Is U.S. buying back gold pledged to IMF for $100 billion?

4p BST Saturday, May 9, 2009

Dear Friend of GATA and Gold:

A friend calls attention to the April 21 story from Reuters, appended here, reporting that President Obama proposes to loan $100 billion to the International Monetary Fund in what the president describes as an "exchange of assets." Our friend wonders whether the president's announcement signifies that, in this transaction, the United States is essentially leasing the IMF's supposed gold.

While the Reuters story provides no reference to gold, President Obama's letter to the leaders of Congress seeking support for the loan to the IMF does mention gold. That letter is also appended. The president writes, in regard to the IMF's so-called New Arrangements to Borrow:

"An increase in our participation in the NAB requires the Congress to pass legislation authorizing such participation, which is what we are requesting. Such participation effectively represents an exchange of assets rather than a budgetary expenditure, and it will not result in budgetary outlays or any increase in the deficit. That is because when the United States transfers dollars to the IMF under the NAB, the United States receives in exchange another monetary asset in the form of a liquid, interest-bearing claim on the IMF, which is backed by the IMF's strong financial position, including its significant holdings of gold. Similarly, our increased participation in the NAB does not constitute a request for budget authority; it is conceptually similar to investing government funds in a financial asset with minimal or no risk and is consistent with the findings of the 1967 President's Commission on Budget Concepts."

So the United States is to loan the IMF $100 billion and get an interest-bearing claim against the IMF, secured by the IMF's gold, which in turn is a claim against gold pledged to the IMF by the United States as a provision of U.S. membership in the organization. This indeed could look as if, for $100 billion, the IMF is surrendering its claim to the U.S. gold reserve or selling to the United States, rather than, say, China, the gold it long has been threatening to sell.

Financial journalists should pursue this interesting angle.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Obama Proposes $100 Billion Loan for IMF

By Lesley Wroughton
Reuters
Tuesday, April 21, 2009

http://uk.reuters.com/article/usPoliticsNews/idUKTRE53J6NH20090420?sp=true

WASHINGTON -- President Barack Obama on Monday proposed a $100 billion U.S. loan to the International Monetary Fund to boost the IMF's resources and urged a bigger stake in the IMF for emerging powers.

In a letter to U.S. congressional leaders, Obama said the U.S. funding "does not represent a budgetary expenditure or any increase in the deficit since it effectively represents an exchange of assets."

The $100 billion is part of commitments made by Group of 20 countries at a London summit on April 2, which agreed to triple IMF resources to a total of $750 billion to help the IMF respond to crises in emerging market economies as a result of the global financial crisis and economic downturn.

The U.S. funding will boost the IMF's so-called New Arrangements to Borrow, or NAB, a facility which allows member countries to provide credit to the IMF to deal with crises that may threaten the stability of the global financial system.

Obama said the NAB was "woefully inadequate" to deal with the severe economic and financial crisis.

"The deteriorating conditions threaten to worsen the recessions in these countries and could cause currencies to collapse," Obama wrote.

"Together, these factors, particularly if they become more acute, will further lower global growth and, as we saw during the Asian financial crisis, they will cause U.S. growth, jobs, and exports to fall even more sharply," he added.

He said an enlargement of the NAB facility of up to $500 billion would allow for increased participation by emerging market economies, in particular China and India.

Chinese officials have already indicated that Beijing plans to contribute $40 billion to the IMF through a bond issued to its central bank by the Fund.

Obama said countries were looking to the U.S. to deliver on its G20 commitment, indicating that other governments could follow the U.S. lead and contribute to the IMF.

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President Obama's Letter to Congressional Leadership
April 16, 2009

http://www.whitehouse.gov/assets/documents/Reid001.pdf

THE WHITE HOUSE
WASHINGTON
April 16, 2009

Dear Mr. Leader:

I write to ask you to support an essential component of our overall strategy to restore the health of the u.s. economy and financial system: the u.s. proposal to expand significantly the resources available to the International Monetary Fund (IMF) through its New Arrangements to Borrow (NAB) and a set of other proposals to strengthen the IMF.

The NAB is a mechanism through which the IMF can obtain supplemental financial resources for use in its lending operations when the IMF's existing resources are substantially drawn down in the face of circumstances that threaten the stability of the international monetary system. The NAB with 26 members was established in 1998, building upon a similar mechanism, the General Arrangements to Borrow, which was created in 1962. The size of the NAB is currently $50 billion.

The global economic crisis is seriously affecting emerging markets and developing countries, which are now experiencing severe economic declines and a massive withdrawal of capital. The deteriorating conditions threaten to worsen the recessions in these countries and could cause currencies to collapse. Together, these factors, particularly if they become more acute, will further lower global growth and, as we saw during the Asian financial crisis, they will cause u.s. growth, jobs, and exports to fall even more sharply.

Treasury Secretary Geithner concluded that the size of the NAB is woefully inadequate to deal with the type of severe economic and financial crisis we are experiencing, and I agree with him. For that reason, we proposed an expansion of the NAB of up to $500 billion (of which the U.S. participation would be up to $100 billion) and a further enlargement of its membership to include increased participation by the major emerging market countries, in particular China and India.

We consulted broadly with the Congress on our NAB proposal before we raised it internationally at the G-20 Summit. Other countries are looking to the United States to deliver on our commitment.

The meeting in London with the leaders of the other G-20 countries focused on adopting a common strategy to restart global growth and secure international financial stability for the future. A central element of that strategy was the U.S. proposal to increase the capacity of the IMF to lend to its members, primarily to developing and emerging market countries facing economic and financial difficulties. We also pledged our support for several other aspects of our participation in the IMF that require congressional action: an IMF quota reform to allow the IMF's governance structure to keep pace with the rapid growth and increasing significance of dynamic emerging economies; an IMF gold sale and related amendments to reform the IMF's income model and provide support for the poorest countries; and an amendment to permit a special one-time allocation of Special Drawing Rights, reserve assets created by the IMF based on a basket of key currencies, that will increase global liquidity and will support the IMF in promoting global financial stability. These reforms should be considered alongside the proposed NAB expansion.

An increase in our participation in the NAB requires the Congress to pass legislation authorizing such participation, which is what we are requesting. Such participation effectively represents an exchange of assets rather than a budgetary expenditure, and it will not result in budgetary outlays or any increase in the deficit. That is because when the United States transfers dollars to the IMF under the NAB, the United States receives in exchange another monetary asset in the form of a liquid, interest-bearing claim on the IMF, which is backed by the IMF's strong financial position, including its significant holdings of gold. Similarly, our increased participation in the NAB does not constitute a request for budget authority; it is conceptually similar to investing government funds in a financial asset with minimal or no risk and is consistent with the findings of the 1967 President's Commission on Budget Concepts.

Our proposal to increase U.S. participation in the NAB by up to $100 billion as part of an overall increase of $500 billion was warmly endorsed by the G-20 Leaders. We jointly committed to making substantial progress in reforming and expanding the NAB by the spring IMF meetings on April 25 with a view to having the NAB expansion in place within a few months. I am asking for your help to deliver on that commitment by supporting inclusion of the NAB and related IMF proposals in the most timely legislative vehicle that will enable the United States to act quickly. Rapid progress is essential to the restoration of confidence in the global economy and financial system so that the global economy can emerge from recession to recovery and to sustained growth.

Therefore, I would welcome your strong endorsement of speedy congressional action on these important initiatives and your agreement that a reformed and expanded NAB as part of a stronger and more responsive IMF is essential to reestablishing the well-being of the global economy and financial system and, consequently, our own economic recovery.

Sincerely,

BARACK OBAMA

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