Speaker: Alan Greenspan, President, Greenspan Associates LLC; Former Chairman of the Board of Governors, Federal Reserve System
Presider: Gillian Tett, U.S. Managing Editor, Financial Times
October 29, 2014, New York
Council on Foreign Relations
TETT: I'm going to turn to the audience for questions in one minute, but before I do though, I just want to ask though, one of the really interesting chapters in your book is about gold. And there's been a lot of media debate in the past about your views on gold.
You yourself oppose a question as to why would anyone want to buy this barbarous relic -- I don't know whether John Paulson is in the audience -- but it's an interesting question. But do you think that gold is currently a good investment given what you're saying about the potential for turmoil?
TETT: Do you put...
GREENSPAN: Economists are usually perfect in equivocating. In this case I didn't equivocate. Look, remember what we're looking at. Gold is a currency. It is still by all evidences the premier currency where no fiat currency, including the dollar, can match it. And so that the issue is, if you're looking at a question of turmoil, you will find, as we always have in the past, it moves into the gold price.
But the gold price is actually sort of half a commodity price, so when the economy is weakening, it goes down like copper. But it's also got a monetary characteristic which is instrinsic. It's not inbred into human beings -- I cannot conceive -- of any mechanism by which you could say that, but it behaves as though it is.
Intrinsic currencies like gold and silver, for example, are acceptable about a third party guarantee. And, I mean, for example at the end of World War II, or just at the end of it, Germany could not import goods without payment in gold. The person who shipped the goods in would accept the gold, and didn't care whether there was any credit standing -- associated with it. That is a very rare phenomenon. It's -- it's the reason why, for example, in a renewal of an agreement (CBGA) that the central banks have made -- European central banks, I believe -- about allocating their gold sales which occurred when gold prices were falling down, that has been renewed this year with a statement that gold serves a very important place in monetary reserves.
And the question is, why do central banks put money into an asset which has no rate of return, but cost of storage and insurance and everything else like that, why are they doing that? If you look at the data with a very few exceptions, all of the developed countries have gold reserves. Why?
TETT: I imagine right now, it's because of a question mark hanging over the value of fiat currency, the credibility going forward.
GREENSPAN: Well, that's what I'm getting at. Every time you get some really serious questions, the 50 percent of the gold price determination begins to move.
GREENSPAN: And I think it is fascinating and -- I don't know, is Benn Steil in the audience?
GREENSPAN: There he is, OK. Before you read my book, go read Benn's book. The reason is, you'll find it fascinating on exactly this issue, because here you have the ultimate test at the Mount Washington Hotel in 1944 of the real intellectual debate between the -- those who wanted to an international fiat currency which was embodied in John Maynard Keynes' construct of a banker, and he was there in 1944, holding forth with all of his prestige, but couldn't counter the fact that the United States dollar was convertible into gold and that was the major draw. Everyone wanted America's gold. And I think that Benn really described that in extraordinarily useful terms, as far as I can see. Anyway, thank you.
TETT: Right. Well, I'm sure with comments like that, that will be turning you into a rock star amongst the gold bug community.