Fed Secretive Accounting Practices a Mystery to Government Auditors

I know it has been a long time since I have written a blog post, but today I had the opportunity to attend a committee hearing of the Domestic Monetary Policy and Technology Committee, chaired by libertarian icon and presidential candidate Ron Paul of Texas. It was a very interesting experience for me, being the first committee hearing I have attended.

 

The hearing, entitled “Investigating the Gold: H.R. 1495, the Gold Reserve Transparency Act of 2011 and the Oversight of the United States Gold Holdings”, detailed the current state of U.S. gold holdings and regulations surrounding the auditing of those holdings.

 

The U.S. Treasury Department stores its reserves in three locations: Fort Knox, Denver, and West Point. The gold held at these locations accounts for 95% of all U.S. gold bullion reserves; the other 5% is held by the New York Fed.

According to the witnesses, the GAO’s Gary Engel and Inspector General of the Treasury Eric Thorson, aside from the bullion held at the New York Fed, the holdings have been assayed to a 95% statistical certainty. Neither witness was able to comment on the auditing procedures of the New York Fed. The witnesses further swore that “not one troy ounce is encumbered,” meaning that there are no claims on the gold.  The total value of U.S. gold holdings is around $320 billion and each gold bar is worth $500,000.

 

The hearing began to get interesting when Representative Leutkemeyer began a line of questioning regarding the gold pledged by the U.S. to the IMF. Upon asking if the golf pledged to the IMF, 17% of the IMF’s total holdings, is physically present in one of the Treasury Department’s facilities, or if it had been physically deposited at the IMF, and should therefore be listed among the assets of the United States Government. The witnesses, surprisingly considering that they are government auditors and ostensibly experts on these matters, were unable to answer and promised to submit written testimony after researching the issue.

So it seems that there is a possibility that the gold pledged to the IMF is being double counted, though the witnesses assured the committee that, if a claim on the gold holdings were submitted, the claimant would be paid in currency, not in specie. Also of note is that there is some lack of information regarding the New York Fed’s auditing practices. This should concern everyone considering the secretive deals the Fed has entered into with foreign banks in the very recent past, and is a matter likely to be taken up by the Domestic Monetary Policy and Technology Subcommittee.

Stay tuned for more on these and other issues.

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