Fed Chairman Bernanke Says "Gold Is Not Money" ... But His Predecessor Alan Greenspan Disagrees

George Washington's picture

Washington’s Blog


Fed Chairman Bernanke told congress today:

‘Gold isn’t money’

But Bernanke's predecessor - former Fed chair Alan Greenspan - disagrees.

As I noted in 2009:

Emeritus of Mathematics Antal Fekete has argued for years that gold is
the ultimate - and only - safe haven when things really hit the fan.

For example, in 2007 Fekete wrote:

grand old man of the New York Federal Reserve bank’s gold department,
the last Mohican, John Exter explained the devolution of money (not his
term) using the model of an inverted pyramid, delicately balanced on
its apex at the bottom consisting of pure gold. The pyramid has many
other layers of asset classes graded according to safety, from the
safest and least prolific at bottom to the least safe and most prolific
asset layer, electronic dollar credits on top. (When Exter developed
his model, electronic dollars had not yet existed; he talked about FR
deposits.) In between you find, in decreasing order of safety, as you
pass from the lower to the higher layer: silver, FR notes, T-bills,
T-bonds, agency paper, other loans and liabilities denominated in
dollars. In times of financial crisis people scramble downwards in the
pyramid trying to get to the next and nearest safer and less prolific
layer underneath. But down there the pyramid gets narrower. There is not
enough of the safer and less prolific kind of assets to accommodate
all who want to "devolve”. Devolution is also called "flight to

Darryl Schoon makes the same argument.


Here's a visual depiction Exeter's inverted pyramid, courtesy of FOFOA:



(Click here for full image)


Are Exeter, Fekete and Schoon right?


I don't know. But Alan Greenspan just lent some support to the theory.


prices that jumped above $1,000 an ounce this week are signaling that
investors are buying metals to hedge against declines in currencies,
former Federal Reserve Chairman Alan Greenspan said.


gains are “strictly a monetary phenomenon,” Greenspan said today at an
investment conference in New York. Rising prices of precious metals
and other commodities are “an indication of a very early stage of an
endeavor to move away from paper currencies,” he said...


“What is
fascinating is the extent to which gold still holds reign over the
financial system as the ultimate source of payment,” Greenspan said.

In other words, Greenspan is saying that
investors are moving out of the second-to-lowest step on the pyramid
(currencies and government bonds) and into the lowest step (gold).


is also verifying what goldbugs like Exeter, Fekete and Schoon have
been claiming: that "the barbarous relic" still holds an important
place in the modern investor's psyche.

Moreover, as I reported last year:

Alan Greenspan told the Council of Foreign Relations last week:

Fiat money has no place to go but gold.

Greenspan also said that supply and demand explanations treating gold like other commodities “simply don’t pan out."

also spoke of how, during World War II, the Allies going into North
Africa found gold was insisted on in the payment of bribes, and said:

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.

As I pointed out last month:

has declared gold and silver to be legal tender - with the value of
the coin determined by the weight of precious metal it contains

As the New York Times notes:

The law is the first of its kind in the United States. Several other
states, including Minnesota, Idaho and Georgia, have considered similar

World Bank president Robert Zoellick noted last year:

Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

Moreover, as FT reported last year:

Exchange, the US futures exchange group, has followed rival CME Group
by allowing its European clearing house to accept gold bullion as
collateral for transactions.

Zero Hedge notes:

JP Morgan Accepts Gold Bullion As Collateral.

And Phoenix Capital Research argues that central banks are themselves loading up on gold because they know that the entire fiat money scam will soon collapse.


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GOSPLAN HERO's picture

The U.S. Constitution says gold and silver are money.

The founding fathers had just experienced the collapse of the paper "continental dollar."

"Not worth a continental!"



rlouis's picture

And the next items up the pyramid are Fed. Notes and Bills - IOUs that can be printed adnauseam. Ben's denial is wholly understandable.

walküre's picture

QE3 is guaranteed now.

SoCalBusted's picture

Ron Paul should have asked Ben if we should sell all that shit in Fort Knox.

gmak's picture

The human species is the only one that assigns a value to things not necessary for survival.  Gold is money only if everyone agrees it is, because the "money-ness" is all in our minds. It is not a fact of nature.

