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Author Topic: Greenspan says "go with the Euro"
Nirvana
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Alan Greenspan said on Thursday that both private investors and central banks were shifting away from the U.S. dollar and toward the Euro.

"We're beginning to see some move from the dollar to the euro, both from the private sector ... but also from monetary authorities and central banks," Greenspan told a conference sponsored by the Commercial Finance Association.
His comments pushed the dollar down, a sign that Greenspan, who retired from the U.S. central bank in January, still holds some sway in financial markets.

As he had done repeatedly when he led the central bank, Greenspan said it was imperative for the United States to resist protectionist pressures that could make an unwinding of the large U.S. current account trade gap economically painful.

"We'll get to the point at some point that willingness to finance it will slow, and if you can't finance it, it won't happen," Greenspan said of the broad trade measure.

He said, however, that if the economy remained flexible, the adjustment "should have very little effect on production and capacity."
Greenspan warned, however, that if the United States threw up barriers to isolate itself from the pressures of globalization, "the adjustment process could be a little bit more problematic."

Greenspan Euro

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Gordon Bennett
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Greenspan did NOT, in fact, say "go with the Euro."

--------------------
"Those who would give up Essential Liberty to purchase a
little Temporary Safety, deserve neither Liberty nor Safety."

- Benjamin Franklin

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Upside
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One world currency. That's going to bring the religious zealots out of the closet again. Take cover.
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Nirvana
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Greenspan's complete speech in DC encouraged private investors and financial institutions to go with the Euro. Did you watch the speech or read the full text of the speech? Probably not.

Greenspan's encouragement of the Euro skyrocketed the Euro over 100 PIPS yesterday, crushing the USD.

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glassman
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nirvana...

i don't think it's a bad thing...

you seem to want to encourage a peepee contest here...

a lower dollar means i can sell my product to "furrinners" and have a better life in my own community....

this whole emotional process about "my money is stronger than your money" is stupid...

i'll let you in on a secret....

there is nothing "behind" any of the money anymore....

the value of money is no more than what we SAY it is....

you wanna see how America is "speaking" to the rest of the world over the next 3 decades or so?

 -

like it or not? it just is what it is...

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Don't envy the happiness of those who live in a fool's paradise.

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Gordon Bennett
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Yep, it's all just paper.

--------------------
"Those who would give up Essential Liberty to purchase a
little Temporary Safety, deserve neither Liberty nor Safety."

- Benjamin Franklin

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NR
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Gold and Economic Freedom
By Alan Greenspan

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 luxury 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 as 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 reason 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 always been considered a luxury good. It is durable, portable, homogenous, divisible, and therefore, 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 in gold, large payments would be difficult to execute, and this would tend to limit the extent of a society’s division 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 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 now 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 for his deposits). But the amounts 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 the 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 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, 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 depression 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 War I type of disaster. The readjustment periods were short and the economies quickly re-established 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 the never need to 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 Reserves banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks 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 Great Britain; this would act to stop Britain 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 breaking 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 pervious folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a word-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With 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, the 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 confiscates the wealth of the productive member of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But welfare statists were quick to recognize that if they had 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 back 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 accepted 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 purpose with the money proceeds of the government bonds financed by the bank credit expansion.

In absence of the gold standard, there is no way to protect saving from confiscation through inflation. There is no safe store of value. If there were, 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 their be no way for the owner to wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the “hidden” 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 understand the statists’ antagonism toward the gold standard.


Source: Ayn Rand, “Capitalism: The Unknown Ideal”
With additional articles by Nathaniel Branden, Alan Greenspan and Robert Hessen
A SIGNET BOOK from NEW AMERICAN LIBRARY
Published: 1962

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One is never completely useless. One can always serve as a bad example.

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bdgee
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Hahahaha


A rebirth of the "Cross of Gold" speach?

I don't think Greenspan has the chords to pull thaat off, even as a joke.


HAHAHAHAHAHAHAHA

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NR
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You might find this an interesting read Bdgee..

Remarks by Chairman Alan Greenspan
At the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington, D.C.
December 5, 1996

The Challenge of Central Banking in a Democratic Society

http://www.federalreserve.gov/BoardDocs/speeches/1996/19961205.htm

--------------------
One is never completely useless. One can always serve as a bad example.

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bdgee
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I have read Greenspan before and concluded he is too biased to have much hope of ever being logical or productive.

His experience is hopelessly limited, so his vision yiels a similar perspective.

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glassman
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hey NR:

this from your Rand quote... i wonder if you agree fully?

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 confiscates the wealth of the productive member of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But welfare statists were quick to recognize that if they had 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.

i swear this sounds like what Dubya has been doing..... i guess must be "missing something" [Roll Eyes]

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Don't envy the happiness of those who live in a fool's paradise.

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NR
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quote:
Originally posted by glassman:
hey NR:

this from your Rand quote... i wonder if you agree fully?

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 confiscates the wealth of the productive member of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But welfare statists were quick to recognize that if they had 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.

i swear this sounds like what Dubya has been doing..... i guess must be "missing something" [Roll Eyes]

It isn't a quote from Rand, it is a quote from Alan Greenspan himself that was published in a book by Ayn Rand in 1962, long before he became Federal Reserve Chairman.

I do agree for the most part with his statement, and yes, that is pretty much what Dubya is doing and most others before him have done. Pisses me off.... Just so things are clear, unlike what Bdgee claims, I DO NOT SUPPORT EVERYTHING Bush does.

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