Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

The Reinvention of Alan Greenspan

Commodities / Gold and Silver 2014 Nov 02, 2014 - 05:26 AM GMT

By: Michael_J_Kosares

Commodities

Former chairman calls Fed balance sheet a tinder box, endorses private gold ownership

During the time Alan Greenspan and representative Ron Paul had their famous series of exchanges (some might have labeled them confrontations) during Congressional hearings from 1997 to 2005, the congressman made what turns out to have been a prescient observation. "My questions," he said, "are always on the same subject. If I don't bring up the issue of hard money versus fiat money, Greenspan himself does." I say "prescient observation" because here we are a decade or more later and the "new" post-Fed Greenspan sounds very much like the "old" pre-Fed Greenspan-––the one who consistently advocated gold before he became Fed chairman.


Greenspan has always come across as a conflicted figure forced to reconcile his responsibilities as chairman of the Federal Reserve––the epicenter of the fiat money universe––with a "nostalgia," as he put it, for the gold standard, its diametric opposite. As such, I always saw him as torn between the two––the devil on one shoulder and an angel on the other.

Outside those memorable proddings by Congressman Paul, Greenspan rarely spoke publicly about the virtues of gold while Fed chairman, and when he did his approach seemed guarded. Even in the years following his tenure, he rarely broached the subject. In recent months though, as you are about to read, the gloves have come-off not just with respect to gold but with the dangers inherent to the fiat monetary system as well.

The reinvention of Alan Greenspan

Part one - an article in Foreign Affairs magazine

Greenspan's reinvention began with a surprising defense of gold in the October issue of Foreign Affairs magazine. In that article, titled "Golden Rule: Why Bejing Is Buying," he reminds top level policy makers of gold's role as a national asset of last resort. "If, in the words of the British economist John Maynard Keynes," he says, "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. . .Gold has special properties that no other currency, with the possible exception of silver, can claim."

So why is Bejing buying gold?

"If China were to convert a relatively modest part of its $4 trillion foreign exchange reserves into gold," he says, "the country's currency could take on unexpected strength in today's international financial system. It would be a gamble, of course, for China to use part of its reserves to buy enough gold bullion to displace the United States from its position as the world's largest holder of monetary gold. But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest."

In short, China sees gold reserves as a means to building the credibility of the yuan as a global reserve currency that would compete with the dollar. As I mentioned in a recent issue of this newsletter, China could purchase the U.S. gold reserve in its entirety with only 8% of its $4 trillion in currency reserves and the entirety of global gold reserves with 32% of its foreign exchange holdings––some sobering numbers.

Part two - a speech before the Council on Foreign Relations (CFR)

Greenspan followed that article with a speech before the CFR in late October. In that speech, he raised questions about the effectiveness of the Fed's quantitative easing program. He also registered concern that the Fed might not be able to adequately control either a future rise in interest rates or the volatility (read downside) it might create in the markets. He also cast doubt on the viability of the euro in the absence of a European political union. In a surprise, he offered what I consider to be some very sound financial advice: "Gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments."

Part three - an appearance at the gold-friendly New Orleans Investment Conference

Greenspan also spoke at the New Orleans Investment Conference in October and here he offered some important insights into the role of the Federal Reserve in the present political economy. Henry Bonner (Sprott Global) who was in attendance offers this summation:

"[Greenspan] fell into his role as Fed Chairman purely by accident, he claimed, and what he did there, he did it because he had to. He explained that the capital needs of the Federal government were so massive that the only way to prevent disaster for the rest of the economy was to keep feeding the beast with cheap money. If the Fed hadn't created and circulated new money, the Treasury's insatiable demand for capital would certainly have 'crowded out' the rest of the economy, wrecking the entire private credit system. Political realities, he explained, in the form of entitlement spending and off-balance sheet obligations of the US government, trump the need for sound money every time."

In this context, he explained, a gold standard is impossible. Greenspan added flatly that he "never said the Fed was independent and that its heavily monetized balanced sheet is "a pile of tinder but it hasn't been lit. . . Inflation will eventually have to rise."

Why Greenspan's reinvention is important to the average investor

So why go to the trouble of cataloguing Alan Greenspan's October, 2014 epiphany?

We need to keep in mind that this is an individual who actually sat at the controls of the most important central bank in the world. As such he saw first-hand how the monetary system operates––the good, the bad and the ugly. For him to graduate from that experience a proponent of gold reveals more about the efficacy of central banks than perhaps those institutions would like to be known. After all, the central bankers' stock and trade is trust and belief. Wall Street trusts that the central bank knows what it is doing and it believes that it is powerful enough to make its will stick.

Greenspan in the course of thirty days has dispelled both notions. He tells us unambiguously that the Fed's power is limited; that its policies by and large are dictated by forces outside its control (as mentioned earlier, he exclaimed at one point that he "never said the Fed was independent"); and that the Fed's options are restricted by the overwhelming needs of a government fiscally out of control. What's more he recommends gold to the citizenry as a financial defense. Tellingly, the man who was once called "maestro" for his apparent mastery of economic orchestration appears to have been humbled by his experience. His born again embrace of gold, and as one of the Fed's most vocal critics, should be viewed as one of the more important curtain calls of the modern era. I am surprised that more has not been made of it.

Epilogue

As a young man Greenspan wrote what has become a famous tract––one widely referenced by gold advocates even now and one that still ranks among the most highly visited pages at USAGOLD. "Gold and Economic Freedom" is a strongly worded, no-holds-barred attack on fiat money and the welfare state written in the late 1960s. It also endorses the gold standard as a means to restraining those impulses.

Former Congressman Ron Paul once told the story of his owning an original copy of "Gold and Economic Freedom" and asking Greenspan to sign it. While doing so, Paul asked him if he still believed what he wrote in that essay some forty years earlier. Greenspan, then still Fed chairman, responded that he "wouldn't change a single word." True to his word, and after serving a 19-year stint as chairman of the Federal Reserve, he comes back to the place where he began. At nearly 89 years of age, he squares the books and adds a new and, in my view, useful chapter to his legacy. At the New Orleans conference Greenspan was asked where he thought gold would be in five years. He answered "higher." When asked how much, he said "measurably."

Welcome back, Mr. Greenspan.

If you are looking for a gold-based analysis of the financial markets and economy, we invite you to subscribe to our FREE newsletterUSAGOLD’s Review & Outlook, edited by Michael J. Kosares, the author of the preceding post, the founder of USAGOLD and the author of “The ABCs of Gold Investing: How To Protect And Build Your Wealth With Gold.” You can opt out any time and we won’t deluge you with junk e-mails.

By Michael J. Kosares
Michael J. Kosares , founder and president
USAGOLD - Centennial Precious Metals, Denver

Michael J. Kosares is the founder of USAGOLD and the author of "The ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold." He has over forty years experience in the physical gold business.  He is also the editor of Review & Outlook, the firm's newsletter which is offered free of charge and specializes in issues and opinion of importance to owners of gold coins and bullion.  If you would like to register for an e-mail alert when the next issue is published, please visit this link

Disclaimer: Opinions expressed in commentary e do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules