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02 December 2012

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The Curse of the Reserve Currency

BY JOHN BUTLER

In this Edition

Is reserve currency status an economic blessing or a curse? The answer might seem obvious,

as reserve currencies have been shown to confer lower borrowing costs on their issuers. But

what of the borrower who, enticed by low interest rates, borrows more than they can pay back?

Naturally the result will be a default. However, for the issuer of a reserve currency that is

unbacked by a marketable commodity, such as gold, in the event that they borrow too much, they

can just print more currency. While this avoids default indefinitely, it also hollows out the

economy, erodes the capital stock, reduces the potential growth rate and, eventually, leads to a

dramatic devaluation of the currency and loss of reserve status. History has not been kind to

countries that have followed this path. In my view, the grave investment risks associated with the

US dollars inevitable and potentially imminent loss of reserve status are not priced into financial

markets.

Reserve Currencies, Trade Imbalances and the 'Triffin Dilemma'

Having written a book about international monetary regime-change past, present and future, I

weigh in again in this Amphora Report on what is gradually becoming a more mainstream debate

about whether or not the US dollar is at risk of losing reserve currency status, what currencies, if

any, might replace it, and, should it happen, what general economic and financial market

implications this would likely have.[1]

As it happens, I have a rather strong opinion on all of these matters. But first, lets consider what

a reserve currency is and what it is not. Second, lets distinguish carefully between reserve

currencies that are backed by a marketable commodity, such as gold or silver, and those that arenot. Third, lets take a look at shifting global economic power and monetary arrangements. Then

we can move into what I think is going to happen in future, what this implies for financial and

commodities markets, and what investors can and should do to prepare.

What, exactly, is a reserve currency? It is an international money that is used to pay for imports

from abroad and is then subsequently held in reserve by the exporting country, as it does not

have legal tender status outside of its country of issuance. In the simple case of two countries

trading with one another, with one being a net importer and one a net exporter, over time these

currency reserves will accumulate in the net-exporting country. In practice, as reserves

accumulate, they are invested in some way, for example, in bonds issued by the importing

country. In this way the currency reserves earn some interest, rather than sit as paper scrip in a

vault.

Beyond a certain point, however, accumulated reserves will be perceived as excessive by some

in the exporting country, in that they would prefer to purchase something with this accumulated

savings instead. In this case they have a choice: Either they can purchase more imports from the

net-importing country, thereby narrowing the trade imbalance, or they can exchange their

reserves with another entity at some foreign-exchange rate. For this reason, other factors equal,

as reserves accumulate, the reserve currency will depreciate in value.

As trade imbalances and reserve balances grow, so does the natural downward pressure on the

value of the reserve currency as described above. This leads to what Belgian economist Robert

Triffin called a dilemma: For unbalanced trade to continue to expand, the supply of reserves

must increase. Yet this implies a chronically weak reserve currency, which leads to price inflation.

Indeed, under the Bretton Woods system of fixed exchange rates, the supply of dollar reserves

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Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www.financialsense.com/contributors/john-butler/curse-rese

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grew and grew, price inflation increased and, eventually, as one European central bank after

another sought to exchange its excess dollar balances for gold, this led to a run on the official

US gold stock and the demise of that particular monetary regime.

While hailed as an important insight at the time, Triffin was pointing out something rather intuitive:

Printing a reserve currency to pay for net imports is akin to owning an international printing

press, the use (or abuse) of which causes net global monetary inflation and, by association,

some degree of eventual, realized price inflation.

'Cantillon Effects' and the Non-Neutrality of International Reserves

Now lets combine Triffins insight with that of Richard Cantillon, a pre-classical 18 th century

economist, that money is not neutral: New money enters the economy by being spent. But the

first to spend it does so BEFORE it begins to lose purchasing power as it expands the existing

money supply. The money then gradually permeates the entire economy, driving up the overall

price level. Those last in line for the new money, primarily everyday savers and consumers,

eventually find that, by being last in line for the new money, their accumulated savings are being

de facto diluted and the purchasing power of their wages diminished.

Extropolated to the global level, this non-neutrality of money implies that an issuer of a reserve

currency is the primary beneficiary of the Cantillon effect. First in line for the new international

money are the owners of capital in the reserve issuing countries, who use the new money to

accumulate more global assets, and at the end you have workers the world over who receive the

new money last, after it has placed general upward pressure on prices. Greater global wealth

disparity is the inevitable result.

Another way to think about the benefits of issuing the reserve currency is that it generates global

seignorage income. Federal Reserve notes pay no interest. However, they can be used to

purchase assets that DO bear interest. No wonder the Fed always turns a profit: It issues dollars

at zero interest and collects seignorage income on the assets it accumulates in return.[2] But in a

globalised economy, with the US a large net importer and issuer of the dominant reserve

currency, this seignorage income is partially if indirectly sourced from abroad, via the external

accounts.[3]

This becomes particularly notable in the event that domestic credit growth is weak relative to

abroad. The Fed may print and print to stimulate domestic credit growth but if that printing does

not get traction at home, it will instead stimulate credit growth abroad and, eventually, contribute

to higher asset and consumer price inflation around the world.

Over time, this will impact the relative competitiveness of other economies, where nominal wage

growth is likely to accelerate, eventually making US labor relatively more competitive. That may

sound like good news, but all that is really happening here is that US wages end up converging

on those elsewhere, something that should happen in any case, over time, between trading

partners as their economies become more highly integrated. But to the extent that this wage

convergence process is driven by reserve currency inflation, rather than natural, non-inflationary

economic integration, the Cantillon effects discussed earlier result in wages converging

downwardrather than upward, implying a global wealth transfer from owners of labor

workersto owners of capital.

So-called anti-globalists disparaging of free trade are thus not necessarily barking madwell,

perhaps some arebut theyare barking up the wrong tree. The problem is not free trade; the

problem is trade distorted by monetary inflation. If you want workers around the world to get fairer

compensation for their labor, shut down the reserve currency printing press. And if you also want

them to have access to the largest possible range of consumer goods at the lowest possible

cost, remove trade restrictions, dont raise them.

Reserve Currencies: Gold-Backed, and Unbacked

As it happens, prior to the First World War, the bulk of the world was on the classical gold

standard. Although the British pound sterling was the dominant reserve currency, it was not

possible to print an endless amount of pounds to pay for endless imports, as external reserve


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currency balances were regularly settled in gold. The British pound thus held its value over time,

as did other currencies on the gold standard, and there was not a Triffin Dilemma resulting in

growing, unsustainable trade imbalances. Moreover, absent monetary inflation, there were no

insidious Cantillon effects taking place. Industrial wages were generally stable through these

decades, which were characterised by mild consumer price deflation. This implied an increase in

workers purchasing power and standards of living. So while there are certain parallels between

sterlings previous, gold-backed role as a reserve currency and that of the unbacked, fiat dollar

today, there are even greater d ifferences.

(For those curious how such a stable international economic order could break down so

completely in such a short period of time, please turn to the extensive literature on the causes

and consequences of WWI, arguably the greatest tragedy ever to befall western civilization.)

Returning to the present, countries that have been exporting to the US and accumulating dollars

in return are increasingly getting the joke, but they arent laughing. Hardly a week goes by without

some senior official in an up-and-coming country rich in natural resources or with competitive

labor costs criticising US monetary policy while suggesting that gold should play a greater role in

international monetary affairs. The BRICS (Brazil, Russia, India, China, now joined by South

Africa), individually and together, have already made numerous official, public statements to this

effect.[4] One can only imagine what is being discussed in private, behind closed doors.

Just last week, quite similar monetary concerns were expressed openly by Turkey, historically a

swing-state in its global orientation, yet currently a member of NATO and thus at least a nominal

US ally. Prime Minister Erdogan, who is far more popular with the electorate in his country than

most western leaders are in theirs, had this to say recently, in criticism of the International

Monetary Fund (IMF):

The IMF extends aid on a who, where, how and on what conditions basis. For

example, if the IMF is under the influence of any single currency then what, are they

going rule the world based on the exchange rates of that particular currency?

Why do we not switch then to a monetary unit such as gold, which is at the very least

an international constant and indicator which has maintained its honor throughout

history. This is something to think about.[5]

Historians will note that once upon a time, France was a full member of NATO, but following

President De Gaulles decision to challenge the dollar-centric Bretton Woods system in the

mid-1960s, there erupted a series of dollar crises that culminated in the collapse of the Bretton

Woods reg ime in the early 1970s. Is history about to repeat?

(Incidentally, history has already nearly repeated once before, in 1979-80. While the mainstream

historical economic narrative about this period is that the Fed resorted to punatively high interest

rates to fight the high rate of domestic price inflation, one look at the behaviour of the dollar in

1979-80 tells a different story, that the air of crisis at the time had an important international

dimension. FOMC meeting transcripts also reinforce this arguably revisionist view that the

dollars reserve status was at risk.)

Clearly there is growing dissatisfaction with the current set of global monetary arrangements,

which allow the US to print the global reserve currency to pay for imports, an exorbitant privilege

as it was termed by another French president, Valery Giscard dEstaing. Under the Bretton

Woods system, France or any participating country for that matter could choose to exchange its

accumulated dollars for gold. As predicted well in advance by French economist Jacques Rueff,

a contemporary of Robert Triffin, the eventual exercise of this choice to exchange dollars for

gold by not only France but a handful of other countries led to a run on the US gold stock in 1971

and an end to the dollars gold convertibility.

The Reserve Currency Curse In Disguise

Lets now turn to the question posed at the beginning of this report. Is reserve currency status a

blessing, or a curse? The answer may seem obvious. After all, isnt it nice to hold the power of


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the global printing press? To enjoy relatively low borrowing costs? To possess the exorbitant

privilege, as it were? On the surface yes, but what lies beneath?

As Lord Acton is purported to have said, power tends to corrupt. By corollary, absolute power

corrupts absolutely. And to the extent that a power that is held nationally is exercised

internationally, then the corruption thereof has a deleterious international economic impact.

In the case of an unbacked reserve currency, the benefits o f lower borrowing costs accruing to

the issuing country appear to result in overborrowing and overconsumption relative to the rest of

the world, eroding the domestic manufacturing base over time and widening the rich-poor gap to

levels that are socially destabilising. Trade wars, currency wars or other forms of economic

conflict are the inevitable result. In some cases, actual wars follow. In others, they dont. But in all

cases, the reserve currency curse is recognized only too late, when an economy begins

consuming its own capital in a desperate and counterproductive attempt to maintain its previous

standard of living. Austrian economist Ludwig von Mises described capital consumption as akin

to burning the furniture to heat the home. Sure, it might work for a time, but what comes next?

The floorboards? The walls? The roof?

For those who think that a capitalist, free-market economy would never consume its own capital,

outside of wartime, you may be right. But what of an economy that merely pretends to be

capitalist and free market, but in fact sets the price of money by decree at an artificially low level

so that there is little incentive to save? Well, take a look, this is what happens: Negative net

investment!

US Domestic Investment, Net of Depreciation, % of GDP

It is highly intuitive to reason that, if an authority mandates a price ceiling below the natural,

market-determined price for a given product, less of it will be produced and a shortage will result.

Well here you see the empirical evidence: Holding the price o f moneythe interest

rateartificially low over a sustained period of time leads to a shortage of savings, capital

consumption and, therefore, a lower standard of living.

Notwithstanding basic economic common sense and clear evidence as presented above, the US

Fed may still honestly believe that its neo-Keynesian models are right. Alternatively, like Galileos

clerical inquisitors, it may be simply unwilling to admit that the models, or the entire theory, are

wrong. The International Monetary Fund, for what it's worth, has already determined that its

models are flawed, although they also admit they have little idea what to do about it other than to

shoot in the darksomething that is not exactly reassuring.[6]

The Turkey In the Gold Mine

Today, as the dollar is not convertible into gold, there could not be a run on the official US gold

stock. But there is no reason why central banks around the world can not diversify out of dollars

and into gold, something that would have much the same result: The dollar would decline versus

gold and real assets generally, US imports would become more expensive and economic growth


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would be highly stagflationary, just as was the case during the 1970s, in the aftermath of a

substantial dollar devaluation.

As it happens, these developments are already underway. According to recent reports, many

central banks are accumulating gold, including Russia, China, Brazil, India, Bangladesh, Mexico,

South Korea, Kazakhstan, Turkey and Indonesia.[7] While central banks must report their gold

reserves to the IMF, the sovereign wealth funds of these countries are under no such obligation

and, as sovereign wealth funds occasionally operate in effective if unofficial collaboration with

their respective central banks, it is highly likely in my opinion that there is much more official gold

accumulation taking place than is officially reported.

As they are not free-market, profit-maximizing entities in the same sense as independent private

investors, these official gold buyers are not as price sensitive. If they are instructed by their

political leadership to diversify their reserves out of dollars in some amount, or at some regular

rate, they are going to carry out that mandate, regardless of the price, until that policy changes.

This is strategic, not tactical gold buying, as it were.

This is just one of many reasons why the gold price is going up. The most fundamental is simply

that the values of currencies such as the dollar are going down as a result of endless quantitative

easing (QE) or other forms of monetary expansion. That the agents swapping their dollars for

gold happen in some cases to be price-insensitive official institutions is just one mechanism by

which a global shift out of paper into hard assets is taking place.

I dont pretend to know exactly what is going to happen from one day to the next. But when you

step back and see the larger picture of one country after another expressing disapproval with the

dollar reserve standard, you cant help but notice that the game is changing. Central bank or other

official forms of go ld buying is but one aspect. Another is the growing official collaboration on

monetary and other economic matters by the BRICS. Then there are the various bilateral

currency arrangements between an increasing number of countries that allow them to reduce

dependence on the dollar for bilateral trade.

At first glance, Turkeys recent admission that it's paying for imports of Iranian natural gas with

gold in order to avoid US sanctions may seem a small, insignificant development by comparison,

but within the larger context it could have a disproportionate impact.[8] Indeed, Turkey may be

only one of several countries monetizing gold for use in importing Iranian gas or other goods. As

a canary signals danger in a coal mine, might Turkey be signalling something rather more

significant for international monetary relations?

Quite possibly. Game theory is highly instructive as to how international policy regimes, once

destabilized by changing conditions or incentives, can suddenly shift to, or collapse into, a new

equilibrium, sometimes in response to seemingly insignificant developments. When countries

that comprise in aggregate about 1/3 of all global trade flows express dissatisfaction with the

dollar and the IMF, the current international monetary regime is clearly unstable. When a

medium-sized player such as Turkey moves from one s ide of the game board to the middle, or

to the other side, there is always a chance that this represents the proverbial tipping point from

one equilibrium to another. In this case, if history is a guide, then as the world moves away from

the current, dollar-centric reserve standard system it will move to one based on mulitiple

currencies, yet with some degree of explicit gold backing for major currencies.[9]

Why gold? Part I of my book, The Golden Revolution (available here), concludes with a

discussion about why gold has by far the strongest claim to use as the future international

monetary reserve replacement for the dollar. While historical precedent is important, there are

also two important theoretical points to consider. First, there is no existing fiat currency alternative

to the dollar at present, in the way that the US dollar provided an obvious alternative to the pound

sterling following WWI. Second, given the increasingly obvious breakdown in cooperation in

international monetary relations, it is highly unlikely that, as the dollars role diminishes, there

could be a universal agreement about how to construct or implement a global currency alternative

to the dollar. Yes, the IMF has proposed precisely this and (no surprise here) has put itself

forward as the bureaucracy that could manage it, but as discussed above, Turkey, the BRICS

and a handful of other nations dont trust the IMF to act in their national interest. They apparently

do trust in gold.


