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Gold and Economic Freedom: Did Greenspan Know What He Was Doing?
With Gold reaching new heights in dollar terms, I think this is an appropriate time to post an article on the subject circa 1967 by none other than the famed former Chairman of the Federal Reserve Alan Greenspan. In this article Greenspan, a former Goldbug, waxes eloquent on the role of Gold in our society, although it is debatable whether he can be classified as a "former" Goldbug. I, for one, think he's still a Goldbug. This is what he said in a recent speech at an investment conference in New York -
"What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment".
and
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".
Questions have been raised by some commenters on ZH recently whether Greenspan did what he did on purpose. Reading the article below and considering the fact that he is a devotee of Ayn Rand (who by the way was at his side when he was sworn in as chairman of the Council of Economic Advisers in 1974), it's pretty hard to argue that Greenspan did not know what he was doing. Of course, some might say what a horrible way to bring about change but the fact remains that Greenspan did not do anything that would not have happened otherwise - he just accelerated the process by giving the corrupt bankers (who control everything, including the Fed) enough rope to hang themselves. Also, in my humble opinion, human beings do not change until pushed to desperation. The beauty of this is that the people are not only becoming more aware about our financial system and heretofore obscure subjects such as monetary policy but are themselves demanding change - things like abolition of the fed, return to sound money, etc. Do you think any of this would have happened if everyone was fat and happy using the corrupt Fed-controlled fiat money system? I think not. This is a more sustainable way of changing things - i.e. from the grassroots level - as opposed to somebody at the top dictating what needs to be done, which almost always ends in failure. Indeed, the best protection against criminal organizations such as the Federal Reserve taking over our society is vigilant and informed citizens. Read this and figure out for yourselves whether this is someone who hates Gold or does not understand it. Greenspan might indeed be John Galt - the man who stopped the motor of the world.
GOLD AND ECONOMIC FREEDOM
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire -- that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.
When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one -- so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists -- why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely -- it was claimed -- there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.
The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form -- from a growing number of welfare-state advocates -- was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which -- through a complex series of steps -- the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
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.
--Alan Greenspan
1967
Source: http://www.usagold.com/gildedopinion/greenspan.html
Update: It just came to my mind that Greenspan joined the famed John Paulson's hedge fund in the January of this year and admittedly - "they're the only hedge fund he will advise on the direction of the economy". Soon after, John Paulson and Co. made a significant bet on Gold to the tune of $1.3 billion (and even more thereafter, including owning over 8% of the entire GLD ETF). Coincidence? I think not! Greenspan knows the games Central Banks, especially the Fed, have played all these years with Gold since going off the Gold standard and I think he has a pretty good idea where the price of Gold going. In any case, I would definitely wanna be long something John Paulson is!
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Exactly. labor theory of value ftw. It will be HELPED by a gold standard since there would be no hidden inflation tax an hence saving would be possible; the value of your labor would not be constantly diluted by effortless debt money... but an actual labor based currency should be goal.
I don't think you're right. While it's true that labor is valuable, it's not the only thing that's valuable. Also, some things have value that do not require labor. Other things appreciate, somehow acquiring value without any additional labor being invested. Scarcity and utility are often more of a factor than the quantity of labor.
I think the vein you are in is that there must be actual product behind currency, or a commodity, such as a good or service, that represents the value somewhere, and in turn actual demand. (i.e. Sound Money.) That isn't the same as just labor valued money. I've read Das Kapital, and I'm convinced that the labor theory of value is a load of hogwash.
of course its not the only factor, but lately its role in valuation has been suppressed. Im not saying ltv can eplain everything, it cant, but there should be a greater focus towards labor in our currency than what we have now. Now too often it is easy to accumulate money without any meaningful contribution or without any production.
So why not Palladium?
Or Platinum, or Silver? (I think Greenspan has already settled the argument against pig iron). Of course, they are all better than paper money - and some would say both of them are money too. But like I said, I look to human history to guide me in this regard and it says loud and clear - Gold. But then again, I cannot help someone bent on deliberately NOT understanding. Stick with paper money for all I care. We'll see who's right soon enough.
You don't know much at all.
Pd is an industrial metal that is at the price mercy of having very little inventory.
Gold has an overhang of about thirty years of production out there in the market. The tremendous overhang makes it relatively immune from production swings or the mine output from Russia's biggie.
There is no commodity that has the overhang of decades of production in the markets. That is yet another essence of gold as money.
