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Greenspan on Gold: It Will Rise in Price

Posted on October 29, 2014

By Axel Merk

Greenspan participated on a panel at the New Orleans Investment Conference last Saturday. Below I provide a couple of his quotes and expand on what are the potential implications for investors.

Greenspan: “The Gold standard is not possible in a welfare state”

The U.S. provides more welfare benefits nowadays than a decade ago, or back when a gold standard was in place. Greenspan did not explicitly say that the U.S. is a welfare state. However, it’s my interpretation that the sort of government he described was building up liabilities – “entitlements” – that can be very expensive. Similar challenges can arise when a lot of money is spent on other programs, such as military expenditures.

It boils down to the problem that a government in debt has an incentive to debase the value of its debt through currency devaluation or otherwise.

As such, it should not be shocking to learn that a gold standard is not compatible with such a world. But during the course of Greenspan’s comments, it became obvious that there was a much more profound implication.

Who finances social programs?

Marc Faber, who was also on the panel, expressed his view, and displeasure, that the Fed has been financing social programs. The comment earned Faber applause from the audience, but Greenspan shrugged off the criticism, saying: “you have it backwards.”

Greenspan argued that it’s the fiscal side that’s to blame. The Fed merely reacts. Doubling down on the notion, when asked how a 25-fold increase in the Consumer Price Index or a 60-fold increase in the price of gold since the inception of the Fed can be considered a success, he said the Fed does what Congress requires of it. He lamented that Fed policies are dictated by culture rather than economics.

So doesn’t this jeopardize the Fed’s independence? Independence of a central bank is important, for example, so that there isn’t reckless financing of government deficits.

Greenspan: “I never said the central bank is independent!”

I could not believe my ears. I have had off the record conversations with Fed officials that have made me realize that they don’t touch upon certain subjects in public debate – not because they are wrong – but because they would push the debate in a direction that would make it more difficult to conduct future policy. But I have never, ever, heard a Fed Chair be so blunt.

The maestro says the Fed merely does what it is mandated to do, merely playing along. If something doesn’t go right, it’s not the Fed’s fault. That credit bubble? Well, that was due to Fannie and Freddie (the government sponsored entities) disobeying some basic principles, not the Fed.

(For the rest of the article, click the link.)

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5 thoughts on “Greenspan on Gold: It Will Rise in Price

  1. Greenspan speaks in hieroglyphics coded in runes. Everything he says as an absolute can be understood in multiple ways as it is seldom understandable at all. His conversations are verbal dodge ball. They say he's a genius. But then they said that about Obama too. See my blog at http://cranky-conservative.blogspot.com

  2. Arthur Burns, the Fed chairman when Nixon was president, used to testify before Congress about the Federal Reserve and during his testimony he used to smoke a pipe. He was always surrounded by and enveloped in a cloud of smoke.
    No one ever got it.

  3. canislupus100 says:

    I think it rather clear. The Fed was created to enhance the economy and make depressions and inflationary periods rare and less destructive. Greenspan says it has failed to accomplish this because it has become divorced from economics and serves the wishes of politicians.

    My thinking is that it was never capable of its original mission, no matter who was in charge of it. For the Fed to succeed, it would have to be able to foretell the future of the economy. To do that, one would need to read the mind of everyone who is involved with economy. And that has always been an impossible task.

  4. 1baronrichsnot1 says:

    Franc this site, it really sucks, you can't post anything, to much phishinfg!

  5. Chris Rankin says:

    Really? Probably thinks the sun will rise tomorrow too!