'Sell Your Gold Reserves', PBOC Researcher Tells the U.S.

If Xia Bin would have his way, the U.S. would cut government spending and sell part of its gold reserves to put more money on its recovery plan and help it balance the budget. Xia Bin, a People's Bank of China adviser, further tells the People's Daily that the U.S. is grappling with 'twin deficits' -- budget and current account. For Xia, the U.S. can resolve this in three steps: first by reducing its military expenses; second, by selling some of its gold reserves; and third, by lifting its limitations on the export on technology.

Xia says that with 8,000 tons of gold in its reserves, the U.S. can easily raise funds to fuel its economic recovery. By doing so, the country doesn't have to exacerbate fiscal deficit. In his interview, Xia didn't say if China would want to buy American gold. China's interests in the U.S. is evident, since it is currently the top foreign U.S. Treasuries holder with over $880 billion. China lags behind the U.S. and Germany in gold reserves, owning only 1,054 tons.

If the U.S. does sell, according to Xia, it will be able to solve its economic woes. To Xia, liquidity isn't a problem in American economics and printing more money will do more harm than good. Unemployment in the country is a 'structural', not a liquidity problem.

In early November, the Federal Reserve announced that it will purchase $600 billion worth of additional Treasuries until June. The target purchase will be approximately $75 billion each month but the program will be adjusted as required.