mick silver
8th March 2015, 10:00 AM
Introduction: James has specialized in international banking, finance and investments since graduating in 1969 from George Washington University with a B.A. degree in International Economics. Beginning his career with The Chase Manhattan Bank (now JP Morgan Chase), in 1980 he joined the private investment and trading company of a prominent precious metals trader. He moved to the United Arab Emirates in December 1983 to be appointed Manager of the Commodity Department of the Abu Dhabi Investment Authority, a position he held until resigning in 1987. James Turk has written several monographs on money and banking and is the co-author of The Coming Collapse of the Dollar and, in 2013, The Money Bubble: What To Do Before It Pops. He is also the founder of GoldMoney, a convenient and economical way to buy and sell gold online.
Daily Bell: Hi there. Please update our readers on your activities since we last interviewed you, in April 2014.
James Turk: Even though I retired as chairman of GoldMoney back in 2013, I've been keeping busy. I remain a director on the GoldMoney board, and still speak occasionally at conferences. But for most of the past year I've been developing a new company, which will launch this March. It's still in the precious metal area, which is of course my area of expertise, and it is complimentary to the range of services and products that GoldMoney already provides. I would like to keep it under wraps until the launch, but anyone who is interested to hear about my new company when it is ready can follow me on Twitter, @fgmr.
Daily Bell: You seem more pessimistic these days. Is it because central bank (http://www.thedailybell.com/definitions/params/id/2958/) money printing is continuing at a faster pace than ever?
James Turk: The prospect for national currencies continues to deteriorate, and I am indeed more pessimistic about their prospects as well as the economic outlook. But the real underlying reason for my pessimism is the uninterrupted growth in financial repression that politicians and central bankers are forcing upon us. These imperious authoritarians are doing everything they can – including abusing their power – to keep their welfare states afloat, even though the present system they are trying to perpetuate is unsustainable.
What's worse, it is a system that encourages reliance on the State, rather than one's own efforts. As a consequence, taxpayers and tax-eaters are increasingly at odds, which is laying the groundwork for increasing hostility and civil unrest. The isolated outbreaks of violence in recent years are an omen of what we can expect, but demonstrations and other protests will become less peaceful and more violent because frustrations will grow as economic activity continues to deteriorate.
Daily Bell: Is Europe really deflating? We don't think so given the money being printed.
James Turk: ECB is shrinking its balance sheet, but the measures of the quantity of euros in circulation are expanding because banks are monetizing government debt. So there are two forces at work here. The prices of some products are falling, like gasoline. But these drops are due to slackening demand from a weak economy and overstretched consumers trying to balance debt loads, and are not a deflationary sign that the purchasing power of currency is increasing. At the same time, the underlying inflation rate is eroding the purchasing power of the euro. So even though some prices are declining, the cost of living continues to rise, and many of these costs are not calculated in government Consumer Price Indices, which therefore understate the difficulty in maintaining one's standard of living in today's environment that is dominated by central bank financial repression. In other words, incomes are not rising to keep up with the cost of living. Savers and retirees, of course, are really feeling the pinch because of the zero interest policy being pursued by the ECB.
Daily Bell: We think the deflation talk is an excuse to justify asset expansion.
James Turk: Yes, I agree. It is also an excuse to increase government power over markets and the economy. And the consequence of that is more control of people, which is the ultimate goal of all authoritarians.
Daily Bell: Are stock markets headed for a reprise of 1987 or 2009 when averages simply collapsed?
James Turk: It depends on what central banks do. Stock markets around the world are not rising because of good economic activity or bright prospects for the future. They are rising because the money central banks are printing has to go somewhere, and in the low interest rate environment of recent years, this money is going into the stock market. But if the central banks engineer a 1930s type deflation in which the quantity of money actually contracts, stocks will drop from current levels.
Daily Bell: Are there asset bubbles forming in the West, especially in the US and Britain?
James Turk: Yes, without any doubt. Bubbles imply overvaluation, and overvalued assets are easy to spot these days. They include stock markets, London real estate, classic cars, paintings and many other collectibles. These assets are in a bubble, but their prices may continue to climb. After all, where else do you want to put your money, given the low interest rates paid by banks? So as long as central banks continue with their financial repression by forcing interest rates to artificially low levels, expect the price of these assets to continue to rise, while at the same time, the purchasing power of national currencies continue to erode.
Daily Bell: Last time, we spoke about a new book you had co-authored with John Rubino, called The Money Bubble: What To Do Before It Pops (DollarCollapse Press). When will the bubble pop, do you think? You've been expecting the collapse for a while now.