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As a medium of exchange that cannot be printed or otherwise manipulated by any one country to

somehow exploit another, gold holds more than just a historical claim to a future role as

international money. It provides a basis for mutually-beneficial international trade when trust in

monetary stability is lacking. The answer to the question of what currency or currencies can

provide the future international reserve is thus as paradoxical as it is elegant: Every currency, if

linked to gold, and none, as gold itself provides the trust.

Recent Developments In Financial and Commodity Markets

At time of writing, global equity markets have corrected modestly lower from the lofty valuations

seen in early October. A series of corporate earnings disappointments and profit warnings was

initially ignored but finally became so widespread across countries and industries that the selling

pressure intensified sufficiently to reverse the big bull market that took place over the summer, in

anticipation of yet another round of global monetary stimulus that arrived in September.

I expressed my concern with equity valuations back in October so Im not exactly surprised by

this development.[10] However, I am hardly omniscient and for all I know equity markets will

begin to move right back up again for reasons that may have nothing to do with earnings, or profit

expectations, or anything else that, in a normal world at least, would be expected to determine

prices.

I have written variations on this theme many times but it seems entirely appropriate to revisit it

again here: We do not live in a world in which financial asset prices are driven by sensible value

judgements but rather speculation enabled and encouraged by policy makers in a growing

number of ways. Applying a traditional, value-based investment approach in this environment is

fraught with peril.

There are some things about which we can be relatively certain, however. If the dollar continues

to gradually lose reserve currency status, or does so abruptly in a future financial crisis, it will

reinforce the stagflationary economic conditions already prevailing in the US and in many other

countries. Import prices will rise, yet growth will remain subdued given that the capital base is

being consumed.

Of course there are things that US politicians could do to encourage savings and investment

rather than consumption, but these things are politically unpopular. For example, neither of the

two presidential candidates in the recent election advocated even a small reduction in the size of

the federal budget, even though the deficit remains near record highs and the so-called fiscal-

cliff approaches. The debate was so narrow relative to the vast scale of US economic

problems that it seems a stretch to call it a debate at all.

My impression is that the election was fought primarily on social issues. Now I dont want to

belittle those who feel strongly about social issues, but it seems a bit odd that these should

determine the election result for the highest political office in a country founded on the principle

that the federal government should stay out of social issues. One could be mistaken for thinking

that the electorate is by comparision relatively unconcerned about the economy. I suppose

Americans are schizophrenic, as many peoples seem to be.

Turning to Europe, I note that the political winds are now shifting decisively against those who

would use the current crisis to centralize yet even more power in Brussels or in the ECB. This

can be seen at both the regional level (eg Catalonia, Scotland) and the national (eg Greece, the

UK, Ireland). At the margin, such sentiments make coordinated bailouts more difficult to

implement. Although I am hardly supportive of bailouts for weak euro-area sovereign borrowers

(or their lenders, if you prefer), if they are not forthcoming, this will deal a serious blow to

European equity markets.

Speaking of political winds, there are also disturbing developments in France, where the

government has recently threatened to nationalize corporate assets in the event that their owners

seek to reduce capacity and fire workers in response to the economic slowdown well underway.

This is not exactly going to attract foreign investment into the country. In any case, European

economic growth is going to be unusually weak as long as the deleveraging continues, which

might be rather a long time given the starting point.


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I would like to remind readers that, during the stagflationary 1970s, major stock markets did not

perform well. Yes, I know the conventional wisdom, that stock prices tend to rise with inflation, but

then they can also perform rather poorly, in particular in real, inflation-adjusted terms.

Now it is the case that, in a historical comparision, stock market valuations in both the US and

Europe are not particularly high. But really, given the context, why arent they particularly low

instead? Sure in some countries, such as Spain, trailing P/Es and other classic valuation

measures are essentially distressed, indicating good value. But todays Spain is tomorrows

well, I dont know. Pick a country, any country. There are plenty of candidates. So notwithstanding

the modest correction of late I believe it is still too early for a general return to the equity markets.

