Gold and Economic Freedom: Reinterpreted for the 21st Century

I do not profess that the main structural arguments of the following essay are mine. Rather they belong to a rather famous former Chairman of the U.S. Federal Reserve named Alan Greenspan as noted in his rather seminal 1966 essay titled “Gold and Economic Freedom”. However, I have taken the specific arguments of that very prescient essay and modified and reinterpreted them to fit into the contemporary situation of our current global and financial crisis.

It is clear that at some point after his appointment to the Chairman of the U.S. Federal Reserve in 1987, Alan Greenspan turned his back on the very structural beliefs about gold’s inextricable connection to freedom that he championed some twenty years earlier. However, Greenspan’s failure to uphold the ideals he once championed does not invalidate their keen insight and validity. Today, these very ideals are especially pertinent to the impending economic catastrophe we face today, despite the continued three-ring circus of government, Central Bankers, & corporate executives that continually tell us that the financial crisis has bottomed.

Today, due to the proliferation of fragile and confusing financial instruments called derivatives and the fraudulent nature of our fractional reserve banking system, hundreds of billions, and more likely, trillions of more dollars exist than claims on real assets and goods.

The comparable analogy would be if, as an Apple (AAPL) store owner, I sold the same 100 Apple desktop computers to 10,000 clients. As long as no more than 10 of my customers required delivery in any given year, then my business could operate for many years without this fraudulent scheme ever being exposed. However, the instant my clients collectively decided they wanted to take delivery of all 10,000 computers in the same month, my ruse would be exposed and my business sentenced to a fate of bankruptcy.

Almost all of us would agree that this would be an insane way to run a business, yet we readily accept the fact that all major banks in every modern, developed nation run their businesses in this very manner. However, the development of such a situation would be next to impossible with the institution of a true gold standard and this is why Alan Greenspan once made the timeless statement that economic freedom and gold are inseparable.

A true gold standard would operate as follows. The introduction of any new supplies of money into the global economy would necessitate the equivalent purchase of gold to be stored as reserves to back them. Thus, if the power to print money was returned to the U.S. government as explicitly stated in the U.S. Constitution, Article 1, Section 8, and the U.S. Treasury wished to print $1 trillion new U.S. dollars, such an action would require the purchase of an additional $1 trillion of gold to back the new dollar supply.

Of course there is not enough gold in the world to back all the trillions of dollars that exist in our current monetary supply unless gold were to be revalued somewhere in the vicinity of USD $10,000 an ounce, or perhaps even north of this figure. Or perhaps the standard would have to be a silver standard or a hybrid gold / silver standard. For the sake of a hypothetical argument, however, let’s examine how a gold standard keeps money “honest”. Once a new supply of $1 trillion was printed, every new dollar would be a claim on a portion of the U.S. Treasury’s gold reserves, not just an empty piece of paper backed by the “full faith and credit” of the U.S. government, as is the case today.

Because there is a cost to printing new supplies of dollars under a gold standard, the primary driver of monetary supply expansion would consequently become the sustainable expansion of real goods and services, NOT the speculative whims of a few powerful banking families that wish to drive up prices of unsustainable assets such as subprime mortgages, derivatives, dangerously overvalued stock markets, and rigged commodity markets for their own benefit. Inevitably, under our current fraudulent monetary system, such actions occur and lead to what the media erroneously terms as “bubbles” and which financial “experts” misinterpret as natural economic cycles.

In reality, “bubbles” are grossly distorted unsustainable valuations of assets driven by the speculation and the monetary policies of the financial oligarchs that control the U.S. Federal Reserve, the Bank of England, and the European Central Bank. This is why “bubbles” always burst. By the purposeful creation of bubbles, the financial oligarchs that create them increase their riches, and then plunder the wealth of their fellow citizens when these bubbles inevitably burst. This accomplishes two important goals for the financial oligarchs.

