Mary J. Miller
Some observers have suggested that the United States could sell some of its assets – such as its gold reserves – as a way of postponing the need to increase the statutory debt limit. This idea is not a viable option. In fact, it has been rejected by Treasury Secretaries – and Presidents – of both parties over a period of many years.
A “fire sale” of financial assets would be damaging to the economy, taxpayers, and financial markets. It would harm the interests of taxpayers, and would undermine confidence in the United States. Nor would such sales postpone reaching the debt limit for a meaningful amount of time. Congress would still need to raise the debt limit.
There are serious problems with selling the assets of the United States in order to raise short-term cash:
- A “fire sale” of the Nation’s gold to meet payment obligations would undercut confidence in the United States both here and abroad, and would be extremely destabilizing to the world financial system.
Treasury Secretaries from both parties have made it clear that they would not sell gold in order to buy time in a debt limit impasse. As then-Treasury Secretary James A. Baker said: “President [Reagan] and I are not prepared to take that step because it would undercut confidence here and abroad based on the widespread belief that the gold reserve is the foundation of our financial system, and because the Congress clearly has the power to prevent a default by assuming its responsibility with respect to the debt limit.” When President Reagan was asked whether he would consider selling gold, he told his Budget Director, James Miller, “absolutely not.” Similarly, Treasury Secretary Robert E. Rubin said, “We will not sell the nation's gold supply.”
- A “fire sale” of other assets, such as the remaining financial investments from the Emergency Economic Stabilization Act programs, would also impose losses on American taxpayers and risk damaging the value of similar assets held by private investors, all without generating sufficient revenue to make an appreciable difference in when the debt limit must be raised.
- Similarly, a “fire sale” of Treasury’s portfolio of mortgage-backed securities would be adverse to the interests of taxpayers and could jeopardize the still-fragile housing market. Treasury is gradually selling these assets, at the rate of up to $10 billion per month, in order to maximize value to taxpayers without hurting the market or mortgage rates.
- It is simply not feasible, for both legal and practical reasons, to sell the government’s portfolio of student loans.
Even if Treasury were to take the extreme actions of selling assets—which would both impair the return to taxpayers and harm financial markets—it would not eliminate the need for Congress to raise the debt limit. The United States borrows roughly $125 billion per month. Thus, even if Treasury were to take these extreme actions—at great cost—the total value of the assets sold would only buy a limited amount of time. Congress would still need to raise the debt limit.
The infeasibility of asset sales can be illustrated by an analogy: a family that is struggling to make its monthly mortgage payment could try to sell all of its possessions within a week at a garage sale or on the Internet. But, of course, the family would receive much less than the value of its possessions. And once the next month came, the family would still need to make its mortgage payments—yet all of its possessions would be gone.
Thankfully, leadership of both parties in Congress has publicly expressed the need to increase the debt limit. The misguided notion of selling assets should not divert Congress from this critical task.
Mary J. Miller is Assistant Secretary of the Treasury for Financial Markets.