The dopes that prattle on about "Cash for Gold" and such as being a significant factor in the gold market are self admitted fools.
or coal or oil or corn or etc. the difference with those is that you can actually DO something with them besides make shiny baubles
You look to a specfic selection of human history to guide what you've already decided and heavily vested your reputation and financial well being in (and even more cynically, you've chosen an element where might makes right.). I have no illusions about paper money being great but the situation isn't a dichotomy. I must not support one wholeheartedly over the other. I simply don't support chasing appreciation in anticipation of the world as we know it ending and gold being the only currency. Especially when the people that desire and promote it the most are the ones who have the most to gain from it.
NONSENSE.
That's EXACTLY the description of a fiat money system. It is my contention that nobody will force you (or has forced you in the past) to use Gold as money. People themselves chose Gold as money first; the governments came after and appropriated it for purposes of control (theft, really) making it seem like they were the ones decreeing what money is. I invest in Gold because I believe that people will volunatrily turn to it when the paper money system implodes, not because I expect somebody will enforce its use as money. But like I said, I can't convince someone who has already made up their mind.
If there is something else that emerges better than Gold, by all means I'll support and embrace it - but fiat money is not it. So far Gold is the best bet. If you know of anything better, please let me know. I am just trying to protect myself from theft by the government and you are free to do so as well. In fact, you are an idiot if you don't. And I am not "promoting" anything. Just stating the facts as I see them. You free to make up your own mind.
I agree with your points here, and would like to point your attention towards an actual alternative:
Gold may have a fixed supply, but energy is an actually intrinsically useful and diminishing supply resource. Now to be blunt here, I haven't thought out all the different ways this could be implemented...suffice it to say that it would be hard to do, but an oil based standard, or a straight up joule standard would reward holders of the most useful and soon to be scarce resource. Value would not be assigned arbitrarily to who holds the most the most of a resource that has a limited supply, but instead would be assigned to energy, the best proxy for labor and productivity that I can think of.
OK, here's my problem with all of these "useful" items as currency. Monetary policy, instead of driven by people whose job it is to create monetary policy (regardless of how your view of their ability to do so), will now be driven by miners, engineers, wildcatters, inventors, etc. The only way to contract gold supply is to confiscate it. The only way to expand it is to mine it (or confiscate and redistribute). Same with energy. Imagine the political arguments we'd have if we had energy as a proxy for currency. You would have almost zero reasons to improve grid or generating efficiency in order to preserve the relative wealth of the rich.
If the answer is to have a fractional reserve like system, then I say, what's the point?
It shouldnt be anyone's job to manage monetary policy. Monetary scientiests are the biggest wastes of space out there: the desire to manage the supply of money only stems from the fact that people want to manage the supply of money to themselves... its that simple. In reality any supply of money will work for any society. Its a pretty easy concept to grasp. Only in todays ponzi styled economy would we need to contantly increase the supply of money to stay afloat. (just think about this...what kind of venture needs an ever increasing supply to exist) Anyways the point is nobody should be managing the money supply since it is such a great power and it always corrupts.
I don't see your argument about energy...we would see the opposite of what you say...the natural tendency would be to increase the monetary base and hence to maimize the amount of energy out there so we could spend more. Increasing the grid network an efficiency would be for the best for everybody.
Here's my point. Whether or not someone is put in charge of monetary suppy or not, there will be monetary policy. It's either done by people trained in monetary economics, or it will be done by those producing whatever good is used as money. Someone is going to be in charge whether it be by political appointment or finding the mother lode.
As for the specific energy argument, yes, increased efficiency would be best for everybody. However, "everybody" does not make the decisions. For example, let's say you had a large (10,000+) family sitting on a whole bunch of energy. They would likely control a large part of gov't. Why would it be in their best interests to have a more energy efficient society? Specifically, why would they want to pay to have a more efficient society? The Saudi's are already starting to cry about alt energy.
http://www.google.com/hostednews/ap/article/ALeqM5gyy9tlD4hRjJD2wQ__gxvo...
none of the problems you describe are anything new and exclusive to different monetary systems. Let me just re-iterate my point though, the amount of money is not important for productivity, the incentive structure of the money is important. If it rewards hard work and productivity then the rest of the factors will be much easier to deal with since this paradigm would make everything a bit clearer than the one were in now.
And about the fact that these problems being nothing new, look at the monetary system now, you dont think the guys in charge of the printing press dont control a big part of the government already? Just look how hard it is to audit the fed even with 295 cosponsers in the house of reps. Just look at how bernanke was chosen as fed chair...Bush was presented with a risk...just look how the bailout passed despite massive populous disagreement. In the situation I see with energy, everyone would have a printing press if you will, only it would be able to operate when they do something useful, and hence everyone would have a potential to influence policy.
