|
|
|
Greenspan warns
of disaster and the need for Gold to be part of the
system!
|
|
|
 How
can one not respect a man with the courage of his convictions.
This somewhat phlegmatic professional, in respectful and diplomatic
tones, delivered what can only be described, as a dire warning
of disaster ahead. When seen in the light of his long held
beliefs, publicly stated, he has to be recommending the return
to Gold as a discipline to ‘rein in’ President George Bush.
As we have seen to date, he has raised the hackles
of the incumbent Administration, against himself. Although
they stand in an invidious position, because they appointed
him, fully aware of his views they cannot, surely, expect
him to change them, simply as a matter of political expedient?
With this in mind, we find his words extremely
brave for a man, at both the pinnacle and close to the end
of his career.
We make no assumptions in this article,
relying entirely on quoting Chairman Greenspan’s publicly
stated words, at a time when the U.S. was embarking on
a similar undisciplined fiscal path, which he then, also condemned.
At the time the U.S. was on the brink of breaking links with
Gold, losing, as it had, these credible resources to
European nations in vast quantities. His essay is entitled,
"Gold and Economic Freedom" and was
written in 1967. As then, we stand on the brink of similarly
undisciplined days [but without the greater objective of $
Imperialism], with the difference being that Gold will, in
these days be called back to give its vital credibility to
the $, as it loses its own. We were troubled by the possibility
that he may have changed his views since then, until we heard
the statement he made to the Economic Club of New York on
19th December 2002: -
"Although the gold standard could hardly
be portrayed as having produced a period of price tranquillity,
it was the case that the price level in 1929 was not much
different, on net, from what it had been in 1800. But, in
the two decades following the abandonment of the gold standard
in 1933, the consumer price index in the United States nearly
doubled. And, in the four decades after that, prices quintupled.
Monetary policy, unleashed from the constraint of domestic
gold convertibility, has allowed a persistent over issuance
of money. As recently as a decade ago, central bankers, having
witnessed more than a half-century of chronic inflation, appeared
to confirm that a fiat currency was inherently subject to
excess."
By saying these words, Chairman Greenspan
confirmed he still held the views he expressed on Gold.
To validate our conclusions and statements,
we simply quote from this essay, in which he staunchly
castigated those proposing deficit spending. To summarise
his beliefs he was asked by a Senate Committee member: -
'Now my next question is, is it your intention
that the report of this hearing should be that Greenspan recommends
a return to the gold standard?'
Greenspan responded, 'I've been recommending
that for years, there's nothing new about that."
With that as our start point, we expand his
muted testimony of last week as follows. To do this all we
have to do is to juxtapose the pertinent portions of his essay,
against last weeks warnings given to the Bush Administration.
In so doing we put the spotlight on this archetypal
Central Banker carrying out his responsibilities to the nation’s
monetary health, clashing with the heavy handed policy makers,
throwing the restraints of responsible economic management
out the door and carving a seemingly unmanageable course into
economic profligacy. We ourselves read Greenspan’s statements
as so strong, as to warn of a rupture in the stability of
the American economy. But not just the American economy, but
possibly all those dependant on the U.S. economy for their
own financial health. Because the U.S. economy is the driving
force behind most significant economies of the world, the
health of the entire world economy lies in the balance.
No wonder war is being contemplated - its ambitions,
if realised, may give desperately needed, but temporary
relief, to the economy. Should these warnings from Chairman
Greenspan, not be heeded, we will see the world economy dropping
down several gears.
As we all know from the most cursory glance
at history, Gold was the only monetary instrument that has
controlled a world economy, not simply successfully, but over
thousands of years, ensuring as it does, that discipline is
brought to bear on economic management, a discipline sought
so keenly by Central Bankers, charged with bringing discipline
and order to a free economy and rejected, by those controlling
such disciplines, as well as Commercial Bankers seeking profligacy,
in the issuance of monetary instruments, from which they can
profit. Greenspan comments on these as follows: -
"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 an economy disciplined by Gold, the synthesis
Greenspan envisaged worked this way: -
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…….
Thus, under the gold standard,
a free banking system stands as the protector of an economy's
stability and balanced growth."
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.
In addition, when
commenting on an International Gold Standard, he added,
"It was limited gold
reserves that stopped the unbalanced expansions of business
activity, before they could develop into the post-World Was
I type of disaster"
Because Gold controls Statists and Bankers,
it has only been allowed very limited space in the portfolio
of solutions to crises. This role, currently relegated to
the unspoken, can only be used, when all else fails.
To a man like Chairman Greenspan, the discipline of a Gold
Standard is just what is needed to keep Statesmen and Politicians
in check, a factor never more pertinent than now, as Bush’s
policies threaten the delicately poised attempts at encouraging
growth, in an economy, becoming ever increasingly anaemic.
Chairman Greenspan’s testimony, diplomatically
disagreed verbally, but in its impact, hammered its opposition,
to the latest moves of the Administration to veer off course
into Deficit financing. Deficit financing will, in the near
future, destabilise the U.S. economy and turn more and more
heads to Gold, the only monetary instrument not dependant
on a nation’s promises. Deficit financing will further damage
the already delicate state of confidence in the economy,
as well as in other key world economies.
