Fed Chairman Bernanke Says "Gold Is Not Money" ... But His Predecessor Alan Greenspan Disagrees → Washingtons Blog
Fed Chairman Bernanke Says "Gold Is Not Money" ... But His Predecessor Alan Greenspan Disagrees - Washingtons Blog

Wednesday, July 13, 2011

Fed Chairman Bernanke Says "Gold Is Not Money" ... But His Predecessor Alan Greenspan Disagrees

Fed Chairman Bernanke told congress today:
‘Gold isn’t money’
But Bernanke's predecessor - former Fed chair Alan Greenspan - disagrees.

As I noted in 2009:

Professor Emeritus of Mathematics Antal Fekete has argued for years that gold is the ultimate - and only - safe haven when things really hit the fan.

For example, in 2007 Fekete wrote:

The grand old man of the New York Federal Reserve bank’s gold department, the last Mohican, John Exter explained the devolution of money (not his term) using the model of an inverted pyramid, delicately balanced on its apex at the bottom consisting of pure gold. The pyramid has many other layers of asset classes graded according to safety, from the safest and least prolific at bottom to the least safe and most prolific asset layer, electronic dollar credits on top. (When Exter developed his model, electronic dollars had not yet existed; he talked about FR deposits.) In between you find, in decreasing order of safety, as you pass from the lower to the higher layer: silver, FR notes, T-bills, T-bonds, agency paper, other loans and liabilities denominated in dollars. In times of financial crisis people scramble downwards in the pyramid trying to get to the next and nearest safer and less prolific layer underneath. But down there the pyramid gets narrower. There is not enough of the safer and less prolific kind of assets to accommodate all who want to "devolve”. Devolution is also called "flight to
Darryl Schoon makes the same argument.

Here's a visual depiction Exeter's inverted pyramid, courtesy of FOFOA:

(Click here for full image)

Are Exeter, Fekete and Schoon right?

I don't know. But Alan Greenspan just lent some support to the theory.


Gold prices that jumped above $1,000 an ounce this week are signaling that investors are buying metals to hedge against declines in currencies, former Federal Reserve Chairman Alan Greenspan said.

The gains are “strictly a monetary phenomenon,” Greenspan said today at an investment conference in New York. Rising prices of precious metals and other commodities are “an indication of a very early stage of an endeavor to move away from paper currencies,” he said...

“What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment,” Greenspan said.

In other words, Greenspan is saying that investors are moving out of the second-to-lowest step on the pyramid (currencies and government bonds) and into the lowest step (gold).

Greenspan is also verifying what goldbugs like Exeter, Fekete and Schoon have been claiming: that "the barbarous relic" still holds an important place in the modern investor's psyche.

Moreover, as I reported last year:

Alan Greenspan told the Council of Foreign Relations last week:

Fiat money has no place to go but gold.

Greenspan also said that supply and demand explanations treating gold like other commodities “simply don’t pan out."

Greenspan also spoke of how, during World War II, the Allies going into North Africa found gold was insisted on in the payment of bribes, and said:

If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.

As I pointed out last month:

Utah has declared gold and silver to be legal tender - with the value of the coin determined by the weight of precious metal it contains

As the New York Times notes:

The law is the first of its kind in the United States. Several other states, including Minnesota, Idaho and Georgia, have considered similar laws.

World Bank president Robert Zoellick noted last year:

Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

Moreover, as FT reported last year:

Intercontinental Exchange, the US futures exchange group, has followed rival CME Group by allowing its European clearing house to accept gold bullion as collateral for transactions.

Zero Hedge notes:

JP Morgan Accepts Gold Bullion As Collateral.
And Phoenix Capital Research argues that central banks are themselves loading up on gold because they know that the entire fiat money scam will soon collapse.


  1. Wow and I suppose if Bernanke admitted gold was money today the barbarous relic would be up over $1600 by now? It doesn't really matter what the man says lately, gold still goes up. In fact it's getting to be one of those can't lose propositions right? Something like oil about this time three years ago?

    Nothing changes for the plutocrats (happy days!) or for the rest of us walking ulcers trying to make ends meet unless and until the bond vigilantes show up in the US Treasury market.

  2. In truth: food, water and land are safer assets because people do need them. Gold is a fetish and Bernanke is right in this aspect: it is not gold what makes money but social wealth in general, measured as actually usable and desirable goods (use value).

    Gold has only some marginal use value (mostly in high tech areas) so, while it may work as money (as any other hoard-able commodity may) it has little use value. In raw terms: someone with a pile of useful grain is a lot more wealthy than someone with a pile of useless gold.

    It is in the end the tale of the guy lost in the desert with a bag of diamonds, whose rescuers demanded as payment in exchange of mere water...

    Gold, like money cannot be eaten nor mostly used in any way once people do not accept it. All its value is conventional: a mere fetish, just as happens with paper money, a rationing card, a credit card... it's all fictitious.

    What matter is real goods that are demanded and used. That is what has real value, notably those that cannot be ignored by anyone in order to survive: basic food stuff like cereals, basic housing, edible water... Who controls these controls all wealth and any unit (money) you use to measure it for conventional purposes.

  3. What's amazing is that Bernanke can get away with a barefaced lie like that, while Paul continues to be depicted as a crazy.

  4. Bernanke ought to speak more often in public - whenever his lips move on camera, bullion prices go up! It just shows that Greenspan saw this coming, and passed the poisoned chalice to his witless bagman, Bernanke, who is now too scared to tell the truth.

  5. If gold isn't money then why does the FED still have it on their books as a reserve asset?


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