Now, teleport yourself across the country to a vault under the streets of Manhattan. Here the U.S. Federal Reserve holds more than 8,000 tons of gold–around four times annual global production and more gold than is thought to be in all the mines of the United States. Most of this gold belongs to the Federal Reserve–the rest of our holdings are in Fort Knox and other safe places–some is kept in trust for governments around the world. So when you read about France selling Switzerland some bullion, there’s a New Yorker with a hand trolley carting gold bars across a room under Wall Street.

Why hold all this gold? The reason is partly historical. Until 1971, the U.S. government was at the hub of an international gold exchange system. Central banks that held dollars in their reserves could present them to Uncle Sam and walk away with gold at $35 an ounce. But in the late 1960s and early 1970s, the U.S. hit an inflationary patch and Richard Nixon feared a run on our gold stocks–so he put an end to the exchange system. He didn’t get rid of the gold though, and even now it constitutes 54 percent of our nation’s foreign exchange reserves. Gold has not been the greatest investment: It hasn’t done as well as, say, the stock market–and it might have been put to better financial use buying back government debt. Yet the mandarins of the Federal Reserve cling to it for fear of offending supply-side economists, an ambiguous concern for how financial markets will react, and other “quasi-religious reasons,” according to Yale University economist William Nordhaus. And perhaps more important, it is also a hedge against doomsday. As Alan Greenspan testified to Congress in 1999: “Gold still represents the ultimate form of payment in the world. Germany in 1944 could buy materials only with gold. Gold is always accepted.”

Although this suggests that it may be good to have some gold around, it’s pretty thin reasoning for holding a majority of the country’s foreign exchange reserves in an underperforming asset. And it’s downright maddening when you consider that by hoarding gold the Fed creates scarcity in the market, drives gold to an artificially high price, and gives companies incentives to dig up and spray cyanide on valuable land to extract virgin ore. And don’t forget what this ore is used for. Eighty percent gets turned into jewelry not too long after it is extracted. Yes, some goes to women in South Asia who are not allowed other forms of wealth by the patriarchy, but most gold is pried from the earth at great ecological and social cost just so kids can have chunky class rings, and you and I can avow our love to our partners.

So here’s a recommendation: Sell the Fed’s gold reserves. Instead of making jewelry by opening the ground, make it by opening the vaults. Putting the Fed’s bullion on the market would protect the environment from the wounds created by gold mining. It would save our communities the costs of tending those wounds. And at the end of the day, if we manage the process correctly, it could make us a good bit of money too.

Mark Twain quipped that the definition of a gold mine is a hole in the ground owned by a liar. He actually underestimated the deception of the public given that mines are part of an industry that leaves a festering series of open sores, frequently scarring sacred landscapes of indigenous peoples and feeding social problems.

It sounds like a harsh generalization, but even in the environmentally regulated United States most of the contemporary gold mines are massive holes in the earth, draining aquifers, clearing landscape and habitat, and requiring huge quantities of sodium cyanide to be sprayed on crushed ore. Over a decade ago the Environmental Protection Agency was asked to name the three biggest threats to national security from an environmental perspective–they found them to be climate change, ozone depletion, and water contamination from old mines. With 500,000 abandoned shafts and pits pocking the United States, this is no exaggeration–and the gold mining industry is responsible for most of these.

Under the still-standing 1872 General Mining Act, gold miners can patent federal lands for $5 dollars an acre. This has contributed to a legacy of historic mining–from the refining of mercury-laden silt in San Francisco Bay, to the denial of indigenous land rights and desecration of sacred spaces in the Black Hills of South Dakota–that is certainly a problem. But what is worse is the impact of the modern mining industry which, through the use of huge Tonka trucks and cyanide, can make profitable mines out of very low-grade ores. This results in a six-foot by six-foot by 10-foot pile of toxic waste rock for every pair of gold rings sold on the open market. And when it’s clean up time, the costs are often externalized on the community that hosted the mine. In 1997, Pegasus Gold mining corporation, a Canadian company, abandoned the Zortman-Landusky mine after a series of cyanide spills and other pollution problems. They left Montana with a $100-million clean-up bill–but only a $30-million bond.

Due to the rare nature of gold, the extraction of it also results in the largest waste stream per unit of product compared to other kinds of mining. The U.S. gold industry has an ore-to-waste ratio averaging one part to three million, and the sheer volume of waste rock dwarfs municipal garbage production. What is more, this year’s Toxic Release Inventory published by the EPA calculates that 48 percent of all toxic waste is generated by the hard-rock-mining industry, in which gold is the major player. The United States is still the second largest producer of gold, producing about 10 percent of global output, with most of it coming from Nevada.

