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Welcome to USAGOLD's "Gilded Opinion" pages. We invite you to browse our index of outstanding gold-based commentary. Each article or essay is selected on the basis of its long-term relevance for understanding the role gold plays in the individual's portfolio, the overall political economy, or both.
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Alan Greenspan: Maestro or Music Man?
by "miner49er" from the USAGOLD Discussion Forum
"[W]hat does the future hold? Fundamentally, the U. S. dollar, the issued note of the Federal Reserve, is in terminal condition as far as its role as a global reserve asset, implying its ability to represent a stable value store. I believe it was given an extension of life to this end as a result of the "War on Terrorism." Support was provided to allow a semblance of soundness to legitimize the immense expansion of our debt to fund the war effort, and increased security measures. ...The bigger players are however leaving hints all over the place that gold will rise again. They seem to be suggesting relatively small, and controlled increases. Collectively their endeavors will synthesize into bringing this general theme to fruition."
A paradoxical irony exists in the life of any prominent figure. On the one hand, an abundance of information is usually available that can fuel almost any interpretation of the individual. On the other, truly only a handful of people ever really get to know a person. And can even one of these genuinely comprehend the myriad complexities that make up the circumstances into which one's life is cast; or know the thought processes that comprise the soul? Fortunate are those who have any to simply appreciate, no less comprehend.
The life of Alan Greenspan intersected with the current of world history in 1987 when he was appointed Chairman of the Board of Governors of the U. S. Federal Reserve System. The vast sum of experiences, thoughts, and actions of Alan Greenspan now became united with the even more vast, and incomprehensible history of "the Fed." Alan Greenspan was as he was in that year, and the Fed was as it was, and consequently the state of the U. S. economy, and importantly for us, its effect on our lives.
The public knowledge of Alan Greenspan is, as with others, a mixture of fact and hearsay. From this has been formed the entire spectrum of opinion: from saint to sinner, messiah to madman, maestro to music man. Even if a man cannot be satisfactorily "known" solely on the basis of his actions, he is surely judged by them. And the basis on which Alan Greenspan is almost entirely judged involves one and only one action -- the adjustment of interest rates -- and most frequently just the rate charged for overnight use of funds by member banks of the Federal Reserve, or the Fed Funds rate.
Not only do most people have no more than a superficial knowledge of what these transactions are, fewer still have any capacity to knowledgeably discuss their impact. Yet everyone has an opinion about them, and by extension an opinion about the man who dictates them.
An entity comes into existence when the pressure exerted by its proponents overcomes its opposition. And the composition of its proponents inevitably includes the coalesced forces of the gamut of self-interests. Not a coalition, as these forces are not necessarily in league with the others, but their synthesis nonetheless exists. Among the mix are the true-believers, the crooks and con-men, and the opportunists. Each beholds in the entity the potential advantages to their benefit. Each plays off the other as much as they do the opposition until the momentum obtains a life of its own, and if successful, the entity itself is born.
So it was with the Federal Reserve System in 1913. True believers subscribed to the need for, summarily, a "lender of last resort" to avoid the bank panics of the past. Crooks and con-men recognized the possibilities for abuse, and opportunists saw that riding this wave could get them in on the ground floor of something really big. Notwithstanding the abuse of parliamentary procedure that brought the Fed into existence right before the Congressional Christmas recess, the public was evidently ready for such an animal, or at least enough disposed to acquiescence, that opposition to the enactment never gained a footing.
What Chairman Greenspan inherited some 74 years later was truly nothing less than a beast. A system whose suffusion had saturated every pore of the globe, and had so permeated our lives that we were not even conscious of its influence. Indeed many argue that the system itself is no longer the primary actor, but rather has been marginalized to impotency in the shadows of its offspring: the U. S. dollar based credit system, and derivatives markets -- the real forces to be reckoned with in today's financial world.
The United States and all those entrenched in U. S. dollar based assets are engaged in a formidable struggle with a rising competitive currency, the euro. The struggle is for primacy in being the chief global reserve currency, and unit of account for trade settlement. Each faction comprises the whole range of self-interests, some visible, some not; some identifiable, some not, or mis-identified. And in this complicated and confusing mist of information (fact and hearsay), opinions flourish, and ignorance remains the inspiring genius behind most editorial pages.
It is in this world that this chief Governor must truly govern, which literally means to steer. In the spirit of the Statesman he must navigate not to arrive at perfection, but at what is practicable; not for justice, upon which no two factions will agree; but for an equilibrium in which no faction is so disaffected as to threaten a damaging engagement, or powerful enough in relation to the remaining powers as to make such a threat a reality.
This the role of a Central Banker!? What of simply maintaining the integrity of the currency? Well I suppose if he were the very first Fed Governor, and got to write the rules, and had plenipotentiary powers vested in him, he might be able to do just that... for a while anyway... But his position is not granted the luxury of armchair analysis, and a test lab for practice. He is dealt the hand he is dealt, and must enter the game in progress. The actions he takes are realtime, and irreversible. He has not inherited a text book case study with the answers at the back. Where he intersects with the sum total of all history is where he must begin his work. And as we attempt to discuss what he has done with it all, we must confront our own struggles to interpret the little we know without further distorting it with our own biases.