(1) Since they create every capital market bubble in every major economy, inevitably, they understand exactly how to profit from these markets, and they increase their wealth and power substantially as these bubbles grow;

(2) Since most citizens don’t understand the extreme fragility of the bubbles the financial oligarchs create and instead interpret the bubbles as bull markets that cannot end, when the bubbles inevitably burst, this action conveniently strips wealth and power from the classes that reside below the financial oligarchs and stifles any chance for real opposition and dissent to their power.

It is the perfect con game.

A monetary system that is backed by a true gold standard, however, would never sustain an expansion of monetary supply to fund risky assets that have a high risk of blowing up and becoming worthless, because in doing so, the financial oligarchs undermine their own assets. This is why they killed the gold standard in 1971.

Under a true gold standard, it would have been impossible for this current global financial and monetary crisis to materialize, and here’s why. If banks continue to print new dollars backed by gold to support the purchases of risky assets, bank loans are inevitably paid back either slowly over time or not at all. Consequently, under a gold standard, banks curtail new lending by raising interest rates because they understand that the dollars they currently hold have greatly increased in risk in comparison to the real gold that backs them. Thus a gold standard successfully limits the greed driven behavior of banks and actually successfully stops further creation of ticking time bomb financial assets such as subprime loans.

In the case where a bank refuses to curtail its risky behavior and continues to finance new loans for the purchase of risky assets, then a gold standard allows for their bluff to be called by any dollar owner. In other words, if a bank continues to expand the monetary supply to such an extent that many more dollars exist than claims on real goods, as people realize that banks are creating new money to finance risky assets that are likely to blow-up, people will either

(1) Demand gold in exchange for their dollars, or presuming that all other major global currencies are also backed by a gold standard;

(2) Exchange their dollars for another currency that they deem has not been diluted by the gold standard upon which that particular currency operates.

If scenario one materializes, and people demand gold in return for their dollars, the bankers realize that they will be granting a real asset to the people in return for receiving a devaluing asset that they are helping to devalue. Under this scenario, banks will do everything in their power to retain their gold reserves and thus will increase interest rates to contract monetary supply and renew the currency’s strength. Such actions would then serve to stop the run on their gold reserves.

If scenario two materializes, and people flood the market with U.S. dollars by selling them to purchase other currencies that have maintained an honest gold standard, then again, banks would combat the devaluation of their own dollar holdings by raising interest rates, contracting the U.S. dollar supply, and ensuring that the dollar’s strength returns to the equivalent strength of its rival currencies.

Thus, a gold standard automatically regulates monetary supply and monetary strength and there is absolutely no reason for Central Banks to exist and to allow Central Bankers to artificially deflate and inflate money for their own self-interests to the detriment of all other citizens. If one can understand that gold helps establish a free market where growth in sustainable goods and services drives monetary expansion, and not greed and speculation as is the case today, then it is easy to realize that not only is gold linked to economic freedom as Alan Greenspan stated, but that it is also inseparable from the much broader concept of freedom itself.

However, a true gold standard is not even necessary to regulate integrity and honesty in the global monetary system. The world gold standard that existed before it was ended by President Nixon in 1971 under the advice of then deputy under-secretary of monetary affairs Paul Volcker and U.S. Treasury Secretary John Connally, was in fact, not a true gold standard, but a “pseudo” gold standard. It was a “pseudo” gold standard because banks were allowed to create more dollars than the value of their gold reserves.

However, even under a “pseudo” gold standard, the above principles I described above would still automatically regulate free markets with little need for monetary policy decisions from Central Banks. In the event that banks attempted to execute fraudulent schemes under a gold standard, their scramble not to lose their gold reserves could still cause sharp recessions, but these recessions, due to the self-regulatory nature of such a monetary system, would likely be very short in nature and consequent economic recovery quick. Thus, a “pseudo” gold standard or “pseudo” gold / silver standard, though far from being perfect, is still much more preferable than the fraudulent monetary system we currently utilize today that allows financial oligarchs to create prolonged deep depressions and to destroy the wealth of the middle class.

