Allow me to set partisan politics aside for a moment.
The time has come to honor the man who, more than any other, set into motion the policies that pulled a debt-ridden Canadian government balance sheet out of the red and set us on the road to reducing the national debt.
His policies were responsible for the sustained economic growth we’ve enjoyed and the historically low levels of Canadian unemployment for much of these past 12 years.
He has helped Canadians make Canada prosperous.
As he closes the door to his office for the last time this week, let us all stop and offer a tip ‘o the hat and raise a appreciative glass ,,,,
 |
To US Federal Reserve Chairman, Alan Greenspan.
Sir – may you enjoy a long and healthy retirement! |
Long live trickle down economics and down loading
of government expense. Greenspan!!! for Saint of
weekly government econmonic short-sell press
release.
“Allow me to set partisan politics aside for a moment.”
I’m afraid your typical narrow minded, firmly religious Leftist would not share your concept of “Setting aside partisan politics.” You see, the USA and all capitalism is the source of ALL the worlds probelms.
Ciao. Gotta run, taking my Volvo to Yoga class after I stop at Starbucks first. Dang this Blackberry, gotta pick up a new one. Crap! I pull down only $450 thou a year working at the U. Can I afford it?
See you in Davos!
/Noam
But isn’t Paul Martin to credit for the fact that 85% of our exports go to the USA? Canadians should be grateful for Mr. Martin and the Liberals for allowing us to sell 85% of our exports to the evil George Bush and his imperialistic empire!
Thanks to Paul Martin and Jean Chretien, Canada missed out on the biggest period of economic growth the west had ever seen during the 90’s thanks mainly to high taxes. Just think, the average American has approximately 30-35% more money at the end of the day than his Canadian counterpart. If your household brought in $60K per year, where you could spend that extra +/- $18K.
Didn’t PM say during the last election that Canadians didn’t want tax cuts? Didn’t he imply we enjoyed being gouged because the tax money went to protect da Canadienne value?
You are bang on, Eskimo. But then again, doncha know that the evil US does this at the expense of all those poor, third world, dictator’s peoples? Nevermind it could be the dictators themselves that are responsible for their people’s misery. After all, dictators are the pride of the left.
Ronald Reagan would be more fitting.
Let’s not forget some of the influences that perhaps guided Mr. Greenspan. Namely Ayn Rand (a long time associate)and a philosphy that dared to suggest that man was best able to achieve great things when left to his own device.
What the weasel really deserves is a boot in the ass and a warning not to let the door knob hit him on his way out
Are Eskimos’ figures adjusted for purchasing parity. I’m pretty sure the Average American has more like 5% more money, and the median has about the same.
Oh…. Allan Greenspan.
Thank goodness.
As I was reading through the first part, I thought perhaps someone had spiked your cola and you were about to credit PMPM.
Whew! What a relief.
I travel regularly to the U.S. to work (mostly in Washington state, but also sometime southern California and Colorado). I want to assure Central Content Publisher that the average American has indeed about one-third again the wealth of the average Cashmuck. This is generally rflected in the houses they live in, the cars they drive, the computers they work and play with, and the vacations they can afford. They also clearly have a greater selection of careers.
When in California a few years back, I went through the careers section of an L.A. paper and was shocked to find that if I were to have moved to Californy, I would have seen a 50% increase in salary.
Greenspan created the boom that ended in the epoch-marking high-tech bust. Central banks create booms and busts; they are not naturally occuring events. He warned of “Irrational Exuberance” as early as 1996, but never took the punch bowl away. WHAM!
The Federal reserve’s alleged role is inflation control but yet since inception in 1913 the dollar has lost at least 95% of its purchasing power. How’s that for inflation fighting!
We would be better off without Central Banks, period. No true conservative/libertarian would support having a Central Bank. It’s called Central Planning. It’s mere manipulation and financial mischief.
BUT, he had a good gig and did a fine job acting the seer, pretending to be able to control the economy. But if you DO believe in Central Banks he was a good choice.
And didn’t he look a lot like Woody Allen?
Yes – the average American has a standard of living about 25% above that of the average Canadian.
Just another fact seldom mentioned in The Great White Trudeaupia.
Do you see him wrapped around a teenage girl?
No?
Then he doesn’t look like Woody Allen.
