Interview: Alex Pollock on the Fed and Gold | Part II

Published by The Institutional Risk Analyst.

October 10, 2025 | In this special edition of The Institutional Risk Analyst, we feature Part II of the discussion with Alex Pollock, Senior Fellow at the Mises Institute, that we first published on October 3, 2025. You may read Part I of the interview (“Interview: Alex Pollock on the Fed and Gold”). As we noted in Part I, Alex provides thought and policy leadership on financial issues and the study of financial systems. He was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. We spoke with Alex from his home in Lake Forest, Illinois.

Pollock: Can I give you a great quote on this? An excellent private memorandum on gold viewed in the long term says: “A higher money price of gold is best read as a symptom of a weaker currency. It isn't really the gold going up, it's the dollar or fiat currency in general going down.” That seems to me to be right. And then he says further: “The value of gold lies in being independent from political discretion. Fiat money is a claim on the future discretion of politicians.” Isn't that good?

The IRA: That is a great comment about gold. In the book of Deuteronomy, Moses commands that there be “one measure” of value, something that Fred Feldkamp and I wrote about in Financial Stability: Fraud, Confidence and the Wealth of Nations.” Basically what Moses said was that you have to deal at a mid-market price, no built-in profit from a bid-ask spread. So of course, Jesus of Nazareth points this out in the temple and the money changers, who used a particularly wide bid-ask spread, crucify him. Jesus did not commit any particular religious offenses, he simply outed the money changers in the Temple for violating the laws of Moses and also not paying taxes to Rome on their hidden profits. Forty years later, the Roman legions destroyed the Second Temple down to the last stone to find the hidden gold. In this way, Jesus’ prediction in Matthew 24:2 that the Temple would be utterly destroyed and “not one stone would be left upon another” came true.

Pollock: I didn't know that about Deuteronomy. That's interesting. It's hard to have a dealer market with no spreads, Chris.

The IRA: That depends. In the late 1980s at Bear, Stearns & Co in London, our head trader Paul Murphy made a mid-market price in Canada 9s and the 10-year Treasury every morning to get the customers stirred up. A mid-market price means that if you get lifted by a buyer who has superior knowledge, then you immediately have to adjust. A pure free market. But going back to the earlier point about the Roosevelt era reforms to the Fed and the centralization in Washington, our view is that we need change to make Trump’s reforms meaningful. We’d get rid of the Board of Governors in Washington, make Cleveland a branch of Chicago, convert four branches into new reserve banks in the west, and make all 15 of the Federal Reserve Bank heads presidential appointments with Senate confirmation. We’d take the references to the FOMC out of the statute and let the Fed organize its operations as before 1935.

Pollock: Well, in doing that, you're undoing the fundamental political deal of the Fed which you know very well. The stock of the Federal Reserve is not owned by the government or the Treasury, but by the private member banks. I just read a very good and very knowledgeable book in which the author said, however, that the government owns the Fed. Well, at least the government doesn't own the stock of the Fed. The private banks own 100% of the Fed stock and have since the original Federal Reserve Act.

The IRA: That “ownership” is not enforceable privately because of the very argument you made about Congress and the power to coin money. The federal government retains dominion over the Federal Reserve System no matter who provided the initial capital. To paraphrase Supreme Court Justice Louis Brandeis in the 1925 case Benedict v. Ratner, a transfer of property meant to be security for a debt is "fraudulent in law and void as to creditors" if the transferor retains the right to control, or reserve dominion over, that property. Congress created the Fed and sold stock to the member banks. The fact of private capital didn't prevent Franklin Roosevelt and his New Dealers from stealing the gold that private banks contributed to the original capital of the Fed.

Pollock: That's right. Some people still say that the Fed owns gold. What they mean is the Fed owns something called “gold certificates,” which is simply proof of confiscation by the Treasury, which took their gold and gave them in exchange a paper dollar claim. All the subsequent profit from the devaluation of the dollar against gold in the thirties or anytime goes to the Treasury, zero goes to the Fed. This profit is the origin of the Exchange Stabilization Fund of the Treasury, an exceptionally handy slush fund for the Treasury and the President when they want to do things and don't want to have to get Congressional approval.

The IRA: You mean like bailing out Mexico and banks like Goldman Sachs in the 1980s and 1990s or Argentina today? We used to rail against the use of the ESF to bail out dictators, but nobody in Congress cares today.

Pollock: Yes, like they bailed out Mexico in 1994, etc., as you say.

