Just about everyone knows Alan Greenspan. As central bankers go, he may just be the most famous ever. Even today, 1 in 6 Americans still think he's the current chair of the Federal Reserve.
As Fed chief from 1987 until 2006, Greenspan oversaw the latter part of the greatest stock bull in history.
For that, some called him "The Maestro."
From other quarters, the names are far less flattering. Many blame him for inflating massive stock and real estate bubbles, resulting in financial devastation across the economy.
Well, these days Greenspan is acting rather schizophrenic. In fact, you won't believe what he's saying now, unless you understand where he's coming from.
Given the havoc its wreaking on market stability (while ostensibly doing the opposite), it's absolutely critical to look back at Greenspan's handiwork to try to make sense of today's Federal Reserve maneuvering…
Greenspan Was Molded Decades Before Heading the Fed
Greenspan has been an economic adviser to two presidents and a director at several corporations, including JP Morgan & Co., as well as a director of the Council on Foreign Relations.
But his ideas about economics and money change dramatically depending on when you ask him, or where he works.
Back in the early 1950s Greenspan became a member of Ayn Rand's inner circle. His essay "Gold and Economic Freedom" was published in Rand's newsletter The Objectivist in 1966 and in her book, Capitalism: The Unknown Ideal in 1967. He even read Atlas Shrugged while it was being written.
In case you're confused, yes… it's the same Alan Greenspan.
In the "Gold and Economic Freedom" essay, he wrote: "… gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other."
He went on to say: "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."
Does this sound like a guy who would be in charge of the world's most powerful central bank?
Remember, the raison d'être of central banks, and of course central bankers, is to promote and defend a system of fiat money creation and debt. Gold is neither of those. Actually it's the complete opposite. It's the anti-fiat money and anti-credit.
It's not perfect, but it's still the best money that fiat money can buy.
Greenspan knows it. He's always known it.
Now, no longer obliged to toe the Fed's line, he's again free to say what he really thinks.
Which has him back to extolling the virtues of gold, a topic he was outspoken on before selling out to the dark side of central banking…
Recycling a Tired Stance
"The Maestro" recently shared his thoughts through an op-ed piece in Foreign Affairs magazine, published by the Council on Foreign Relations.
That's the same publication that brought us the "brilliant" article we recently discussed in Money Morning, suggesting the Fed should print and give cash directly to citizens.
In Greenspan's piece, "Golden Rule: Why Beijing Is Buying," he suggests:
If China were to convert a relatively modest part of its $4 trillion foreign exchange reserves into gold, the country's currency could take on unexpected strength in today's international financial system. It would be a gamble, of course, for China to use part of its reserves to buy enough gold bullion to displace the United States from its position as the world's largest holder of monetary gold. (As of spring 2014, U.S. holdings amounted to $328 billion.) But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest.
Greenspan is even on the pro-gold standard bandwagon:
The broader issue – a return to the gold standard in any form – is nowhere on anybody's horizon… For more than two millennia, gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. No questions are raised when gold or direct claims to gold are offered in payment of an obligation… If the dollar or any other fiat currency were universally acceptable at all times, central banks would see no need to hold any gold. The fact that they do indicates that such currencies are not a universal substitute.
Here's a guy who's as connected as one gets in the realm of central banking, and yet he's extolling the virtues of gold as money, suggesting a return to a gold standard. Heck, he even thinks China ought to beef up its gold reserves, enough to overtake the U.S. as the largest owner of gold.
Why? Because he realizes that's what it would take to partially back China's currency, the renminbi, with gold, or at least challenge the dollar's status as world reserve currency. He also appreciates that it's a strategy that would be impossible to implement without sufficient gold.
In fairness, as Fed chief, Greenspan did display some affinity towards the precious metal.
In fact, he even followed his own system of a "virtual gold standard" for years, a principle he eventually abandoned the moment it became inconvenient…
The "Virtual Gold Standard" Was Quietly Cultivated
Join the conversation. Click here to jump to comments…
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.
Nice article. I' like to mention that we owe a debt of appreciation to Evan Soule and Jim Blanchard who in 1974 were heading the National Committe to Legalize Gold. They were instrumental in changing the law to allow US citizens to own gold bullion etc. Jim is deceased but his company "Blanchard" is still in the gold business. I had the pleasure of working with them in New Orleans. More fortunate for me is that I learned to invest in gold a long time ago!
Yes, good article and yes, thanks to Jim Blancahrd.
Greenspan for president of WGO. Maybe he'll get the numbers right.
Peter the GOLD BUG & Alan Greenspan the Pimp
I am in the gold business and consider this a sound move. Gold has kept its value for thousands of years and fiat currencies, and Bitcoin are practical yet illusionary. It's nice to own grams of gold, and I recommend Karatbars as a way of acquiring some, anyone can afford a gram, not so many an ounce, plus smaller amounts are more useful if we suddenly so need to exchange for goods and services.
Gold has no value like fiat money it has the value placed on it. If you need potatoes you pay what is asked, if its a dollar a pound or $100, an ounce of gold or a 100 ounces.
The difference is that gold is a tangible commodity and a dollar is an intangible concept. We can live quite well without gold or dollars, you can't survive without potatoes or their equal.
Very well said! You can't eat gold
I absolutely love the way you think. I share your understanding and I often tell people that money only has value because we chose to subscribe to the belief that it does. To test this hypothesis, one simply has to take some pocket change, a few dollar bills and even some real silver or gold into the woods and see if any animals find a use for it. With the possible exception that maybe birds would use paper money to line their nests (AFTER they shred it, that is), I can't think of one single animal that would consider any form of our money as particularly valuable to them at all.
Sometimes I try to imagine what the world would be like if everyone alive suddenly realized this and began to deny the notion that money holds value. What lives we could lead! There had to have been a time like this long ago, before someone came up with the idea of exchanging symbols of value rather than actual things of value.
Does the article implicate that we need to buy gold now as there would be potential increase interest rates that would be upon us ….. as an inflation hedge that we are going to see