"Gold and
Economic Freedom" states:
-
"………. 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…."
"……..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. 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."
"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. "
"The abandonment of the gold standard
made it possible….. 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."
The first impact of the Bush Administration’s
plans is to impede growth, a situation Greenspan does not
want at all, as he eyes the situation in Japan, where the
lack of confidence is cited as the reason for
the insistent deflation they have suffered for a dozen years
to date, and now face the possibility of a banking collapse,
unless the government nationalises key Banks.
We have no doubt, that Greenspan sees the spectre of Japan’s
situation creeping ever nearer to the States.
- By calling the recent economic stimuli
by Bush, "premature and short term" he gave
a quietly spoken but demonstrated his opposition to these
moves of the Administration.
- By saying that deficit financing affects
interest rates, he voiced his opposition to these new moves
of the Administration.
- By his calling for a re-establishment of fiscal discipline,
he warned of a major financial accident.
Politically he flew right into the face of,
not simply Bush’s proposals, but into the traditional modus
operandi of the present administration.
Brave man!
His speech was a series of disaster warnings,
to those who had stuck by the $, the U.S. economy and U.S.
Investments. Their reaction has to be to downgrade their views
on U.S. financial instruments, as they continue to move away
from these hallowed institutions to mobile assets. We expect
that his warnings will move people to gold in ever increasing
quantities and out of the $, when they see that all else is
waning steadily, but surely.
Chairman Greenspan faced the realities confronting
the U.S. economy head-on, when he stated that the persisting
‘strains and imbalances were mistakenly seen as transitory’
in nature. This has to mean that they are either permanent,
unless dealt with directly, or structural. Either way, the
reality is that serious surgery is needed to remove them.
His statement that the present system of
budget accounting seriously underestimates the government’s
future liabilities was perhaps the most disturbing statement
of all.
To give us perspective, perhaps we should factor
in the recent Ted Turner resignation, after the revelation
of his company’s massive losses, so what can we expect from
this government’s Officers? What a frightening prospect for
the credibility of that nation’s government, when their most
respected Banker, points such a finger at them. What more
unhappy discoveries, can we expect on the back of last year,
replete with such unhappy revelations? What will we see when
proper accounting is applied to these liabilities?
Bear in mind that government has different priorities
and objectives to those of the caretakers of the nation. When
they propose measures that are patently against the interests
of economic health, they always have a nobler cause?
The immediate impact of Chairman Greenspan’s
words is to further undermine the failing confidence in the
economy, for which he will be blamed, instead of the destructive
policies being proposed now. The government response, that
they have support from 400 economists to their plan is hardly
convincing, if only for the extravagance of this reaction.
We believe that Greenspan alone carries a greater weight than
the collective weight of these 400, including their Nobel
Laureates, in the minds of the relevant public.
As though to reassure us, he stated that traditional
fiscal and monetary discipline will be used to resolve these
problems. This can only mean policies that counter the damage
being done by the future Bush policies, possibly the release
of liquidity to counter the drawing down of liquidity through
deficit financing? Needless to say, this has tremendous inflationary
implications. In the light of remarks emanating out of the
Federal Reserve prior to Greenspan’s testimony, on the ability
to "release liquidity into the system", how
can one not be alarmed, when reflecting on Greenspan’s own
word: -
"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.
Can we see the drama now unfolding, when these
earlier remarks of Greenspan are overlaid upon the present?
When he hands over the baton, on retirement, will it be with
relief, hoping that it will be into the hands of someone who
caused the plight, they then find themselves in?
Chairman Greenspan has given the U.S. the direction
in which it should go, that it has to go. Capital Investment,
Growth, Confidence, are desperately needed. But this is out
of his domain, and seemingly not a high priority of the incumbent
Government
As a simple analogy, think of the man who has
a job, but overspends his income. Is the solution to give
him a bigger overdraft or to get him a better paying job?
Greenspan says his overspending habits are not just a splurge
of buying, but have become a deeply ingrained habit, which
must be broken. Bush is giving him the overdraft, raising
the cost of that overdraft, while under accounting the size
of the overdraft! For sure, debt could spiral out of control.
The consequence will be the $’s value and credibility. At
that point a Debtor looks to his assets! Seems logical that
their value should be raised to give adequate surety to the
Creditors. No doubt, Gold will rise in price to provide
that collateral!
We repeat Greenspan’s own words: -
"It was limited gold reserves that
stopped the unbalanced expansions of business activity, before
they could develop into the post-World Was I type of disaster"
Thus, under the gold standard, a free
banking system stands as the protector of an economy's stability
and balanced growth."
We sincerely hope that Greenspan really does
have the strength of his conviction, in the short time he
has remaining in his august office and keeps speaking out.
We also repeat the pragmatism of this day, in that Governments
will only accept such controls over their activities, if it
dovetails with their current objectives, without relinquishing
their power to this cold disciplinarian. To begin this
process Gold must be priced considerably higher than it currently
is!
Gold-Authentic
Money put their Subscribers into Gold at $320 and pulled them
out at well over $370. They are now out or short of the market
and awaiting closing and re-entry signals. Subscribe
now: -
Direct
for check payments: gold-authenticmoney@iafrica.com
Online
through our website: www.authenticmoney.com
|
