Gold Money Foundation

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Money, Gold and HyperinflationJames Turk1 March 2011

The Phantom of Hyperinflation ConferenceBelgium

GoldMoney

Title Slide BoxTitle & HeadlineTitle & HeadlineGoldMoney

One of the best performing asset classes

Gold % Annual ChangeUSD AUD CAD CNY EUR INR JPY CHF GBP

2001 2.5% 11.3% 8.8% 2.5% 8.1% 5.8% 17.4% 5.0% 5.4%2002 24.7% 13.5% 23.7% 24.8% 5.9% 24.0% 13.0% 3.9% 12.7%2003 19.6% -10.5% -2.2% 19.5% -0.5% 13.5% 7.9% 7.0% 7.9%2004 5.2% 1.4% -2.0% 5.2% -2.1% -0.0% 0.9% -3.0% -2.0%2005 18.2% 25.6% 14.5% 15.2% 35.1% 22.8% 35.7% 36.2% 31.8%2006 22.8% 14.4% 22.8% 18.8% 10.2% 20.5% 24.0% 13.9% 7.8%2007 31.4% 18.1% 11.5% 22.9% 18.8% 17.4% 23.4% 22.1% 29.7%2008 5.8% 33.0% 31.1% -1.0% 11.0% 30.5% -14.0% -0.3% 43.7%2009 23.9% -3.6% 5.9% 24.0% 20.4% 18.4% 27.1% 20.3% 12.1%2010 29.8% 14.0% 24.3% 25.3% 39.1% 25.0% 13.2% 17.0% 34.5%

10-YearAverage 18.4% 11.7% 13.8% 15.7% 14.6% 17.8% 14.9% 12.2% 18.3%


Gold is money

Crude Oil Prices (Base of 100)January 1950 through December 2010

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Gold is money


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Gold is money


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Portfolio composition

INVESTMENTS

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Portfolio measurement

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• Gold is special because it is different

GoldMoneyGold, money & currency

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• Gold is special because it is different– accumulated (saved); not consumed


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• Gold is special because it is different– accumulated (saved); not consumed– large aboveground stock relative to

annual production


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• Gold is special because it is different– accumulated (saved); not consumed– large aboveground stock relative to annual

production– value derives from usefulness


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• Gold is special because it is different– accumulated (saved); not consumed– large aboveground stock relative to annual production– value derives from usefulness

• food


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• food• shelter


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• food• shelter• communication (interaction in society)


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• food• shelter• communication (interaction in society)

• Gold is special because it is money


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• Money is a mental tool that enables economic calculation


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• Money is a mental tool that enables economic calculation– unchanged throughout history


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• Currency is a medium of exchange


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• Currency is a medium of exchange– improves as a result of technological innovations


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• Bank of England established, 1694GoldMoney

Gold, money & currency

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• Bank of England established, 1694– ‘invention’ of paper currency


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• Bank of England established, 1694– ‘invention’ of paper currency– banknotes circulated current in place of

gold/silver coins safely stored in vault


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• Bank of England established, 1694– ‘invention’ of paper currency– banknotes circulated current in place of gold/silver coins

safely stored in vault– currency changes from a tangible asset to a bank liability


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• Bank of England established, 1694– ‘invention’ of paper currency– banknotes circulated current in place of gold/silver coins safely

stored in vault– currency changes from a tangible asset to a bank liability– creation of payment risk a/k/a “Herstatt risk”


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• Bank of England established, 1694– ‘invention’ of paper currency– banknotes circulated current in place of gold/silver coins safely stored in

vault– currency changes from a tangible asset to a bank liability– creation of payment risk a/k/a “Herstatt risk”– first bank crisis in 1696


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• Newton’s Gold Standard, 1700-1914GoldMoney


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• Newton’s Gold Standard, 1700-1914– defined one British pound as an

unchanging weight of gold


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• Newton’s Gold Standard, 1700-1914– defined one British pound as an unchanging

weight of gold– pound banknote redeemable into gold on

demand


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• Newton’s Gold Standard, 1700-1914– defined one British pound as an unchanging weight of

gold– pound banknote redeemable into gold on demand– Bank of England responsible for ensuring redeemability


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• Newton’s Gold Standard, 1700-1914– defined one British pound as an unchanging weight of gold– pound banknote redeemable into gold on demand– Bank of England responsible for ensuring redeemability – voluntary rules ensure system’s automaticity


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• Newton’s Gold Standard, 1700-1914– defined one British pound as an unchanging weight of gold– pound banknote redeemable into gold on demand– Bank of England responsible for ensuring redeemability – voluntary rules ensure system’s automaticity– gold is backbone of British empire


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• Peel’s Bank Act, 1844GoldMoney


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• Peel’s Bank Act, 1844– limits quantity of pound banknotes


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• Peel’s Bank Act, 1844– limits quantity of pound banknotes– unintended consequence is the

development of deposit currency


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• Peel’s Bank Act, 1844– limits quantity of pound banknotes– unintended consequence is the development of

deposit currency– payment risk escalates


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• Peel’s Bank Act, 1844– limits quantity of pound banknotes– unintended consequence is the development of deposit currency– payment risk escalates– new British banking model eventually adopted worldwide


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• Peel’s Bank Act, 1844– limits quantity of pound banknotes– unintended consequence is the development of deposit currency– payment risk escalates– new British banking model eventually adopted worldwide– seed for “too big too fail”


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• Peel’s Bank Act, 1844– limits quantity of pound banknotes– unintended consequence is the development of deposit currency– payment risk escalates– new British banking model eventually adopted worldwide– seed for “too big too fail”

• 2 functions within one bank


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• Keynesian revolution beginsGoldMoney


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• Keynesian revolution begins– “The gold standard is already a

barbarous relic.” J.M. Keynes, 1923


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• Keynesian revolution begins– “The gold standard is already a barbarous relic.”

