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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Henry Volquardsen who started this subject2/4/2003 10:11:24 AM
From: jameswallen  Read Replies (1) of 3536
 
Greenspan Comes Home to Gold.

Here is a link to an intriguing article published yesterday on the National Review Online: nationalreview.com. The author, Donald Luskin, asserts that Greenspan had the US on a gold standard from 1987 to 1996. Changes in the Fed funds rate tracked changes in the 2-year moving average of gold prices during that period.

Furthermore, in 1996 Greenspan dropped his gold standard and replaced it with the stock market. This was the significance of his "irrational exuberance" speech. From that date, Greenspan raised the Fed funds rate, even as gold declined from a $370/ounce peek in 1996.

As gold continued to decline, Greenspan at first failed to cut interest rate and eventually raised them. The result was deflation. The first consequences of deflation were the recurring crises in the currency and monetary markets. He didn't stop raising rates until we had a recession and the worst bear market since the depression.

But he has returned to gold. Last month in a speech he said:

"Although the gold standard could hardly be portrayed as as having produced a period of price tranquility, it was the case that the price level of 1929 was not much different, on net, from what it had been in 1800."

Luskin's article is the first one I've seen that provides a retrospective analysis of the Greenspan approach to managing the money supply. It also clearly explains how Greenspan's mismanagement of the money supply wrecked a strong economy. (The economy was so strong that it continued to grow at a rapid rate for three years under the burden of high interest rates. The finally blow was Greenspan's criminal mismanagement of the money supply before and after Y2K. That blunder led to the stock market bubble and subsequent crash. But "How Y2K caused a stock market bubble and subsequent bear market" is another story!)
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