Greenspan chairs a private foreign-owned fractional reserve bank that the US Government borrows from exclusively. Although our economies are linked by trade the fed has little effect on Canada’s full fait monetary system with the exception of interest rate conformity…because of trade. I think if you really dig a bit, you will find it was the cautions of the IMF and our foreign bond holders that put the fear of god into spend and borrow liberalism in 1994.
Now that the value of the Canadian dollar is approaching $0.90, do you think our economy will slow down? Then of course, all the blame will fall on Stephen Harper for not magically turning around our low productivity right?
An interesting comparison listing of major Canadian economic indicators. Paul Martin liked to boast about the amazing Canadian economy, but it’s as if he’s never looked at how much room we have to improve.
http://stats.oecd.org/wbos/viewhtml.aspx?QueryName=6&QueryType=View&Lang=en
Norway is an interesting country to watch in particular. Andrew Cohen’s While Canada Slept suggested that Norway is taking Canada’s place in the world. It pretty much kicks our butt in everything. That’s who we should compare with more, not the US.
“Do you see him wrapped around a teenage girl?”
ROFLMAO
Hi Kate
I’ve only been reading your site for a few weeks now and up until your latest article on Greenspan I found all your writings to be insightful and correct. Unfortunately you are dead wrong about Greenspan. When future generation write about this era, Greenspan will go down in history as the man who destroyed the American dream and he will find his place in history along side John Law as one of histories worst shyster central bankers.
Please understand I come to this opinion about Greenspan from a libertarian point of view and many years of research of economic and monetary theory and history.
Greenspan destroyed all the good work that Fed chairman Paul Volker did before him and Greenspan proved once again that monetary financial systems based on fiat currency will always fall into a hyperinflationary collapse because of the incompetence of central bankers.
Last Nov the Fed announced that they will no longer announce M3 money supply levels. When the fed announced this gold was $470.00, today 2 1/2 months later gold is up $100.00 to $570.00US.
Why will the fed no longer announce M3 money supply figures?
The debt bubble in the US that Greenspan created is ready to burst into a massive deflationary depression that will make the 1930’s deflationary depression look like a picnic and the only way the fed has to counter this bursting debt bubble is to hyperinflate the money supply. This massive increase in the US money supply will set the stage for hyperinflation over the next 5 – 8 years then we fall into a deflationary collapse that will last decades. This is the main reason the Fed will no longer announce the money supply numbers to hide the massive money creation they are about to impark on. The gold market understands this and this is the major reason for gold resent rise. History will understand that Greenspan and President Clinton holds most of the responsibility for the debt bubble that the US and the rest of the world is in today. Sorry Kate, Greenspan is no hero!
Got Gold?
Hi Kate
I’ve only been reading your site for a few weeks now and up until your latest article on Greenspan I found all your writings to be insightful and correct. Unfortunately you are dead wrong about Greenspan. When future generation write about this era, Greenspan will go down in history as the man who destroyed the American dream and he will find his place in history along side John Law as one of histories worst shyster central bankers.
Please understand I come to this opinion about Greenspan from a libertarian point of view and many years of research of economic and monetary theory and history.
Greenspan destroyed all the good work that Fed chairman Paul Volker did before him and Greenspan proved once again that monetary financial systems based on fiat currency will always fall into a hyperinflationary collapse because of the incompetence of central bankers.
Last Nov the Fed announced that they will no longer announce M3 money supply levels. When the fed announced this gold was $470.00, today 2 1/2 months later gold is up $100.00 to $570.00US.
Why will the fed no longer announce M3 money supply figures?
The debt bubble in the US that Greenspan created is ready to burst into a massive deflationary depression that will make the 1930’s deflationary depression look like a picnic and the only way the fed has to counter this bursting debt bubble is to hyperinflate the money supply. This massive increase in the US money supply will set the stage for hyperinflation over the next 5 – 8 years then we fall into a deflationary collapse that will last decades. This is the main reason the Fed will no longer announce the money supply numbers to hide the massive money creation they are about to impark on. The gold market understands this and this is the major reason for gold resent rise. History will understand that Greenspan and President Clinton holds most of the responsibility for the debt bubble that the US and the rest of the world is in today. Sorry Kate, Greenspan is no hero!
Got Gold?