J.M. Keynes, 1923– governments chafe at the discipline imposed by

the gold standard


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• Keynesian revolution begins– “The gold standard is already a barbarous relic.” J.M. Keynes, 1923– governments chafe at the discipline imposed by the gold standard– governments claim that currency managed by central banks can

eliminate the boom/bust cycle


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• Keynesian revolution succeedsGoldMoney


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• Keynesian revolution succeeds– ‘Gold Standard’ finally disappears 1971


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• Keynesian revolution succeeds– ‘Gold Standard’ finally disappears 1971– US dollar and other currencies no

longer redeemable into gold


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• Keynesian revolution succeeds– ‘Gold Standard’ finally disappears 1971– US dollar and other currencies no longer redeemable

into gold– governments can now create currency without limit


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• Keynesian revolution is endingGoldMoney


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• Keynesian revolution is ending– when currency can be created without

limit, there are consequences


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• Keynesian revolution is ending– when currency can be created without limit,

there are consequences– these include inflation, global imbalances and

sovereign wealth funds


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• Keynesian revolution is ending– when currency can be created without limit, there are consequences– these include inflation, global imbalances and sovereign wealth

funds– “Gold still represents the ultimate form of payment in the world.”

Alan Greenspan, 1999


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• Keynesian revolution is ending– when currency can be created without limit, there are consequences– these include inflation, global imbalances and sovereign wealth funds– “Gold still represents the ultimate form of payment in the world.” Alan

Greenspan, 1999– gold remains the standard by which all things are measured – gold is

money



Gold is money


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Stocks or Cash

Dow Jones Industrials in GoldDecember 1913 through December 2010

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goldgrams ouncesDJIA expensive / gold cheap

DJIA cheap / gold expensive


Dow Jones Industrials in GoldDecember 1913 through December 2010

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goldgrams ouncesDJIA expensive / gold cheap

DJIA cheap / gold expensive

Stocks or Cash


Boom & Bust

December 1913 through December 2010

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goldgrams ouncesStocks expensive / gold cheap

stocks cheap / gold expensive

Dow Jones


Boom & Bust


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stocks cheap / gold expensive

Dow Jones FTSE


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stocks cheap / gold expensiveDAX

Dow Jones FTSE

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• A safe place to put our moneyGoldMoney

Money for the 21st century

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• A safe place to put our money–Not banks because of the boom

and bust cycle caused by fractional reserve banking

GoldMoneyMoney for the 21st century

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• A safe place to put our money–Not banks because of the boom

and bust cycle caused by fractional reserve banking

• An efficient – low cost – currency for global commerce


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• A safe place to put our money–Not banks because of the boom and

bust cycle caused by fractional reserve banking

• An efficient – low cost – currency for global commerce–No clearing, settlement, payment risk

or political risk


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• A safe place to put our money–Not banks because of the boom and

bust cycle caused by fractional reserve banking

• An efficient – low cost – currency for global commerce–No clearing, settlement, payment risk

or political risk


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“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to

produce as many U.S. dollars as it wishes at no cost.”

Federal Reserve Chairman Ben Bernanke

GoldMoney


The path to hyperinflation

Correlation of Fed Monetizing to S&P 500 IndexJanuary 2, 2009 through February 11, 2011

2009 2010 2011

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S&P 500

S&P 500 Index(left scale)

Fed Monetizationof Securities(right scale)




2009 2010 2011

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Fed Announces "Quantitative Easing"

trillionsS&P 500






2009 2010 2011

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2009 2010 2011

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Fed Announces End of "QE"

S&P 500






2009 2010 2011

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S&P 500Fed Ends "QE"






2009 2010 2011

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S&P 500Fed Ends "QE"



"QE2" Begins


The US dollar’s problem

Federal Tax Receipts Tumble As Outlays & Debt SoarJanuary 2000 - December 2010 (US dollars in billions)

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Federal Debt, quarterly - right scale

Outlays (12-mon. mov.avg.) - left scaleReceipts (12-mon. mov.avg.) - left scale

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The British pound’s problem

UK Tax Receipts Tumble As Outlays & Debt SoarJanuary 2005 - November 2010 (British pounds in billions)

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UK Debt, quarterly - right scale

Outlays (12-mon. mov.avg.) - left scaleReceipts (12-mon. mov.avg.) - left scale

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“Money in the 21st century will surely prove to be as different from the money of the current century as our money is from that of the previous century.”

Jerry Jordan, President, Federal Reserve Bank of Cleveland, 1996

GoldMoney

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“The main thing we miss today is a universal money, a standard of value, the link between the past and the future and the cement of

civilization linking remote parts of the human race to one another.”

Robert Mundell, Nobel Laureate, 1999

GoldMoney

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