People, ignorant of gold’s long history as a store of money, still erroneously believe gold to be a barbarous relic with zero intrinsic value. Today, hundreds of millions of people still ask, “What makes gold so valuable that it should back our monetary system?” Again, the lack of understanding about gold’s role in creating a free and honest monetary system is due to the fact that gold can call the bluff of the financial oligarchs, and they have done everything in their power, including the purposeful spread of misinformation about gold to prevent people from calling their bluff. The spread of this knowledge threatens the very power of the financial oligarchs so they ensure that people do not understand the basic tenets of Greenspan’s “Gold and Economic Freedom” essay.

It is not by mistake that gold has been used as a form of money for centuries and that, as a form of money, it has outlasted numerous other forms of paper money and even numerous other commodities once employed as money. Whereby ancient civilizations have used many different commodities over time such as corn, wheat, beads, clothes, etc. and instituted them as a means to barter for goods and services, it is by no mistake that ancient Egypt and the Roman Empire, civilizations that endured for long periods of time and required a more efficient form of money, eventually settled upon gold.

Gold has many qualities that make it ideal for use as money that other valuable commodities such as diamonds, platinum, rhodium, wheat, rice and oil all lack. Gold is a sufficiently rare enough metal to command a high value, it is extremely malleable and therefore easily divisible for use as money, it is uniform in quality, it is durable so retains its quality over time, and it has very little industrial use and thus is not consumed in any significant quantity over time.

Though gold’s detractors continually spread misinformation about gold having zero intrinsic value and the U.S. dollar as the only valid form of money, this argument is actually backwards. It is the dollar that has zero intrinsic value while the intrinsic value of gold has been well defined for centuries. All fiat money, whether the U.S. dollar, the Japanese yen, the Euro, the Pound Sterling, the Icelandic Krona, or the Brazilian real, only has value because it is backed by the full faith and credit of their respective governments. Today, we know that the counterparty risk of all major global currencies is tremendous. Gold, however, has zero counterparty risk.

Ever since the financial oligarchs convinced U.S. President Nixon to end the pseudo gold standard in 1971, there have been no limitations on any Central Bank in the world in regard to their ability to increase monetary supply, and to deflate and inflate currencies at will. Translated another way, this means that there is no way for any citizen of the world to ensure that their Central Bank does not enact monetary policies that unfairly tax and devalue their savings. Quite literally, our modern monetary system allows no means for citizens to prevent the theft of their savings by Central Banks. If one had $1,000,000 in their bank account in 2001, and today, in 2009, could only purchase half of the goods and services that he could have purchased with that money in 2001, it matters not if

(1) the $1,000,000 retained the same purchasing power up until now but half the purchasing power was lost as a result of a 50% tax imposed by the government today, or

(2) if the 50% loss in purchasing power was a result of a 50% devaluation of the U.S. dollar during the last 9 years.

Central Banks don’t want you to understand that their devaluation policies are equivalent to robbing citizens of their wealth. Alan Greenspan himself stated in 1997 U.S. Congressional testimony that “price increases are really the same thing as depreciation of the currency.”

Various arguments that have been levied against gold’s relevancy as a form of money, such as gold is worthless because one cannot eat gold if one is hungry, or Warren Buffett’s infamous statement that gold is a terrible asset because “it won’t do anything between now and then except look at you” are arguments devoid of any logic. One cannot eat U.S. dollars either if one is hungry, and diamonds won’t do anything other than glitter and look at you either.

I imagine that Buffett’s statement about gold is a jab at gold’s extremely limited usefulness in industrial applications, yet it is this very “limitation” that has led multiple civilizations over many centuries to adopt gold as a form of money. To the very contrary of Buffett’s core argument against holding gold, why would anyone would want to own a fiat monetary asset that has a value not determined by the sustainable growth of societal goods and services, but a value determined by the whims of financial oligarchs that can deflate and inflate it at will? Maintaining your hard earned money in the form of dollars, pounds and Euros and allowing Central Banks to devalue them day after day, year after year, is truly an argument devoid of all logic.

