Monday, January 23, 2006

Bill Bonner on Gold - Part 2

You can read the entire article here.

That gold has a sense of humor is beyond question. We hear it laughing every time Alan Greenspan opens his mouth. You'll recall that Mr. Greenspan was once a close friend of gold. The two were practically bosom buddies. Greenspan wrote that gold was indispensable to an honest money system. Of course, that was before he came to head up the largest and most cocksure central bank in history. Since then, he's hardly had time for his old pal. He has new friends in very high places.

By almost every measure, more purchasing power has been added since he has held his post at the Fed than under all the U.S. Treasury secretaries, Fed chiefs, and presidents that preceded him combined.

Gold chuckles.

What gold knows is that it is one thing to create money and credit; it is quite another to create real wealth. The first is as easy as running a printing press; the second is hard. You can inspire people to consume wealth by spreading around some spending money. You can even inspire people to make more of the things they consume. Before you know it, you'll have what looks like a boom. But if you could get rich by printing up extra currency, or by borrowing and spending...everybody would do it.

What gold also knows is that the more money and credit you make available, the less each unit of it is really worth. And if you order up enough of it, you can destroy the currency itself.

Gold chuckles knowingly again.

Greenspan is doing for central banking what the Titanic did for ocean cruises and George Armstrong Custer did for the cavalry. With a little luck, soon people won't want anything to do with it. For the first part of his career, he argued that paper money, un-backed by gold, was doomed to failure. For the last 18 years, he has worked to prove it. Not by logic or argument, but by demonstration. He has blown up the biggest bubble in money and credit the world has ever seen. When it pops, Americans will turn to gold. Gold will sell for thousands of dollars an ounce, before the dollar is replaced. And Americans will trust neither "paper" money, nor central bankers for at least the next three generations. We just hope Alan Greenspan lives long enough to see it.


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