Welcome to USAGOLD's "Gilded Opinion" pages. We invite you to browse our index of outstanding gold-based commentary.
Central Bankers, Actors and
by Professor von Braun
July 31st, 2005
Recently in a Q & A with Congressman Ron Paul before the House Financial Affairs Committee Chairman Alan Greenspan responded to a question from Congressman Paul by not answering it directly, which is not surprising, but what he did say is, in and of itself, mind boggling.
The entire transcript can be found here.
In part Greenspan said the following:
"And, indeed, since the late '70s, central banker's generally have behaved as though we were on the gold standard.
And, indeed, the extent of liquidity contraction that has occurred as a consequence of the various different efforts on the part of the monetary authorities is a clear indication that we recognize that excessive creation of liquidity creates inflation which, in turn, undermines economic growth.
So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?
And the answer is: I don't think so, because we're acting as though we were there."
These statements are patently absurd because how could a central banker act as if he was on a gold standard? The purpose of a gold standard is to limit the creation of credit, something now referred to as liquidity, and to not allow the confiscation of wealth that is the result of a fiat system. Having now confiscated the wealth of a once great nation, having seen the purchasing power of the dollar decline by over 96% since it went off the gold standard, Greenspan has the audacity to say 'we' are 'acting' as if 'we' are on a gold standard and have been since the late 1970's.
One has to wonder as to what sort of gold is required in this 'acting as if' scenario; what does it look like, is it assayable, does it need to be stored, can it be located or is it of the "let's pretend" variety? Acting, in a sense, is "let's pretend". What Greenspan is saying is that central bankers have been acting (playing let's pretend) as if they are on a gold standard when they are not. He also uses the royal 'we' implying that others are involved in this game of let's pretend, qualifies it with 'generally' and then says again "because we're acting as though we were there".
It's remarkable! Here we have the Chairman of the largest banking system in the world saying that 'we', central bankers, have been acting as if 'we' are on a gold standard, when they are as far removed from a gold standard as it is possible to be. So how do you, or can you, act as if you are on one, when you are not? What are the essential guidelines for this let's pretend game of acting as if, generally speaking?
Does this mean that manipulating the price of gold is one of the props that is used to facilitate this 'as if' scenario? Obviously, acting or otherwise, the 'as if' gold standard Greenspan refers to would have to have an 'as if' price attached to it otherwise it, the "let's pretend" game could not work. His other infamous statement made several years ago was that central bankers stand ready to mobilize gold reserves should the price rise, or words to that effect. How do you mobilize that which is immobile? Other than via the paper markets it too is a ludicrous statement, unless of course manipulation of the gold price was the game.
Obviously central bankers are aware that while they can fool all of the people some of the time, and some of the people all the time, gold is the medium that people return to when paper currencies fail. To this day there never has been a fiat currency system that has worked for any lengthy period of time, we know that and they know that. From the beginning of it's introduction a fiat money system itself is a game of let's pretend.
Perhaps Greenspan is telling us something that is extremely relevant to the gold market and the price action of gold since the late 1970's. Gold at $850 an ounce was not something they wanted to see and we have not seen that price again. I wonder why? This coincides with Greenspan's 'acting' time frame (i.e. from the late 1970's) and it sure sounds like these 'central bankers' have been using paper contracts (paper gold) to allow them to fool themselves into believing they are acting as if they are on a gold standard when they are not.
It is important to note that the period from 1971 through to early 1980 was the first time in nearly 300 years that gold traded freely and increased in price 24 fold. I suspect that Paul Volcker was the central banker that instituted the idea of controlling the gold price via a variety of means, but not necessarily limited to paper gold, forward sales from mining companies and paper contracts on the futures market.
More of Greenspan's remarks on 7/20/05:
"Remember, the gold price was $800 an ounce. We were dealing with extraordinary imbalances, interest rates were up sharply, the system looked to be highly unstable -- and we needed to do something.
Now, we did something. The United States -- Paul Volcker, as you may recall, in 1979 came into office and put a very severe clamp on the expansion of credit and that led to a long sequence of events here, which we are benefiting from up to this date.
So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we,ve behaved as though there are, indeed, real reserves underneath the system."
Now I would go so far as to say that what Greenspan is referring to is that central bankers have learned that the only danger (perhaps early warning signs would be a better phrase) to the fiat system is a rising gold price and have, since the late 1970's, been controlling the gold price ever since. They have, indirectly, perhaps even deviously gone back to a historical 'managed' gold price, without the need to redeem their paper currencies; and this management may be what Greenspan is referring to when he says central bankers have been acting as if we were (and are) on a gold standard. Once again, acting requires props, let's pretend requires props, and I am sure that for central bankers (implying more than one) to act as if they are on a gold standard requires a prop, an artificial price, obtained by manipulating the paper gold market, with settlement in the fiat currency of course.
The 'real reserves' he refers to are just as ephemeral or non existent as is the 'as if' gold standard central bankers have been acting 'as if' they had. Do you believe that central bankers have learned the dangers of a fiat currency system? Perhaps it is time to obtain some REAL 'real reserves' just in case the 'as if' game runs out of breath.
The Prof can be contacted by email at email@example.com
Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.
Return to the The Gilded Opinion Index Page
The Rocket School of Economics -- The Lecture Series Index
Centennial Precious Metals
Gold coins & bullion since 1973
Denver, Colorado 80246-0009
and purchase information.