates have not been issued by the Treasury (although virtually all the Treasury's gold has been monetized since 1974).

The value of the gold stock is recorded on Federal Reserve and Treasury books at $42.22 per troy ounce, the so-called official U.S. government price established by international agreement and confirmed by Congress in 1973. If the Treasury buys or sells gold, however, the purchase or sale is executed at market prices.

Acquisition of gold, and its monetization by the Treasury, can affect reserve balances at depository institutions. Acquisition increases reserve balances. "Gold stock" and "Treasury cash holdings" rise, but the "U.S. Treasury, general account" balance falls. Monetization leaves the gold stock unchanged, but reduces Treasury cash holdings and increases the Treasury's general account. Monetization itself does not alter reserve balances, but these balances increase when the Treasury spends the proceeds or shifts the proceeds to the accounts that it maintains with depository institutions."

There is a separate line item on Table 8 of the H.4.1 for Gold Certificates. Here's the text that describes that entry:

"The gold certificate account reflects the receipts issued to the Reserve Banks by the Treasury against its gold holdings. In return, the Reserve Banks issue an equal value of credits to the general account of the Treasury, computed at the statutory price of $42.22 per troy ounce. Because nearly all of the gold held by the Treasury has been monetized in this fashion, the Federal Reserve Banks' gold certificate account of $11 billion represents the nation's entire official gold stock."

Again, we thank you for your question. I hope this information is helpful.

Sincerely, SKS, Board Staff
My follow-up:

Dear SKS,

Thank you for your quick response to my email. Your response raises a number of questions with regard to what you refer to as "our weekly balance sheet".

I have looked at balance sheets for decades and have never come across a "balance sheet" such as the type posted weekly by the Federal Reserve. Has any outside accounting firm looked at what you call a "balance sheet" and stated that it is an acceptable "balance sheet" that conforms to generally accepted accounting principles or to any accounting principles in any fashion?

Further, I am curious at to why, in Table 1, the reference to the certificates states only "gold stock" without a footnote indicating that it is not in fact gold stock but certificates, when explanatory footnotes appear on many other items. What is the thinking behind the lack of a full explanation in the top section of what you refer to as a "balance sheet"? I have never seen such a failure to indicate such footnote on a top line of a balance sheet before.

As for the gold certificates, could you please tell me how often the Federal Reserve conducts an audit of the gold held by the Treasury that backs up what you (the Fed) call "receipts"?

Further I note that the Treasury "Balance Sheet" lists gold holdings of $11,041 million. The same as the Federal Reserve. This would indicate that all the gold held by the Treasury is held for the benefit of the Federal Reserve.

However, the Treasury gold position on the "Balance Sheet" also contains this footnote:

(4) gold (including gold deposits and, if appropriate, gold swapped)3

Has anyone at the Federal Reserve contacted the Treasury to determine if the Treasury has swapped out its gold? In other words, has anyone at the Federal Reserve attempted to determine that the Federal Reserve holds "gold certificates" that, indeed, can be converted to gold?

If it has been determined that the Treasury does not hold the gold to back up the
certificates or has swapped the gold out, shouldn't this be noted on what you
refer to as a "balance sheet", especially given that the Treasury on its balance
sheet has such a preliminary footnote already?

Thank you for your quick response to my "Herman Cain questions" and I trust these additional "Herman Cain questions" will produce as rapid a response.


Bob Wenzel


  1. I will be incredibly impressed if you get a follow up to your second email.

    But I have already learned so much just from this exchange already. So, thank you, Herman Cain?(??)

  2. and now, they stonewall you

  3. Bob, in paragraph 5 you list a figure of 11,041 MILLION, but it seems like it should be BILLION.

    Anyway, glad to see that the lackeys at the Fed are digging themselves a hole (I guess they have no idea who you are, or how many hits your blog is getting each day) and your follow up inquiries will eventually get you some response from some upper middle management. And a visit from the FBI.

