We would like to take this opportunity and share our views on some recent statements made by former Federal Reserve Chairman, Alan Greenspan, particularly in connection with his interview with the Council of Foreign Relations (full video interview). Despite having been the head of the largest central bank in the world, arguably one of the most powerful positions on this planet, Greenspan is known for being a proponent of gold. Nevertheless, we were surprised to hear how many of his views on gold and the current state of the global economy where identical to the views we have at Global Gold.
We are in times of high levels of uncertainty, stagnation and close to turmoil, as Greenspan puts it. So where does our economy stand today according to Greenspan?
“We’re not printing money; we’re just expanding the federal bank’s balance sheet. But eventually, that will turn into printed money. It hasn’t yet, and that’s what the real fascinating issue of the current period is. It’s always easier to take a larger deficit, because inflation is dead in the water, and the reason for that is, effective demand is dead in the water.”
So what is the way out, in his view?
As you know, we firmly believe the primary entity responsible for this is the action of central banks and therefore find that the way to resolve this is to simply pull the plug: end government manipulation of interest rates flooding the market with printed money. But Greenspan doesn’t see it that way. Greenspan does not regret not having pricked the bubble during his chairmanship of the Federal Reserve, arguing that “pricking the bubble short of collapsing the economy doesn’t do anything”. Greenspan believes that it is not possible that the Fed would be able to resolve the current problems and exit without causing yet another financial crisis. We agree that pricking the bubble might cause a short-term collapse of the economy. However, prolonging the inevitable is not a sustainable alternative.
So where does he stand on gold?
Greenspan finds that gold is a good investment, particularly in the current phase we are in with a potential for turmoil: “Gold is a currency. It is still by all evidences the premier currency where no fiat currency, including the Dollar, can match it.” He goes on questioning: “Why do central banks put money into an asset which has no rate of return, but cost of storage and insurance and everything else like that, why are they doing that? If you look at the data with a very few exceptions, all of the developed countries have gold reserves. Why?”(comments on gold in this video) It goes without saying and it is what we have asserted time and time again: Gold doesn’t have any counter party risk, has been deemed a store of value and wealth for centuries and is therefore the ultimate currency in our view.