Greenspan on Gold: Three Stages

by Gary North, Lew Rockwell:

“When our friends get elected, they aren’t our friends any more.” — M. Stanton Evans

My deceased friend Stan Evans became deservedly famous for this law of politics.

This law applies to high-level appointments.

Back in the days when I was starting out in my career, Alan Greenspan wrote an article for Ayn Rand’s Objectivist newsletter. It was pro-gold standard. It has been reprinted all over the Web. Back then, only a handful of us knew about it. I reviewed it in 2007 here.

Greenspan personally launched the modern era of extreme intervention by the Federal Reserve in order to stop a collapse in the stock market. That took place in the second month of his chairmanship at Federal Reserve. It was in late October, 1987. The American stock market had dropped by 20% in one day. Around the world, other markets had dropped by a comparable percentage. No one knew why then. No one knows why now.

Greenspan and the Federal Reserve Open Market Committee intervened the next day to inject fiat money into the banking system in order to stop the collapse. That was the beginning of what became known as “Greenspan’s put.” Stock market investors knew from that point on that the Federal Reserve would not allow the market to fall significantly. That carried through right until Bernake’s intervention in 2009.

Listen to Greenspan today. He justifies his policies as FED chairman in terms of gold.

When I was Chair of the Federal Reserve I used to testify before US Congressman Ron Paul, who was a very strong advocate of gold. We had some interesting discussions. I told him that US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency. In that regard, I told him that even if we had gone back to the gold standard, policy would not have changed all that much.

This really is incredible. He is saying that his policies, and the Federal Reserve’s policies, were basically close to what the Federal Reserve’s policies would have been prior to August 15, 1971. In other words, he was basically a gold standard man while he was chairman of the FED.

This is what happens when our friends go to Washington.

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