  4. I love this, please keep us posted if these douches respond.

  5. Their lawyer said they don't have any gold in his testimony before Ron Paul's commission a few month back. He said they only have gold certificates. I forget if it was in the same hearing, but Ron questioned the Treasury official about audits of the gold. My conclusion from his comments was that there are something like 43 vault rooms, and most haven't been checked in years.

  6. So if I did my math correctly the Fed is saying that the treasury owns roughly 16.3 million pounds (~7400tonnes) of gold.

    This could fetch a market price of $417B or roughly 2.84% of US National Debt.

    I don't know if there is a point to any of this.

    I'm kind of tired.

  7. What about the arguments that there are already audits done on the Fed, as seen here:

    Are they not complete enough? What is the difference in what Ron Paul is calling for, and what would it find differently from those already done?

    This is a serious question, so I would appreciate Wenzel or anyone else responding.


  9. Anon, the audits they have done are superficial and not thorough. They do not conform to GAAP and were not completed by a disinterested third party. That is why Ron Paul and the rest of us are calling for a thorough, line-by-line audit by an outside firm.

  10. That is what I assumed, but I wanted to know the reasons why in more detail. Your line about not conforming to GAAP is the kind of stuff I was looking for. What is not being done now that would be done in a true audit?

    So is it basically being done by a group that has an interest in protecting the Fed?

    Thanks again. The reason I ask this is that this is literally the unanimous response from neo-cons to liberals who defend the Fed. It almost seems to be a talking point!

  11. This is starting to get goood......Thanks Bob. Can't wait for the next installment.

  12. Anon-

    It is a talking point, from mainstream Dems and Reps. They know that their power comes from their ability to shift expenses into the future- an analogy would be if your grandparents gave you a credit card and told you there was no limit, but your grandchildren would have to pay it off. The DC/Beltway powers are the same.

    It is one reason that Ron Paul is uniting the far left and far right- they agree on more than they disagree. The left sees the unlimited expenses on wars and loss of civil liberty, and the right sees the loss of domestic freedom and the growth of the state. Same coin, different sides.

    No one outside the FED has ever been allowed to look at their books and independently audit them. Anyone who did would quickly see that it's a Ponzi scheme that would make Madoff look like a piker.

  13. I love this exercise, because we all know where it will lead- the Fed and Cain will having a massive egg on their face.

    I find it funny that the info that was given to you is the same info that we all check every week/month. Yet, they act as if you have not looked at their monthly statements, or even worse, that we/you are not even aware of them.

    I have been through it all before, you ask for a specific "thing", and they give you the standard, "well, you can look at our releases, and I am sure that you will find what you're looking for in there."

    No! The whole point of my asking for specific data is that the data that I am asking for is not specified in the date that is released; I would not be asking for such data if it was already available. In fact, those that are asking for an audit of the Fed are the same that read all of the weekly/monthly Fed releases, so it should be quite obvious that we are quite aware of them and that we find them lacking. Otherwise, we would not be asking for an audit.

    Robert, you certainly aren't a "household name", but you are quite well-known in economic circles. The Fed correspondents that you are "corresponding" with know exactly who you are, and their answers to your posed questions would have insulted me if I had asked them myself; you have tremendous restraint when dealing with BS, apparently.

    We all know that this is an exercise in futility, but then again, I do believe that that is the illuminating goal of this (your) experiment (the futility in getting a real answer). I can see great progress in the course of this experiment, but only if you are able to bite your tongue and play the fool. They already know that you are an adept economist, but if you keep your questioning simple and/or general, they will give YOU the rope to hang them with.

    I say that you keep this going as long as you can, because the more that they say, the more they lose.

  14. Jaffi, I'm beginning to think Bob may have found his "in" with regards to making a name for EPJ and exposing the fools at the FED (as well as TPTB behind the Cain campaign) for the moronic shills they are.

    I can't wait for the next round of emails from them, and for one of them to be so stupid and insipid that it "goes viral" and drives traffic to EPJ!