The IRA: We wuz there, helping Cuauhtémoc Cárdenas run for president in Mexico. So the Fed and the banks could claim that the gold in Fort Knox belongs to them and obviously it does. But when you touch the government, of course, you know that they're going to steal your money. The example of Fannie Mae and Freddie Mac since 2008 is another case in point. Since the 1930s, the Fed and Treasury have essentially been short gold in a sense that policy was directed at avoiding any reference to gold. As you noted, unlike other central banks, the Fed has not been buying gold, even though now since the repeal of the Depression era gold laws they could. If Governor Steven Miran really wants to adjust the dollar lower, shouldn’t the Fed be a buyer of gold for its own account?

Pollock: If you are a seller of paper currency, dollars or any paper currency, then you drive the other side up. All prices are exchange rates, and the price of gold or equally stated, the price of a dollar expressed in ounces of gold, is an exchange rate. Of course, you can move the exchange rate by selling one and buying the other, like the Fed did when massively buying mortgage bonds, more than $2 trillion of them, during QE. The Fed drove up the price of mortgage-backed securities and drove down the yields on mortgage loans financed by simply printing up the money, resulting in much higher home prices.

The IRA: That's right. But if we're Governor Miran and we are concerned that the dollar is overvalued don't we then sell paper and buy gold? Like FDR, we're going to buy gold and essentially devalue the dollar until we get it to where we think it needs to be. Don’t you think it's surprising that nobody in government of either party over the past several decades has even thought about the dollar and gold until President Trump?

Pollock: Yes. The other part of that story is the potential revaluation of the Treasury's gold, the government's gold taken from the members of the Federal Reserve Banks, which is on the books at $42.22 an ounce. The statutory definition of the official price of gold owned by the United States government is “42 and 2/9 dollars per ounce.”

The IRA: The U.S. government's official book value for its gold reserves is $42.2222 per fine troy ounce, a statutory price set by Congress in 1973 that remains constant for accounting purposes. What do you think would be the symbolic impact if we changed the official price?

Pollock: As you say, the official gold price is a matter of law, as established by the Act to Amend the Par Value Modification Act of 1973. You'd have to get Congress to act to change this. If you did get Congressional action, you should just say, as I have recommended, that the official price of gold is “the fair market price of gold as certified by the Secretary of the Treasury” Today that is over $4,000 an ounce. Then you would've a tremendous writeup of the price of gold. The Treasury Exchange Stabilization Fund would get a lot bigger. Like FDR in the 1930s, they could monetize the market value gain by creating new gold certificates, depositing them in the Fed and writing checks on the Fed.

The IRA: I seem to recall that Senator Carter Glass ridiculed FDR in public for this accounting charade. But in a system so dependent upon confidence and inflation, perhaps that is overmuch concern.

Pollock: The gold certificate is a deposit of the Treasury at the Fed, the Fed credits the Treasury's account for the gold certificates, which are already authorized by law. If you change the law to have the Treasury's gold valued at its fair value as opposed to its 1973 value, then Treasury could just write checks and, in effect, borrow the new market value of the gold from the Fed. You could have another nearly $1 trillion of new fiat cash right now. The Eisenhower administration used this gold certificate strategy back in the 1950s, by the way.

The IRA: We don't want to say that too loud. People will get the idea. But the Treasury and the Fed could buy gold for paper. Imagine if you have Kevin Hassett at the Fed. He could start buying gold and force the dollar significantly lower. As you said, it is the dollar that is falling in terms of the gold-dollar exchange rate, not the value of the metal rising.

Pollock: The seizure of gold in 1933 was a profit to the Treasury and an economic loss to the Fed under the Gold Reserve Act of 1934. The Fed had to turn in all its gold and couldn't buy any more. That law was reversed in 1974 in an amendment included in the International Development Association Appropriations Act of 1975 sponsored by Senator Jesse Helms (R-NC). The government stopped the incredibly despotic action of forbidding its citizens from owning gold. I think it's true that the Fed, also from 1974, could have bought gold for itself again. Of course, that would be the opposite, as you point out, of its whole ideology, which is to run the world on fiat paper dollars.

The IRA: Have we not come full circle, Alex? We've gone from the FDR confiscation of gold and all of these laws that were passed to prevent Americans from even thinking about gold. But the Russians and the Chinese particularly have turned this around. The opening of the Shanghai Gold Exchange in 2002 ended the embargo on gold as a reserve asset. Today gold seems to be back in the ascendancy. Was this just bound to happen or was it the US frittering away their franchise with a lot of deficit spending that forced this issue and sanctions and all the rest of it too?

