Greenspan Calls for Gold Standard?

July 7th, 2016 by

Wait a minute: Did Alan Greenspan, the former Chairman of the Federal Reserve, baldly call for a return to the gold standard? On television?!

Why, yes, indeed he did. The full interview is about half an hour and was broadcast by Bloomberg TV at the end of June.

Greenspan as Gold Bug

This is precisely what happened a few weeks ago in an interview with Bloomberg Surveillance: A Breakfast Conversation. Mr. Greenspan identified himself as a “gold bug” and opined about how a financial system backed by the metal would be more efficacious.

Former Federal Reserve Chairman Alan Greenspan (photo: Federal Reserve)

“If we went back on the gold standard—and we adhered to the actual structure of the gold standard as it existed prior to 1913—we’d be fine,” Greenspan said in one of the more stunning moments of the conversation.

He later asked, rhetorically, “Why do central banks own gold now?” Remarkably, this stands in direct contradistinction to just about every overt and implicit statement that all subsequent Fed officials have ever made regarding gold’s usefulness in monetary policy.

Warning of Crisis

D'oh!

D’oh!

In addition to discussing politicians’ unwillingness to make tough decisions, addressing the problem of productivity stagnation, and analyzing the structural problems of the European Union, Greenspan took a contrarian view on inflation and the money supply. Perhaps most frightening, he said that the current global financial situation and outlook are the worst he’s ever seen. (Bear in mind, Greenspan was helming the Fed when the “Black Monday” of October 19th, 1987 sent the Dow Jones Industrial Average plunging a staggering 23% in a single trading session!)

He also made the interesting point that negative interest rates are like charging people to hold your currency (because demand far outstrips supply—i.e. the case with the Swiss franc).

You can read a bit more background of the gravity of Greenspan’s statement and about the possibility that this resurgence of some form of a gold standard has been in the works for quite some time here and here.

Fact or Fantasy?

James Rickards, the renowned economist and gold expert, has pointed out that elites have been making overtures in the mainstream media lately about the notion of once again monetizing gold in some sense.

American $20 gold Double Eagle coins Portable Antiquities Scheme (UK)[CC BY 2.0] via Wikimedia Commons

He mentioned Harvey Bassman, an analyst for one of the world’s biggest investment firms, PIMCO, writing publicly about the idea. Bassman essentially cast the plan as “quantitative easing (QE) for gold,” suggesting that the Federal Reserve should go on a gold-buying spree and effectively raise the price of gold to $5,000/oz. This somewhat mirrors what was done in the aftermath of the market crash of 1929 that precipitated the Great Depression. While this in some regard amounts to “gold confiscation,” I doubt too many owners of privately-held gold will protest that their asset has just quadrupled in value overnight—and has a ready and willing buyer at top-dollar prices!

Admittedly, this idea that the powers that be will completely change their tune about gold and the gold standard seems far-fetched. Nonetheless, so long as you remember that gold is money, no matter the view of the Fed, you’ll do fine amid these increasingly sclerotic markets.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.