All guns are loaded. Never forget this.

I never knew my great uncle Gerald. That's because he was killed in an accident. His son shot him.

Uncle Gerald was a hunter in Oregon. He had taught his son to regard every gun as loaded. He always was careful to unload his gun whenever he came in from hunting. But one day he forgot. His son, knowing that his father was meticulous about such things, for some reason pulled the trigger.

In my household, I was taught that every gun is loaded until it is examined to see if it is unloaded. This is the #1 rule for gun safety.

The reverse rule applies to every warehouse. Every officially full warehouse is empty until it is shown to be full. This is #1 rule for storage safety.

FORT KNOX IS EMPTY

This rule applies to Fort Knox, where the nation's gold is said to be stored. According to the United States Mint, which is officially in charge of the nation's gold, here are the facts.

• Amount of present gold holdings: 147.3 million ounces.
• The only gold removed has been very small quantities used to test the purity of gold during regularly scheduled audits. Except for these samples, no gold has been transferred to or from the Depository for many years.
• The gold is held as an asset of the United States at book value of $42.22 per ounce.
• The Depository opened in 1937; the first gold was moved to the depository in January that year.

This ends the entry: "The Depository is a classified facility. No visitors are permitted, and no exceptions are made."

We are assured that there are "regularly scheduled audits." By whom? Reported where? This is all that I have been able to find.

In 1974, after the US closed the gold window, congressional support grew for inquiring into the US gold stock. The Mint and the GAO were sanctioned to audit a portion of the Treasury's gold. Three out of thirteen compartments at Fort Knox were audited for inventory and samples were assayed and compared to records currently held by the Mint. Following this partial audit the Treasury created the Committee for Continuing Audits of the United States Government-owned Gold in 1975 to annually inspect the accuracy and adequacy of the Mint's records and internal procedures. These inspections involved auditing about 10% of the US Mint's gold annually in an attempt to cycle through the whole gold stock. By 1986, the Treasury's Inspector General managed to halt the audits under the notion that most of the Mint's gold had already been audited, about 92%, and sealed and no significant issues were yet found. The costs of the procedures were also a stated concern in the halting of continuing audits.

Since then, starting in the 90's under 31 U.S.C. 3515[2], the audits were mostly indirect efforts as the Mint's financial statements and Custodial Schedule are annually audited by public accountants at KPMG. There still existed some audit-work that was partially direct up until 2008 by the Treasury OIG as their annual assessments of the mint's Custodial Schedule statement included direct checks of statistical samples, using a 95% confidence criterion, to verify the number of gold bars in each melt, the melt number for each gold bar, and the fineness stamped on each gold bar.

But what of the official annual audits of the Federal Reserve System, conducted by accounting firms hired by the Federal Reserve System and conducted under rules established by the FED?

By 2008, the Treasury OIG proclaimed that all 42 of the Mint's gold compartments, or 100% of the Mint's gold, were audited and sealed. As a result, all audits since 2008 only involved checking that the joint seals remain intact. None of the audits by KPMG, GAO or the Treasury OIG include an inventory or assay of any of the 5% of the Treasury's total gold that is stored at the Federal Reserve Bank of New York, or the Treasury's working stock of gold. The extent to which the US Treasury attempts to verify their gold holdings in the Federal Reserve Bank of New York involves annually requesting a confirmation from the Federal Reserve regarding the status of US gold reserves held by the FRBNY. Furthermore none of the audits that occurred in the past fully assess the Treasury's compliance with outstanding legislation with regard to their use of their gold.

Congress doesn't want to know the details of all this. It does not insist that the Government Accountability Office conduct an ongoing annual audit with random ingot testing. Why not? Congress doesn't say. Ron Paul has called for a full audit of the gold in Fort Knox. This has fallen on deaf ears.

WHY NOT SELL IT?

What does it matter whether the gold is there? It is kept on the books at $42.22 per ounce, an economically irrelevant figure.

The gold is not redeemable. No one can present a legal claim to have a specified amount of gold delivered at a legally fixed price.

It does not circulate. It is not sold or leased, we are assured by the Federal Reserve System. It just sits there, unused. It has no economic purpose.

Why not sell it?

What if the Mint minted it into American tenth-ounce gold eagle coins?

American voters should demand that they, as citizens, be given the right to buy tenth-ounce American eagles at $42.22 per ounce. That would restore power to the people. It would also be a nice bonus for being an American citizen. You would have to have a proof of citizenship to order your coins at this price.

The Mint sells these coins to wholesalers. I can visualize this late-night cable TV ad.

Act now! The supply is limited! Only ten tenth-ounce coins for each American citizen. Call our toll-free number: 1-800-"BUYRELIC." Or go here:

This would drive down gold's market price for a while, but not by much and not for long. It is generally estimated that all central banks hold less than 20% of all the mined gold. (http://bit.ly/GoldHoldings) The United States government's share of central bank gold is about 26% (http://bit.ly/GoldHoldingsCentralBanks) So, the US government holds 5% of the world's available gold. But it would take several years for the Mint to mint all of this gold into coins. So, the effect on the price of gold would be minimal and temporary. I favor the "for sale at $42.22 to Americans only" sales program. But what if the government just sold all of the gold at a fire sale in the available bars? Asians would rejoice. Americans would not buy much of it at a market price.

Why would this damage the U.S. government? The gold is not held as a reserve for the money supply. The dollar's price domestically in goods and services is not tied in any way to gold.

