Greenspan

Gold, the stuff, Greenspan, the Fed. etc.etc.

Hamilton

gold nov 1 2014

This is a chart from www.aboutinflation.com. It shows the gold price from the time convertibility still existed ( abolished in 1971!) to last year, both in inflation-adjusted and nominal terms. You can see that in 1980 gold (and silver) were great inflation hedges as the red line moved well above the blue line. Not so much recently when the two moved , more or less, in tandem proving once again that Fisher was right with his MV=PT. You can create as much money as you want, but if the velocity adjusts downward there is no effect. Which, of course, also leads to the inevitable conclusion that the gold standard must have a lot going for it, as both Greenspan and Bernanke vigorously argued as adolescent economists. It was Keynes who realised that the gold standard limited the ability of governments to fool their constituents and therefore apposed the standard. In stead “faith” entered the equation, that is faith in the neutrality of the CB. With that who needs a standard?

     Just a few days ago, in case you missed it, Greenspan weighed in on these matters and, without batting an eye pronounced  that QE was a failure. And, that the Fed could not extricate itself from this mess without causing a lot of pain. And “I never said the Fed. was independent”. And he also said that   gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments. 

The end of CB omnipotence perhaps or simple a case of an emperor without any clothes , or at least a change of clothes ?????

Alan Greenspan, the Fed and “Irrational Exuberance”

Hamilton

Greenspan

The Maestro spoke again today, this time to let us know that stocks are dirt cheap and can only go one way given the present p/e ratio and that is up. Just for the record we thought it might be instructive to see when exactly it was that the maestro uttered his most famous words, “irrational exuberance”. It was on the 5th of December 1996, during a speech entitled “The Challenge of Central Banking in a Democratic Society”. On the chart below of the DOW there is a red arrow to show when that was;

greenspan dow

In the previous ten years the Dow had tripled in value. Since then 16 years have gone by and the Dow is at roughly 13000, implying a compound growth rate of 5.1% (which does not include dividends), which is much higher than the long-term growth rate. This begs the question why exuberance then and a buying opportunity now?

The answer, I would suggest, can be found in parts of that speech particularly when the maestro says, “We as Central Bankers need not be concerned if a collapsing financial bubble does not threaten to impair the real economy, its production, jobs and price stability”.It is almost as if these guys , like ostriches, bury their heads in the sands of the world of academia and are completely disconnected from the real world.