THE TRUE GREENSPAN LEGACY
by Dr. Kurt Richeb�cher
Reading so many ecstatic laudations on Fed Chairman Alan Greenspan, �the greatest of all central bankers,� two other names and occurrences came to mind. The one was John Law and his tremendous wealth creation through rigorously inflating the share prices of the Mississippi Company. And the other was former Fed chief Paul Volcker and his recent article in the Washington Post titled �An Economy On Thin Ice,� wherein he expressed his desperation about the economic and financial development in the United States. Though he never mentioned his successor�s name, it was all about him and his policies.
Just a few samples from Paul Volcker�s assessment:
Under the placid surface, there are disturbing trends: huge imbalances, disequilibria, risks – call them what you will. Altogether, the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. What really concerns me is that there seems to be so little willingness or capacity to do much about it…
I don�t know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change.
What, after all, are the great merits of Mr. Greenspan, according to the conventional laudations? They are, actually, seen in two different fields: first, in the striking successes of his actual policies; and second, in notable contributions to both the theory and practice of monetary policy.
His policy successes seem, indeed, all too conspicuous: lower inflation rates than expected despite strong GDP growth; high gains in job growth; and low rates of unemployment. And yet only two mild recessions, of which the second one, in 2001, was so mild that it disappears when quarterly data are aggregated to a year.
His extraordinary successes are generally attributed to radically new practices in monetary policy. The Financial Times ran a full-page article under the big headline �Greenspan�s Record: An Activist Unafraid to Depart From the Rule.�
To quote the paper presented by Alan S. Blinder and Ricardo Reis of Princeton University at the Federal Reserve Bank of Kansas City symposium on this point: �Federal Reserve policy under his chairmanship has been characterized by the exercise of pure, period-by-period discretion, with minimal strategic constraints of any kind, maximal tactical flexibility at all times and not much in the way of explanations.�
It is true Maestro Greenspan disregarded any established rules in central banking. To escape the consequences of the equity bubble that he created in the late 1990s, he generated a whole variety of new bubbles that radically changed the U.S. economy�s growth pattern. What he achieved was the greatest inflation in asset prices in history, which became the economy�s new engine of growth. What about its inevitable aftermath?
If Alan Greenspan jettisoned all inherited rules, he nevertheless chose one predominant rule, actually, his only rule: a strictly asymmetric policy pattern. Every central bank has two policy levers at its disposal. The big lever is changing bank reserves, the banking system�s liquidity base. The little lever consists in altering its short-term interest rate.
Whenever monetary easing appeared opportune, Mr. Greenspan has acted rigorously with both levers. When it seemed to require some tightening, he always acted hesitantly and only with his little interest lever. He has never seriously tightened bank reserves. Though hard to believe, he has actually been easing the Fed�s reserve stance since last May.
This is most probably occurring because the continuous rampant credit expansion is increasing the banking system�s reserve requirements. Nevertheless, to keep the federal funds rate at its targeted level of 4%, the Fed has to provide the higher reserves.
What this means should be clear: The Fed is anxious to avoid any true monetary tightening in the apparent hope that the �measured� rate hikes will softly do the job over time, causing less pain. Most probably, though, this implies more rate hikes and more pain – later.
It was, as a matter of fact, precisely the same kind of experience that induced Volcker to abandon such strict funds rate targeting in October 1979 in favor of targeting bank reserves. It marked the fundamental divide in U.S. monetary policy from prior persistent monetary looseness and a strong inflation bias to genuine credit tightening, ushering in a secular decline in the inflation rates.
The Greenspan Fed has returned to dubious interest targeting, while explicitly restricting itself to �measured� – in other words, very slow – rate hikes. The true monetary ease shows in the continuance of the relentless credit deluge.
When Alan Greenspan took over as Fed chairman in 1987, outstanding U.S. debts totaled $10.57 trillion. According to the latest available data, they stand at $37.35 trillion. This is definitely Mr. Greenspan�s most conspicuous achievement.
To escape the aftermath of the equity bubble, the Fed created the housing and bond bubbles in 2001 and the following years. It is time, we think, to ponder the aftermath of these two asset and credit bubbles. The inverting yield curve is primarily threatening the huge existing carry-trade bubble in bonds. But the big housing bubble and the smaller car bubble too have plainly peaked. Rising interest rates and poor income growth are relentlessly taking their toll.
It should be immediately clear that the potential economic and financial aftermath of a bust of these bubbles will be many times worse than the potential aftermath of the earlier equity bubble. Spending and debt excesses have multiplied over the past four to five years to an extent that threatens the stability of the whole U.S. financial system.
