Alan Greenspan: Ron Paul Was Right About The Gold Standard

Tyler Durden's picture

As John Rubino eloquently puts it, "when the history of these times is written, former Fed Chair Alan Greenspan will be one of the major villains, but also one of the greatest mysteries. This is so because he has, in effect, been three different people." Greenspan started his public life brilliantly, as a libertarian thinker who said some compelling and accurate things about gold and its role in the world. An example from 1966: "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."

Yet everything changed a few decades later when Greenspan was put in charge of the Federal Reserve in the late 1980s, instead of applying the above wisdom, for example by limiting the bank's interference in the private sector and letting market forces determine winners and losers, he did a full 180, intervening in every crisis, creating new currency with abandon, and generally behaving like his old ideological enemies, the Keynesians. Predictably, debt soared during his long tenure.

Along the way he was also instrumental in preventing regulation of credit default swaps and other derivatives that nearly blew up the system in 2008. His view of those instruments:

The reason that growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risks. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it. This unbundling improves the ability of the market to engender a set of product and asset prices far more calibrated to the value preferences of consumers than was possible before derivative markets were developed. The product and asset price signals enable entrepreneurs to finely allocate real capital facilities to produce those goods and services most valued by consumers, a process that has undoubtedly improved national productivity growth and standards of living.

In the aftermath of the dot com crisis Greenspan cut interest rates to near-zero in the early 2000s, igniting the housing bubble, which neither he nor anyone else at the Fed was able to detect along the way. He even made it into the dictionary, as the "Greenspan put" became the term for government bailing out its Wall Street benefactors. From this the leveraged speculating community learned that no risk was too egregious and no profit too large, because government - that is, the Fed - had eliminated all the worst-case scenarios. Put another way, under Greenspan profit was privatized but loss was socialized.

Then, another metamorphosis took place: after Greenspan retired from the Fed in 2006 he began morphing back into his old libertarian self. A cynic might detect a desire to avoid the consequences of his past actions, while a neurologist might suspect senility. But either way the transformation has been breathtaking.

Consider Greenspan's latest public address. In an extended interview published in the World Gold Council’s Gold Investor February issue, Greenspan repeated his now standard warning about the risk of coming stagflation, which would send the price of gold higher: "The risk of inflation is beginning to rise...Significant increases in inflation will ultimately increase the price of gold." As such, "investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

Going back to his libertarian roots, it was the idea of returning to a gold standard that Greenspan focused on: a gold standard that he said would help mitigate risks of an “unstable fiscal system” like the one we have today.

“Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today, we would not have reached the situation in which we now find ourselves,” he said.“[T]here is a widespread view that the 19th Century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics.

And the punchline: “We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.” 

To be sure, this is something we discussed exactly two years ago, when we showed a chart showing the sudden end of prosperity for the "bottom 90%" of US earners at the time Nixon ended the US Gold Standard in August 1971, unleashing what ultimately would be the "Great Moderation", an unprecedented increase in US debt, and the stagnation of real incomes and net worth for all but the "top 1% of earners."

As we said then, in retrospect it is no wonder "why the 1% hates the gold standard" and added that the chart above, "should also clarify just why to the "1%", including their protectors in the "developed market" central banking system, their tenured economist lackeys, their purchased politicians and their captured media outlets, the topic of a return to a gold standard is the biggest threat conceivable."

As for Greenspan's repeated attempts to undo the past by admitting his mistakes, the jury is out. As Rubino concludes, "one of the nice things about the information age is that public figures leave long paper trails and can't therefore easily escape their pasts. Greenspan's past, being perhaps the best documented of any central banker in history, will haunt him forever."

That said, at least Greenspan is going out a gold bug.

* * *

Below are the key excerpts from his Gold Investor interview:

Q. In recent months, concerns about stagflation have been rising. Do you believe that these concerns are legitimate?

We have been through a protracted period of stagnant productivity growth, particularly in the developed world, driven largely by the aging of the ‘baby boom’ generation. Social benefits (entitlements in the US) are crowding out gross domestic savings, the primary source for funding investment, dollar for dollar. The decline in gross domestic savings as a share of GDP has suppressed gross nonresidential capital investment. It is the lessened investment that has suppressed the growth in output per hour globally.

 

Output per hour has been growing at approximately ½% annually in the US and other developed countries over the past five years, compared with an earlier growth rate closer to 2%. That is a huge difference, which is reflected proportionately in the gross domestic product and in people’s standard of living.