No, I agree, those problems are inherent in any system. The only saving grace of the fiat system is that, in theory, those in charge are chosen by the gov't, which, again in theory, is representative of the people's will/need. Granted, I'll buy many arguments which say our current gov't doesn't represent the will of the people, but at least there's a chance it can. There is no chance with a commodity system.
I'm not exactly sure how everyone would be able to create energy. Isn't it one of the most capital intensive products?
maybe it is just one of those things the government should not be in charge of...the contritution gave the us govt (precisely the congress) only the power to coin money out of precious metals, legal tender law is arguably unconstitutional.
and yea, I meant the anyone having the ability to create energy hypothetically, you are right about it being capital intensive. Obviously the logistics of a labor/productivity/energy based currency are extremely complex. I'll have to get back to you about that... having a fair currency is obviously one of the hardest concepts around, but good conversation about it never hurts.
Dear Mr. Dice, In your convoluted argument for "energy" as money, you have made an excellent argument for gold. In your deliberations on adopting the joule as a monetary unit, you have attempted to reinvent the golden wheel. Thank you for your insights and your honest argument. Most if not all of your points have been taken up in the millenia past. Gold has won the debate. If all the the previous arguments using the word "faith" were rewritten using the word "confidence" then all would be explained. Gordon has laid out the basics, and the truth. As he states, there is not much reason to explain to those who refuse to understand the utility of gold. It satisfies all of the definitions and qualifications of a monetary unit. All of the arguments about using it as food (I can't eat it!), how to price it in dollars (how moot is that?), and when to sell it (at what price?) are without merit. The arguments demonstrate a misunderstanding of what gold is and how it functions. Perhaps the most obscure, yet obvious, definition of a monetary unit is that the unit of currency be a luxury. It has no utility. Dollars fit that role as well as gold. As a matter of fact, paper currencies have more utility than gold! You can heat your house with them. That may be, in the long run, the highest and best use for fiat currency.
Ok let me make something clear. I am not arguing for fiat currency. (and I have never done so, so I dont understand why people argue against fiat currencies when talking with me...its as if it is necessary to find the weakest argument against gold and attach it to your opponent in the debate) I think legal tender is one of the grandest violations of property rights there could be. And of course golds meets all the necessary qualifications of a monetary unit. Otherwise it would not have been the natural choice for such a long time. This is obvious. Thats not the point.
The point is that while I am all for abolishing legal tender laws, I would like to think of some better alternative than gold to spawn up. Particularly because we live in such a transitive and defining time period, where things are not as simple as in times before, we need a better alternative than the one that has served us in the past. In the monetary anarchy that would come about with the absence of legal tender, some would proliferate currency based on gold, and it would most likely be the most widely accepted currency. Funny thing is that the control of the currency would not change one bit in this situation...if you havent noticed the banks own the majority of the gold. Theyll still be in control of the money and somehow or other I would guess theyll figure out how to manipulate it, like they have in the past. It might be better than what we have now, no doubt, but the paradigms that need charging wont be changed IMO.
So I would like to think of a better alternative. An alternative that goes as far from your definition of money as a "luxury" with no utility. Indeed I would like to think of a monetary unit based on utility instead of confidence that would somehow also work. In effect that would eliminate money altogether if we use your definition. That is the goal. I dont know if it is possible, but at least I am not gullible enough to think that our current problems will be solved by gold. If you have read history you will see there have been many instances where people thought that all their problems would be solved by the shiny metal and it has never been the case.
PS and sorry I would have to correct you since gold has more utility than fiats...circuitry is the main use in the modern world but it has other high tech applications.
I think we are on the same page there Mr. Dice, or may I call you Tumbling? You can call me Rocky. I would never accuse you of being in favor of fiat currency. That being abhorrent to you was obvious in your writings. I understand that you were merely searching for a better alternative than the old gold standby. Fair enough. As for the legal tender argument, if the powers that be cannot control the currency, they can't control much of anything. We are certainly in agreement on that debate.
The deficiency in using gold is exactly as you outlined: It is being controlled. However, any other commodity or material that fits the bill as a true money would be subject to immediate takeover attempts by the PTB. At least, in this "transitive and defining time period", gold could still rise to the occasion exactly because governments (seemingly) control/own a substantial part of the extant gold. They have sort of boxed themselves in: The official position is that gold is not money, but why do they hoard such huge quantities? There is a disconnect there that is not lost on the general populace. "It's no good but we're gonna keep a shitload of it on hand." For what? I believe that confidence is the word we are looking for! Want to see the dollar really bite the dust? Just let Uncle Sam decide to sell off what gold it holds -- or trade it for debt relief. The dollar would then revert to its intrinsic value as furnace fodder.