Something can only be money if everyone accepts it as such.

dark_matter's picture

The human species is the only one that assigns a value to things not necessary for survival


Not sure this is true. My dog is pretty fond of tennis balls.


akak's picture

Zoo monkeys sure do seem to value their masturbation time too.

In fact, given their seeming preoccupation with "stimulus", and their obvious "animal spirits", I wonder if zoo monkeys are all actually closet Keynesians?  Their level of intellectual development and acuity would appear to make them eminently suited to the role --- or to the teaching of economics at any Eastern university, which is after all one and the same thing.

Raynja's picture

We're also the only species that use money, that converts things into energy outside our bodies, that communicate electronically. Gold is money, that is a fact of nature. Cultures that were never in contact came to this conclusion because it is one of the few things that satisfy all criteria of money (transactions, accounting, store of wealth).
Also money need not be universally accepted, to see this try buying something at walmart in canadian dollars.

Shell Game's picture

And because most people do, it is..

Manthong's picture

""the barbarous relic" still holds an important place in the modern investor's psyche"

It is often said that perception is reality.

apberusdisvet's picture

Lybia has 140 tons; soon to be in the IMF vaults ( you don't really think they are going to let the COMEX default, do you).  Italy has much more; does the vatican get first dibs?  Does everyone not remember DSK claiming that Fort Knox held no gold just before the set-up? 

mt paul's picture

gold is not money


to a man who has none....

TheMerryPrankster's picture

Fiat is a promise and a piece of paper

Gold is a promise and a piece of gold.

If the promise fails, I'd rather have gold than paper.

The U.S. government once confiscated all the gold money, but they have never confiscated all the paper money. There is a reason.

Think about what the government thinks is more valuable.

The Bernanke promotes the big lie, that makes him the big liar. Shame on you if you put faith in the words of the biggest liar. His tremble should be a big enough tell to let you know he is shitting his pants as he lies his ass off. The fear he emmanates is palpable.


Gold is money, and even Benny and the inkjets knows it, but can't say it.

Bansters-in-my- feces's picture

Alan Greenspan told the Council of Foreign Relations last week:

Speaking of the Council of Foreign Relations...

Who the fuck elected these guys/gals.???

David Rockefeller or what.

This group needs to be put behind bars and pistle whipped for awhile...

even longer....

Bansters-in-my- feces's picture

Alan Greenspan told the Council of Foreign Relations last week:

Speaking of the Council of Foreign Relations...

Who the fuck elected these guys/gals.???

David Rockefeller or what.

This group needs to be put behind bars and pistle whipped for awhile...

even longer....

SheepDog-One's picture

Money is money. A bottle of water is worth a million bucks to a guy out in the desert. Of course to central banksters gold is like garlic to vampires. If central banksters hate it, you buy it.

Sudden Debt's picture

and after diamonds, gold is the strongest afrodisiac for woman ;)

oldmanagain's picture

Gold is not money.  Ever tried to print gold.

Sudden Debt's picture

Gold is money

Silver is money

Copper is money

Nickle is money


Even dogshit is money if somebody want to trade it with you for something.



and when you don't thrust the paper IOU guys, those metals always go up.


Global Hunter's picture

Before the Bernank replied "no" there was a lovely awkward pause, then a deer in the heads light look.  I may go watch that again, he must get a squeaky bum whenever Ron Paul steps up to the mic.

Animal Cracker's picture

It's a barbarous relic that is clung to because of tradition.

...like Alan Greenspan.

earnulf's picture

Maybe that's why we never got the chance to handle those $5,000 dollar bils, they were only for the banks! (not the unwashed masses!)

Bansters-in-my- feces's picture

Fed Chairman Bernanke told congress today:

"Keynesian cum on my chin makes me look sexiest in the morning....and,

Oh ya,I swallow"

akak's picture

Yeah, but if all the sycophantic and duplicitious Keynesian shills for Bernanke, such as Robert Reich and Paul Krugman (and even little leo quislingasskiss here on ZeroHedge) have Bernanke's macho gazpacho on their chins, then whose baby batter does Bernanke consistently have on his?

web bot's picture

You missed one!