In Nevada, there are about 75 productive mines, mostly concentrated in the northeastern quarter of the state, on the lands of the Western Shoshone nation. To give you a sense of the problems created in Nevada by gold mining, two dozen of these mines are on the scale of the Berkeley pit–an abandoned copper mine in Butte, Mont., which has become the largest superfund site in the United States and will most likely result in the relocation of that city. These are mile-wide, mile-deep holes in the ground with massive ancillary industry and huge piles of waste rock littering the region and affecting the ecosystem and agriculture of the Silver State.

The Wall Street Journal reported on the Nevada industry earlier this year and concluded that the biggest problem there is the “dewatering” caused by the mines. As the mines are dug deeper and deeper, ground water has to be pumped out of the pits. This water is poured on the desert floor or allowed to leave the area via a few local streams, such as the Humboldt River. Currently the gold industry consumes more water than all the people in Nevada–clearly an unsustainable long-term proposition in a place that is classified as a desert. Scientists recently found that the groundwater level has dropped by more than 1,000 feet in a decade in some places–the most serious depletion of an aquifer in the world.

Richard Parks, chair of the Western Organization of Resource Councils (WORC) which organizes communities in 10 states increasingly in response to the threat of gold mining and exploration, believes firmly that the whole business needs some re-evaluation. “All this gold is squirreled away in the central banks, and acts as a subsidy supporting pollution of our water and destruction of our communities around the world and here in the West.” WORC and other groups in Montana led a citizen initiative in the last election that bans cyanide-based gold mining in the state, a move currently being copied by activists in Colorado.

Civil society groups are trying to ensure that this does not become a NIMBY–“not-in-my-backyard”–solution since the problems evident in Nevada, Montana, Alaska, and Idaho are replicated and magnified by the gold-mining industry throughout the world. In northern Peru for example, at Latin America’s largest gold mine, Newmont Corporation has come to be seen as a latter day Conquistador by the campesinos who live in the area. This huge mine is partly owned by the World Bank, which somehow justifies its stake in the name of poverty alleviation.

Newmont, which pioneered cyanide heap-leaching and has a stake in about 50 percent of the mines in Nevada, came to the gold-rich mountains around the ancient city of Cajamarca promising progress and no problems. Instead the campesinos have had their sacred mountains excavated, their water sources contaminated, and their lifestyle destroyed by the mine. Newmont has also taken its stock and trade to Indonesia where it operates two enormous mines, which dump their wastes at sea. This is a practice–known as submarine tailings disposal–which the company would never get away with here in the U.S. Newmont makes its profit by externalizing these costs and selling its gold at a price inflated by the fact that a bunch of useless bullion lies unused in the bowels of the Fed in Manhattan.

The wisdom of continued growth by the cyanide-based gold-mining industry is being increasingly challenged from an unlikely quarter–economists themselves. First there is the fact, as already discussed, that central banks and a handful of other institutions hold more than 33,000 tons of gold–around 15 times annual mine production. These reserves could satisfy gold demand for eight years at current rates.

But more compelling to the number crunchers than these arguments for material efficiency is the reality that gold reserves are diminishing in value. The United States’ stocks have devalued according to market prices from $215 billion in 1980 to $73 billion now. An economist at the Union Bank Switzerland estimated in late 1997 that the average Swiss household could earn more than $450 per year if the government were to invest its gold holdings in foreign-government bonds. If all nations’ gold reserves were sold and the investment switched into bonds they would earn $20 billion per annum. Instead, gold bullion gathers dust and depreciates. Given the bull market of recent years imagine what earnings could have been generated by the Fed if it had invested just a portion in almost anything else.

In June 1997, the U.S. Federal Reserve Board went so far as to publish a discussion paper that suggested governments would be much better off if all countries sold their gold immediately. It pointed out that the U.S. government would benefit substantially if it sold, especially if it sold early–before sales by other nations significantly lowered the metal’s value. One of the paper’s central arguments was that it was economically inefficient to continue to mine gold when bullion held in the nation’s vaults is available. While selling our gold stocks might lead to a decrease in the value of gold, the corresponding decrease in cost would actually increase the total welfare “by $368 billion because inefficiencies are eliminated.” The sale would also benefit industries that utilize gold (such as electronics and jewelry) because the removal of inefficiency costs leads to more net profit.

The paper did not come to represent government policy, according to one Fed official, because the sale of gold would “upset the market.” Economists like Yale’s Nordhaus don’t place a whole lot of weight on this concern. Yes, the gold market would experience some tumult, but it is certainly not clear why this should bring the financial markets crashing down. Silver was also once a metal that was traded as currency and held in reserve against the value of the dollar. It was imbued with some of the same cultural and political value as gold is now. The world did not end when we decided to sell it on the open market and treat it like any other commodity–although the drop in prices did hurt several rich silver-mining firms.