When considering the recent International Monetary Fund [IMF] request to Asian Central Banks to flood their markets with liquidity, the heads of Asian Central Banks would be well served to become a student of the Great Depression before making any decision to do so. After World War I, Great Britain began to lose excessive amounts of its gold reserves due to the Bank of England’s refusal to revalue the British pound - gold conversion rate despite greatly expanding British pound monetary supplies during the war. Explained simply, in order to finance the war, the Bank of England had printed massive supplies of British Pounds without an equivalent increase in their gold reserves. Consequently, when the war ended, Britain had the same amount of gold backing a greatly increased supply of British pounds.

Simple math dictated that Britain had to devalue their pound or commit fraud by maintaining the same British pound-gold conversion ratio that existed pre-WW I. The Bank of England chose fraud over honesty, and citizens in turn, called the Bank of England’s bluff and began to convert their pounds into gold. When this happened, the Bank of England called on their sister Central Bank, the U.S. Federal Reserve, for assistance. Rather than raising interest rates to contract their own monetary supply and strengthen the British Pound in this manner to restore the pre-WWI British pound-gold conversion ratio, the Bank of England call upon the U.S. Federal Reserve to flood the United States with dollars, much as the IMF is now calling upon Asian countries to do.

According to Alan Greenspan, “The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The Fed succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process.”

Today, if the Asian Central Banks comply with the IMF’s request, since we are not on a gold standard and there are no runs on a country’s gold reserves to prevent, the IMF’s request is meant to stop the rapid devaluation of the Euro, the British Pound and primarily the U.S. dollar. If the Asian Central Banks foolishly comply with the IMF’s request, they should be forewarned that the end result of their actions will be to destroy their own economies as well.

In 1998, Mr. Greenspan stated, “You don’t have a free market. Central banks determine the money supply, not the market…We are not on a gold standard because leaders of the 20th and 21st centuries don’t want a market that functions in that manner.” The IMF’s request is driven by the desire of the world’s financial oligarchs to keep a fraudulent monetary system alive so that they can retain their power. Were the world to return to a gold standard or a combined gold / silver standard today, increases in global supplies of major currencies would be dictated by real sustainable economic growth of global economies and claims on currencies would be backed by real assets, not the untrustworthy empty promises of governments today.

If we educate millions of people regarding gold’s central role to freedom, Central Banks cannot continue to keep financing bailout plans that ultimately steal significant wealth from their citizens. In fact, because there is no gold to lose under our current unsound monetary system, this is precisely the reason why large U.S. banks had no problem continuing to feed growing bubbles of fraudulent assets such as subprime mortgages, asset backed commercial paper, etc. In the end, they knew that they would be bailed out with taxpayer money, and there was no “house gold” to lose. Thus, billions of profits could be made by risking not their own assets, as would be the case under a gold standard, but by risking only the assets of the people.

French philosopher Voltaire once said that as long as people believe in absurdities, they will continue to commit atrocities. Belief that freedom and an unsound fiat monetary system can coexist is one such absurdity. As result of this absurd belief, atrocities, such as the major media’s continual refusal to provide adequate coverage to the current global catastrophe of more than one billion hungry people, can materialize.

Under our current fiat monetary system, the financial oligarchs that control the world’s central banks will continue to feed speculative bubbles because there is no way for the people to call their bluff other than exchanging one form of fraudulent money for another form of fraudulent money. People that tried to protect themselves from dollar devaluation through the use of currency hedges discovered the futility of doing so at the end of last year and the beginning of this year when Euros, British Pounds, and Australian all plummeted by 25% to 30% in a matter of weeks.