Crunch Time Looms For Public-Sector Pensions?

Make sure you check mine out... you got special mention! lol

web bot's picture


Where have you been - on holidays?

You missed a great Leo session!


akak's picture

Oh, I did?

Which one was that exactly?

I thought I had injected an appropriate amount of scorn and contempt into all of little leo's recent Keynesian ravings.  If I missed one, please let me know, so that I may go back and correct any oversight on my part.

web bot's picture
Crunch Time Looms For Public-Sector Pensions?


Make sure to check mine out... you got special mention  :D

akak's picture

Thanks for the special mention, web bot!

But I'll be gracious and let little leo have that round.  No sense in beating an already dead-and-rotting Keynesian horse --- and nothing says dead-and-rotting like the fevered, statist, narcissistic  scribblings of little leo quislingasskiss.

web bot's picture

No problem... I got quite a few laughs out of imaging you in that driver's seat!


Joebloinvestor's picture

The "gold is not money" arguement goes up in smoke when one realizes that the BIS uses it to settle all debts between banks.


So it is money for the banks, but not for the masses.


The banks are used to telling the suckers what their definiton of money is, ie, equity (that magic value).

Putty's picture

It would have been more apt to have the paper money area shaded green and the gold area shaded gold.  Otherwise, nice pyramid. 

akak's picture

I loved Bernanke's utterly absurd and disingenuous statement, when asked directly by Ron Paul today, that central banks hold gold only due to "tradition".  Just who the FUCK does he think he is fooling at this point, anyway?

Yeah, "tradition".  Boy, that is sure one amazingly persistent and curiously universal "tradition"!

High Plains Drifter's picture

Just who does he think he is fooling?     The thing is that the owners don't care. They know that most Americans don't even know who Bernanke is, much less what he says. Just how many Americans watched this performance today?  Most Americans don't care about any of this. They don't understand it and never will. This ignorance is common among Americans. That is the way it is. That is the way it always has been and that is the way it always will be.  These are the cards that are dealt. This is the hand that is held. In the last several years, perhaps, there maybe has been some noticable improvement, maybe, but not that much. Americans are firmly held in a place that they are confortable in , and they refuse to get out of that box. They refuse to think for themselves. Like Carlin said one time, the owners do not want people around capable of critical thinking. So it is. So it was. So it always has been. So what has changed in the last 250 years?  There have been many offers and the Americans have accepted these offers. The enemy has always been among us since the inception of this nation. So what has changed now?  I remember a preacher preaching a sermon one time about walking in the Shadow of the Almighty. As long as you stay in His Shadow, you are ok, but once you wander off, bad things happen. Americans are lazy, and corrupt. Americans bought into buy now and pay later. Americans think that this country is all about capitalism and making money and profits and merchantilism. The libraries of this country now are for the most part empty. Why is that? Americans don't read anymore. They watch television now. Americans can't see what is happening because they are lost, forever, lost , never to return. So the degradation continues on and on. Those who are awake watch it in disbelief. I remember the day I first woke up. I am not a gun person, per se, never have been really. But in that first year of my awakening, I started buying toys because I thought to myself, surely, most people are seeing what I am seeing and know what needs to be done. But alas I was wrong. I know that now as I look back. It was silly to think otherwise. The Army used  to have a advertisement talking about being a army of one. Yeh that is very nice. But patriot armies of one, do not work. So we look around us and we see, nothing being done, no organizations being built, no movements being hatched, nothing but grousing and complaining and arguing. This I have seen now for many years all over the net. This ladies and gentlemen will always be the case until the end of this nation. What a piece of work we have turned out to be. I say, probably that most of the Founding Fathers would have not been surprised , if in a few moments in time, they could come back to life and see what we have become. Shameful is what we are. Shameful. So it is in this atmosphere, that I myself no longer look to any rational and motivated move by anyone to take care of the business that Jefferson so eloquently pointed out during one of his speeches about the need from time to time for revolutions and cleaning up problems. Now many are turning from this disappointment to self preservation. We shall become a disjointed nation of enclaves for self preservation as this nation is balkanized and is broken apart......Such is life in Amerika in 2011.........

perelmanfan's picture

It's a transcendentally ridiculous comment. The value of any currency is always entirely due to a cumulative cultural assignation of legitimacy - dollars, seashells, gold, whatever. Call it tradition if you wish. And by that logic, the differentiator of quality is the length of time during which that tradition has persisted. Gold, at 5,000 years and counting, wins handily.

