BEST OF JIM COOK

February 28, 2006

DEMIGOD

Steve Forbes

Richard Russell

A few days after his retirement, Alan Greenspan addressed a private group of financiers at Lehman Brothers. The fee was rumored at between $250,000 and $1 million. Among his comments on the economy was the curious suggestion that gold has been rising because of terrorism. Gold has doubled in the past few years, and had Mr. Greenspan pointed to inflation, a weak dollar, or trade and budget deficits, as the culprit, most people would have nodded agreement.

The real reason for gold’s rise is major additional buying of the yellow metal for hedging, investment, hoarding or speculation. To say that’s because of terrorism is a stretch.

I called a gold expert I know and asked him about Mr. Greenspan’s puzzling remark. "Do you think he mentioned terrorism just to point people away from what he thinks is the real reason?" I asked. "He’s not that smart," came the reply. "He was just a mediocre economist before he got the job at the Fed." I wasn't sure I agreed with that. After all, the Maestro is a revered figure in the media.

Years ago, when Mr. Greenspan was affiliated with the novelist and philosopher, Ayn Rand, he wrote an insightful essay extolling the virtues of gold. As a member of Rand’s inner circle he apparently embraced her views. If you’ve read Atlas Shrugged, you know her fondness for capitalism was only exceeded by her hatred for collectivism. Her novels bog down with lengthy speeches and diatribes promoting her philosophy of objectivism.

A few years ago I had the opportunity to meet one of Rand’s main lieutenants at a seminar. He was an author in his own right and someone who I had always looked up to. As we chatted, I detected a very large ego. Later that evening, at a banquet, I was seated with him at the speakers table. It became clear that he was quite full of himself. He mentioned that he would be seeing Mr. Greenspan in a few days.

When I got home, I pulled his best-selling book down from a shelf in my library. I had started reading it some thirty years ago and, after a few pages, had put it aside. I began to skim it again and it soon confirmed what I expected: Fluff! One of my storied heroes was not the heavyweight I had credited him to be.

C.S. Lewis wrote that pride is the greatest sin. A lack of humility surely leads to the major mistakes in our lives. When we spot this arrogant pride in others, we are quick to detest it. I once read a story about a person who was a great fan of the actor, Charles Laughton. He was thrilled when a friend arranged for them to have lunch with the famous star. Over lunch he determined that Laughton was an arrogant bore. He was crushed by this revelation.

In reality, if we were to spend a lot of time with those who have been placed on a pedestal, it would probably be a disappointing experience. People want heroes and leaders. My former marketing friend, Jay Abraham, would often say, "People are silently begging to be led." The media creates our heroes and we respect and revere them.

Take Mr. Greenspan. He earned enormous credit for his steerage of the economy. However, since he became Fed chairman, the dollar has lost almost half its purchasing power. He oversaw the longest expansion of money and credit in the history of the world. Whenever a cloud appeared on the horizon of the economy, he pumped out more money and credit. Yet, he never uttered the word credit. He even bought into Y2K, flooding the banks with reserves just prior to the millennium. He was the greatest inflationist in history, but Wall Street loved his loose money regime, even as the currency was debased. He created huge asset bubbles that belied the idea of modest inflation.

Although this was contrary to his old objectivist philosophy and affinity for gold, he probably had no choice. The people and the politicians would never stand for a contraction and an end to inflating. He would have earned their ire and been tossed from office. Nothing would be more unpopular today than a gold standard or a policy of sound money. We have made inflating the holy grail of Federal Reserve policy. Every future crisis, and there will be many, will be greeted with an avalanche of fresh dollars.

We’re not picking on Mr. Greenspan, but only trying to remember that he too is just a man. From our viewpoint he has set the nation on a course of inflating that will ultimately be ruinous. Despite Mr. Greenspan’s perch at the pinnacle of public opinion, we suspect that if your next door neighbor had been given the job of Fed chairman, and he or she had boned up on their monetary affairs, the outcome would be pretty much the same. They might even say something totally off the wall, like terrorism was the reason for gold’s rise.