Fiat money has no place to go but gold says Alan Greenspan
Posted on 17 September 2010 with 5 comments from readers
It seems gold bugs have a new convert in the shape of former Fed chairman Alan Greenspan. He told the Council for Foreign Relations yesterday that ‘Fiat money has no place to go but gold’ in response to questions about why gold was hitting new highs (and silver for that matter, although not all-time highs just yet).
Mr Greenspan added that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities ’simply don’t pan out’ and so he concluded that gold is simply different.
World War II
A witness reported that Greenspan spoke of how, during World War II, the Allies going into North Africa found gold was insisted on in the payment of bribes. He commented: ‘If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.’
How remarkable that the man most responsible for keeping interest rates too low for too long in the US, and therefore creating the conditions in which subprime was an accident that had to happen has now finally got it.
But the point he makes is so blindingly obvious that anybody can understand it. You can print money and not gold. That means the price of gold goes up in monetary terms if you print money.
Will this be like his warning on ‘irrational exuberance’ in the stock market in 1996 that did absolutely nothing to stop the dot-com boom and bust? Gold could well get into a similar bubble phase now.
5 Comments posted by readers:
I’m rather surprised that there’s no responses to this commentary, Peter!
Flashback to 1966:
Back in 1966, many years before Alan Greenspan became FED chair, he wrote a very powerful, but rather short essay entitled “Gold and Economic Freedom.” This essay has become hallowed with time; here’s an excerpt:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
“This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
obewon note: the boldface above is mine!
For the full text of his 1966 commentary, go here:
http://www.financialsense.com/metals/greenspan1966.html
It seems you can teach an old fiat dog new tricks! Although Easy Al always knew that gold was special as he acknowledged in his younger days indicating it was the best protector of wealth against the ravages of inflation.
As to the question of gold and bubbles I recently opined on the subject on my blog:
http://ausbullion.blogspot.com/2010/09/gentle-upward-slope-no-bubble-spike.html
@ Tears:
Tried to leave a comment on your blog (using my google account). . . but was unable to do so. You may want to check it.
Peter, or Tears, Try This Experiment:
If you plot the gold bull from 1970 to 1980, then super-impose the gold bull from 2000 to 2010 onto the same graph, it looks like the current gold bull market hasn’t really gone up very much, in comparison.
USD 1500 gold or perhaps much higher is a foregone conclusion!!!
The question is not ‘if’ but ‘when’ and my guess is 6 months may be too long!
With the kind of deficits that the US and Europe have run up, the only way to dig themselves out of this deep hole is inflation. This is a natural, foregone conclusion.
The minute these economies start recovering a bit, inflation will start creeping up. And these Governments or Central Banks are not going to do too much (except make the right noises) to control it. One can look forward to many years of high inflation (2-4%) in the U.S and Europe till the deficit falls in relative terms. The only hedge against the coming inflation will be assets. Why do you think stocks, gold and the yen are climbing steadily? Gold is and continues to be an absolute standard and for good reason. i.e It follows a natural law and cannot be tampered with the Alan Greenspans of the world!
I think we should isolate Greenspan, and refuse to post any of his Hogwash. In his younger days he was a “Gold Bug”, however, when his chance for fame and fortune knocked he sang another tune for the home folks, but now he is a “Gold Bug” again.
As he is obviously lying about one side of the coin or the other, I charge that he can no longer be believed about any stance he promotes regarding gold and should not be offered space to spout his probable lies to the public any more.
He has done his damage, go away old man.