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Inflation And Alan Greenspan

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From the Archives : Originally published February 09th, 2010
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Alan Greenspan 1967
"As the supply of money increases relative to the supply of tangible assets in the economy, prices must eventually rise. 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".


Alan Greenspan 1981
"A return to a gold standard (would be) a basic change in our economic processes. A gold-based monetary system will necessarily prevent fiscal imprudence. Once achieved, the discipline of the gold standard would surely reinforce anti-inflation policies, and make it far more difficult to resume financial profligacy".


Alan Greenspan 1998
"The potential for accelerating inflation is probably greater than the risk of protracted, excessive weakness in the economy".


Last week - the week of the Humphrey-Hawkins report to the House Banking Committee and Senate Banking Committee saw Alan Greenspan once again cover, what for him is old ground.


In formal testimony to both chambers, he seemed to indicate the U.S. economy is healthy and in no need of any immediate change in interest rates.


Under the Humphrey-Hawkins Act of 1978 the Central Bank has a dual mandate of fighting inflation and promoting economic growth.


Reassuring Words
Alan Greenspan’s reported "reassuring words" painted a picture of an economy strong enough to withstand all the menacing forces arrayed against it. "Let the Asian economic winds howl and the trade deficit rise. Let the General Motors strike drag on and depress factory production".


Controlling an Unsustainable Monster
Despite speaking so strongly against it in the late 1960’s, Mr. Greenspan today, as Chairman of the Federal Reserve Board, sits at the helm of the ‘Modern Fiat Money Machine’.


This monster is "A System" that keeps it’s subjects continually bankrupt. It is fragile and unsustainable. It must constantly create new money, through further borrowings, to keep the system running. "Millennium Money" reported that all-modern money, in the Fed’s own words, is backed by nothing but confidence.


It takes very careful manipulation, through raising and lowering ‘usury’ or interest rates, to prevent the economy from going into hyperinflation, or alternatively, imploding or collapsing into deflation.


The longer it runs the more volatile, unstable and difficult to control the whole system becomes.


Walking the Tightrope
Daily, in our modern economy, major opposing forces war with each other. Built-in ‘deflationary’ pressures contest with inherent ‘inflationary’ pressures. In the 16 months since the central bank last adjusted rates up to 5.5%, these pressures have been faithfully building within. Walking the tightrope between lower and higher rates has become like walking a razors edge.


This helps explain the wide range of reports last week. Some economists and commentators felt sure Mr. Greenspan’s comments signaled lower rates ahead, to ward off the effects the Asian crisis and sluggish corporate profits. Still others expect a rate hike in the future. Certainly Mr. Greenspan made it clear the central bank would "resist vigorously" any up-trend in inflation. This all adds to confusing and conflicting signals being given in the global economy and establishment media.


A Preoccupation with Inflation
"The potential for accelerating inflation is probably (meaning he doesn’t know for sure) greater than the risk of protracted, excessive weakness in the economy,'' Greenspan said.


It was the former banking chief John Exter that said "once that deflation starts there is just no way to stop it". Yet today the Fed seems more concerned about inflation than deflationary signals and the effects of an Asian led slowing in the economy. Maybe its the haunting recent memory of when Paul Volcker came dangerously close to losing control of the whole shooting match in the late 1970’s. Those days of "runaway" inflation had the potential to plunge the U.S., and indeed the world into a 1930s-style depression.


Inflation is the Expansion of Money Supply
Generally these days inflation is explained as a "rise in prices". Millennium Money explained how inflation is the result of an increase in the money supply (the amount of money circulating) relative to the amounts of goods and services circulating. The more of something you have the less it becomes worth. A ‘rise in prices’ is not inflation, it’s the result.


Hidden Inflation
The current 98 month economic expansion is the longest economic expansion in peacetime history. America and Australia have been experiencing the lowest reported inflation for many years. While economic indicators suggest a 2 - 4% inflation rate, the reports across my desk have indicated new money supply growing at a rate of up to 8 or 9%. Where has all that new money gone? In this months Australia Fair BI-monthly Update Service we examine this question.


Inflation is Immoral
Inflation, in any of its forms, has been unlawful at some point in all cultures. The book of the Law, on which the ancient Israel State was built, said, "you shall have just weights amongst you". In the Hebrew Pentateuch alone there were six separate references to dishonest weights. King Solomon called unjust weights an abomination. Unjust weights and measures, just like debasing coins or printing paper notes, caused inflation. As the Hebrew prophet Amos put it "You swallow up the needy and the poor of the land by making the bushel smaller and the shekel larger, falsifying the balances by deceit".


Inflation is high theft on the grandest of scales because it erodes the savings and the purchasing power of the masses.


Legalized Counterfeit
As recently as 1792, the United States Coinage Act declared any one working in the US mint caught in the act of debasing currency (taking out silver and adding base metal) had committed a crime punishable by death.


Today, for the same reason, it is against the law for you and I to print counterfeit money. It erodes the value of the money, ultimately making it worthless. Yet, while it may not be alright for us, governments and banks can increase the money supply at will. It is legalized counterfeit.


Inflation is Taxation
As Alan Greenspan put it "inflation is the hidden confiscation of wealth". It is the direct result of government, through the central banking system, expanding the money supply. They create new money, so they can spend into circulation, to pay for their ever-increasing spending programs.


You and I pay for ‘Inflation Taxation’ in our lost savings and purchasing power.


My least favorite economist John Maynard Keynes correctly observed "It is common to speak as though, when a Government pays its way by inflation, the people avoid taxation. This is not so. What is raised by printing notes is just as much taken from the public as an income-tax. What a Government spends the public pay for"


Inflation is Normal
On inflation John Loeffler wrote recently "Keynesian economic pundits regularly thump the drum that inflation is a normal part of a healthy economy. This is false. It only exists when a monetary system has no sound base".


Mr. Loeffler is right. Most people walking the streets today have never known a ‘sound money’ based economy. The masses have been conditioned so they no longer see the harmful effects of this hereto-unlawful monetary system.


Inflation’s theft of savings and ever increasing prices has become a normal part of every day life.


People have been forced to employ more sophisticated investment techniques in the vain attempt to avoid the guileful effects of inflation. Most often these ’techniques’ engage greater borrowings or leverage.


Franklin Sanders talks about the "mal-investment" built into the system over the past 60 years as a result of this inflationary system. Many losses are yet unrealized, hidden in a false cloud of inflating prices.


Inflation is Unnecessary
This inflationary monetary system is global. It exists so that governments and banks can profit by it. It has led to immeasurable heart break and suffering along the way. Ultimately it is unsustainable and cannot last.


This is how Mr. Greenspan finished his 1981 money reform discussion in the Wall Street Journal. "Considering where the policies of the last 50 years have eventually led us, perhaps there are lessons to be learned from our more distant gold standard past".


Philip Judge

Anglo Far-East Company


Also by Philip Judge




Philip Judge is the 3rd generation of a family that has had substantial involvement in the Precious Metals markets. He has researched, written and spoken on the gold, silver and commodities markets for over a decade. Philip works in the marketing and operations department of The Anglo Far-East Bullion Company, an internationally based Bullion Banking, Investment Management and Financial Services Company





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Philip Judge is the 3rd generation of a family that has had substantial involvement in the Precious Metals markets. He has researched, written and spoken on the gold, silver and commodities markets for over a decade
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