Lately, Mr. Greenspan�s public speeches have insinuated that the high asset prices in the United States in recent years may, ironically, be due to the extraordinary success of his policies, by leading investors to demand lower risk premiums. Eventually, however, this reverses and asset prices fall reflecting �the all-too-evident alternation and infectious bouts of human euphoria and distress and the instability they engender.�
Yet he emphasized that it is �simply not realistic� to expect the Fed to identify and safely deflate asset bubbles. The right response in his view is for all policymakers to keep markets as flexible and unregulated as possible. Flexible markets, he said, helped absorb recent shocks, such as stock-bubble collapse and the Sept. 11, 2001, terrorist attack.
We are not sure what shocked us more, this senseless, arrogant remark or the complete silence on the part of American economists. Exuberance, just by itself, is unable to inflate asset price levels. The indispensable primary condition is always credit excess, and Mr. Greenspan delivered that in unprecedented profligacy. By the nature of things, loose money and credit excess lead, and exuberance follows.
America�s reported economic recovery since 2001 has been its weakest by far in the whole postwar period. For the working population, there never was a recovery. They speak euphemistically of a shortfall of employment and income growth. It is better described as a fiasco for both.
Two acute dangers presently lurk in the U.S. economy and its financial system. One is the inverting yield curve threatening to pull the rug out from under the huge carry-trade bubble in bonds, and thereby from under the housing bubble. The other is the slump in consumer spending. Consumer borrowing is slowing, while employment and labor income growth are weakening again.
It seems that the carry-trade community is betting on prompt rate cuts by the Fed if something goes wrong in the economy or the financial system. We suspect that the Fed, grossly underestimating the enormous vulnerabilities in both sectors, will stick to its rate hikes. The interest �conundrum� is pretty much the only thing holding up this house of cards.
�Super-liquid markets� has become the common bullish catchphrase. It should be realized, however, that the existing liquidity deluge in the United States and some other countries has its sole source in the monstrous asset bubbles providing the collateral for virtually limitless borrowing. It needs a sharp distinction between earned liquidity from saving and borrowed liquidity accrued from asset bubbles. The latter kind of liquidity can vanish overnight.
The sharp surge in inflation rates is forcing the Fed to continual rate hikes. Doing so, it takes enormous risks with the existing bubbles. Bluntly put, it has lost control.
Regards,
Dr. Kurt Richeb�cher
for The Daily Reckoning
Editor�s Note: The Fed has remained irrationally confident in the U.S economy – because they can�t afford from American consumers to see the truth – that the basis for this confidence is a shamelessly fraudulent farce of trumped-up statistics. Fortunately, Dr. Richeb�cher isn’t afraid to tell the truth. For all the facts, see his new special report:
Canadians continue to live off of the largess of the American economy. If it werent for the American system we would be a satellite country with a standard of living more similar to Poland.
God created Canada so rich in resources he had to put Canadians there just to make it even.
http://www.safehaven.com/article-4108.htm
http://www.safehaven.com/article-4538.htm
http://www.gillespieresearch.com/cgi-bin/bgn/article/id=712
http://www.gold-eagle.com/editorials_05/chapmand112205.html
Denis,
Your contradictory opinion clearly shows you to be a freedom-hater and a thinly veiled communist. I suggest you take your “facts” elsewhere. They’ll do you no good here.
“Your contradictory opinion clearly shows you to be a freedom-hater and a thinly veiled communist. I suggest you take your “facts” elsewhere. They’ll do you no good here.”
Both central planing or cental banking are a type of state or government control.
The fact that you cannot understanf this just shows me that you have no idea what freedom is.
If your looking for a commie may I suggest you look in the mirror
Denis, how dare you accuse me of not knowing what freedom is? If Alan Greenspan was bad for America then GW Bush would not have let him keep his job for so long.
Now your probably going to tell me that The US President needs to learn a thing or two about freedom too? Gosh, your so naive.
As a Canadian Conservative, I realize that everything George Bush has done has been good and clean and right and freedom loving. This includes keeping on Greespan as that guys who does stuff with money and stuff. Why can’t you neo-commies posing as Libertarians, which I can only assume is an offshoot of Liberal, understand this?
LOL
Denis, your spelling is nauseating.
