In 1966, fully 21 years before Ronald Reagan appointed Alan Greenspan as our Chief central banker, Mr. Greenspan told the world what he thought about gold. His report, Gold and Economic Freedom, extolled the virtues of gold saying, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.
Ironic isn't it? First, he warns that the absence of control over the creation of money, threatens economic stability. Then, absent of control (The Gold Standard) over the creation of money, his policies created so much money that it led to crisis.
Greenspan is often blamed for instigating the credit crisis by keeping interest rates too low for too long. Money turned into our cheapest commodity. Think about it. Twenty years ago or so, it started with the advent of the Home Equity Loan. When the economy wasn't growing fast enough, homeowners were encouraged to trade equity for low interest debt so they could spend money and grow the economy. Equity almost became a dirty word.
Then came the buy-now-pay-later craze as consumers were encouraged to buy that new TV (made 12,000 miles away) now and pay for it months later. Consumers were actually first to kick the can down the road. In one of the final phases of our credit demise, so much free money was thrown at us, one needed only to hold up a butterfly net in order to catch it falling from thin air. If your mortgage was too big, let's make it smaller. If your house was worth $100,000 - here have $120,000!! No Job? No worry! Just promise to pay. Tell me that's not money created out of thin air.
All this under the reign of the one who said the absence of a gold standard could destroy the stability of an economy.
And the beat went on. Greenspan left and passed the wheel to Bernanke. By this time, though, the consumer no longer had any ability to borrow. Equity was gone (unless negative equity works) and 10% of our pool of spenders lost their job. Hence, our options of last resort. Just print the money and give it to people to spend. Help them buy a house or new windows for the old one. Then, of course let's get them a new car to put in their garage, new energy saving appliances and on and on.
Yes, the ship was now being steered by a different captain but the plan was the same. Create money out of nothing and keep the ship afloat - NO MATTER WHAT! And, if economic growth disappears, convincing all of our investors that we have totally lost control of our economy, just print the money and buy our own debt. Never mind that now15% of us, maybe even more, are jobless and our ability to pay back even more debt has now been thrown out of one of those subsidized windows.
So, where does that leave us? Here's the irony of all ironies. In a recent Bloomberg report, none other than Alan Greenspan, warns that a Greek default may leave some U.S. Banks up against the wall. This could drive us into recession.
I don't know whether to laugh or cry. At the outset, Greece was said to have $400 billion or so of debt it could not pay. In less than 3 years our own national debt increased by $4 trillion we cannot pay. Now, if we go into another recession it will be Greece's fault. You can't even make this stuff up.
We should've just bought Greece when we had the chance. Then make Texas Governor Rick Perry, the new Governor of Greece and watch the budget get balanced and joblessness disappear.
How will history treat Alan Greenspan. I think he's a genius. He said keep the gold standard or suffer the consequences. He was right!
If there was ever an argument for gold prices to rise to spectacular highs and for gold demand to far exceed maximum supply, this is it. Just ask Alan Greenspan. LearCapital.com