James Turk: In our first book, The Coming Collapse of the Dollar, which was published in 2004, John and I said to buy gold and bet against the housing bubble. That may not have been a popular view at the time, but the logic of our argument soon thereafter began to make sense. As it turned out, we now know that those were two of the best investment strategies of the decade. Maybe John and I are early again this time, and if so, the good news is that it does give people time to prepare when the mountain of debt comes tumbling down and lays bare the inherent fragility of fiat currencies, the insolvency of most banks and the hollow promises of politicians and bureaucrats that we all know cannot possibly be fulfilled.
Daily Bell: You've made your reputation with gold and gold stocks. Where is gold headed, and what about silver?
James Turk: As long as central banks continue to debase national currencies, the price of gold and silver (http://www.thedailybell.com/definitions/params/id/804/) will continue to climb higher. It is as certain as night follows day. There will be, of course, price fluctuations both up and down, but gold's 5,000 history as money did not end in 1971 when President Nixon asked then Treasury Secretary John Connelly to "suspend temporarily" the dollar's convertibility into gold. Four decades seems a long time for a temporary suspension, but it is just a fraction of 5,000 years.
So gold is still money, but it just doesn't circulate a lot as currency because of government edicts. These edicts though have not changed the essential nature of gold or its monetary role. This point can be illustrated with an example. An ounce of gold still purchases the same amount of crude oil it did in 1950. So gold clearly fulfills one of the main functions of money – it preserves purchasing power over long periods of time.
Silver is a special case. I see it as a gold-substitute. In other words, silver preserves purchasing power, too. Growing up in Ohio in the 1950s, my parents could pull into a gas station and fill the family car with two silver dollars. Two dollars today don't even buy a gallon of gas, but the silver in two silver dollars will still fill up the family car. However, silver is volatile compared to gold.
Historically it usually took 16 ounces of silver to exchange for one ounce of gold. It now takes 72 ounces of silver, signaling to me that silver is very undervalued. Thus, I expect that as precious metal prices rise as a result of central bank mismanagement of national currencies, silver will rise faster than gold so that at some point in the future, their ratio will again approach the historical norm of 16-to-1.
Daily Bell: Is the dollar headed down because of all the money printing? It seems surprisingly resilient.
James Turk: As one wag said, the dollar is the best-looking horse in the glue factory. It is only strong because the alternatives look even worse. That is not, of course, a reason to be long the dollar, but institutional investors have to put their money somewhere. So the dollar is benefiting from the need to hold a currency for liquidity as well to be able to transact in commerce and financial markets. But it is a knee-jerk reaction, rather than one that is logical and thought through.
Importantly, don't expect dollar strength to continue. That has been a losing bet for decades, and will continue to be a losing bet until the US returns to constitutional money, which of course is gold and silver. Sadly, I don't see that event to be happening anytime soon. Instead, the US looks ready to re-learn what the framers experienced. After the continental – the country's first currency – collapsed, the framers set out to create a "more perfect Union." A key element to achieve that objective was to enshrine sound money into the Constitution, and so it was more or less until 1971.
Daily Bell: Janet Yellen says the US is in recovery. Your thoughts?
James Turk: There are some parts of the economy that are doing better than in recent years, but it is spotty and not countrywide. So she is just cheerleading, which is what we used to call propaganda. There are more unemployed people now than in 2007 before the financial crash, and more people in recent months have been joining the food stamp program than getting jobs. All signs indicate that the economy is barely moving along, and that's true for much of the world.
Daily Bell: She claims she will raise rates but you said she would not. So far you're on the right track. How did you know?
James Turk: The Fed can't raise rates because the US government cannot afford to pay a fair rate of interest on its mountain of debt, which now stands at a mind-boggling $18.1 trillion – and it keeps growing. It is useful to look at the relative size of this towering mountain of debt compared to the federal government's annual revenue, which is about $3 trillion. So consider what would happen if the federal government began paying a reasonable interest rate, say 5%, which is 5% more than holders of T-bills are now earning. It would need to pay 5% more on $18.1 trillion, which is $900 billion per year of additional interest expense, which would increase the federal deficit and cause the federal government to borrow even more money. That borrowing would raise interest rates even further because it would highlight that the federal government is overleveraged and cannot possibly repay its debts.
What I am describing here, of course, is how currencies end up in a hyper-inflationary spiral and are ultimately destroyed as their purchasing power evaporates; namely, central banks keep turning government debt into currency. Since the end of the Second World War dozens of currencies have been destroyed this way, and the dollar is heading in that direction. Sooner or later it will get there and head over the cliff, just like what happened to the continental.