Hey gay guy
I have no problem with Bush except he never fired Greenspan. My problem is with Greenspan. He and Clinton are responsible for creating the largest debt bubble the world has ever seen. Greenspan has written a death warrant for freedom in America when his debt bubble burst. The only thing that the new Fed chairman Ben Bernanke can do now is hyperinflate the US money supply to ward off a deflationary depression when this debt bubble burst. All of this hyperinflating of the money supply will do is buy the US a few more years until the inflation rate goes to Germany in the 1920’s level. BTW resent housing data in the US are showing signs that the US debt bubble is bursting so expected allot more money creation in the near future. Since the US will no longer give out M3 data the only way you will know that the US in ramming up the money supply is by watching the price of Gold.
The fact that you don’t understand that true freedom is impossible in a fiat monetary system tells me you know nothing about freedom. People like you will never understand how big this debt problem in the US is until the US and Canadian dollar is worthless or the entire US and world banking system fail. The sad thing is one of these 2 events is only a few short years away.
Got Gold!
Move to Haiti, before things fall apart! And buy ‘Denis’!
In Chairman Greenspans tenure he presided over the greatest economic expansion in history. Of the 18 years he ran the Fed only two minor recessions occured.
It’s true the Fed has only the ability to manipulate monetary policy. With that tool and moral suasion he was able to stay the hell out of the way of economic expansion.
With regard to no longer reporting M3 it is no longer an accurate gauge. The Philips curve among others have proven far more accurate when setting rates.
With M3 as the gauge the Fed has always raised rates too many times or has begun to raise or lower rates to late. Resulting in unecessary pain.
Productivity has increased in the US for almost two decades now at a average anual rate of 5%.
Further it was thought that full employment in the US was about 6% after that inflation would begin. Well he didn’t raise rates when employment got there instead let the market look after it and what do you know unemployment is now thought to be high at 6%.
In 2000 when the tech bubble burst the move to stave off deflation and ultimatley depression was to take interest rates so low that the Fed actually paid banks to take money. The spin off of this was to ignite a housing boom. I can’t say off the top of my head weather it is the biggest in history but close. Homeowners realized capital gains from increased value of their homes that has left more wealth in the hands of joe average than ever before.
With the Fed managing rates prudently it has allowed unprecedented expansion in the US. A beneficary of this is are a few little known companies such as Microsoft, Apple, Intel and this list goes on to some 100 companies created in the last 20 – 25 years.
That expansion was so vast that the US had to throw off demand to the rest of the world. The most significant results being the direct or indirect creation of some 100 million jobs in India and some 500 million jobs in China.
I’m thinking Alan Greenspan sleeps pretty good at night.
If you want a good Idea of currency markets and bond market both of which Chairman Greenspan is the undisputed master. Go too:
http://www.pimco.com/TopNav/Home/Default.htm
Bill Gross and Paul McCulley run the largest bond fund or any fund for that matter in the world.
Although biased in as much as there tilt is to get policy bent favourable towards their own ends they nevertheless give excellent explainations to the world of the Federal Reserve.
Chairman Greenspan is a Great and Honorable man.
His legacy is one the likes of Paul Martin couldn’t even begin to comprehend never mind ever manage to emulate.
Thank You Chairman Greenspan.
I just went back and read the article you linked to on Uncle Alan.
And all I have to say is they said it better.
your an absolute joke … greenspan making canada prosperous … yikes woman. maybe move stateside and enjoy the ‘bush’ government, he has done so much for humanity and the biggest threat to world peace.
perhaps spend your time reflecting on canadians who have made this country prosperous.
“I’m thinking Alan Greenspan sleeps pretty good at night.”
Your wrong about that. Greenspan know he screwed up. Please read below a article Greespan wrote back in 1966 when Greenspan still believed in real money “GOLD”
In 2001 Greenspan was asked if he’d today change anything about his 1966 article called Gold and Economic Freedom. His reply was “I wouldn’t change a word”
Gold and Economic Freedom
by Alan Greenspan
[written in 1966]
This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand’s Capitalism: The Unknown Ideal
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). 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. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.
ya I know about the 1966 article I don’t have to read it again.
What’s your point?
I don’t mean to dominate this discussion but I have one more thing to post then I’m done. Any Rand wrote Atlas Shrugged in 1957, in the middle of this 1660 page novel there is a small part about money and freedom that I think is absolutely incredible. On many libertarian site that believe in freedom they call this piece from Any Rand “Hymn to Money”
If you really believe in freedom and a real free market please read Ayn Rand’s words below.