66Sexy's picture

Another way of saying:

"Oh, we;d LOVE to just hand it out as paper weights to our fine staff employees... but the damn PEOPLE think it is valuable, so.."

medicalstudent's picture

'gold is money, nothing else.'


jp morgan.


it bears repeating in these deluded times.

TheMerryPrankster's picture

The United States Constitution declares, in Article I, Section 10, "No State shall... make any Thing but gold and silver Coin a Tender in Payment of Debts". This means that no State can make something a "tender in payment" (which means they cannot "make something an offer as payment") for any debts, which would include debts owed by and to the State. However, EVERY State in the United States of America HAS made some other "Thing" an offer as payment - they have by law declared that they will accept, and pay out, Federal Reserve Notes for any debts owed by or to them. Therefore, every State is in violation of Article I, Section 10 of the U.S. Constitution. Thus the need for the "Constitutional Tender Act" -- a bill template that can be introduced in every State legislature in the nation, returning each of them to adherence to the United States Constitution's actual legal tender provisions.


eaglefalcon's picture

The Bernank is purely evil because he couldn't be so ignorant as the Chairman of Federal Reserve.  If you read the Federal Reserve Act of 1913 carefully, Federal Reserve Notes are not money, but IOUs of money.  Uncle Sam took gold from the American people and issued them IOUs saying "we promise to pay".  Promise to pay what?  Gold of course, at $22 per ounce.  20 years later, Roosevelt defaulted on that promise, and went a step further to confiscate private gold.  Since then, the American people have never been able to redeem their IOUs for gold.  It took another 38 years before Nixon defaulted on foreigners (they are a more difficult bunch because if you stop redeem IUOs for gold, they'd stop doing business with you).


In spite of what transpired in all these years, Article I section 10 of the US Constitution has never been repealed or amended.  Technically, gold and silver are still money in America, but people are forced to use IOUs (which technically only promises to pay taxes but nothing else) for all daily transactions.


The reasons they didn't declare federal reserve notes money in 1913 were twofold:  1. doing so would be a blatant violation of the Constitution.  2. In 1913, the word "money" referred to gold and silver only.


Not a single government on this planet would mint a gold coin with the inscription "promis to pay" or "legal tender for public and private debts".  Gold is money and when you give someone gold you give them money.  No promise needed because it's a done deal

camaro68ss's picture

Im going to buy me some more “tradition” today

AnAnonymous's picture

Dont tell, you wont use fiat money to do this.

Popo's picture

>"Gold isn't money"  -- Ben Bernanke


Ohhhh shit. Was that a "DENIAL"????




(And I'm not at *all* a gold bug.  I'm a staunch deflationist.  But if a Fed Chief stands before Congress and says "Gold isn't money".... we have a 5 alarm fire at hand... Fuck.)

Boxed Merlot's picture

... we have a 5 alarm fire at hand...



Excerpt from Whistleblower Andrew Maguire Interview by Eric King on King World News July 11, 2011:

Last week London Whistleblower Andrew Maguire told King World News that the launch of the new gold and silver exchange in China will destroy the remaining gold and silver shorts. Maguire stated, “The launch of this new gold and silver exchange has flown under the radar, but certainly has my attention. I firmly believe we are marking a pivotal point that will in very short order affect current precious metals price discovery dynamics. We now have an additional factor to be vended into the supply demand equation. This factor will ultimately destroy the remaining short positions in both gold and silver.”


China's got an awful lot of expatriated frns to burn through in this endeavor imo.



Oracle of Kypseli's picture

I dont care if it is money or it is not. It turns me on to hold it, look at it and hoard it.

66Sexy's picture

the triangle of liquidity..

fitting that it is an inverted triangle. The elites have things all backwards now

66Sexy's picture

Bernake cannot say "gold is money" while he sits as the Chairman of the Federal Reserve Bank.