Why would this damage the American people? Most Americans own no gold. It would drop the price of gold for a time, harming present investors in gold. Why would that bother anyone inside the Washington Beltway?

It would help gold users. It would help reduce the government's debt. The money generated could be used to pay off the federal debt. Unlikely? Then at least reduce the federal deficit.

In short, why is there resistance to such a move? If gold is a barbarous relic, as John Maynard Keynes insisted, then why not transfer the confiscated gold back to the people who have good uses for it?

ARE CENTRAL BANKERS IRRATIONAL?

Central banks still hold gold, despite the fact that it pays no rate of interest – rather like U.S. Treasury bills today. The textbooks insist that such behavior is irrational. What is the reason for this seemingly irrational behavior?

It gets even more irrational. Central banks are widely believed to lease (sell) their gold to profit-seeking large banks, called bullion banks, so that these banks can profit on the interest rate spread. The bullion banks keep billions of dollars of profits that central banks could have received by selling the gold and investing the currencies.

This policy makes sense only on this presupposition: central banks are the operational agents of the largest commercial banks. Central banks are there to make money for bullion banks.

Do central banks lease their gold in this way? It is hard to say. Gold is still held by central banks, at least officially. So, they may have leased it to bullion banks, but the textbooks never mention this possibility. Alan Greenspan did, but only once, and only briefly. "Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise."

The Federal Reserve has asserted that gold swaps are legal. See page 69.

Central banks keep IOUs from bullion banks on the books as if the gold were there. The International Monetary Fund has authorized this form of accounting. In a series of emails between the Gold Anti-Trust Action Committee (GATA), the IMF representative admitted this in 2001.

4. Why does the IMF insist that members record swapped gold as an asset when a legal change in ownership has occurred? This is not correct: the IMF in fact recommends that swapped gold be excluded from reserve assets. (See Data Template on International Reserves and Foreign Currency Liquidity, Operational Guidelines, para. 72: http://dsbb.imf.org/guide.htm

(The link which the IMF official supplied is no longer online at the IMF site.)

So, it is possible that the gold in Fort Knox was swapped by the Federal Reserve to foreign central banks, which in turn leased the gold to private bullion banks at 1% per year or less, enabling those banks to sell the gold, get any currency, and invest it at six percent or more.

If this seems far-fetched, consider the other reason for storing all that gold.

GOLD IS NOT SO BARBAROUS AFTER ALL

Central banks hold gold. Why?

In every textbook used in colleges, whether Keynesian, monetarist, or public choice, we are given reasons why gold is not necessary or advisable as a monetary metal. The Party Line of the economics departments of all stripes is this: (1) central banking is not really a cartel, even though it looks like one; (2) every economy needs a central bank to protect the people from politicians, who would inflate; (3) gold is a liability as a monetary metal because it keeps central banks from inflating.

The textbook Party Line is simple to summarize: "Central banking is reliable; politicians and the general public are not."

Then why hold gold at all? Why not sell it and buy Treasury bills or bonds? Why not buy the bonds of lots of other nations? The bonds pay interest.

Could it be because the economic return on these bonds is risky? Could it be that central bankers never did trust PIIGS debt. Could it be that they regard the long-term value of gold as more stable than the long-term value of other currencies?

This would indicate that the experts in charge of monetary policy have adopted ideas not discussed in textbooks.

1. Gold is more reliable than fiat money.
2. Gold functions as money for central banks.
3. Gold is not a barbarous relic.
4. Central banks with gold reserves are trusted.
5. Gold is a symbol of central bank reliability.

Any of these answers would apply just as well to a commercial bank. They would apply to private citizens.

The textbooks ridicule such a suggestion. But the textbooks also avoid asking this question: "If gold is just another commodity, then why do central banks hold it as a legal reserve?" There is no gold redeemability. No central banks pay gold on demand to anyone, including other central banks. They did prior to August 1, 1914 (the start of World War I), but not today.

What is it about central bankers? Have they lost their ability to think through the principles of economics that they were taught in America's best universities? Have they not adopted the logic of economics?

It is clear that they have not bought into the textbook Party Line. Neither should anyone else.

HOW TO EMPTY FORT KNOX

If the gold is in Fort Knox, we should ask: "Why?"

By the standards of modern economics textbooks, this hoard of gold is irrational. It is the holdover of pre-Keynesian, pre-monetarist economic theory. It is a barbarous relic – in the thinking of central bankers.

The presence of gold in Fort Knox would testify to the fact that the senior central bankers of the most powerful nation on earth have never bought into the Party Line of the textbooks.

Why did Nixon close the gold window in 1971? To preserve the remaining supply of the government's gold, or at least preserve the illusion of this gold.

Why didn't he just let central banks buy all of it? At least the government would have gotten $42.22 per ounce.

If voters want the gold in Fort Knox to stay in Fort Knox, then we should conclude one of three things: (1) they are economically irrational or ill-informed; (2) the textbook writers are economically irrational or ill-informed; (3) they haven't spotted a deal: buying gold at $42.22 per ounce.

CONCLUSION

It's time to sell tenth-ounce gold eagles to Americans at $42.22 per ounce. At $42.22 per ounce, a barbarous relic is a very good deal.

I think Americans have better uses for the gold than the government does.

If Fort Knox isn't empty, here is a great way to save all those storage fees. Soon.