Denis
Hymn to Money
Ayn Rand
Must Give Value for Value
So you think that money is the root of all evil. Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced, and there are men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must do so by trade, and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by men who produce. Is this what you consider evil?
When you accept money in payment for your effort, you do so on the conviction that you will be able to exchange it for the products of the effort of others. It is neither the moochers nor the looters who give value to money. Neither an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into bread you will need to survive tomorrow. Those pieces of paper, which should really be gold, are a token of honor – your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on the moral principle that is the root of money. Is this what you consider evil?
Wealth Is the Product of Man’s Capacity to Think
Have you ever looked for the root of production? Take a look at an electric motor and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover how to do it for the first time. Try to grow food by means of nothing but physical motions – and you’ll learn that it is man’s mind that is the root of all the goods produced and of all the wealth that has ever existed on earth.
But you say that money is made by the strong at the expense of the weak. What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man’s capacity to think. Does it follow, then, that money made by the inventor of the motor is at the expense of others who invented nothing? Is money made by the intelligent at the expense of the fools? Or by the able, at the expense of the lazy? Money is made – before it can be looted or mooched – by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can’t consume more than he has produced.
Every Man is the Owner of His Mind and His Efforts
To trade by means of money is the code of men of good will. Money rests on the axiom that every man is the owner of his mind and his efforts. Money allows no power to prescribe the value of your effort, except by the voluntary choice of the man who is willing to exchange the fruits of his effort with you. Money permits you to obtain for your goods and labor what they are worth to men who buy them, but no more. Money permits no deals except those to mutual benefit by the free judgment of traders. Money demands of you the recognition that men must work for their own benefit, not their injury; for their gain, not their loss – the recognition that they are not beasts of burden born to carry the weight of your misery – that you must offer them value, not wounds – that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men’s stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they have to offer, but the best money can find. And when men live by trade – with reason, not force, as their final arbiter – it is the best product that wins, and the best performance. It is the man of best judgment and highest ability that wins, and his reward is commensurate with his productivity. This is the code of coexistence whose tool and symbol is money. Is this what you consider evil?
The Scourge of Men Who Attempt to Reverse the Law of Causality
But money is only a tool. It will take you wherever you wish, but will not replace you as the driver. It will give you the means for the satisfaction of your desires, but will not provide you with desires. Money is the scourge of men who attempt to reverse the law of causality – men who seek to replace the mind by seizing the products of the mind.
Money will not purchase happiness for the man who has no concept of what he wants. Money will not give him a code of values if he’s evaded the knowledge of what to value. It will not provide him with a purpose if he’s evaded the choice of what to seek. Money will not buy intelligence for the fool, admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, thus trying to replace judgment with money, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and frauds come flocking to him, drawn by a law which he has not discovered, that no man may be smaller than his money. Is this the reason why you call it evil?
Money Will Not Serve the Mind That Cannot Match It
Only the man who does not need it, is fit to inherit wealth – the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and cry that money has corrupted him. Has it? Or has he corrupted money? Do not envy a worthless heir: his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among your cronies: loading the world with fifty parasites instead of one would not bring back the dead virtue embodied by the fortune. Money is a living power that dies without its root. Money will not serve the mind that cannot match it. Is this the reason why you call it evil?
Money As a Means of Survival
Money is your means of survival. The verdict you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men’s vices or their stupidity? By catering to fools, in the hope of getting more than you deserve? By lowering your standards? By doing work you despise, for others you scorn? If so, then your money will not give you a moment’s joy or a penny’s worth of happiness. Then all the things you buy will become, not a tribute to you but a reproach; not an achievement but a reminder of shame. Then you’ll scream that money is evil. Evil, because it will not pander to your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money?
Money Is Always an Effect with You As the Cause
Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and will not redeem your vices. Money will not give you the unearned, whether in matter or in spirit. Is this the root of your hatred of money?
Or do you mean that it’s the love of money that’s the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the product of the best powers within you, and your pass-key to trade your effort for the efforts of the very best among men. It’s the person who would sell his soul for a nickel, who is the loudest in proclaiming his hatred of money – and he has good reason to hate it, too. The lovers of money are willing to work for it. They know that they deserve it. Let me give you this rule of thumb: the man who damns money has obtained it dishonorably; the man who respects it has earned it.