Turning to bond markets, the outlook is inextricably linked to what happens with currencies,

including of course the dollar. When a currency devalues for whatever reason, it takes its bond

market with it. Yes, in practice it is not quite as simple as that, but when it comes to the most

overpriced bond markets of today, such as those for US Treasuries, German Bunds, UK gilts or

Japanese government bonds (JGBs), any devaluation in these currencies is likely to have an

even greater impact on bond holders than on those sitting in cash instead. (That said, I believe

there are pockets of value in distressed corporate debt and would recommend that readers

familiarize themselves with some of the instruments available for getting some diversified

exposure.[11])

Cash itself, of course, is at constant risk of devaluation, regardless of currency of denomination.

Policymakers have made it abundantly clear that the value of cash is a policy tool, perhaps the

single most important one there is. I regard it as highly unlikely that this thinking will change

absent a future financial crisis that not only results in the death of the neo-Keynesian economic

paradigm but also one that shows the current economic policy elite the door.

That leaves commodities. They may not be the stuff that powers Wall Street and credit creation

but that is where the excessive leverage in the global financial system resides. Commodities

cannot be arbitrarily diluted, devalued or defaulted on. They do not go bankrupt. They cannot be

created by policymaker whim, although it is true that misguided regulations or price controls can

create artificial scarcity, which is price supportive. That said, there is no certainty that commodity

prices are going to rise, but if they dont, this is unlikely to be the direct result of government

action. Indeed, a general decline in commodity prices would be an indication that governments

are finally backing away from inflationary policies, something that would, eventually, set the stage

for a sustainable economic recovery built on savings, rather than on debt.

Well Im not holding my breath. I fully expect governments to continue to implement misguided

inflationary solutions to economic problems themselves caused by inflation. And therefore I am

over- rather than under-weight commodities in my portfolio. Yes, some of these are likely to do

better than others in the current global climate and I take that into account when managing

positions. But much of investing remains a guessing game no matter what anyone tells you,

including me.

The ultimate response to uncertainty, natural or man-made, is to diversify across a broad range

of assets. What holds true for assets generally holds true for commodities spec ifically. I do have

a soft spot for gold, but as all good traders know, emotions are distracting and dangerous.

Fortunately, one doesnt need to feel emotionally about gold to understand, entirely through logic

and reason, that if the primary source of uncertainty in the world is the very future of money itself,

then gold is likely to outperform in the event that such uncertainty continues to rise.

Post-Script: A Brief Comment on Recent Developments In the Gold

Market

As the topic of gold and gold investing has featured regularly in theAmphora Report, I am

sometimes asked to comment on developments in the gold market. This has been unusually

common of late, due to Germanys decision to audit a portion of its gold holdings held abroad

and Ecuadors announcement that it will follow Venezuelas initiative from last year and repatriate

at least some portion of its gold reserves held in New York and London. (As an aside, dont you

ever find it ironic that those who shout the loudest that gold is but a barbarous relic are those

who live and work atop the bullion vaults under the NY Fed or the Bank of England, for example?)


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Well, as it happens, I have long held that the act of physical repatriation of gold held on a

custodial basis abroad is of more than just symbolic importance. As I wrote in anAmphora

Reportback in late summer 2011, following Hugo Chavezs decision to repatriate Venezuelas

gold reserves:

Venezuelas decision to take delivery of its gold places additional focus on the unique

role that physical gold plays in the global economy. In recent months, the central

banks of Mexico, South Korea, Bangladesh and Kazakhstan have bought gold on the

open market. Others no doubt continue to accumulate gold less overtly. Why? I f there

was growing faith in the dollar-centric global financial system, would central banks be

accumulataing gold reserves at the fastest pace since the 1970s?

