Greenspan Calls Out U.S. Policy of Weakening Dollar

from FT.com:

The US is pursuing a policy of weakening its currency which is driving up exchange rates in the rest of the world, according to Alan Greenspan, the former chairman of the Federal Reserve.
Writing in today’s Financial Times ahead of the G20 meeting in Seoul, Mr Greenspan argues that with China also holding down the renminbi, the upward pressure on currencies elsewhere risks a return to widespread trade protectionism. Mr Greenspan criticises China for continuing to prevent the renminbi strengthening, saying it reflects a misguided view that a weak currency is necessary for export growth and political stability. “China has become a major global economic force in recent years,” he writes. “But it has not yet chosen to take on the shared global obligations that its economic status requires.” More unexpectedly, Mr Greenspan adds: “America is also pursuing a policy of currency weakening.”

Greespan Warns That Gold Is the "Canary In the coal mine"

Another record high for gold today.

fron NY Sun:

Only days after the former Federal Reserve chairman Alan Greenspan warned that “fiat money has no place to go but gold,” the dollar has collapsed to a new low. The remarks of the former Fed Chairman were made a week ago at the Council on Foreign Relations, causing a flurry of excitement on the Internet. The dollar shed value, dropping to a record low yesterday, within minutes of the Federal Reserve declaring that it was, as characterized by Reuters, “ready to provide more support for the economy and expressing concerns about low inflation.”

It’s amazing to us that this doesn’t seem to be raising an alarm in either the halls of Congress, the administration, or the newsrooms. Kitco News, which is published by the gold dealer, reported the reaction this way: “Around 3:30 p.m. EDT (1930 GMT), spot gold was up $6.90 to $1,285.40 an ounce, compared to $1,272 about 10 minutes ahead of the Fed statement. December gold on the Comex division of the New York Mercantile Exchange was $6.90 higher at $1,287.70, compared to $1,273.30 ahead of time. In after-hours trading following the Fed statement, the December futures went on to a high of $1,290.40; that is a fresh record for a most-active Comex contract.”
Regular readers of these columns know that we prefer not to speak of the “price of gold” but rather of the “value of the dollar.” Kitco’s reporter quoted the managing director of Trend/Max Futures, Zachary Oxman, as saying the Fed “all but confirmed” quantitative easing and predicting that the value of the dollar would fall below a 1,300^th of an ounce of gold by the end of this week and to between a 1,400^th of an ounce and a 1,500^th of an ounce of gold by the end of the year. That would mean that the dollar would have dropped from a 271^st of an ounce on January 1, 2001.
Is Matt Drudge the only editor of a general interest publication who understands the front-page nature of this collapse? This is not about a sudden failure of the mines. Or a sudden manufacturing need. This is about a failure of the Congress to carry out its responsibilities under the Constitution. To suggest that the trend is reversible with an adjustment of interest rates does not address the issue we see. The issue is that there is neither a law or a policy being enforced or followed that references gold or silver as a matter of principle in the way that the Founders of the country understood — and, in the founding Congresses, wrote into law.
We have one recent Fed chairman, Mr. Greenspan, who seems to understand the importance of gold — it, he said at the Council on Foreign Relations, “is the canary in the coal mine. It signals problems with respect to currency markets.” Now we have another Fed chairman who, in Mr. Bernanke, is prepared to testify before Congress that he doesn’t “fully understand the movements in the gold price,” though he does acknowledge that “there’s a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.”

* * *

When we wrote about that testimony in the spring, we called Mr. Bernanke’s answer a classic. “One doesn’t go into gold because, as the be-puzzled Mr. Bernanke seems to suggest, one lacks confidence in, say, ‘other investments,’ soybeans, say, or iron ore,” we suggested. “One goes into gold because one lacks confidence in the fiat currencies.” That’s the point Mr. Greenspan spoke of at the Council. The Congressman who put Mr. Bernanke on the spot then was Paul Ryan of Wisconsin. We suggested at the time that when they next get the chairman back on the Hill they press him about the Founders and their understanding of money, their fear of paper money, their warnings to future generations, and the laws and definitions of the dollar that they put into the national currency. The Founders on the dollar are worth an entire hearing, and by our lights it can’t come too soon.

Greenspan: It's Not Over Yet

Greenspan's comments are assisting in sending stocks south. From Bloomberg:
“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview in Washington. He said “until the price of homes flattens out, we still have a very serious potential mortgage crisis.”

