Greenspan’s Warning About Gold Echoes After Fed Speaks
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Only days after the former Federal Reserve chairman Alan Greenspan warned that “fiat money has no place to go but gold,” the dollar has collapsed to a new low. The remarks of the former Fed Chairman were made a week ago at the Council on Foreign Relations, causing a flurry of excitement on the Internet. The dollar shed value, dropping to a record low yesterday, within minutes of the Federal Reserve declaring that it was, as characterized by Reuters, “ready to provide more support for the economy and expressing concerns about low inflation.”
It’s amazing to us that this doesn’t seem to be raising an alarm in either the halls of Congress, the administration, or the newsrooms. Kitco News, which is published by the gold dealer, reported the reaction this way: “Around 3:30 p.m. EDT (1930 GMT), spot gold was up $6.90 to $1,285.40 an ounce, compared to $1,272 about 10 minutes ahead of the Fed statement. December gold on the Comex division of the New York Mercantile Exchange was $6.90 higher at $1,287.70, compared to $1,273.30 ahead of time. In after-hours trading following the Fed statement, the December futures went on to a high of $1,290.40; that is a fresh record for a most-active Comex contract.”
Regular readers of these columns know that we prefer not to speak of the “price of gold” but rather of the “value of the dollar.” Kitco’s reporter quoted the managing director of Trend/Max Futures, Zachary Oxman, as saying the Fed “all but confirmed” quantitative easing and predicting that the value of the dollar would fall below a 1,300th of an ounce of gold by the end of this week and to between a 1,400th of an ounce and a 1,500th of an ounce of gold by the end of the year. That would mean that the dollar would have dropped from a 271st of an ounce on January 1, 2001.
Is Matt Drudge the only editor of a general interest publication who understands the front-page nature of this collapse? This is not about a sudden failure of the mines. Or a sudden manufacturing need. This is about a failure of the Congress to carry out its responsibilities under the Constitution. To suggest that the trend is reversible with an adjustment of interest rates does not address the issue we see. The issue is that there is neither a law or a policy being enforced or followed that references gold or silver as a matter of principle in the way that the Founders of the country understood — and, in the founding Congresses, wrote into law.
We have one recent Fed chairman, Mr. Greenspan, who seems to understand the importance of gold — it, he said at the Council on Foreign Relations, “is the canary in the coal mine. It signals problems with respect to currency markets.” Now we have another Fed chairman who, in Mr. Bernanke, is prepared to testify before Congress that he doesn’t “fully understand the movements in the gold price,” though he does acknowledge that “there’s a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.”
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When we wrote about that testimony in the spring, we called Mr. Bernanke’s answer a classic. “One doesn’t go into gold because, as the be-puzzled Mr. Bernanke seems to suggest, one lacks confidence in, say, ‘other investments,’ soybeans, say, or iron ore,” we suggested. “One goes into gold because one lacks confidence in the fiat currencies.” That’s the point Mr. Greenspan spoke of at the Council. The Congressman who put Mr. Bernanke on the spot then was Paul Ryan of Wisconsin. We suggested at the time that when they next get the chairman back on the Hill they press him about the Founders and their understanding of money, their fear of paper money, their warnings to future generations, and the laws and definitions of the dollar that they put into the national currency. The Founders on the dollar are worth an entire hearing, and by our lights it can’t come too soon.