A Dollar as Good as a Dollar Jude Wanniski December 4, 1997

Memo To: Floyd Norris, NYTimes Sunday Business Columnist
From: Jude Wanniski
Re: Gold vs Greenspan

Your Sunday “Market Watch” column, “In Alan We Trust, So Why Own Gold?,” presents the idea that the world can now ignore the monetary signals of gold because we have a better one, i.e., the brilliance of Alan Greenspan and his fellow central bankers. When I read the piece, I thought of Floyd Ptolemy, the astronomer of the Middle Ages who believed the sun revolved around the Earth. I remind you again, Floyd, that your Sunday Times column is among the most visible and thus the most important in the world. For you to devote the space to thinking out loud instead of tapping into the myriad sources of wisdom available to you constitutes a negative return on investment of all readers of your newspaper. Your column this week should have been devoted to the question: Is the price of gold, below $300, too low? Does it signal deflation? The same wizard you celebrate, Alan Greenspan, has over the years said again and again that gold is the best signal of incipient inflation. You know he has, because I have reminded you about this a great many times during your tenure at the Times. You can’t say you have never heard about this. This being the case, is it possible that gold at $296 is not where it is because government bureaucrats everywhere in the world no longer need  the yellow stuff, because they now have Greenspan? Or is it indicating a monetary deflation? That Greenspan is screwing up in denying to the market dollar liquidity that is being demanded? 

Let me explain: When the Fed increases the supply of dollars more than the market is demanding, the surplus first bids up gold, the most monetary of all commodities. Other commodities follow, then real property, then wages. This is called inflation. When the Fed does not supply the dollars being demanded, the price of gold falls, as the market first turns to gold to acquire dollar liquidity. Then oil and other commodities fall, then real estate, then wages. This is called deflation. Alexander Hamilton explained this 200 years ago when he urged to Congress to rely more on the gold market than on the sudden appearance of a Greenspan. Caesar Augustus built the Roman Empire on gold money. The Dutch had learned this in the 16th century and the British discovered it in 1717, when Sir Isaac Newton put the Bank of England on the gold standard. Floyd Ptolemy now tells his readers that fiat money -- by which we mean paper fiduciary media -- is superior to the real stuff because we can trust Greenspan & Co. to keep the dollar as good as...... what? 

Does it ever occur to you that the floating dollar is a floating dollar? How much genius does it take Alan Greenspan to make the dollar as good as a dollar? How good does a financial columnist have to be to recognize that Greenspan has made the dollar as good as a dollar? Do you see what I mean, Floyd? Your column on Sunday did not contribute to the sum total of human knowledge. It was extremely safe, in that it said the price of gold in dollars is lower today than it was a while ago. Nobody can disagree with that. Oh, it did say that central banks are selling gold, which is why its price is falling. Did you hear that on the radio? Read it in the NYPost? Actually the World Gold Council reports that in the past year central bank gold holdings have fallen by 12 million ounces out of 11 billion. That is, 12,000,000 out of 11,000,000,000. At the same time, private gold holdings have risen by at least 600 million ounces. If you heard this on the radio, would you conclude gold is becoming more important or less important than central bankers?

No kidding, Floyd. This is deflation. Bad things are happening because of it.