One reason that a definition of money includes the luxury aspect is that it does not get used up to any great degree. As we all know, nearly all of the gold that has ever been mined is still in the hands of humankind. Newly mined gold is/was keeping up with the increase in population, so the ratios are being maintained to some degree. (Let's not quibble about exact numbers; I'm generalizing here.) Gold is not used up in practical applications primarily due to its scarcity and thus its value. A "money" with irreplaceable utility (oil, corn, bullets, booze, and ripe tomatoes) is a poor substitute by its utilitarian nature. Gold, on the other hand, must be put to a use that enhances and/or exceeds its procurement value when it is used up, e.g.: plating contacts in electrical relays. The relay assembly is worth more than the gold it contains.
I don't believe that gold "solves our current problems", but it sure can relieve the pressure and ease the mind. I began buying gold and silver for delivery around 2001, and agonized at every $100 increment in what I was buying over the years. Was I being paranoid, or was I being prudent? Now that gold has broken $1,000 the agony will come with picking a time to sell. That will probably end up being an incremental process as well. You point out that history has never shown that "all their problems would be solved" by holding gold/silver. I'd be really careful in the use of always and never -- absolutes can be tricky.
Good luck in your search for a better alternative to gold. Energy is an interesting concept to consider, but as long as hydroelectric, wind, geothermal, and solar are in the mix you will be dealing with relatively free commodities. If we could walk along the beach and pick up gold nuggets then gold would have never become a precious metal. Let us know how your research is going. You have my best wishes in your pursuit.
Rocky, just call me dice, or you can call me exile if you'd like.
Thank you for the kind words. Since we are on the same page I'll have you know that the Beatles owned the 60's and made the what I consider the best album of all time sgt pepper. Rocky Racoon showed (once again?) that they are the masters of music and not just genres. Exile on Main St is one of the few albums that measures up to their genius and its more up my alley. But the point here is that I like your style.
anyways, I understand your point about gov't having the majority of the gold. In a democracy with an educated electorate this would inspire confidence but I can't say that it does now. they already gave a big chunk of it away to the IMF. But yes, I see your point here.
Concerning the scarcity of energy...that is not the part that I am worried about. Energy efficiency has been falling for the past century but it has always been made up for with greater production. Never (I know I know, its applicable here though) have both production and efficiency fallen at the same time. If I am correct and oil production peaked in july 08 then we are in for it in terms of energy sarcity. The problem is the logistic side of it, among other things of course.
I'll keep updating on any progress, and hopefully get critical analysis in return.
Cheers.
Yo, Dice. This has got to be one of the longest overall reply-fests I've seen on ZH. Anyhow, I have to admit that Sgt. Pepper's came out the year I graduated high school -- 1967. You know that album is one that played a large role in my life, eh?
I understand that governments own about 25% of the gold reserves with the U. S. holding over 8,000 tonnes. Mining adds about 2% to that world total each year. That leaves a lot for us unwashed masses to swing some clout. And we will!
You know, the issue of silver has been the step-child here. If one wants to talk utility, there ya have it. It is also written in many places I have seen lately that the above-ground silver is greater than gold. That could upset the whole apple cart.
Hope to cross paths on some future fertile ZH topic.
Adios.
If I'm free to make up my mind, why do you criticize me for doing so and saying so? Especially when I fall between support for hedging against obvious currency debasement but not so far as to advocate one form of hedging as the only one to the exclusion of anything else.
And really, my mind isn't made up yet because I'm wary of speculation in all its forms, even gold and especially gold for the appeal to history (which still doesn't jibe with me based on the credit markets that existed when gold was currency and the bubbles and busts that happened. And I say this tongue in cheek but there is no silver bullet to credit expansion.)
The idea that the period of the gold standard was one of rampant, unending bubbles and busts is a slur concocted to help economists compare the twentieth century more favorably with the nineteenth. Plot a chart of the Dow/Gold ratio going back to 1800 and you'll see which period was actually characterized by a more extreme boom-bust cycle.
Life itself is speculation, my friend. We are all speculators in the game of life. Even when you hold just FRN's you are speculating - whether you know it or not.
has anyone read bix weir's Road to Roota series of articles that asserts and expounds this thesis?