Alan Greenspan has acted to the best of his not small abilities. He has had to restrain, assuage, and compromise with all forces. Where there has been folly, he must not expose the fool, where impropriety, he cannot be the whistle-blower, as his role is not policeman. Has the pressure of a perceived unfixable situation caused him to err, and err again? Only as often as you or I, and probably less. Has such pressure ever caused him to stretch or even break the rules? I don't know, but we have all done as much on our own scale somewhere in our lives. Does the Fed operate within its charter? No, I think it has clearly overstepped its bounds, but it is no easy, possibly even feasible matter to try and turn back the clock here. Given the momentum of things as they are unfolding, to try to go back from here would do no more than register a footnote of one man's quixotic gesture to change a world that did not want to be changed.
The role of the Statesman is to limit conflict, and mitigate the catastrophic; hence fostering an environment for stability. He must attempt this by deploying his strategy against opposing and often hostile forces who are not prone to cooperate for so vague a notion as the "common good," but must be compelled to cooperate because it is perceived to be in their best interest. Is this his chartered role? No, not really. But if you found yourself suddenly in charge of a juggernaut hurtling uncontrollably who-knows-where, you might be inclined to don a few different hats in order to gain some control.
In light of all this, what does the future hold? Fundamentally, the U. S. dollar, the issued note of the Federal Reserve, is in terminal condition as far as its role as a global reserve asset, implying its ability to represent a stable value store. I believe it was given an extension of life to this end as a result of the "War on Terrorism." Support was provided to allow a semblance of soundness to legitimize the immense expansion of our debt to fund the war effort, and increased security measures. This was so because the world generally agreed that it was in their interests to let us use our resources to contain and hopefully subdue a rogue entity who had demonstrated both the will and capacity to upset the stability of the world order.
Once the perception is that the crisis has abated, support will no longer be guaranteed. We may be at that point now (witness the stress in bonds, which is very possibly a foreign liquidation of dollars).
With the U. S. Treasury unable to convincingly affect the long end of the yield curve to their advantage, the Fed will probably lobby Congress early next session for authority to deal in mortgage-backed GSEs. They will get their wishes. This will probably drop yields for a moment, and maybe two if this ignites housing, and encourages home-equity mortgages to the end that consumer spending spikes. But even at that it will likely be short-lived.
The current spike in silver is a head fake, and silver will come out of the woodwork to pour on this fire before it gets out of control. It will come from some big player, who will certainly be compensated for the favor.
A sudden overwhelming rise in the gold price will be resisted. Such a rise would so risk a tectonic shift in the balance of power that the ensuing unknowns can not be tolerated. Political nobodies, who have substantial gold, collectively become a force to be reckoned with if gold goes up a hundred-fold. The unpredictability of these new powers as to how they would behave generates tremendous political pressure to manage any price rise carefully.
The bigger players are however leaving hints all over the place that gold will rise again. They seem to be suggesting relatively small, and controlled increases. Collectively their endeavors will synthesize into bringing this general theme to fruition. Once more, not necessarily in league (although such conspiring probably does exist), but rather by their diverse interests best being served by a similar outcome.
I think we are best to heed the clues left us by the big guns, but act according to the wisdom offered us by Mike, Randy, FOA, Another, and countless others, i.e., to buy the physical metal itself. These big players, who have unfathomable power to influence things, are likely to be successful in their undertakings (in the short term, anyway). In order to achieve their ends, some nasty activity will take place, and if you are holding paper that can be manipulated at will, you will suffer.
So buy gold, not its substitutes. Live your life each day as much as possible without worrying what "they" are going to do next. With a savings vehicle as road-tested as the yellow metal, that is still being sold at fire-sale prices, you really cannot go wrong.
Personally, I don't want gold to go to $20,000 tomorrow (or even $2,000), and it's not for want of further accumulation. In fact if you really reflected upon what life would be like if the global economy blew up so badly, and so quickly that it would precipitate such a rise, you wouldn't either. It is for the avoidance of such catastrophes that the Fed acts today (and other Central Banks) so contrary to its original charge. It has evolved into this both by its own actions, and the actions (or want of actions) of others. It has acted on a global scale, influenced by massive world wars, political cataclysms, and upheavals of such orders of magnitude for nearly 88 years that it is indeed more surprising that it has not transformed even more radically.
While we may argue forever about how bad things really are or were, and make conjecture about what would have happened had this or that been done, we were not in the hot seat, experiencing the relentless pressures, the tests of our convictions, the challenges to our integrity, receiving insults and derisions, and tempted by the beguiling and intoxicating potions of power and praise. In light of that, I think Alan Greenspan has done his job well. Not without mistakes and even regrets -- yet I'm sure he would be the first to jump up and admit that; but he has done well.
So my hats off to Maestro Greenspan; and gold -- get you some...
miner49er
by miner49er (12/8/01; 22:38:16MT - usagold.com
msg#: 66639)
December 8, 2001
Copyright © 2001. All Rights Reserved.
Reprinted by USAGOLD with permission of the author. Further use without consent is prohibited.
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