If the World Series of Poker operated under the same rules as our current monetary system, the richest man or woman to enter the tournament would win every single tournament. No matter his hand, if there was no way to call his bluff, he could raise the pot every round to such rich levels that he could force all other players to fold even under the occasions when he held the weakest hand. Even a poker game is more honest than our monetary system for it allows other players to expose bluffs and walk away victorious.

Under our current monetary system, there is no means to call the bluff of Central Bankers by using other forms of fiat money. The only way to call the Central Bank’s bluff is to buy gold and silver. Understanding this, it is easy to deduce why Central Banks, despite holding loads of gold in their own private reserves, continually attack gold, discredit its role in our monetary system, and seek to drive its price down. If masses of people were to discover and understand the true value of gold in a sound monetary system, then calling the bluff of our current fiat monetary system and causing it to collapse would be possible.

Disclosure: The author is currently long various gold and silver majors and junior stocks, and has been since 2006. However, his positions are subject to
change at anytime, including temporarily going short gold and silver at
various points in time.

Comments

[JD*:]

PhD

No web site

May 11 07:46 PM

[aarc:]

Gold price projections of 5,000? 10,000?

Feels like there is a gold rush going on or rather another tulip mania, another dot.com mania, or another housing bubble in the making?

I have to admit manias do happen and can go on for a long time before their proponents realize they were in la-la land.

How long have this gold rally been going on with no major correction or consolidation? More than 6 years already with a little over 1 year of shallow correction from 1,033 top to 681 low last year.

That is not the usual way rallies and corrections do happen.

Either the stock or stock markets pay the fine or serve the time or a combination of both are the usual ways they go through the cycles of rallies and corrections.

Pay the fine = punitive corrections of more than 62.8% and the stock will be able to reach bottom at a much shorter time period. This usually happens after an over-extended rally. This can also happen after an extremely poor performing rally has happened or during the initial rally after a prolonged period of sell-off. Rallies after a punitive sell-offs are also "crippled rallies" consuming massive amount of time before being able to fully recover in price.

Serve the time = corrections more or less than 38.2% usually result in considerable time consolidating the rally's gains. This usually happen after an extended rally but not over-extended. Stocks and stock markets do mature over time and are less prone to panic sell-offs until they reach the end of the 1-2-3-4-5 cycle of 3 rallies with 2 major corrections in-between. Gold fits in this type high probability correction process since the rallies from 2001 to 2008 were extended but not over-extended. Ensuing rallies are less vigorous in percentage terms as compared tot he first major rally. So don't expect 5,000 to 10,000 for gold. Gold maniacs can do their price projections whatever they like. Conservative estimate of 1,446 is the usual price projection target if 681 holds and a prolonged consolidation range happens.

The more than 38.2% but less than 62.8% corrective processes are the less punitive sell-offs but also usually result in moderate amount time consumed consolidating the rally's gains. This type of correction usually happen when the rally goes the most common conservative route. Likewise this type of correction has higher probability of longer term sustainability in the future after the corrective process has completed.

Study how price correlates with time with stocks and stock market charts then re-assess the probability of gold being able to mount another massive rally anytime soon.

You will always find fundamental reasons why a certain stock or commodity is under-priced and should make a rally or why it should undergo a correction or a sell-off because it is over-priced.

The hardest part is on the timing. There is such a thing as time correction or appropriately called consolidation in addition to price correction.

Not many analsysts nor their followers have the patience to study price and time relationship nor the patience to wait out the necessary time consolidation that goes with price correction once they found enough fundamental reasons for such under-priced or over-priced stocks or commodities.

I'll buy gold once the necessary time consolidation has been served in conjunction with the price correction. At this early stage, it is extremely hard to know if the 681 last year will remain to be the final bottom in this corrective process after more than 6 years of sustained rally from the ~200 low.

Given the prevailing seemingly "maniacal" bullishness on gold, we don't know if gold will produce a false breakout above 1,033 and into the 1,130/70 area before suffering a lower low sell-off. This is no longer a possibility but starting to become a probability with the vigorous rally off the 681 low to the last high of 1007.