The Only Substitute for Gold Money is the Muzzle of the Gun
Run for your life from anyone who tells you that money is evil. That sentence is the leper’s bell of an approaching looter. So long as men live together on earth and need means to deal with one another – their only substitute, if they abandon money, is the muzzle of the gun.
When Coercion Is the Standard, Murderers Win over Pickpockets
But money demands of you the highest virtue, if you wish to make it or keep it. Men who have no courage, pride, or self-esteem, men who have no moral sense of their right to their money, and are not willing to defend it as they would defend their life, men who apologize for being rich – will not remain rich for long. They are the natural bait for swarms of looters that stay under the rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of his guilt, and of his life – just as he deserves.
Then you see the rise of men of a double standard – men who live by force yet count on those who live by trade to create value to back their looted money – hitch-hikers of virtue. In a moral society these are criminals, and statues are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law – men who use force to seize the wealth of disarmed victims – then money becomes its creator’s avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters who get it from them the way they’ve got it from you. Then the race gets under way, and the prize goes, not to the ablest at production, but to the most ruthless at brutality. When coercion is the standard, the murderer wins over the pickpocket. And then society vanishes in a spread of ruin and slaughter.
Money Is the Barometer of Society’s Virtue
Do you want to know whether that day is coming? Watch money. Money is the barometer of society’s virtue. When you see that trading is done not by consent but by compulsion – when you see that in order to produce you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal not in goods but in favors – when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – then you will know that your society is doomed. Gold is so noble a medium that it does not compete with guns and does not make terms with brutality. It will not permit a country to survive as half property, half loot.
Paper Money Is Mortgage on Wealth That Doesn’t Exist
Whenever destroyers appear among men, they start by destroying gold money, for it is man’s protection, and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold is an objective value, an equivalent of wealth produced. Paper money is mortgage on wealth that does not exist, backed by guns aimed at those who are expected to produce. Paper money is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: “account overdrawn”.
When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and to become fodder for the immoral. Do not expect them to produce when production is punished and looting rewarded. Do not ask who is destroying the world. You are.
Where Wealth Is Obtained by Conquest There Is Little to Conquer
You stand in the midst of the greatest achievements of the greatest productive civilization and you wonder why it’s crumbling around you while you are damning its life-blood – money. Throughout man’s history money was always seized by looters of one brand or another, whose names changed, but whose methods remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves – slaves who repeated motions discovered long before by someone’s mind and left unimproved for centuries. So long as production is ruled by force and wealth is obtained by conquest, there is little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised producers as slaves, as traders, as shopkeepers – as industrialists.
The Country of Money
To the glory of mankind there was, for the first and only time in history, a country of money – and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time man’s mind and money were set free, and there were no fortunes-by-conquest but only fortunes-by-work, and instead of swordsmen and slaves there appeared the real maker of wealth, the greatest worker, the highest type of human being – the self-made man – the American industrialist.
The Essence of Morality
If you ask me to name the proudest distinction of Americans, I would choose – because it contains all the others – the fact that they were the people who created the phrase “to make money”. No other language or nation has ever used this combination of words before; men have always thought of wealth as a static quantity – to be seized, begged, inherited, shared, looted, or obtained as a favor. Americans were the first to understand that wealth must be created. The phrase “to make money” holds the essence of morality.
Yet these were words for which the Americans were denounced by the rotten cultures of the looters’ continents. Now the looters’ credo has brought you to regard your proudest achievements as a hallmark of shame, your prosperity as guilt, your greatest men, the industrialists, as blackguards, and your magnificent factories as the product and property of muscular labor, the labor of whip-driven slaves, no better than the pyramids of Egypt. The rotter who simpers that he sees no difference between the power of gold and the power of the whip, ought to learn the difference on his own hide – as I think he will.
Blood, Whips, and Guns – or Gold
Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, men become the tools of men. Blood, whips, and guns – or gold. Take your choice – there is no other – and your time is running out.
Corruption of the Meaning of “Making Money”
Ayn Rand did not live to see the appalling corruption of the meaning of the phrase “making money” to include parasitic activities such as foreign exchange and bond speculation, trading options on futures, interest-rate swaps, repos, knock-in calls, knock-out puts, and so on, ad libitum. As long as gold was an active part of the monetary system, there was little opportunity for looters to fleece the public using exotic trading vehicles making up the $100 trillion derivative monster. But soon after gold was out of the way, white-collar looters could get the upper hand and lay the foundations of the Tower of Babel of derivatives. Watch for the day when it crashes and buries the production facilities of society underneath.
