Gold News

Who Needs Alan Greenspan When You've Got Gold?

China is buying gold, says the celebrity Maestro. Or rather, oh no it isn't...
 
ACCORDING to the internet, Alan Greenspan, former chairman of the Federal Reserve, thinks he know "why China is buying gold," writes Adrian Ash at BullionVault. 
 
Cue lots of chatter and praise on the bug-o-sphere. The Maestro speaks! And he says China is buying gold!
 
For all I know, that's true. We're no more privy to Beijing's thinking than anyone else outside the politburo. But Greenspan didn't even know what his own central bank was doing to the US economy when he ran it. So what is clearly false is the idea that anyone should listen to anything Greenspan says about the People's Bank, or anything else, today.
 
In October 2008, as the credit bubble he'd done so much to inflate tried to go bang, Greenspan confessed that...maybe... he had been "wrong" on the economy.
 
Come 2013...eight years after he left the Fed, and 7 years after the US housing bubble began to burst...Greenspan admitted that he "never saw [the crash] coming"
 
But no problem. Greenspan's celebrity as an economic sage...the "ultimate insider" with foresight second only to God...has rolled on regardless. It started in 1950, according to his damning biographer, Fred Sheehan, when the young pretender affected to start smoking a pipe. Now in 2014, Greenspan will even star at this year's New Orleans Investment Conference. Yes, really. The die-hard event for die-hard gold bugs since 1974, it was virtually empty when I attended at the turn of the century. But back then, of course, the Maestro was in charge of the Fed.
 
And amid central-bank gold sales and tech stock bubbles worldwide, " who need[ed] gold when we've got Alan Greenspan?" as the New York Times put it so neatly.
 
Turns out we all did. Yet lots of gold bloggers suddenly think they need Greenspan too, thanks to his new piece of nonsense.
 
The man who brought you the lowest interest rates in history, the "Greenspan put" to support world equities, and the repeal of Washington's Glass-Steagal Act...letting investment and commercial banks play each other's markets, imperilling Joe Public's savings when the crash came...Greenspan has now penned what might pass for a "think piece" about China's gold reserves for Foreign Affairs magazine. But that would have taken some thought.
 
Instead, "If China were to convert a relatively modest part of its $4 trillion foreign exchange reserves into gold," says Greenspan...ever the two-handed economist..."the country's currency could take on unexpected strength in today's international financial system."
 
If? Could? Empty of meaning, that opening forces Foreign Affairs' editors to slap a no-nonsense strapline on Greenspan's short ramble:
"Why China is buying gold."
Which Greenspan doesn't say it is. Not that he says it isn't. Hey, this is the Maestro. You've got to read the runes, right...?
"It would be a gamble of course," the grand old man goes on, "for China to use part of its reserves to buy enough gold bullion to displace the United States from its position as the world's largest holder of monetary gold. But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest."
Nothing ventured and nothing gained by this Greenspan-ese. But again, it must surely mean something. And given the rapture of $5,000 gold which would-be analysts have forecast since the People's Bank last bothered to update the world on its gold holdings in 2009, "China wants to overtake US in gold reserves" is the summary headline slapped on one write-up of Greenspan's wittering today, linked and tweeted the world over...including here.
 
See how it works? Job done for the arch-celebrity. A few hundred words, not even guessing at what's going on, and Greenspan is front and center once more. Not least for his most pliant...and absurd...audience: Gold promoters warning you against the evils of Western central banking.
 
Greenspan long has form here, of course. Back in 1966...when he worried Ayn Rand as a "social climber" like a dog worries sheep...he famously wrote a paper about " Gold and Economic Freedom". US reserves were depleted, and the post-WWII Bretton Woods treaty was fit to collapse. News-worthy stuff then, the essay has proved invaluable for the Janus Greenspan ever since. Because on the one hand he gets to point it out every time he's door-stepped about the Dollar's rampant devaluation. But on the other, he also saddled up his one-trick pony for monetary policy, more than two decades before he got his hands on the levers and dials at the Eccles Building:
"As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise."
Got it? Famously obtuse (because he wasn't in truth saying anything), the Maestro was never so clear...nor, we think, right. In the end, prices will rise thanks to the post-Alan insanity trailing in his wake at the Fed.
 
But even here, on the subject of prices, today's Greenspan is useless, claiming that "if" Beijing moved to buy gold, it would "certainly" boost gold prices "for the rest of the world...but only during the period of accumulation."
 
Gold, on the contrary, has sunk this week back towards 2013's crash lows. Ergo, if Greenspan's "thinking" can be trusted at all, Beijing ain't buying gold at all today.
 
And to think self-declared gold bugs are cheering! Still, I bet he could at least raise a mortgage. Not that he needs to. What a legacy to leave his disciples...

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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