Or whether it will undergo a triangulation process that will consume considerable time if future events severely hamper most of the bulls' efforts to prop up the price of gold.

Too early to know how gold will perform. No high probability analysis at this stage except perhaps a false breakout rally to the 1130/70 range once SnP and Dow Jones start making another sell-off after their respective "bear rally" since March 2009 has completed most probably within the next 1-3 weeks.

I would rather buy FAZ after the most recent "bear rally" for SnP has completed. More bang for the buck since FAZ has been hammered beyond recognition already and still getting kicked down the road as a result of current 9 weeks of sustained bear rally in the SnP500 index or the 136% rally by $BKX sector off the $17.75 low. $BKX more likely was or will still be able to mount additional significant rally percentages in order for it to prevent a lower low even if SnP500 goes to lower low in the months ahead.

Hopefully, it will be at the $1 to $3 range from the last high of $115.50 - option price with no time duration (theoretically because how can FAZ not go to zero if $BKX goes back to $121 from the last low of $17.75 and/or SnP goes back to 1,576 in the next 5 to 6 years time.

May 12 01:23 AM

[Jaysan:]

I'm sympathetic to the view expressed by Mr. Kim raging at our fiat currency system, but I feel strongly that he has oversimplified a complex problem.

E.g., who are these alleged "financial oligarchs?" Can he name one or two? Even though Buffett is (was?) the wealthiest man in America, he is evidently not one of them.

Is there no other way to install discipline into a monetary system than to base it on gold and silver?

I am pleased and surprised that among governments, it is Russia and China who have spoken out forcefully against the dollar as the world's reserve currency. They used to be the bad guys! Russia favors a gold standard while China seems to favor a basket of currencies that includes the yuan.

The only well-known politician who has spoken out forcefully against our fiat monetary system is Ron Paul. It is a positive sign that he did so well in the Republican primaries. I hope he runs again.

May 12 03:37 AM

[History Buf...:]

Jaysan,

It is THEORETICALLY possible to have a fiat currency that will stand the test of time. It requires that the people in charge of the currency keep resisting the temptation to dig into the cookie jar and print a few BILLION more of their worthless pieces of currency (call it what you will, dollar, pound, euro, lira, etc.).

Because all it takes is one group of idiots to start printing money, and POOF, the value of the currency evaporates.

I also believe in Santa Claus, the Tooth Fairy, the United Nations, and a few other wonderful speculations ...


On May 12 03:37 AM Jaysan wrote:

> I'm sympathetic to the view expressed by Mr. Kim raging at our fiat
> currency system, but I feel strongly that he has oversimplified a
> complex problem.
>
> E.g., who are these alleged "financial oligarchs?" Can he name one
> or two? Even though Buffett is (was?) the wealthiest man in America,
> he is evidently not one of them.
>
> Is there no other way to install discipline into a monetary system
> than to base it on gold and silver?
>
> I am pleased and surprised that among governments, it is Russia and
> China who have spoken out forcefully against the dollar as the world's
> reserve currency. They used to be the bad guys! Russia favors a gold
> standard while China seems to favor a basket of currencies that includes
> the yuan.
>
> The only well-known politician who has spoken out forcefully against
> our fiat monetary system is Ron Paul. It is a positive sign that
> he did so well in the Republican primaries. I hope he runs again.

May 12 10:26 AM

[History Buf...:]

aarc,

Gold is not a bubble. It is an anti-bubble. I think at $50,000 an ounce it would be a bubble, anything less than that is probably fair value.

For trading purposes I'm not sure what it should be worth, but I still think it's going higher.

May 12 10:28 AM

[Jaysan:]

"Mostly correct but allowing fractional reserve banking while having a pseudo gold standard creates distortions too. Not only central banks but bank fractionalization interferes with free market processes."

