C/O Greenspan Associates LLC
August 10, 2009
In mid 2008, I began blogging about the economy. One of the first articles I posted was a link to your 1966 Article published in the Objectivist titled: "Gold and Economic Freedom".
I found it to be an excellent read.
In the forum below where that link appeared a member made a post [comment] which read:
‘I read that in Ayn Rand’s newsletter back in the 1960s,’ and referring to your monetary shift in ideals, she went on to say, ‘Now, that is one train that came off the rails and never stopped.’
1966 is a long time ago. Forty-three years to be precise. In 1966 I was peddling a tricycle. A few years ago, after logging 15,000 I hung up my captains hat. So I accepted that a lot had changed since then. Whether it be transitioning from trikes to planes or from gold to fiat currencies, I realize that both people and their beliefs change over time.
In early 2009 I was reading "I.O.U.S.A." by Addison Wiggin, Kate Incontrera and Dorianne Perrucci. When I got to page 153 I became quite confused about your beliefs and was hoping you could shed some light on what I read.
Page 153 falls in Part II of the book, I’m sure your aware of this ,since you were interviewed only several pages later. Anyway, on page 153, Congressman Ron Paul, MD says:
"In the 1960s, I was studying and reading Austrian economics and I received the Objectivist newsletter that Ayn Rand put out. Alan Greenspan had a piece in the newsletter and it was a delightful article – it said all the things I believed in."
He then goes on to explain the photo shoot you guys had together and how be brought that original article with him. Ron Paul continues: "So I dug out my original copy, and I took that with me, so when we were getting ready to get our picture, I flipped it open to his article and said, "Do you remember this?" and he said he did. Then I asked him to autograph it, so he got out his pen and he was signing it, and I said, "Do you want to write a disclaimer on this article?" He said, "No, I wouldn’t do that. I just read this recently and I fully support everything I wrote." [emphasis mine]
My questions to you are few and very straightforward.
The last two paragraphs of your article make clear the importance of having a gold standard. They remind me of what our Constitution says of gold and silver.
"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. [emphasis mine]
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. [emphasis mine] 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."
My first question: If you believed, and still believe this then why did you manage a monetary system that was exactly the opposite of your writings and your beliefs? Isn’t that ‘irrational hypocrisy’ (to preach about a gold standard and then turn around condone and abed a ‘welfare state’ [your words not mine] that confiscates the hard earned wealth from your fellow citizens)?
My second question deals with the cure and the disease.
Again, to quote your fine article:
"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." Your article clearly defines and explains contractions as ‘readjustment’ periods as the cure for the disease [overly rapid credit expansion.]
That said, we now a Fed chairman that many have nick named ‘Helicopter Ben’ based a 2002 speech about helicopter drops of monetized currency. So, my question is: Why aren’t you speaking up and explaining to him, and the world for that matter, that the contraction is the cure for all the credit that got out there? Isn’t doing nothing an act of ‘irrational hypocrisy’?
I mean, if you know the solution and the real problem, then isn’t being silent also contributing to the disease?
My last question deals with solvency and accounting.
Our debt and our off balance liabilities are well north of $80,000,000,000,000.00. We take in about 2 trillion and spend 4 trillion a fiscal year. Our bond sales are anemic, foreign countries are no longer buying/funding/loaning us our total deficit and the "Fed" is now going in and purchasing that which wasn’t bought from the Primary Dealers back.
In my humble opinion Quantitative Easing isn’t an option – it has become a necessity due to the Regan era bonds which have matured and due to the absolutely insane deficit we have amassed. I’m no CPA, nor am I economist, but I’d consider insolvency simple and defined as: When your liabilities exceed your assets and when you can no longer service your debt – you are insolvent.
Right now we are basically counterfeiting money to service debt. This isn’t going to have a pretty ending.
On one of my last flights I had a Secret Service Agent pre-board. He was taking his dog, also a Secret Service Agent, from New Haven, Connecticut to Washington National. Since Secret Service Agents can ride in the cockpit I put him in the jumpseat to learn more about this Secret Service Agent Dog of his.
His dog was a trained counterfeit sniffing agent. The agent explained to me how his dog could smell the chemicals that counterfeiters used to bleach the ink off of one dollar bills. Once they had a genuine piece of fresh paper they could print images of twenty’s of fifty’s or one hundred’s on them. He was proud of his dog for sniffing out over $100,000.00.
He was resolute that our dollar would not be weakened by too much money entering the system.
Don’t you think Secret Service Agent Fido should be sniffing around the Fed and the Treasury? I mean really, inflation is just too much money pumped into the system, which causes high prices. It is, as you described a confiscation of our wealth. One hundred thousand is nothing compared to monetizing over a trillion dollars.
And this is just the start.
My last and final question comes from the end line of your "Irrational Exuberance Speech".
"A democratic society requires a stable and effectively functioning economy. I trust that we and our successors at the Federal Reserve will be important contributors to that end."
Alan, to which end were you referring to? To be very honest it appears to me that the "Fed" is contributing to the end of a stable and effectively functioning economy by flooding it with funny money.
To be honest with you, I am deeply concerned about our nation’s collective obligations, [debt + off balance liabilities] and our solvency. But, what scares me the most is our collective ignorance and silence. I truly respect former Attorney General David Walker for his brilliant work attempting to expose our massive debt and our massive off balance liabilities.
I wonder if half the politicians know our actual debt, let alone the amount of all these Enronesque off balance sheet liabilities. Like you once said, ‘the law of supply and demand is not to be conned’.
In Summary: The only solution to this insane amount of debt and off balance sheet liabilities is for our dollar to be devalued. In my humble opinion, the sooner they do this then the sooner we can move forward. I look forward to your reply and answers but most of all I look forward to hearing the Alan from 1966 speak up like the honorable David Walker speaks out.
D. Sherman Okst
PS Feel free to send me an autographed copy of that article, I could frame it with a new dollar when they come out.
Good luck on getting a reply. Good ole Alan is probably hiding.
A masterpiece. If I was a newspaper editor, I’d put this on the front page until you got an answer.
Well done Davos! Intelligent, Respectful, and a Very Interesting read.
There is a real poignancy to the part about the hard-working agent and his dog and this man’s obvious pride in doing his part to keeping the US economy safe.