Nothing like trying to clean up your legacy before you die, your lie blows up publicly ...or both. Alan Greenspan decided to talk about "gold" in an Op-Ed piece this past week in an effort to clean up his legacy. The article was published by Foreign Affairs. Please read this opinion piece very carefully, or even twice before continuing.
OK, so now you've read "The Maestro's" opinion on "Why Beijing is buying gold?". Do you buy his arguments? Even a little? I don't buy any of it from start to finish (except for his admission gold and silver ARE monies), in my opinion Mr. Magoo who "couldn't ever see a bubble before it popped" has just as bad hindsight as current sight even with the ability to see factual history. Actually, this is wrong as Mr. Greenspan "did" get it and I am now sure he always "has" gotten it ...he just cannot ever really admit to this without being hung from a lamp post somewhere.
Greenspan contends that China could purchase a relatively small portion of their $4 trillion of reserves in gold without "much risk". He says the interest lost and storage costs would be relatively small. Ya think? If the reserves pay almost nothing in interest and the gold can be stored in a State owned facility ...and they are exchanging fake money for real money ...is there ANY risk at all? Another area of humor is his contention the Chinese will "announce their plans" to purchase gold with a small portion of their reserves. Really? Do you really believe the Chinese will "announce" their future plans to the world and allow a bunch of speculators to front run them? ...And after they are done "buying", the price of gold will "fall back down"? I will address all of this shortly as I want to put his thoughts out first, before I fix his spectacles for him.
He then contends (quite correctly) gold and little cousin silver "are" money. Actually he says "currency" and they are "universally acceptable at ALL times". Digressing just a bit, if (since) this is true, Ben Bernanke either perjured himself before Congress or is just plain ignorant as he told Ron Paul "gold is not money, it is held out of tradition". Greenspan also correctly points out that gold nor silver can ever default. They are no one's liability and do not rely on any sovereign's ability to tax or perform for their values. In case you were wondering, Mr. Greenspan DOES "get it", he always has ...
.. I think it is important to understand Mr. Greenspan's thought process(es) along the way. He wrote a very well thought out and "very Austrian" article back in 1966 which explained gold thoroughly and why it is the "ultimate money". "Ultimate money" is my term because of the word "ultimate", meaning "last". In any panic, market meltdown or banking panic, gold (and silver) will be the last currency standing. As other currencies become "unacceptable", gold and silver will still be accepted to settle any debts or trade. Greenspan fully understood this in 1966, he fully understood it while Chairman of the Fed and churning out $ trillions in fake money and he knows it now. He will know it until his last dying breath and is only now trying to "re paint" his legacy. A legacy which included spading the ground, planting the seed and watering regularly ...to the destruction of Western capitalism. There is no one on the planet more responsible for where we are now than Mr. Greenspan, no matter how much he writes, speaks or tries to re paint history ...this is a fact and is the legacy he will take to his grave with him!
Do you really believe the Chinese would ever tip their hand and say we "are going to" buy gold? Wouldn't it behoove them to buy the gold first and then point out to the world "look what we did"? First, at today's pricing they could amass as much gold as the U.S. claims to have with less than 10% of their reserves. Would this qualify as a "small enough percentage" in Mr. Magoo's mind? Actually, China has already announced they plan to accumulate 8,500 tons which tells me they already have! They announced the ownership of 1,054 tons back in April of 2009, we also know they have imported almost 4,000 tons over the last two years. This brings them to 5,000 tons without accounting for 2009, '10, '11 nor '12. It also does not account for an average of 350+ tons internally produced each year since 2009 which amounts to another nearly 2,000 tons. Including internal production we can already see nearly 7,000 tons, could they have possibly accumulated another 1,000 tons or so between 2009 and 2012? By my math, this comes to about 8,000 tons and "presto" they have as much as we "say" we do. Amazing!
At current pricing, China has enough in dollar reserves and Treasury holdings alone to purchase 70% of ALL the gold ever produced by man (yes I know, if they tried it they would blow the price to the moon and back). Alan Greenspan knows this and is fully aware of it which is why he used the term "relatively small percentage" in his writing. This is also why he finished his piece by talking about the "politics" of China and their "inability" (his words) to vault past the U.S. technologically. He says China stifles innovation by suppressing "freedom of speech and action"... change subject and maybe no one will notice.
I would simply ask the near sighted maestro a few questions. Did he really believe the Chinese would not eventually "use" their accumulated dollars to "buy stuff"? In fact, I believe they tried to purchase Unocal while he was Fed Chairman in 2002? and were told an emphatic no for national security reasons. Did he really believe they would not purchase gold with their dollars? More gold than the U.S. claimed to have? Heck, back then our gold was only worth $100 billion or so, did he think this too big of a hurdle? Suppression of gold and silver prices were full blown during his tenure, did he really believe it would or could work after watching the U.S. lose 60% of their holdings via the London Gold Pool and then the price of gold explode?
Here is what I think. I believe the Chinese already have 8,000 tons of gold more or less (not including the Elders gold). They know for a fact that much of what they own came from the U.S. (and let's not forget German gold held at the Fed). China's accumulation could have only come from one place. It had to come from "where" it was previously held since China has purchased more than was available by current production. I believe China floated the 8,500 ton number in preparation for making a global bid for gold. It would not surprise me to see China say something like "we will buy any and all gold at $4,000 per ounce until further notice". This would surely accumulate gold and eventually the selling would dry up. I believe they would then raise their bid and attract more gold. Maybe their total would amount to 15,000 tons or even the 20,000 tons the U.S. had before the 1960's, where would this put China in the financial world? It would put them well ahead of the U.S. and number two Germany combined ...if they really have the gold they claim to have. Maybe China would say something like "we'll show you ours if you show us yours" to prove the Western gold is gone? This would leave who, France and Italy as number 2 and 3 in the world? Please don't tell me the IMF because they won't be showing anybody anything. I don't really believe the Chinese want to "prove" the West has no gold left but I do believe they want their silver (which was leased over 10 years ago) back. They may only use the "phantom" gold situation of the West as "leverage" ...or they may simply blow up the game if they end up being stiffed on their silver.
In any case, Alan Greenspan had to know where this would end up. He had to know the world would finally want to "spend" some or all of the dollars he and his warped cohorts created. He had to know some of these dollars would end up chasing gold which is and was a finite amount within Western vaults. He had to know that each bubble he created would burst and then the next "necessary" bubble to reflate the system would grow and then again ultimately pop.
By what he wrote all the way back in 1966, it is clear to me that Alan "Mr. Magoo" Greenspan was and is a really smart guy who knew exactly what would ultimately happen (but I don't think he thought it would happen in his lifetime). It does not matter what "colored glasses" he is trying to prescribe to the masses by what he say's or so eloquently pens. He clearly knew the value of gold as proven by his 1966 paper and speech. He was in office when Nixon defaulted on the international dollar and then was Chairman of the Fed when dollar and debt creation began to go parabolic. He was there from the beginning, he was there during and he is still here now in the end acting as if he "never knew". He did and he does, the only thing he can now hope for is some event to come along big enough, obvious enough and public enough which wipes out the system ...to point at. "Surely no banking or financial system could have survived that?" he will say. I'll bet however, Mr. Magoo doesn't even need glasses to see how beautiful his own personal stack of gold is!