Saturday, October 3, 2009

Conversations with the Fed

Chapter 6 of Ron Paul's End the Fed is entitled "Conversations with Greenspan", and chapter 7 is, "Conversations with Bernanke". In these chapters he recounts a few conversations he's had with these two chairman (one past, the other current) of Federal Reserve. Both chapters are quite interesting.

I was surprised to learn that Greenspan had written a 1966 article "Gold and Economic Freedom" in Ayn Rand's objectivist newspaper. In it, he gave a brilliant defense of the gold standard.

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. [This is a reference to FDR's confiscation of gold and the outlawing of ownership of gold in 1933]. If everyone decided, for example, to convert all his bank deposits as silver or copper or any other good and thereafter decline to accept checks as payments for goods, band deposits would lose their purchasing power and government-credited bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

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. 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 (p. 81)

Paul goes on to give transcripts of several conversations he had with Greenspan that make for interesting reading, especially in light of Greenspan's former sound principles. Paul concludes the chapter by saying,

History will show that Greenspan, during his years as Fed chairman (1987-2006), planted all the seeds of the financial calamity that erupted in 2007 and 2008. For the same reason a disease cannot be cured by more of the germ that caused it, the inflation and debt accumulation of the Obama years will not inflate our way out of it. This depression will likely last and last. If the depression lasts a decade or more, its length cannot be blamed solely on Greenspan. That blame will be placed on the current Federal Reserve Board, Congress, the President, the Treasury, but above all on Keynesian economic policy, the same philosophy that gave us the Great Depression of the 1930s.

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