 

As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!

 

At the same time, the risk of inflation is beginning to rise. In the United States, the unemployment rate is below 5%, which has put upward pressure on wages and unit costs generally. Demand is picking up, as manifested by the recent marked, broad increase in the money supply, which is stoking inflationary pressures. To date, wage increases have largely been absorbed by employers, but, if costs are moving up, prices ultimately have to follow suit. If you impose inflation on stagnation, you get stagflation.

* * *

Q. As inflation pressures grow, do you anticipate a renewed interest in gold?

Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.

 

I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

* * *

Q. Although gold is not an official currency, it plays an important role in the monetary system. What role do you think gold should play in the new geopolitical environment?

The gold standard was operating at its peak in the late 19th and early 20th centuries, a period of extraordinary global prosperity, characterised by firming productivity growth and very little inflation.

 

But today, there is a widespread view that the 19th century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics. World War I disabled the fixed exchange rate parities and no country wanted to be exposed to the humiliation of having a lesser exchange rate against the US dollar than it enjoyed in 1913.

 

Britain, for example, chose to return to the gold standard in 1925 at the same exchange rate it had in 1913 relative to the US dollar (US$4.86 per pound sterling). That was a monumental error by Winston Churchill, then Chancellor of the Exchequer. It induced a severe deflation for Britain in the late 1920s, and the Bank of England had to default in 1931. It wasn’t the gold standard that wasn’t functioning; it was these pre-war parities that didn’t work. All wanted to return to pre-war exchange rate parities, which, given the different degree of war and economic destruction from country to country, rendered this desire, in general, wholly unrealistic.

 

Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. We cannot afford to spend on infrastructure in the way that we should. The US sorely needs it, and it would pay for itself eventually in the form of a better economic environment (infrastructure). But few of such benefits would be reflected in private cash flow to repay debt. Much such infrastructure would have to be funded with government debt. We are already in danger of seeing the ratio of federal debt to GDP edging toward triple digits. We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.

* * *

Finally, buried at the very end of the interview was perhaps the most interesting statement by Greenspan : the former Fed Chair's implicit admission that Ron Paul was right all along:

Q. Against a background of ultra-low and negative interest rates, many reserve managers have been large buyers of gold. In your view, what role does gold play as a reserve asset?

When I was Chair of the Federal Reserve I used to testify before US Congressman Ron Paul, who was a very strong advocate of gold. We had some interesting discussions. I told him that US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency. In that regard, I told him that even if we had gone back to the gold standard, policy would not have changed all that much.

For those unfamiliar, here is Ron Paul 's explanation of his plan for monetary freedom and a return to a gold standard.

Full Greenspan interview below
(link)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Croesus's picture

So where were This Greenspan,back when you were Fed Chair, asshole?

Chief Wonder Bread's picture

just die Greedspawn, just die.

flacon's picture

Alan Greenspan deserves to have molten gold poured down his throat. 

Chief Wonder Bread's picture

Who knows what mental space he inhabits? He is Luciferian.

Pinto Currency's picture

Greenspan's trying to blame the coming crisis on fiscal policy. There is $65T of total debt in the US (Z1 Flow of Funds report). Federal debt is 1/3 of that.

Greenspan with work in the direction of the tide at that moment - the issue for him is not the right course of action.

Greenspan on Gold: Three Stages
http://www.garynorth.com/public/16257.cfm

He's deceptive and destructive. The sooner we all ignore him, the better.

remain calm's picture

I would love to ram my gold boot up his ass, he and the other Fed heads has cost me so much money.

knukles's picture

Which is why bankers and politicians (aka special interest groups) will never ever let us return to the gold standard.
Pre-Reset

People, this is at the very foundation of what it's all about with the 1% v the rest of us.

funthea's picture

A little late for redemption. Your opportunities were many, but you chose the easy path each and every time. Now absolution is nowhere to be found, nor will it ever be. You sold your soul to the devil, and set the course of humanity at the devil's behest. Enjoy your just reward Greenspan!

BaBaBouy's picture

Just "Allow" GOLD To Go To $50,000., Then USD Can Be Backed, And things will self regulate and Adjust...

OR... You can just keep the same Shiit going, and the USD will eventually self-implode ...