- See more at: http://www.thedailybell.com/exclusive-interviews/36141/Anthony-Wile-James-Turk-Sovereignty-Is-Under-Threat-Worldwide/#sthash.IgXhTlCX.dpuf
Daily Bell: Hi there. Please update our readers on your activities since we last interviewed you, in April 2014.
James Turk: Even though I retired as chairman of GoldMoney back in 2013, I've been keeping busy. I remain a director on the GoldMoney board, and still speak occasionally at conferences. But for most of the past year I've been developing a new company, which will launch this March. It's still in the precious metal area, which is of course my area of expertise, and it is complimentary to the range of services and products that GoldMoney already provides. I would like to keep it under wraps until the launch, but anyone who is interested to hear about my new company when it is ready can follow me on Twitter, @fgmr.
Daily Bell: You seem more pessimistic these days. Is it because central bank (http://www.thedailybell.com/definitions/params/id/2958/) money printing is continuing at a faster pace than ever?
James Turk: The prospect for national currencies continues to deteriorate, and I am indeed more pessimistic about their prospects as well as the economic outlook. But the real underlying reason for my pessimism is the uninterrupted growth in financial repression that politicians and central bankers are forcing upon us. These imperious authoritarians are doing everything they can – including abusing their power – to keep their welfare states afloat, even though the present system they are trying to perpetuate is unsustainable.
What's worse, it is a system that encourages reliance on the State, rather than one's own efforts. As a consequence, taxpayers and tax-eaters are increasingly at odds, which is laying the groundwork for increasing hostility and civil unrest. The isolated outbreaks of violence in recent years are an omen of what we can expect, but demonstrations and other protests will become less peaceful and more violent because frustrations will grow as economic activity continues to deteriorate.
Daily Bell: Is Europe really deflating? We don't think so given the money being printed.
James Turk: ECB is shrinking its balance sheet, but the measures of the quantity of euros in circulation are expanding because banks are monetizing government debt. So there are two forces at work here. The prices of some products are falling, like gasoline. But these drops are due to slackening demand from a weak economy and overstretched consumers trying to balance debt loads, and are not a deflationary sign that the purchasing power of currency is increasing. At the same time, the underlying inflation rate is eroding the purchasing power of the euro. So even though some prices are declining, the cost of living continues to rise, and many of these costs are not calculated in government Consumer Price Indices, which therefore understate the difficulty in maintaining one's standard of living in today's environment that is dominated by central bank financial repression. In other words, incomes are not rising to keep up with the cost of living. Savers and retirees, of course, are really feeling the pinch because of the zero interest policy being pursued by the ECB.
Daily Bell: We think the deflation talk is an excuse to justify asset expansion.
James Turk: Yes, I agree. It is also an excuse to increase government power over markets and the economy. And the consequence of that is more control of people, which is the ultimate goal of all authoritarians.
Daily Bell: Are stock markets headed for a reprise of 1987 or 2009 when averages simply collapsed?
James Turk: It depends on what central banks do. Stock markets around the world are not rising because of good economic activity or bright prospects for the future. They are rising because the money central banks are printing has to go somewhere, and in the low interest rate environment of recent years, this money is going into the stock market. But if the central banks engineer a 1930s type deflation in which the quantity of money actually contracts, stocks will drop from current levels.
Daily Bell: Are there asset bubbles forming in the West, especially in the US and Britain?
James Turk: Yes, without any doubt. Bubbles imply overvaluation, and overvalued assets are easy to spot these days. They include stock markets, London real estate, classic cars, paintings and many other collectibles. These assets are in a bubble, but their prices may continue to climb. After all, where else do you want to put your money, given the low interest rates paid by banks? So as long as central banks continue with their financial repression by forcing interest rates to artificially low levels, expect the price of these assets to continue to rise, while at the same time, the purchasing power of national currencies continue to erode.
Daily Bell: Last time, we spoke about a new book you had co-authored with John Rubino, called The Money Bubble: What To Do Before It Pops (DollarCollapse Press). When will the bubble pop, do you think? You've been expecting the collapse for a while now.
James Turk: In our first book, The Coming Collapse of the Dollar, which was published in 2004, John and I said to buy gold and bet against the housing bubble. That may not have been a popular view at the time, but the logic of our argument soon thereafter began to make sense. As it turned out, we now know that those were two of the best investment strategies of the decade. Maybe John and I are early again this time, and if so, the good news is that it does give people time to prepare when the mountain of debt comes tumbling down and lays bare the inherent fragility of fiat currencies, the insolvency of most banks and the hollow promises of politicians and bureaucrats that we all know cannot possibly be fulfilled.