“ya I know about the 1966 article I don’t have to read it again.
What’s your point?”
If you don’t know, sorry I can’t help you.
So far all you managed to do is spout gibberish.
Your 100 Trillion # is wrong but hey what’s a trillion here or there. As for it being a monster it’s for the most part offset.
The rest of your statement simply means you have no idea what your talking about.
You can’t help me because you haven’t a clue of what you are talking about.
“So far all you managed to do is spout gibberish.
Your 100 Trillion # is wrong but hey what’s a trillion here or there. As for it being a monster it’s for the most part offset.
The rest of your statement simply means you have no idea what your talking about.”
You don’t know anything about the “over the counter derivative market”, do you?
Educate yourself before you make a bigger fool out of yourself.
http://www.bis.org/statistics/derstats.htm
http://www.bis.org/publ/qtrpdf/r_qa0512.pdf#page=103
Denis
“As for it being a monster it’s for the most part offset.”
Jeff your “offset” is only as good as the solvency of the counter party. The over the counter derivative market did not reduce risk, all it did is remove risk from one financial entity to systematic risk. The deriviative market it self is what will fail. The over the counter derivative market will continue to function until it fails. Then the whole structure collapse! Just like the levies in New Orleans. They did their job until a big enough hurricane came along and over powered them. The over the counter derivative market is the same, sooner or later some economic, or ge-political event will collapse the financial levies holding up that market. At that point all the derivative offsets in world will not make one lick of difference.
Denis
Anyone that knows anything about financial markets would know that the Feds Monetary Policy has very little to do with Canda. Kate you should really pull up stakes in Canada If your so in love with everything American. You seem to forget that in the past 6 years the Canadian Government debt load has decreased where the as the US ddebt has hearly doubled . The same thing happened under your Messiah Ronald Reagan. The S’s Financial health has been compared to Argentina. So you may want to take these facts into account when your harping on about how bad it is in your native land.
I find it hard to believe you grew up in Canada. Your Arrogance is only matched by your ignorance.
“Allow me to set partisan politics aside for a moment.”
Followed by a veiled dig at the Liberals of course.
Poor jim
Someone must have pissed in his corn flakes this morning
I thought you were going to say Preston Manning. BTW he would make a very good choice for CDN ambassador to the Great Satan
I think many of you are missing the point (Greenspan was good/he was bad). The real issue is to challenge the wideheld belief in Canada that the slaying deficit of the Federal government was due to positive action on the part Martin and the Liberals. While Greenspan was not the only reason that finances improved I agree that he was a principle driver here. But let’s all agree that the Liberals didn’t do anything magical here – they were just at the right place at the right time. Paris Hilton could have balanced the budget as a Finance Minister for the last 8 years or so.
Denis: I agree with alot of what you say – i believe history will show that Greenspan traded off short term prosperity for longer term pain which is yet to be felt. However the two bubbles he created (dot-com and real estate) have had a very positive near term benefit to the finances of the Government of Canada. The longer term impact is yet to be seen.
Steve L
I see there’s much comment on Greenspan & the Sea King, yet no comment on this? http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20060201/canada_iraq_060201/20060201?hub=World
very odd indeed.
Bear: there are only so many hours in a day
Denis: cut the crap. If you want to post entire articles, get your own blog. This is a comment section.
I’m still waiting for a Liberal somewhere, someday to explain to me exactly which part of Mulroney’s economic program they reformed. They must have changed something that would justify them taking total responsibility for our economic growth and federal surpluses over the last 8ish years.
Mulroney had his share of weaknesses, but even his worst detractors have to admit he spent a lot of political capital undoing Trudeau’s disastrous economic legacy, and the Liberals get to take all the credit even though they campaigned against all these measures.
Jose
You’re not still pissed about those forgotten shysters the libs losing are you ?
Lets not let partisan politics get in the way of a lively debate.
Lets let bygones be incarcerated.
Sorry to disappoint Denis, but there is no economic collapse coming.
Even in the Great Depression 75% of all workers remained employed.
Inflation hedges like gold and silver are only for the most agressive investors and are almost always investment losers since defensive investing will cause losses with profits eaten by inflation in the long run.
Commodities are the riskiest investments.
Canadians SHOULD understand this better than most people.