Snout the First's picture

Yes, that is exactly what we ought to do. But can you imagine the reaction from the professional welfare class, when the discipline of the Gold Standard no longer allows deficit spending, and all their handouts have to be cut back or eliminated?

FX223's picture

POS is full of tungsten.

Omni Consumer Product's picture

"He should have molten gold poured down this throat."

A fitting end for Marcus Crassus, and a fitting end for Traitorus Greenspanus.

This is what sociopaths do. They change their stripes on demand, and pretend that they were right all along.

weburke's picture

THEY ARE KEEPING TO THE PLAN.

GLOBAL CURRENCY IN 2018. 

YOU WONT LIKE IT. LIVING WITH THE RESERVE CURRENCY IS THE DREAM ABOUT TO END.

REST IS FAKE. 

Anasteus's picture

Yes, global currency in gold. Some will like it, the others will regret.

Anasteus's picture

The elites from all over the world will always be reluctant to discover the true value of gold. The way to achieve it is to make gold/silver(/platinum) legal tender and start spreading it in businesses. Much like in Utah and Arizona. The other states should join.

UncleChopChop's picture

what good is $50k gold if all you've got is tungsten?

qwertyFUBAR's picture

> what good is $50k gold if all you've got is tungsten?

If the scales show tungsten, the scales need to be recalibated.

Repeat for surface temperature measurements and electoral college vote tallies.

MrBoompi's picture

If they let gold go to $50k, China, Russia, and India would probably be the richest 3 countries on the planet.  In other words, it ain't gonna happen.  

Chris Dakota's picture
Chris Dakota (not verified) funthea Feb 21, 2017 4:55 AM

Don't ya think its strange these rich jews live so long?

ZH should do a graph on that one.

BennyBoy's picture

 

The gold standard was as easily manipulated as any other "standard". Especially a commodity based one. Read history.

There are other financial sytems that work. But bankers and politicians lose power and money. Guess why they are ignored.

 

 

Justin Case's picture

The gold standard was as easily manipulated as any other "standard".

That's why merica defaulted on the obligations. Free markets constrain Gov't spending and inflation. Manipulation is short term. Gold was $32.00/oz, now it's over $1200.00. So much for manipulation. The natural path of the asset is always up as the costs to produce are always up. Without an increase there would be no gold or silver mining. Just like any other business that doesn't make a profit, it dies.

Zorba's idea's picture

Perhaps President Trump may fix this. Come this April, there will be three vacancies on The FED's Board of Governors. There are seven seats. Trump has the perogative to nominate the successors. By 2018, Yellen's and the Vice Chairman's  term of leadership expires. The Donald has the oppurtunity to create his administration's own majoity to set monetary policy and reform the global banksters. 

tmosley's picture

You have no idea how much. Had it not been for the creation of the Fed and the abandonment of the gold standard, I suspect that we would all have somewhat lower nominal wages, but would have the same purchasing power as someone making $300K+ a year. As opposed to the less than $50K we are making now on average.

The power of capital is great, but you have to have a firm foothold to operate that lever on labor. Without that firm footing, most have sunk into the muck.

Creative_Destruct's picture

Greenspan is an opportunistic, sychophantic, ass-kissing piece of shit who generated THE root cause of our mega-fucked up situation (easy money). Whichever way the PTB political wind blows, there goes Al. Now that he's on the outside, suddenly he gets his principles back. Newsflash Al: it's too fucking late for a gold standard to save us.

Which this 90 year old scumbag woud shuffle off the mortal coil.

shamus001's picture

He served well.....when serving was safe!

Omen IV's picture

he is always the wind player

Scuba Steve's picture

You know ... if he and Soros were  having breakfast together at an outdoor cafe, a well placed .308 round would take care of both of them very nicely.

MsCreant's picture

Greenspan, Bernanke, and Yellen as The Three Stooges of Gold, I like it! Yellen even has the haircut for it! Gnyuck, gnyuck, gnyuck!

Oh wait, that wasn't what you posted...

Whoob, Whoob, Whoob!

Knock down that gold price quick, before they see!

Smash!

Get silver down too!

Yellen, over here with the monkey hammer! Quick, dump more paper contracts onto the market. 

Whoob, Whoob, Whoob!

Yog Soggoth's picture

Luciferian as in Russian Ambassadeur killed, and before https://www.youtube.com/watch?v=jATIQdco-Gw Somehow, I think more strangeness is going to happen. What Greenspan thinks has never been one of my critical concerns. Ron was right of course.

