I.O.U.S.A - Addison Wiggin [60]
Then there ’ s the other standard, the fi at paper standard or the faith - based standard, which we have today. This is entirely different because there ’ s nothing solid in it; there is no gold in it. Governments create money out of thin air. They create it by c08.indd 123
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124 The
Interviews
spinning the printing press or by just crediting their member banks with a few billion dollars more. This type of money is fi shy, and the boom that this money creates is also fi shy, because it ’ s created from nothing. There are no savings and there ’ s no real money in it. Consequently you get a lot of spending but not much real wealth creation — not in America, anyway.
Q: Can you talk about the fact that Alan Greenspan, who had a very long and prestigious run at the Fed, was a gold bug at one point, and that he later embodied the opposite of what the gold currency was set up to try to do? Is Greenspan a paradox in some way?
Bill Bonner : Well, I wouldn ’ t say Greenspan is a paradox.
Certainly, Alan Greenspan appears to us as a paradox, but to me it ’ s not much of a paradox. When he was young, before he had a dog in the fi ght, he was a very keen and smart observer, and he observed that gold was very important to an economic system.
He said that if you take gold out of the system, governments are able to infl ate the currency much more easily. It ’ s kind of a fraud on people who save, because they ’ ve been saving something that they thought was valuable, and when the government just spins up some more of it, all of a sudden it ’ s not worth so much.
Greenspan wrote that it was a fraud: that it was a theft to take that money from them.
But he was a human too, and human beings have their weaknesses. One weakness is that they want power. When Greenspan got power, he realized that his hard money views —
it ’ s called hard money when you believe in gold as a basis for currency — don ’ t square with the lust for power. When given the choice between his hard money views and his role with the Fed, he chose the role with the Fed. He always says that he still believes in what he wrote many, many years ago, but he certainly doesn ’ t practice it. During his time at the Fed, more new money was created than under all of the Fed directors and secretaries of the Treasury in American history. And again, this money was created out of thin air. This is just the thing that he argued was a kind of theft, when he was a young man.
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Q: Why was Wilson ’ s presidency and the Federal Reserve Act important? Was that a watershed moment in economics, and in the ability for the American soon - to - be empire, to be able to create money?
Bill Bonner : When we look at real economics, what we ’ re really talking about is real human beings and what they do. And when you look at real human beings, you fi nd that they have good points and bad points. One of the points about human nature is that they do like power. And the way people get power — this was true in Rome, and it ’ s true in America today — is by giving people something for nothing. Of course it isn ’ t really something for nothing; either they have to steal something from somebody else in order to give it to them, or it really turns out to be nothing at all. But this giving something for nothing is the basis of government debt and is also the basis of a lot of the mischief in foreign affairs. People get the idea that they ’ re going to pull off something really great and it never happens.
We see that over and over again in history. Read the history of Rome, of course, and it ’ s full of blood and guts and gore. But in American history you see it too, and we saw it with Wilson.
Wilson was a professor of government at Princeton. When he got into government, you could just watch his character evolve, and he gradually took on the role of a power broker. When World War I came along, Americans wanted to stay out of that war. It was a European war and they didn ’ t see any point in going to war