Road to Roota XV
By Bix Weir
http://news.goldseek.com/GoldSeek/1245440340.php
Road to Roota XX - The Big Silver Slingshot
By Bix Weir
http://news.silverseek.com/SilverSeek/1254855515.php
i read this article and it still resounds with me even more today.
The Bix fix is in---thanks for those links--his work makes ones mind detach for purposes of thought.
Nice work GG
Once a bug always a bug
Alan..
http://www.youtube.com/watch?v=tFBKV0zVXSE&feature=related
Dedicated to greenspan..
http://www.youtube.com/watch?v=tFBKV0zVXSE&feature=related
GG, in case you missed it, a good article today from Fleckenstein.
http://www.minyanville.com/articles/money-finance-gold-dollar-credit-bub...
Thanks for the link ghostface.
"Brother, you asked for it!"
~ Alan Domingo Carlos Andres Sebastian de Greenspan
And the twelve gates were twelve pearls: every several gate was of one pearl: and the street of the city was pure gold, as it were transparent glass
REVELATIONS 21:21
Cant stand religion, but they got one thing right. Quotemining!
Proverbs 31:6 baby! ;)
So let's say you get rid of all the paper money and people buy things with gold coins. Aren't we going to wind up with some kind of (privately supplied) fiat money anyway?
And, in fact, isn't it the existence of a link to gold that would allow for a run on the dollar (mass redemption of dollars for gold resulting in government default).
Money supply (M3, say) would still be variable even if all government-issued currency were minted from gold (unless no one deposited their gold in a bank).
This reminds me Lord of the Rings (a movie I'm actually not a fan of) -- once Greenspan put on the Fed Ring, he could not resist its power, and was compelled to print, print, print with his precious printing press, even though he 'knew' otherwise.
Come to think of it --- Greenspan looks like Gollum, does he not?
Good one.
Once a man is given that kind of power, I imagine it's an almost instantaneous metamorphosis into madness.
Just think of it. The power to conjure "money" at no cost to you.
Maybe, but the only saying bout coming into money/power ive ever heard that makes sense goes...
"money will only make you more of what you already are" or
"power will only make you more of what you already are"
Who knows. Hopefully AG will live long enough to see it end. And then Id like to hear what he has to say bout everything.
sounds like ron paul
Unfortunately, they know exactly what they're doing.
Good article.
You need to read the book "Atlas Shrugged", Gekko.
Greenspan is NOT John Galt, He is Francisco D'Anconia.
Every good Ayn Rand devotee knows THAT.
(But at least the idea is correct, even if the parallel characterization is off).
Many years ago, I read a quote from a well-respected Objectivist who said that Greenspan is like the characterization of Dr. Robert Stadler - a brilliant man that destroyed himself in the quest for power. I searched my archives in vain for the exact quote, but this gives you the essence. He is NEITHER Galt nor D'Anconia.
Any man who understood Objectivism would never have taken the job of Fed Chairman. The people here who have read Atlas know why. His life is probably the second best example of treason to values. If you claim that Greenspan is still an Objectivist, then Benedict Arnold should be honored as one of our Founding Fathers!
So your basic premise is that Alan Greenspan used his position as Fed Chairman to conspire to essentially destroy the economy through a policy of easy credit all to prove a point about gold because no one really cared to read any of Rand's books?
...and no one else noticed what was going on?
Anyway, if you look at the Fed Fund rates during Greenspan's run as Chairman, there's a correlation between the rate and gold's 2yr moving average up until 1997. So he was using gold as his compass up until that point.
I wonder why the correlation broke? Got Rubin, got summers, got Gibson's paradox?
This is an awesome article, never realized that about Greenspan. But in terms of where we're headed, the paragraph bellow says it all. It looks like Bernanke, in his effort to avert another great depression is leading us right into the exact same scenario, since as Greenspan said, he believes that the cure was the disease then and now:
"The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's."
If you weren't buying gold after this announcement, you don't understand our monetary system (full disclosure - I moved into Oil and stronger fiats immediately after this, then recently moved into gold).
http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm
"To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. "
Should be a song. The Day The Dollar Died.
like this?
http://www.youtube.com/watch?v=0sbzZ4nNvuo
Even in his autobiography, Greenspan confessed to a nostalgic attachment to the gold standard. Whether he concocted a devious conspiracy to encourage the collapse of the fiat money system is another matter, however. This would imply a grotesque willingness to gamble with the financial wellbeing of hundreds of millions of people. Something tells me he was not that kind of guy.
I wouldn't put it past someone who was an Objectivist to do just that.