NotApplicable's picture

He did what it takes to destroy a global fiat regime.

JRobby's picture

When will this asshole keel over dead?

Creative_Destruct's picture

"I told him that US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency. In that regard, I told him that even if we had gone back to the gold standard, policy would not have changed all that much."

BULLLLLSHIT: He emulated a GOLD STANDARD????? NOT!!!!

Self delusion (or flat-out lying) at it's FINEST.

East Indian's picture

like aluminium resembling gold?

NoDecaf's picture

"He did what it takes to destroy a global fiat regime."

 

huh...that statement gave me pause...

 

If that is what he actually set out to do, then the case could be made that he is a genius, but I have yet to hear or read anything to that effect.

 

A death bed confessional won't be enough, It'll have to be some hard documentation like a sealed diary that can withstand forensic scrutiny before we can consider redemption.

Lonesome Crow's picture

Why would F D'anconia destroy his own copper mines?

Lonesome Crow's picture

"He did what it takes to destroy a global fiat regime."

It has always been this and nothing else. ^^^

For those who cannot see the end that their means must become,

they may only see it when it comes to be that much sooner!

He has always been true to himself.

kamikun's picture

That's some Machivellian shit right there... I hope that turns out to be the case, that he had to destroy the economy to save it. Shakespeare could write a play.

redeleven47's picture

The Genius:

Greenspan was in Rands inner circle and she didn't let jut anybody in that circle. It was mandatory for her that her close friends would share her convictions. And what is better than simply stepping away from the motor that powers the world? Pushing the peddles to the floor. All of them, my friends! That is what this man has done and he will be remembered as a genius for doing so. Drowning this system in its own blood. Commencing a 50 year struggle vs. a 150 year by crashing the faulty system he came into. Perhaps he single handedly destroyed American Communism before it was ever known. I just hope he lives to see it.

As one of the first people to realize the system is run by a bunch of greedy, ignorant schmucks; he acted appropriately.

Cheers to Alan.

Giant Meteor's picture

So then, he really WAS fucking her?

Shit, back in the day I sold my soul for good poon tang as well. Couldn't fault him for that ..

 

Chief Wonder Bread's picture

Think I see your drift... This is partly what I meant when I said in a comment above that he is Luciferian... These sorts of "geniuses" always think they can play the game five or six moves ahead of everybody else...

Nope, they cannot.

Giant Meteor's picture

Indeed, and also, the above is a theory I never really considered. Alan, sensing things were just not quite right, decides after his brief fling, letting his hair blow back etc,, after he graduated, decides, fuck it, I'm going to end this evil shit, once and for all.

So, he joins the complete polar opposite team, learns to speak in tongue (which by the way he willingly admits to) and, well, destroys the system he is sworn to protect.

A double agent of sorts. Mata Hari, of the great Federal Reserve, a.k.a. Oz

Meanwhile back at the ranch, he continues to stack the shiny, and awaits the great day when the system implodes .. to say, ah ha, I (and Ron Paul) were right all along!

Then, when called in for questioning he says, "why yes, yes I was shocked, disturbed even, because the assumptions I was going on, you know, my world view, inadequately prepared me for the fact that, banksters really don't police themselves, and shit, did I mentions that I found this fact to be very distressing?"

Gotta admit, thats a brilliant "plan."

And then Goldilocks exclaimed ... "somebody's been eatin my porridge!"

The End

Kidbuck's picture

Nope, Allen abandoned his early avowed principles to get laid by ugly Jewish girls.

Shaznardickleze the Doon's picture

Did he do it intentionally or accidently?

Was he that much of an Ayan Rand acolyte that he larped his way into a position as fiat trojan ? road to roota style... 

jcaz's picture

Fuck off, Yoda-  you're not gonna save your legacy now.

JRobby's picture

Then burn the body away! Good plan!

GunnerySgtHartman's picture

Alan Greenspan deserves to have molten gold poured down his throat. 

That's a waste of perfectly-good gold. How about lead?  :-)

JRobby's picture

"Well I don't know, but I've been told, it's hard to run with the weight of gold.

Other times I've heard it said, it's just as hard with the weight of lead"

(R Hunter)

NewAnubis's picture

Don't  be silly...we will extraxt it once it hardens. 

JRobby's picture

Ripping it out, or burning the body away. No matter. Get the gold.