Meanwhile, many investment analysts are terming gold “the duddest of dud investments.” Nearly a decade ago The Economist described remaining central bank reserves as the “spent fuel of an obsolete monetary system,” but more chilling for gold fans was the release last year of a paper by Lehman Brothers called “Reverse Alchemy.” It tracked the accelerating commoditization of gold, and debunked 14 “golden myths” ranging from the notion that gold is a hedge against inflation to the hope that Y2K chaos would drive investors back to the security of gold. Their lack of faith in gold is being adopted by many others, and the hard numbers that they cite (like the fact that an investment made in gold ten years ago has lost 30 percent of its value) are increasingly hard to rebut.

It’s hard to say. The whys and wherefores as to our attachment to bullion are many and complex. It’s clear enough that Alan Greenspan and other so-called “goldbugs” at the Fed feel more secure knowing the precious metal is there. The U.S. has not sold even an ounce of its bullion since going off the gold standard almost 30 years ago. We haven’t even loaned it out–too bad, since these loans could have been awfully profitable while the asset was spiraling from its $800-per-ounce high to its current value of about $290.

In addition, the gold-mining companies are cagey political operatives, as they have shown in the European market. When it came time for the new European financial order to sort out its reserves situation, there was much lobbying by the industry to ensure members of the European Union did not sell their bullion. Despite this pressure, the new European Central Bank (ECB) decided to set its holdings at 15 percent–a mere fraction of the amount being held by Greenspan’s gang. As a result of these deliberations, members of the EU and those outside it started to see an advantage in selling sooner, before the price per ounce was deflated by a flood on the market. England broke ranks early to sell 400 tons last May.

Around the same time, the Swiss started to maneuver to sell some of their reserves, even though they were constitutionally bound to hang on to gold. The first step was to hold a referendum to amend their constitution and become the last country to sever the link between their currency and gold reserves. Then, the International Monetary Fund moved to sell 320 tons of gold–10 percent of its holdings and more than all the gold that goes into electronics and industrial applications in a year–and was endorsed to do so by the Group of Seven. All of a sudden it seemed that the market would be awash in bullion.

With an apparent run on the market pending, and the price plummeting, the gold-mining industry became nervous. It began bringing miners and others who would be affected by a depressed price–most notably multi-millionaires like CEO Ronald Cambre of Newmont–to plead their case with central bank decision makers. They were begging that the banks not divest their gold holdings lest it expose them to the reality of market forces–a hard sell in these days of laissez-faire capitalism, but one which they won by playing a race card. Bringing representatives of the South African workforce to the table, they begged not to forsake these hard-working men by making their mines unprofitable. In September, the ECB and a group of European countries–but not the United States–agreed in the so-called “Washington Agreement” to limit gold sales over the next five years to 2,000 tons.

But the industry may have been more successful at the negotiating table than in the real world. Since the Washington Agreement was signed nine months ago, the Netherlands has announced it will sell 300 tons, the Swiss 120 tons, and the British have continued their 20-ton auctions that brought on the negotiations in the first place. This far exceeds the pace of sales that the governments committed to, but the industry is putting a brave face on it. In the UK, the World Gold Council is trying to spawn a revolt against the Chancellor of the Exchequer and has so far garnered 70,000 signatures decrying the practice. But Tony Blair’s government seems determined to lower its holdings to less than 10 percent of its total asset base while the price of gold is still relatively high.

Cleaning up mines, retraining workers, and regulating the flow of bullion into the market will require significant planning and cooperation by regulators, communities, workers, and–to whatever extent possible–industry. The solution to many of the problems will be to start selling gold reserves, and to use some of the proceeds to clean up abandoned mines and retrain workers retrenched from the sector. For example, one could set aside some sales proceeds to create a remediation fund for Nevada’s cyanide-strewn landscape–just as taxes are garnered from coal export for the employment of citizens in the clean-up of coalfields. Labor issues also need to be handled delicately: In particular, a special fund will need to be set up to pay for a fair transition for the South African economy out of its reliance on gold mining and especially for the hundreds of thousands of men sent down three-mile shafts daily to dig for gold. In addition, a global scheme would be necessary to titrate sales with the ability of the market to absorb the surplus gold and create sufficient income to please the public and pay for some of the negative consequences.

The transition would have its challenges, but it would be well worth it. The sooner we do it, the better–not just because the market price will probably continue to drop as other countries liquidate their reserves, but also because the longer we hold onto it the longer gold-mining companies dump their cyanide on our land in the hopes of finding specks of metal that ultimately end up as decoration. At last our society could step away from this filthy lucre and move into a non-golden age of rational economic policy.