- comment by a knowledgeable friend

May 12 11:19 AM

[Jaysan:]

Why did you spoil your otherwise sensible reply with snide remarks about Santa Claus, the Tooth Fairy, the United Nations ...? I asked a question. I didn't say I believed in fiat currency discipline.

However, I do think it is possible that if this financial crisis gets bad enough and if more leaders like Mr. Kim and Ron Paul educate the public about the dangerous absurdity of our current monetary system, some serious reform will take place. I don't think even the alleged financial oligarchs are suicidal.

On May 12 10:26 AM History Buff 24/7 wrote:

> Jaysan,
>
> It is THEORETICALLY possible to have a fiat currency that will stand
> the test of time. It requires that the people in charge of the currency
> keep resisting the temptation to dig into the cookie jar and print
> a few BILLION more of their worthless pieces of currency (call it
> what you will, dollar, pound, euro, lira, etc.).
>
> Because all it takes is one group of idiots to start printing money,
> and POOF, the value of the currency evaporates.
>
> I also believe in Santa Claus, the Tooth Fairy, the United Nations,
> and a few other wonderful speculations ...

May 12 11:29 AM

[History Buf...:]

Jaysan,

Sorry, I wasn't trying to be snide. The absolutely unbelievable amount of spin that has been generated over the last several months has turned me into a bit of a bitter young misanthrope.


On May 12 11:29 AM Jaysan wrote:

> Why did you spoil your otherwise sensible reply with snide remarks
> about Santa Claus, the Tooth Fairy, the United Nations ...? I asked
> a question. I didn't say I believed in fiat currency discipline.
>
>
> However, I do think it is possible that if this financial crisis
> gets bad enough and if more leaders like Mr. Kim and Ron Paul educate
> the public about the dangerous absurdity of our current monetary
> system, some serious reform will take place. I don't think even the
> alleged financial oligarchs are suicidal.
>
> On May 12 10:26 AM History Buff 24/7 wrote:

May 12 01:17 PM

[Jaysan:]

Further comment from my knowledgeable friend:

"I do not blame Greenspan as he does - it is a systemic failure that would have evolved no matter who was the Fed head, in my opinion. You can't print money and distort international trade forever without needing higher and higher debt levels to keep the charade in place."

May 12 02:54 PM

[fireball:]

history buff
after reading the transcripts i had the impression that greenspan was doing a job to postpone the inevitable. a job that he didn't like or want but did anyway out of a sense of duty.
i also got the impression that ron paul had a certain respect for greenspan by the way he spoke to him. both men knew better but neither wanted to start a panic.
perhaps both men thought reagan was a sign that americans were ready for the ideals of the founders to steer the future. maybe it was a vain hope that if the ship could stay afloat it would turn on a better course.
maybe now greenspan is just trying to save his name for history. i really do not know what to think of him. i believe history would be kinder to him if what i guessed is correct if he just admitted that the job went against his own beliefs but he chose to do the best he could out of duty.
i would like to read your ideas or thoughts on this.

May 12 06:33 PM

[fireball:]

history buff
do you think $50,000 per oz. would cover the f r notes in circulation?

May 12 06:36 PM

[Peter Cooper:]

Time to buy gold as a safe haven as markets tank? See:
arabianmoney.net/2009/.../

May 13 02:23 AM

[Jasper M:]

fireball,
Actually, if you just want to cover the actual, physical Reserve Notes (as opposed to all the bank balances), gold only has to go to about $2800/oz.
It is all the various forms of 'sacred cow' credit (and that's what bank balances are - I recommend absolutely ANYthing Robert Prechter has written on the topic) that drive up the number way, Way higher.
Since it seems to me certain that most of the credit in the system now will die, I think the Reserve-Note-only model is a useful starting point.

As for Greenspan, if you look at a graph of fed interest rate adjustments during his tenure, compared to T-bill rates, it seems clear to me he was Not leading the marker - he was Following.
As, I suspect, most of them do.

