Wednesday, September 24, 2008

Alan Greenspan on fiat money & The Fed



Some mechanism has got to be in place that restricts the amount of money which is produced - either a gold standard or currency board or something of that nature - because unless you do that all of history suggests that inflation will take hold with very deleterious effects on economic activity. - former Fed Chairman Alan Greenspan, October 2007 (on FOX Business)

Ludwig von Mises used to say that governments will always try to get people to focus on prices when thinking about inflation. But rising prices are a result of inflation, not inflation itself. Inflation is the increase in the money supply. If we understood inflation that way, we would instantly know how to cure it: simply demand that the Federal Reserve cease increasing the money supply. By focusing our attention on prices instead, we are liable to misdiagnose the problem, and we are more apt to accept bogus government
"solutions" like wage and price controls, as in the 1970s.
- Congressman Ron Paul, May 2008 (The Revolution: A Manifesto)

Bush's solution - printing more money and inflating the money supply - is not the answer. It's masking the problem... America is living beyond its means.

Tim White

2 comments:

Anonymous said...

Greenspan was a big part of the problem. I guess he liked his job so much that, on too many occasions, he went along with whatever Bush wanted and said there was no housing bubble while all along he was aware. Like many of Bush's appointments he just didn't do his job of protecting the banking system and this country. There is no doubt he didn't know, especially because the S&L disaster of the 1980's was a recent example of the kind of wreckage a housing bubble could produce. Greenspan simply fiddle away and enjoyed the limelight at the expense to the country.

tim white said...

I agree. I think Greenspan understood the big picture. But he ignored it in favor of reappointment so he could have every word of his heard by the world. Though I imagine he viewed it as "compromise."

I define that compromise as "Reagan, Bush 1, Clinton & Bush 2 wanted 'good times.' So do as your told and ignore the long-term impact on the dollar and country."

No different from so many pols.

I still think that outside of office, Greenspan is right. Fiat money will not last indefinitely.