Quotes: Gold (the only real money) vs. fiat money

"Bulls of 1929 - like their 1990s counterparts - had their eyes glued on improving profits and stock valuations. Not a thought was given to the fact that the rising tide of money deluging the stock market came from financial leverage and not from savings."
- Dr. Kurt Richebacher

"...resources have been misallocated because of the cheapness of credit in both stock and credit markets. So, you're not going to solve the problem by making money cheaper again."
- Al Friedberg, Welling@Weeden, March 23, 2001

"Every mania in financial history has been liquidity driven. You can go back to the South Sea Bubble or tulips in Holland. As long as the money is coming in, everything is fine. "
- Raymond DeVoe, Dec. 11, 1995

"The length and severity of depressions depend partly on the magnitude of the 'real' maladjustments, which developed during the preceding boom and partly on the aggravating monetary and credit conditions."
- Gotfried Haberler, Prosperity and Depression, 1937

"The aggressive mindset of the world's economic powerhouse may need to be replaced with the humility appropriate for the world's biggest debtor nation."
- Berry Riley, Financial Times, April 2001

"Although the gold standard could hardly be portrayed as having produced a period of price tranquility, it was the case that the price level in 1929 was not much different, on net, from what it had been in 1800. But, in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And, in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, had allowed a persistent overissuance of money. As recently as a decade ago, central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess.

"Fortunately, nearly all of our public and private debt is denominated in U.S. dollars and we claim one-third of the world’s gold supply. And, we are the only super-power and have the largest economy in the world. In short, if we declare a new monetary regime disciplined by gold, the world has to accept it.

"In summary, because of the unique position of the U.S., perhaps running the printing presses to destroy excess financial claims through monetary inflation and then creating a new gold based monetary regime might be the most beneficial course of action for the interests of the U.S.

"But, again, unless they had just taken a vow of poverty, it would be unsettling to the owners of financial assets.

"As in the past, do we still hold the value of the U.S. dollar sacred?"

Remarks by Chairman Alan Greenspan Before the Economic Club of New York, New York City, December 19, 2002

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
--John Maynard Keynes

“The plot is easy to read. The Fed has read it all along. The plot is as follows – American consumers MUST AT ALL COSTS CONTINUE TO CONSUME.”
– Richard Russell, April 16, 2003

“We have reached the point where there is no turning off the Credit excess, no turning off the GSEs, no turning off the Mortgage Finance Bubble, no turning off the destabilizing world of derivative trading, and no turning off the rampant financial speculation and its increasingly destabilizing effects. It is truly one massive Bubble running out of control. And let’s not ignore the reality that these frightening financial convulsions are symptomatic of an extremely sick system. One of these days there will be a life-threatening seizure. What we have here is an historic circumstance of a dysfunctional monetary regime and a central bank that will defend it at all costs." -Doug Noland

“By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation” “Deflation: Making Sure ‘It’ Doesn't Happen Here,” Remarks by Governor Ben S. Bernanke before the National Economists Club, Washington, D.C., November 21, 2002

"…the U.S. is heading for maybe the greatest financial mess in world history. The U.S. is far too extended financially, militarily and socially in the way of entitlements that we can't afford." Richard Russell, Quoted by Mark Hulbert, “Russell Celebrates by Selling Bonds,” CBS Marketwatch, July18, 2003. Richard Russell, considered the dean of Investment Newsletters, publishes the Dow Theory Letters, the oldest and most successful investment newsletter in the world. His stock-market timing record is in first place on a risk-adjusted basis among all market-timing newsletters the Hulbert Financial Digest has tracked over the past 23 years.

"It was the case that the price level in 1929 was not much different, on net, from what it had been in 1800. But, in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And, in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, has allowed a persistent over issuance of money. As recently as a decade ago, central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess." – Fed Chairman Alan Greenspan Before the Economic Club of New York, New York City December 19, 2002 "Issues for Monetary Policy"

President Woodrow Wilson, who signed the Federal Reserve Act in 1913 was quoted just three years later as saying, “I have unwittingly ruined my country. The growth of the nation, and therefore all of our activities, are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world” (Quoted in “National Economy and the Banking System," Senate Documents Co. 3, No. 23, 76th Congress, 1st session, 1939.)

Wall Street spends so much of its intellectual and financial resources trying to figure out how to hedge every kind of risk it can imagine. But the one kind of risk that repeatedly brings down markets and the biggest and boldest players in those markets is liquidity risk. The only true hedge against liquidity risk would be to cut out man's greed gland. You can't hedge human nature. Michael Lewitt

“High inflation countries almost always have high money growth and low inflation countries have relatively low money growth.” Federal Reserve Chairman Ben Bernanke

George Bernard Shaw:

“You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

Voltaire (1694-1778)

“Paper money eventually returns to its intrinsic value ---- zero.”

Daniel Webster, speech in the U.S. Senate, 1833

“We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.”

Thomas Jefferson to John Taylor, 1816

“I sincerely believe ... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.”

Daniel Webster "Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."

St. Louis Federal Reserve Bank,
Review, Nov. 1975, p.22 "The decrease in purchasing power incurred by holders of money due to inflation imparts gains to the issuers of money--."++

Andrew Jackson, in his will, indicated that the epitaph on his gravestone was to read, "I killed the bank". He considered his cancellation of the 2nd National Bank to be his greatest accomplishment not only of his Presidency, but of his life!