Daily Bell: You've made your reputation with gold and gold stocks. Where is gold headed, and what about silver?
James Turk: As long as central banks continue to debase national currencies, the price of gold and silver (http://www.thedailybell.com/definitions/params/id/804/) will continue to climb higher. It is as certain as night follows day. There will be, of course, price fluctuations both up and down, but gold's 5,000 history as money did not end in 1971 when President Nixon asked then Treasury Secretary John Connelly to "suspend temporarily" the dollar's convertibility into gold. Four decades seems a long time for a temporary suspension, but it is just a fraction of 5,000 years.
So gold is still money, but it just doesn't circulate a lot as currency because of government edicts. These edicts though have not changed the essential nature of gold or its monetary role. This point can be illustrated with an example. An ounce of gold still purchases the same amount of crude oil it did in 1950. So gold clearly fulfills one of the main functions of money – it preserves purchasing power over long periods of time.
Silver is a special case. I see it as a gold-substitute. In other words, silver preserves purchasing power, too. Growing up in Ohio in the 1950s, my parents could pull into a gas station and fill the family car with two silver dollars. Two dollars today don't even buy a gallon of gas, but the silver in two silver dollars will still fill up the family car. However, silver is volatile compared to gold.
Historically it usually took 16 ounces of silver to exchange for one ounce of gold. It now takes 72 ounces of silver, signaling to me that silver is very undervalued. Thus, I expect that as precious metal prices rise as a result of central bank mismanagement of national currencies, silver will rise faster than gold so that at some point in the future, their ratio will again approach the historical norm of 16-to-1.
Daily Bell: Is the dollar headed down because of all the money printing? It seems surprisingly resilient.
James Turk: As one wag said, the dollar is the best-looking horse in the glue factory. It is only strong because the alternatives look even worse. That is not, of course, a reason to be long the dollar, but institutional investors have to put their money somewhere. So the dollar is benefiting from the need to hold a currency for liquidity as well to be able to transact in commerce and financial markets. But it is a knee-jerk reaction, rather than one that is logical and thought through.
Importantly, don't expect dollar strength to continue. That has been a losing bet for decades, and will continue to be a losing bet until the US returns to constitutional money, which of course is gold and silver. Sadly, I don't see that event to be happening anytime soon. Instead, the US looks ready to re-learn what the framers experienced. After the continental – the country's first currency – collapsed, the framers set out to create a "more perfect Union." A key element to achieve that objective was to enshrine sound money into the Constitution, and so it was more or less until 1971.
Daily Bell: Janet Yellen says the US is in recovery. Your thoughts?
James Turk: There are some parts of the economy that are doing better than in recent years, but it is spotty and not countrywide. So she is just cheerleading, which is what we used to call propaganda. There are more unemployed people now than in 2007 before the financial crash, and more people in recent months have been joining the food stamp program than getting jobs. All signs indicate that the economy is barely moving along, and that's true for much of the world.
Daily Bell: She claims she will raise rates but you said she would not. So far you're on the right track. How did you know?
James Turk: The Fed can't raise rates because the US government cannot afford to pay a fair rate of interest on its mountain of debt, which now stands at a mind-boggling $18.1 trillion – and it keeps growing. It is useful to look at the relative size of this towering mountain of debt compared to the federal government's annual revenue, which is about $3 trillion. So consider what would happen if the federal government began paying a reasonable interest rate, say 5%, which is 5% more than holders of T-bills are now earning. It would need to pay 5% more on $18.1 trillion, which is $900 billion per year of additional interest expense, which would increase the federal deficit and cause the federal government to borrow even more money. That borrowing would raise interest rates even further because it would highlight that the federal government is overleveraged and cannot possibly repay its debts.
What I am describing here, of course, is how currencies end up in a hyper-inflationary spiral and are ultimately destroyed as their purchasing power evaporates; namely, central banks keep turning government debt into currency. Since the end of the Second World War dozens of currencies have been destroyed this way, and the dollar is heading in that direction. Sooner or later it will get there and head over the cliff, just like what happened to the continental.
- See more at: http://www.thedailybell.com/exclusive-interviews/36141/Anthony-Wile-James-Turk-Sovereignty-Is-Under-Threat-Worldwide/#sthash.IgXhTlCX.dpuf