Surprisingly candid remarks from Alan Greenspan suggest the former Fed chair is bullish on gold precisely because the government is incapable of making good on all of its financial obligations.

Axel Merk of Merk Investments, in his most recent newsletter, says Greenspan’s candid statements, made at the New Orleans Investment Conference on Saturday, “shed light on how the Fed works in ways no other former Fed chair has ever dared to articulate.”

The gold and currencies portfolio manager offered his interpretation of several Greenspan quotes, which, taken together, make his case that investors should develop their own personal gold standard because they cannot rely on governmental monetary policy.

The first provocative remark Merk quotes is Greenspan’s statement that “the gold standard is not possible in a welfare state.”

Merk interprets that to mean that, by building up liabilities via entitlements to an extent that did not exist back when the U.S. actually had a gold standard, the government has an incentive to debase the value of its currency.

But the unexpected confession of the Fed’s inner workings, according to Merk’s interpretation, came when a critic (investor Marc Faber) decried the Fed’s de facto financing of social programs, prompting Greenspan to reply “you have it backwards.”

As Merk paraphrases the exchange, Greenspan said “the Fed does what Congress requires of it. He lamented that Fed policies are dictated by culture rather than economics.”

That in turn triggered criticism about jeopardizing the Fed’s independence, to which Greenspan shockingly responded: “I never said the central bank is independent!”

Writes Merk: “I have never, ever, heard a Fed Chair be so blunt.”

Beyond the seeming admission that politics plays a role in monetary policy, Greenspan seemed to offer a plug for gold, implicitly and then explicitly.

The implicit endorsement came in his non-response to the question “why do central banks [still] own gold, to which he replied “gold has always been accepted without reference to any other guarantee.

But then came the investment advice. Asked “where will the price of gold be in 5 years?” he at first said “higher.” Asked “how much [higher],” he replied “measurably.”

Merk’s take on all this is that Greenspan, in effect, saw his role as Fed chairman as facilitating government policies.

While the portfolio manager has spoken in the past with former and current monetary policymakers who might obliquely state the difficulty of policy coordination between monetary and fiscal authorities, Greenspan’s candid statements, he argues, have profound implications for investors.

“If the Fed’s printing press is at the disposal of politicians, the temptation to use it is great,” especially since it is understood that “many politicians think there’s unlimited money to spend.”

What’s more, he says the government’s currency management track record is itself sufficient to alarm investors, noting that “the dollar has lost over 95% of its purchasing power in the first 100 years of the Fed’s existence,” that is from 1913 to 2013.

For that reason, Merk argues investors need to diversify even “something as mundane as cash,” and bracingly concludes:

“My own takeaway from Greenspan’s talk was that anyone who isn’t paranoid isn’t paying attention. Did I mention he said the promises made by the government cannot be kept? Mathematically, he said, it’s impossible.”