James Turk: gold is our defence against the fiat currency graveyardJul 14, 2011·James Turk
'The rule of law has basically been thrown out the window. Money printing is the order of the day. And when politicians take control of central banks, which they have done in the United States and they are also doing in Europe, that basically destroys the currency.
It puts the currency on the road to what I call the Fiat Currency Graveyard, so I expect there are going to be massive currency problems as we go forward. The financial crisis that we have been dealing with for the last several years has not been solved.'
So cautions James Turk, widely-respected precious metals expert and founder/chairman of GoldMoney. In this detailed interview (recorded in June), Chris Martenson – host of the popular financial news and analysis website ChrisMartenson.com – and James explore the probable outcome of the current US debt-ceiling operatics, the likelihood of future Fed money printing, and strategies for preserving wealth. In short, James believes we are witnessing the decline of the world's major fiat currencies, and expects gold to be remonetised in the aftermath.
James explains why he expects:
- The US Government to raise the debt ceiling in August, which will require the Federal Reserve to print more money in order to soak up the new debt, sending gold and silver prices much higher this summer.
- Holders of fiat currencies to experience increasing losses in the purchasing power of their wealth; contrary to those who hold precious metals, who will see the reverse.
- This pattern of currency devaluation to be similar to the many other examples seen throughout monetary history. In short, the “unthinkable” event of a dollar collapse is a much more probable event than most consider.
- Precious metals to be an excellent vehicle for preserving purchasing power through this next transition, and whatever future currency emerges, their historic role as money to be restored.
- The end of the bull market in precious metals is years away. We’ll know its ending when holders of PMs begin trading them for other assets (e.g. property, securities) that have become overly undervalued.
Read the transcript below:
Chris Martenson: Welcome to another Chris Martenson.com podcast. I am your host of course, Chris Martenson. And today we have the distinct privilege of speaking with James Turk, founder and chairman of GoldMoney which offers investors an easy and inexpensive online solution for buying precious metals with international storage options. James is one of the foremost authorities on precious metals and has long offered market forecast commentary including co-authoring The Coming Collapse Of the Dollar and How to Profit From It, with our good friend, John Rubino, of DollarCollapse.com. He has built his career on decades of experience in international banking and finance spending many of those years living outside of the US, which gives him a critical advantage to look at our economy with an outsiders eyes. I am really delighted to have you here, James, and I have a tall stack of questions prepared for you. Are you ready to dive in?
James Turk: I sure am, Chris. It is a pleasure to speak with you.
Chris: The pleasure is mine. So, short-term, what I’m really interested in here is to start diving into where gold is going to go short-term, where do we buy gold? Do we buy it now? Over the short-term people are very concerned about the price of gold and where it’s at and where it might be headed. So with QE2 ending here at the end of this month – we are in June right now – how do you expect the precious metals to be impacted?
James: Well I think the precious metals are going to do quite well this summer. And I don’t agree that QE2 is going to end in June. It may “end” in June but it is not going to end on August 2 because on August 2 the US government is going to increase its spending limit probably by $2 trillion and the Federal Reserve is going to have to step in and start buying some of that government debt and run the printing presses again with all this new money creation. And I think that is what is going to light a fire under both gold and silver this summer.
Chris: So you are of the view that QE whatever, 3, is a done deal because they are in something of a box. The federal government has enormous borrowing needs and you are of the opinion that really without the federal reserve being there, there is insufficient buying power for all the borrowing needs they have?
James: Yes that’s exactly right. Look at what has happened since August of 2010 when the Federal Reserve announced QE2. During that period of time, up to the present, the US Government debt has increased about $900 billion, about $500 billion of that has been purchased by the Federal Reserve. What is happening is that the US Government is spending so much money it is forcing it to borrow more money than the market is willing to lend to it. When that happens, only two things can happen: spending has to be cut back or the Federal Reserve steps in and buys that government debt and turns it into currency. And that is what QE is all about. This policy of buying government debt is going to continue once the debt limit is increased on August 2. Maybe the Federal Reserve will claim victory and say that they will stop QE on June 30 but the reality is it is only going to happen until the debt limit increase is approved. And I do believe at the end of the day, despite all the posturing we are seeing now Congress and the President are going to approve a $2 trillion debt increase by August 2.
Chris: So really we are talking about July as a possible pause. And I have my concerns about that because we are looking at the data here for the first week in June roughly and what I’m seeing is a lot of weakness out there. The Feds’ so-called mandate around employment, around economic growth, there is a lot of weakness in that data right now. So you are of the opinion that QE if it does pause will only maybe for a month.
James: Yes, maybe for a month unless Congress finally chooses to act sooner than August 2, although I don’t expect that to happen. It is really just a question of numbers and mathematics, Chris. The US Government has to stop spending so much money or the Federal Reserve has to come in and turn that government debt into currency, those are the two alternatives. And I don’t see any discipline or intent by Congress to stop spending.
Chris: Yes, everything they have done so far is a bit of a dog-and-pony show without much substance; $30 billion, $90 billion. Please, that is meaningless at this point. And when we go over to the other side of the pond we see that Europe also has just extraordinary funding needs right now. They are using all sorts of fancy terms for a Greek default which will probably be the first of several shoes. But when you add it all up it looks like there is, again, enormous funding gaps there and the need for a massive amount of liquidity. What is your view of Europe then? Is Europe going to print? The ECB – are they too in a box or will they actually go for austerity and allow the chips to fall where they lay?
James: No, they have been printing all along and, in fact, I think they are going to continue to print as well. You know, the turning point here in Europe was last May, May 2010, when the politicians got together when the Greek crisis sort of erupted and became quite serious. And on Monday morning after the politicians met, Mr. Trichet, the President of the European Central Bank, said that he is going to start buying Greek bonds, despite his pledge not to buy sovereign debt of any country. And despite the fact that it is against the EU Constitutional Principals for the ECB to be buying and sovereign debt. You know, the law is basically just being ignored. It is being ignored by 13 of the 16 eurozone countries who have debts exceeds 3% of – deficits, excuse me - 3% of GDP. So the rule of law has basically been thrown out the window. Money printing is the order of the day. And when politicians take control of central banks, which they have done in the United States and they are also doing in Europe, that basically destroys the currency. It puts the currency on the road to what I call the Fiat Currency Graveyard, so I expect there is going to be some massive currency problems as we go forward. The financial crisis that we have been dealing with for the last several years has not been solved.
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Note: listeners interested in the conclusions expressed within this interview will also want to read Chris's recent report on The Screaming Fundamentals For Owning Gold And Silver, which takes a deep dive into the data behind the supply and demand imbalances in the bullion markets.