If you want to understand the gold market today, you have to understand why the government abandoned the gold standard in the first place. Posted by James Randolph on August 31, 2011
Gold stands as a protector of property rights.
August 31, 2011 – If you want to understand the gold market today, you have to understand why the government abandoned the gold standard in the first place. This excerpt from an essay by a particularly influential man does an admirable job of explaining it:
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.
The author? None other than Alan Greenspan, way back in 1966 – five years before Nixon severed the final ties to gold.
Sadly Greenspan’s thirst for power overcame his conscience, and he was instrumental in bringing about the very state of affairs he once warned about. But now he seems to have had a change of heart, perhaps an attempt at requital.
Greenspan, speaking at a recent conference, said in no uncertain terms that “gold, unlike all other commodities, is a currency,” a clear rebuttal of statements made by the current chair. Flatly debunking claims that gold is in a bubble Greenspan attributes rising prices to demand that is “not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.”
The link to Greenspan’s early essay is inescapable, and his conclusion is strikingly relative today: “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.”
Senior Staff Writer – Certified Gold Exchange