The Fiat Money Maestro

By Ron Paul

​Former Federal Reserve Chairman Alan Greenspan passed away last week at the age of 100. Greenspan chaired the Fed from 1987 through 2006.
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Despite being a lifelong Republican, Greenspan refused to lower interest rates, though doing so may have helped George H.W. Bush’s 1992 reelection campaign. However, he did tailor monetary policy to support President Clinton’s 1993 budget, as well as the 1997 bipartisan budget deal.

Greenspan’s handling of monetary policy was widely credited as responsible for the 1990s strong economy. As a result, the cult of the Federal Reserve chairman reached new heights under Greenspan. During Greenspan’s tenure it became so common for the Fed to act to help bail out large financial firms that experienced financial difficulty that many began referring to the “Greenspan put.” Greenspan was even the subject of a bestselling biography by Bob Woodward titled Maestro. New Republic reporter Stephen Glass wrote about Wall Street professionals maintaining a shrine to Greenspan. While the story was later revealed to be one of many fabrications created by Glass, at the time it seemed believable that Wall Street offices would contain shrines to Greenspan.

Greenspan’s reputation survived the bursting of the Fed-created tech bubble. The Fed responded to the bursting of the tech bubble and the economic downturn following 9-11 by creating another bubble, this time in housing.

Greenspan had already left the Fed when the housing bubble burst. His successor Ben Bernanke undertook unprecedented interventions in the economy. The meltdown, and the Fed’s response, coincided with the rise of a new liberty movement. This movement, which included a large number of young people, made opposition to the Federal Reserve a central part of its agenda. The liberty movement influenced the larger Tea Party, making monetary policy a major issue in American politics for the first time in over a century. Skepticism of the Fed was common in both the Tea Party and the left populist Occupy Wall Street movement. Many people involved with the Tea Party and Occupy Wall Street properly viewed the Fed as an institution that serves the elites at the expense of average Americans.

The increased focus on the Fed resulted in the Audit the Fed bill twice passing the House. Continued opposition to the Fed among regular Americans is fueled by President Trump’s public (and often misguided) attacks on the central bank.

The Fed’s continued devaluation of the dollar, done in large part to monetize the government’s almost 40 trillion dollars (and growing) debt, will lead to a dollar crisis. That dollar crisis will permanently destroy not just the Fed’s reputation but the Fed itself along with the welfare-warfare state.

Ironically, a good explanation of why fiat currency is the enemy of liberty and gold is the friend of liberty is provided in “Gold and Economic Freedom” written by none other than Alan Greenspan and published in Ayn Rand’s The Objectivist newsletter in 1966. In that essay Greenspan wrote “Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.” Those seeking the path to prosperity and liberty should embrace the wisdom Greenspan showed before he became the fiat money maestro.