May 13 02:37 AM

[fireball:]

jasper m---thanx. gold and silver look good no matter how you look at them.
greenspan is confusing because of the beliefs he held as a young man.

May 13 09:22 AM

[Jasper M:]

fireball,
At the risk of being flayed alive, I suspect there romm on the downside for gold, near term, as a Lot of it is currently in weak hands.
IMF has dumped gold before. Russians are vulnerable to oil drop (certain in a depression). But once such a capitulation occurs, THEN it would be a screaming by.
While I think everyone should have a bag of silver, I think the likely loss of industrial demand makes it way less tempting than gold.

As for Greenspan, I heartily recommend the recent article comparing him to Darth Vader (who also betrayed his earlier principles, to join the New Order)

*hiss, hIss, hiss hIss*
Darth Greenspan: "You were unwise to return , Cogressman Paul. Last time you were the teacher. This time *I* am the master!"
Obi-wan Paul: "If I am defeated, I will become more powerful than you can possibly imagine."

"(Fed) Governor Giethner, I have analyzed the Free Market's attack plan, and there is a danger. Shall I prepare your backup job back at Goldman?"
"Escape!? At our moment of victory? Certainly Not!"

BOOM

May 13 05:35 PM

[fireball:]

jasper m
that was funny. hope you don't get flayed. that is in line with my thinking/hoping. i am holding out for that buying oppoortunity. silver is the cushion in case metals don't get hit. i have pretty good insurance in both but intend to strengthen more.

May 14 09:25 AM

[Warone:]

Mr. Kim, I am a bit late to respond to your article, but I must say that it is very well written and makes excellent points about how the U.S. economy actually works. Thanks for the information. When is your book coming out?

May 16 08:24 PM

[Warone:]

I meant to say "When is your next book going to be available!

May 16 08:26 PM

[untrusting ...:]

Interesting, but perhaps that is because gold jewlery is marked up 300,400, 1000% over the current value of the gold itself. Thus gold jewelery is really not an investment, but rather eye-candy or status goods for the most part. If one truly wants to invest in gold there are so many better alternatives than jewlery, such as gold coins, gold stock, gold ETF's etc. Personally am not a gold bug, but that is how I view gold jewlery


On May 10 07:23 AM fatcat wrote:

> Retail demand for gold jewelry is the worst ever seen.We operate
> a jewelry and pawn business in a small city of 25,000.We probably
> sell twice as much as the next biggest competitor,in a average year.
>
>
> Yesterday,the day before Mother's Day,we had Zero sales...nothing,notta....
> day long...
>
> Sales are down 75% in 12 months.The only saving grace is scrap gold
> buys,which are up over 300% for the year.
>
> I don't know how to interpret what the lack of retail demand has
> on gold prices,but I can assure you that high gold prices is killing
> demand.
>
> A number of jewelers will be closing their doors this year..

Jun 14 03:06 PM

[untrusting ...:]

OK, but let's be fair, Buffett did not have a great year in 2008. But he does have an incredible track record over 40 years, something like up many thousands of percent. Let's compare the Black Swan author's record with that of Buffett over say the next 20 years and then we will truly have a fair comparison. I would not bet against Buffett over the longer term. If you remember Long Term Capital Management, they were supposedly the best and brighest of their time back in the late 1990's. They did great for about 3 years and far outperformed the market. Then suddenly in about year 4, their miscalulations and overleverage caught up with them and they lost it all and a lot more in a matter of months. So 1 or 2 years does not mean much in terms of real investment performance, whereas a 40 year great track record really does mean something.


On May 10 02:52 PM Skaiste wrote:

> When it comes to Buffet and Gold, I'm sorry to say but Buffet ain't
> no Oracle, if he lost 50% in 2008. Author of the "Black Swan" correctly
> anticipated 2008 crisis and made huge profits. Besides he right on
> the money every time. That sounds more like Oracle to me.

Jun 14 03:47 PM