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Greenspan hints at a gold backed Yuan in China and considers gold the ‘ultimate’ money

Greenspan hints at a gold backed Yuan in China and considers gold the ‘ultimate’ money

The former head of the Federal Reserve in the US, Alan Greenspan (he of massive housing bubble fame), has published an astonishing article about gold – it is astonishing in that it is one of the very rare occasions that someone used to pulling the very top levers of power actually speaks the truth. Why oh why do we always have to wait until these people leave office before they feel they can talk open and honestly on important topics?

The last time Alan Greenspan wrote a missive about gold was all the way back in 1966 (when he was dabbling with his Ayn Rand ‘phase’ – shame it didn’t last). Back then he wrote an article titled “Gold and Economic Freedom” – the entire thing is certainly worth a read and can be found here, if for nothing else it shows just how completely a person can sell-out their principals the moment they get a sniff of power.

For those pushed for time however, here are some choice take-aways from that article to give you a flavour of Greenspan’s thinking nearly 50 years ago:

The abandonment of the gold standard made it possible for the welfare statists 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. 

And:

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.

And:

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. If there were, the government would have to make its holding illegal, as was done in the case of gold.

And:

If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

And:

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.

Yes, Alan Greenspan really did write all of the above – is it any wonder that Ron Paul famously asked Greenspan to sign a copy of that 1966 essay for him.

Fast-forward (or should that be ‘slow-forward’) to today, and Greenspan is back sounding like a gold-bug once again. However, this time with a twist, because he focusses the gold issue on China – something that regular readers here will know that we’ve been beating the drum about for years.

Taken from “Golden Rule: Why Beijing is Buying”:

If China were to convert a relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system.

Re-read that sentence again – yes, Greenspan really does open up his 2014 gold missive speculating about China converting its reserves into gold – and not only that, that it would mean China’s “currency could take on unexpected strength in today’s international financial system”.

But… but… aren’t we always told that gold has no place it our modern finical system, especially for a central bank? Now we have the former head of the Fed telling us backing ones currency with gold is a sign of strength!

So are there any signs that China might do this? How about any of the following penned by us over the past couple of years:

Might do this? Seems more like they are doing this.

Greenspan continues:

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. (As of spring 2014, U.S. holdings amounted to $328 billion.) 

Now note just how much a risk it would be:

But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest

That’s right, for one of the richest countries on the planet, a strategy of backing their currency with gold only comes with “modest” risks according to Greenspan.

Then Greenspan gets really “gold-buggy”:

Yet gold has special properties that no other currency, with the possible exception of silver, can claim. For more than two millennia, gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. 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.

Which sounds a lot like he’s saying that gold is basically the ultimate form of money – which of course it is. So why, when Ron Paul asked Bernanke (Greenspan’s successor at the Fed) in Congress, and under oath lest we forget, “is gold money?” we got the following terse reply:

“No”

And on top of this Ron Paul then asked why the Fed holds gold if it is not money – we got the now infamous response:

“Because of tradition”

Clearly Bernanke’s response runs totally contra to Greenspan’s thinking on gold – in short Bernanke was lying to congress when he said gold wasn’t money and that it is held out of “tradition”. Rather, Greenspan in his recent gold article goes on to explain exactly why gold is held by central banks (hint: it has nothing to do with tradition):

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.

Gold isn’t held out of “tradition” but rather because fiat currencies ARE NOT universally acceptable AT ALL TIMES.

Greenspan continues:

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.

Perhaps a more accurate explanation of why we use fiat currencies today is more out of tradition and habit then anything else – but central banker know that gold is the ultimate form of money, and this is precisely why they own it (and have been buying more and more the past decade).

Greenspan goes on to show that a previous Fed chair (Burns) and today the ECB, both still believe in the importance of gold:

There have been several cases where policymakers have contemplated selling off gold bullion. In 1976, for example, I participated, as chair of the Council of Economic Advisers, in a conversation in which then U.S. Treasury Secretary William Simon and then Federal Reserve Board Chair Arthur Burns met with President Gerald Ford to discuss Simon’s recommendation that the United States sell its 275 million ounces of gold and invest the proceeds in interest-earning assets. Whereas Simon, following the economist Milton Friedman’s view at that time, argued that gold no longer served any useful monetary purpose, Burns argued that gold was the ultimate crisis backstop to the dollar

…They all agreed to an allocation arrangement of who would sell how much and when. Washington abstained. The arrangement was renewed in 2014. In a statement accompanying the announcement, the European Central Bank simply stated, “Gold remains an important element of global monetary reserves.”

When you see it written like it is above, it really just highlights how disingenuous Bernanke r’s statements on gold really were.

So just how much have Beijing been (officially) buying according to Greenspan?

Beijing, meanwhile, clearly has no ideological aversion to keeping gold. From 1980 to the end of 2002, Chinese authorities held on to nearly 13 million ounces. They boosted their holdings to 19 million ounces in December 2002, and to 34 million ounces in April 2009. At the end of 2013, China was the world’s fifth-largest sovereign holder of gold, behind only the United States (261 million ounces), Germany (109 million ounces), Italy (79 million ounces), and France (78 million ounces). The IMF had 90 million ounces.

So there you go, you’ve heard it (once again) from someone who was the Fed chair – gold not only IS money, it is the ultimate money, and maybe, all that gold buying that is going on in China is because they really are considering backing their currency with gold. 

Perhaps now we can stop the sniggering when those in the gold-circle point to China and a possible gold backed Yuan – after-all, it appears that Alan Greenspan agrees with everything the gold bugs have been saying for years – maybe it’s time they are taken a little more seriously, these are serious issues been talked about by serious people.

Link to this article: : http://www.goldmadesimplenews.com/gold/greenspan-hints-at-a-gold-backed-yuan-in-china-and-considers-gold-the-ultimate-money-12761/

Posted by on Nov 19 2014. Filed under Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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