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Gold Is “Universally Acceptable” and Why China Is Buying - Greenspan

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Gold Is “Universally Acceptable” and Why China Is Buying  - Greenspan

Alan Greenspan
, former Chairman of the Fed, had an article entitled “Golden Rule - Why Beijing Is Buying” published in Foreign Policy, the journal of the influential Council on Foreign Relations in which he extols the virtues of gold as “universally acceptable.”




Greenspan, former Chairman of the Federal Reserve Board of the United States from 1987 to 2006, and a key architect in the global financial crisis, points out that if the world’s largest gold consumer, China, used a portion of its massive $4 trillion foreign exchange reserves to buy enough gold bullion it could displace the U.S. as the world’s largest holder of gold bullion.  The U.S. holdings are believed to be just over 8,500 tonnes with an estimated value of just $328 billion as of spring 2014.  





Greenspan points out how gold is the ultimate form of money in the world and is “universally acceptable”.

He concedes that “a return to the gold standard in any form is not on anybody’s horizon” right now but points out that if sovereign governments have financial crises, their fiat currencies may not be accepted as payment.

He highlights that bullion holds special properties that no currency can claim, except maybe silver. The fiat currencies and moving exchange rates that make up our monetary system of today are backed by the tax raising abilities of government’s of sovereign nations.  However, gold bullion for over 2000 years has been an “unquestioned acceptance as payment”, writes Greenspan.


“No questions are raised when gold or direct claims to gold are offered in payment of an obligation; it was the only form of payment, for example, that exporters to Germany would accept as World War II was drawing to a close.”

“Today, the acceptance of fiat money -- currency not backed by an asset of intrinsic value -- rests on the credit guarantee of sovereign nations endowed with effective taxing power, a guarantee that in crisis conditions has not always matched the universal acceptability of gold.”

“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. Of the 30 advanced countries that report to the International Monetary Fund, only four hold no gold as part of their reserve balances. Indeed, at market prices, the gold held by the central banks of developed economies was worth $762 billion as of December 31, 2013, comprising 10.3 percent of their overall reserve balances. (The IMF held an additional $117 billion.) “

“If, in the words of the British economist John Maynard Keynes, gold were a “barbarous relic,” central banks around the world would not have so much of an asset whose rate of return, including storage costs, is negative.”

In the article, he also suggests that China will find it hard to compete with the U.S. in the long term as China is an authoritarian, one party state and does not have free markets.

This comparison is questionable given that many are concerned that the U.S. markets are no longer free. Markets see daily interventions and manipulations and are increasingly influenced by corporate and banking monopolies including the Federal Reserve itself and its continuing massive intervention in financial markets and the monetary system.

There are also concerns that the U.S. is jettisoning many of the civil liberties, civil rights and freedoms that the Founding Fathers fought for and achieved and the emerging surveillance state has the hallmarks of a potentially authoritarian one or two party, corporate state.


The article shows that senior monetary officials and policy makers continue to see gold as an important part of our modern financial and monetary system and as an important strategic assset. Influential global policy makers do not see gold as a “barbarous relic” as many of Keynes ardent disciples of today, including Paul Krugman, would have people believe.

While  he says that gold is important and the Chinese are right to accumulate it, he appears be warning the Chinese government that accumulating too much gold might lead to a very strong yuan on international markets which could lead to deflation and a recession in China’s export dependent economy.




The Council on Foreign Relations may be concerned about the ramifications of China accumulating larger gold reserves than those that the U.S. has and the People’s Bank of China (PBOC) giving the yuan some form of gold backing. This would pose serious challenges to the dollar as global reserve currency and thus to U.S. hegemony.

Greenspan has on a few occasions warned that the U.S. needs to be careful not to debase the dollar and engage in fiat money ‘extremis.’ If that happens fiat dollars would no longer be accepted on global markets with attendant difficult financial and economic consequences.

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Fri, 10/03/2014 - 15:42 | 5286040 assistedliving
assistedliving's picture

bought more Ag/Au last week.  worked out just great....not.

next time i get another impulse to buy more will someone just take me out and shoot me.

Thu, 10/02/2014 - 12:10 | 5280381 stopthejunk1
stopthejunk1's picture

Last time I checked, you cannot sink an aircraft carrier with a gold bar.

Therefore, this doesn't fucking matter.

Greenspan has been wrong about a lot of things. This is merely the latest. He's too old, at this point, to be able to understand what's going on in the world. We have always paid far too much attention to economists in America. Frankly, none of them know what they're talking about. You're much better off listening to historians and psychologists -- or perhaps, to economists that come from other countries besides America, where they are not taken so seriously, and so don't take themselves so seriously, either. (Picketty is a good example.)

However, I probably will pick up a few collectible coins when gold is back around $300-$500 in about 5-6 years. They're fun to look at.

Thu, 10/02/2014 - 11:53 | 5280298 numapepi
numapepi's picture

What I find scary are all the rumors there is no gold left in Fort Knox and the FED. The reluctance of the FED to restore Germany's gold substantiates such rumors, especially since the gold bars Germany sent are not being refunded but new bars are instead... but they remain rumors, until real evidence comes in supporting or demolishing them. 

If however, there is no gold or less than is expected in Fort Knox and the FED, then the actual amount of gold in the world is far less than is accounted for. This would not be unknown since there was a recent report out of China where some Chinese firm or other had reported much more gold in their inventory then there was. Since this scandal has happened, by definition, it can happen again. If there is in fact less or no gold in those repositories, the amount of gold is much less than is on the books. If that is in fact the case, the supply is far less than is thought, the price of gold is artificially low since it is based on the supply and demand of that resource.

 

But there again rumors are rumors...

Thu, 10/02/2014 - 12:16 | 5280448 RaceToTheBottom
RaceToTheBottom's picture

It is more likely that the gold is in Ft Knox but that it is encoumbered.  

It has probably been loaned out to WS banksters for manipulation games.  GLD needs a bit too.  They are against the Audit of the gold, where real ownership would have to be disclosed.  Same with payment to Germany.  

The books have to be kept correctly.  Whether they show and explain the books to anyone is another matter entirely...

Thu, 10/02/2014 - 10:39 | 5279874 Shekels
Shekels's picture

How much gold is one square mile of Palestine worth ?

Thu, 10/02/2014 - 10:37 | 5279868 Turin Turambar
Turin Turambar's picture

Talk out of both sides of your mouth much douchebag?

 

Thu, 10/02/2014 - 10:18 | 5279776 Dragon HAwk
Dragon HAwk's picture

Wow i just love Dragons on My Precious metal Coins...  :)

Thu, 10/02/2014 - 10:04 | 5279717 Jz kong
Jz kong's picture

All banksters own gold.

Thats how they get the most beautiful ladies by luring them w their diamond tip 24k dildos.

Thu, 10/02/2014 - 09:44 | 5279639 Shekels
Shekels's picture

The Tribe is still worshiping the Golden Calf !

Thu, 10/02/2014 - 11:02 | 5279987 mt paul
mt paul's picture

moooooooooo....

Thu, 10/02/2014 - 09:36 | 5279598 RaceToTheBottom
RaceToTheBottom's picture

Greenspam is just trying to shore up his reputation.

He is far less intelectually honest than someone like Kissinger, who I disagree with, but at least he is honest enough with himself to not lie to himself....  

Greenspam is not encombered with that requirement.

Thu, 10/02/2014 - 09:26 | 5279550 Shekels
Shekels's picture

If China had all the gold in the world and Russia all the silver ..... what then ?

Thu, 10/02/2014 - 11:18 | 5280105 pulladan
pulladan's picture

Say hello to your new masters..

Thu, 10/02/2014 - 09:22 | 5279539 LongSilverJohn
LongSilverJohn's picture

Since Greenspan created the housing and tech bubbles, and orchestrated direct market interventions, his comments are really quite astonishing. On its face, this major re-positioning by Greenspan signals a coming crash and economic fiasco from which he is now distancing himself publicly. Very interesting clue as to what's being discussed among the uppity-ups...

Thu, 10/02/2014 - 09:22 | 5279538 LongSilverJohn
LongSilverJohn's picture

Since Greenspan created the housing and tech bubbles, and orchestrated direct market interventions, his comments are really quite astonishing. On its face, this major re-positioning by Greenspan signals a coming crash and economic fiasco from which he is now distancing himself publicly. Very interesting clue as to what's being discussed among the uppity-ups...

Thu, 10/02/2014 - 09:20 | 5279523 Doug Eberhardt
Doug Eberhardt's picture

Greenspan always liked gold. Then he got the Fed job. I imagine he, like me, understands why all Central Banks own gold. To give the illusion that their currency is backed by it. China is no different if they want to be a player. 

My latest on gold:  

Gold Is Not in a Bear Market

http://bit.ly/Goldnotbearish

 

 

Thu, 10/02/2014 - 09:20 | 5279522 Shekels
Shekels's picture

If China had all the gold in the world and Russia all the silver ..... what then ?

Thu, 10/02/2014 - 09:12 | 5279480 nathan1234
nathan1234's picture

Greenspan had to say what he did.

It was part of the plan to build up Greenspan to gain the market's confidence and then implement their plans.

Bernanke was just  an aide when the process had already kicked in.

 

Thu, 10/02/2014 - 08:42 | 5279335 luckylongshot
luckylongshot's picture

This comment coming from the former Chairman of the Fed is astonishing: The Fed is the principal villain suppressing the price of gold. So what is going on? Could be China has taken control and has used the Fed to suppress gold prices allowing China to load up cheap. Time to buy!

Thu, 10/02/2014 - 09:00 | 5279425 Lawn.Dart
Lawn.Dart's picture

1-1/2 years from now.

Thu, 10/02/2014 - 08:58 | 5279418 Lawn.Dart
Lawn.Dart's picture

Keep some powder dry (cash in hand in money market)

Something tells me they are not done driving the price down.

Thu, 10/02/2014 - 06:21 | 5279025 Latitude25
Latitude25's picture

"accumulating too much gold might lead to a very strong yuan on international markets which could lead to deflation and a recession in China’s export dependent economy."

Yeah? Just ask the Russians and Venezuelans about that right now with rapidly crashing currencies. They hold plenty of gold and the Russians are buying yet their currencies are devaluing. The currency manipulators view gold as money and the ultimate goal is to pressure these countries into selling their gold.

Thu, 10/02/2014 - 05:17 | 5278973 LongMarch
LongMarch's picture

 So China could have more gold than the USA.

Big fucking deal. My wife has more gold than the Good Ole USA.

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