Way to Go Gold, Japan
December 07, 2011
I made a suggestion in a blog post in early July that the U.S., government should use its massive gold holdings in Fort Knox, Ky., to pay the interest on a special 20-year bond. This would appeal to gold aficionados and provide a convenient way for the government to borrow $3.9 trillion at a time when markets are suspicious of further lending to profligate governments.
This would help move gold toward the center of the U.S. financial system. I wrote that it was something that Alexander Hamilton might have done when he had to correct federal finances that were even shakier than they are now.
I don’t expect my blog was read by anyone in Japan, but the idea of a government bond with the interest coming in the form of a gold coin seems to have taken root there.
Bloomberg reports that the Japanese finance minister announced issuance of a reconstruction bond that will rebuild the areas affected by the tsunami and nuclear power plant disasters. Buyers of the three-year bonds will get conventional interest of almost nothing – just 0.05 percent, (one-twentieth of one percent) – but at the end of the three years, persons who buy 10 million yen worth, or $129,000 at present exchange rates, will also receive a gold coin weighing half a troy ounce. The value of the coin at current bullion values is roughly six times the conventional interest payment.
There is also a silver coin version of the bond involving lesser sums.
To that, I say, way to go gold, Japan.
When I wrote the blog suggesting the U.S. government do this, the odds of anybody at the U.S. Treasury even noticing the idea, let alone, considering it, were nonexistent. Japan’s action might actually cause Treasury to take notice.
The Japanese finance minister is reported to also write thank you notes to buyers, a level of courtesy that Japan is famous for, but not something I would ever expect from a U.S. secretary of the Treasury.
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