Gold Price Jude Wanniski September 20, 2004

From: Ben.S.Bernanke@***.gov
 Subject: Re: a thought
To: Jude Wanniski <jwanniski@polyconomics.com >

From: Ben S. Bernanke, 9/20/2004

thanks

                                                                                                                              
From: Jude Wanniski  <jwanniski@polyconomics.com        
To:      Ben.S.Bernanke@ * * * * *.GOV                                               
cc:                                                                           
Subject: a thought  09/20/2004 04:22 PM                                                                                                      
                                                                                                                              
Why don't you ask your assistant to plot the $gold price from Jan 1, 1990 to the present against the ff rate in the same time period. Note especially the Fed rate hikes in 94 and 95 and how the gold price didn't budge from the $385 level.  This is when Greenspan came to think that gold no longer responded to "tightening" and ignored its steep decline. You can see the gold price beginning its decline, though, when the Clinton/GOP tax package of 1997 began to take shape after the 96 elections... increasing the demand for liquidity. Greenspan should not have given up on gold, but should have realized you cannot fight monetary inflations or monetary deflations with interest rate changes. You have to do it directly, managing the balance sheet in order to keep the dollar/gold price fixed.  Do you know the economist Don Patinken? I'm told he had a proof that showed you could not control real spot prices with interest rates.

Jude

PS  Have a nice FOMC meeting!!!