Pollock: I think that is true about deficit spending hurting faith in the dollar. Nor has the United States helped itself in this sense by weaponizing our dominant currency to punish people. It does make the rest of the world less willing to hold dollars as assets and as their central bank foreign currency reserves. Now we see this very interesting move to a new reserve allocation around the world, central banks buying gold. Interesting to think that just a generation ago, the central banks were selling gold.

The IRA: Then-Chancellor of the Exchequer Gordon Brown sold a large portion of the UK's gold reserves between 1999 and 2002, a major financial blunder because it happened at a 20-year low in the gold market, just before the price began a massive, sustained rally.

Pollock: The Bank of England, the Bank of Canada and others all sold gold. A friend of mine in Switzerland told me that he knew officers of the Swiss National Bank, the Swiss Central Bank, when they were forced by the politicians to sell some of the bank’s gold along with the other countries in the nineties. The Swiss literally cried, he said, when they were forced to sell. And they were selling at the bottom, although of course the central banks were in the aggregate making the bottom by selling. That really looks bad in retrospect. Now needless to say, they're buying again. But the central bank buying also seems to be making this top if it is a top, at least making this very high price over $4,000 per ounce– getting close to 100 times the official US price and more than 100 times the old Bretton Woods par of $35.

The IRA: The central banks have been buying in volume. They were indifferent to the price. They just told their people to go out and buy, particularly the Chinese but many other central banks as well.

Pollock: And many want to get out of dollars or at least stop accumulating dollars and accumulate gold instead.

The IRA: It is hard to make a case for holding dollars when we look at the behavior of the Fed and Treasury over the past decade. The Fed bought $7 trillion worth of securities during and after COVID and did not stop buying until 2022, after interest rates had gone up. Fiscal policy was likewise running full tilt. Powell's FOMC provides one of the most egregious examples of procyclical government behavior in modern economic history, perhaps the single best reason for Congress to reform the Fed.

Pollock: The Fed led the housing market into a giant house price bubble with prices rising very rapidly. It was still buying and stoking that bubble in 2021 up to early 2022. Unbelievable. To my mind, an amazing blunder. But part of the mystique of being a central bank is you never admit you made a mistake. It must be that when you enter the secret society of central bankers, you have to pledge never to admit to making a mistake.

The IRA: Well, do you think if they confirm Kevin Hassett as Fed Chairman that he's going to betray Trump like all the other Fed chairman have done?

Pollock: I know Kevin personally from our days together at AEI. He is a very smart and knowledgeable guy. There is, of course, the most famous historical story of betrayal. When Harry Truman was President, he forced out Fed Chairman Thomas McCabe in 1951 to make room for a new appointment. Former Chairman Marriner Eccles stayed on the Board as governor to support McCabe and thwart Truman. Eventually the President got Chairman McCabe to resign. The issue was that the Fed would not commit to keep on buying Treasury bonds to peg the yield at 2.5% to finance the Korean War. While these negotiations were going on, the US Army had just retreated 200 miles south down the Korean peninsula. So you have got to have some sympathy for President Truman. He was losing a war.

The IRA: Reminds us that President Trump’s efforts to remove Chairman Powell are not unique in recent US history.

Pollock: After McCabe’s departure, Truman put in William McChesney Martin, a great Fed chairman and the longest serving one. He was appointed by Truman from the Treasury because it was assumed that Martin would follow the Administration line. Martin didn't. Chairman Martin believed in sound money.

The IRA: And Martin defended the independence of the Temple. Hassett is already starting to make noises about the challenges of inflation. Everyone who is confirmed by the Senate as a Fed governor defends the Temple.

Pollock: There's one point when Martin was now Fed Chairman that he runs into Truman, by the Waldorf Hotel in New York. President Truman looked him in the eye and said one word, “traitor!”

The IRA: Well, given all of that, the Trump administration has articulated a lot of things they would like to change at the Fed that would greatly limit the central bank’s ability to do creative things. How do you think that would change things given the deficit and everything else?

Pollock: It would be very dangerous, of course. My view of Fed “independence," if you talk about absolute independence, it's nonsense. You can't have one piece of the government that becomes an autonomous power running around doing whatever it wants. That's ridiculous. But the Fed should be independent of the President and the Treasury. The reason why this is completely clear was explained by none other than William McChesney Martin: The Treasury is the borrower. The Fed is the lender. You can't have the borrower telling the lender what the lender has to do. I think that's wonderful logic, and so true. Instead, the Fed reports to the Congress and telling the Fed what to do is the responsibility of Congress.

The IRA: Unless your President is a former real estate developer.

Pollock: But all presidents wish to control the Fed. Of course.

The IRA: Of course. Thank you Alex.

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