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People's Bank of China - Advisor: Why doesn't US pay off debt from gold reserve?

Bloomberg Nov 24, 2010 10:18 PM ET

The U.S. should cut its government spending and sell some gold reserves to balance its budget and fund its recovery, the People’s Daily overseas edition reported, citing Xia Bin, an adviser to the People’s Bank of China.

The U.S. has to resolve its “twin deficits” in the government budget and the current account, Xia was quoted as saying. Three ways that may help the U.S. achieve that target include reducing military expenses, selling part of its gold reserves and relaxing some export limits on technology, he said.

“The U.S. has more than 8,000 tons of gold reserves; why can’t it sell some of it since the country wants to raise funds for economic recovery but doesn’t want to add more burden to the fiscal deficit,” Xia told the newspaper. He didn’t mention whether China would be willing to purchase any gold from the U.S.

China ranks as the world’s largest foreign holder of U.S. Treasuries, with $883.5 billion as of Sept. 30, according to the U.S. Treasury Department. China should raise its gold holdings and its 1,054 tons of reserves are inadequate compared with the 8,133 tons held by the U.S. and 3,408 tons by Germany, Meng Qingfa, a researcher at the China Chamber of International Commerce said on Oct. 27.

The U.S. won’t be able to get to the bottom of the problem if the government keeps relying on printing money, Xia said.

“The financial market in the U.S. is not short of liquidity, and the money can’t get into the real economy,” he said. Expanding money supply may not be the answer in the U.S. as the high unemployment there is a structural, instead of a liquidity, issue, Xia said.

The Federal Reserve said Nov. 3 it will buy an additional $600 billion of Treasuries through June. Policy makers, setting a pace of about $75 billion of purchases a month, “will adjust the program as needed,” the Fed’s Open Market Committee said in a statement in Washington.

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