No, on the contrary, this trend is a clear indication that global confidence in the dollar

continues to erode. Should more countries line up to take physical delivery of their

gold, rather than leave it in US custody, it would be a sign that confidence in the US

itself, as a safe and reliable jurisdiction for global commerce, is also beginning to

erode.[12]

Are we to interpret recent developments in the gold market as signs that confidence in the US

itself, as a safe and reliable jurisdiction, is eroding? As with a handful of o ther things d iscussed

in this report, I leave that to the reader to decide.

Resources

[1] I previously discussed at length the causes and consequences of the dollars loss of reserve

currency status in IT'S THE END OF THE DOLLAR AS WE KNOW IT (DO WE FEEL FINE?),

Amphora Report vol. 2 (May 2011), available here.

[2] Prior to the global financial crisis of 2008 the Fed purchased primarily US government bonds.

However, it has since purchased a broad range of assets, including those that were part of the

deal the Fed made with JP Morgan regarding its takeover of failing investment bank Bear

Stearns.

[3] The Fed would be earning seignorage income directly rather than indirectly were it to

purchase interest-bearing foreign securities instead of domestic ones. Note that the amount of

seignorage income generated rises in proportion to the devaluation of the dollar relative to the

currencies of US trading partners. That devaluation increases income is a simple accounting

identity, although some Keynesians argue that this income is real. It is not. It is inflation.

[4] For a thorough discussion of the official BRIC position on these matters please see THE

BUCK STOPS HERE: A BRIC WALL, Amphora Report vol. 3 (April 2012) available here.

[5] A recent article in the Turkish press detailing his comments on this topic can be found at the

link here.

[6] For a discussion of the IMFs recent reconsideration of some of their economic forecasting

models, please see THE KEYNESIANS NEW CLOTHES, Amphora Report vol. 3 (2 November

2012). The link is here.

[7] Please see the most recent statistics from the World Gold Council, available at this link here.

[8] This was reported by Dow Jones Newswires and is available at this link here.

[9] For convenience purposes, smaller countries could always peg their currencies to that of a

major trading partner and, in this way, indirectly back their currencies with gold.

[10] Please see A VICIOUS CYCLE, Amphora Report Vol. 3 (October 2012), available here.

[11] For a discussion of distressed investing, please see WHY BANKRUPTCY IS THE NEW

BLACK, Amphora Report Vol. 3 (April 2012). The link is here.


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[12] THE BUTTERFLIES OF AUGUST, Amphora Report vol. 2 (September 2011). The link is

here.

Find THE GOLDEN REVOLUTIONON Amazon HERE. And on Facebook HERE.

"John Butler provides much illumi nating detail on how the worlds monetary system got into

its present mess. And if youre wondering what comes next, this is the book to read."

Bill Bonner, author of the New York Times bestsellers Empire of Debt, Financial

Reckoning Day, and Mobs, Messiahs and Markets

More Praise forTHE GOLDEN REVOLUTION:

"John Butler has written an indispensable reference on the subject of gold as money. His

book is a combination of history, analysis, and economics that the reader will find useful in

understanding the use and misuse of gold standards over the past century. He breaks the

book into a long series of essays on particular aspects of gold that the reader can take as a

whole or in small bites. It is technical yet accessible at the same time. The Golden

Revolution is a useful and timely contribution to the growing literature on gold and gold

standards in monetary systems. I highly recommend it."

James Rickards, author of the New York Times bestsellerCurrency Wars: The Making

of the Next Global Crisis

"In The Golden Revolution, John Butler makes a powerful case for a return to the gold

standard and offers a plausible path for our nation to get there. Enlightened investors who

blaze the trail will likely reap the greatest reward. For those still wandering in the dark, this

book provides necessary light to keep you headed in the right direction."

Peter Schiff, CEO, Euro Pacific Precious Metals; host of The Peter Schiff Show; and

author ofThe Real Crash: Americas Coming BankruptcyHow to Save Yourself and

Your Country

"John Butlers historical treasure trove empowers the reader to understand, prepare, and act.

To have a chance to emerge unscathed from financial turmoil, join the Golden Revolution. I

have."

Axel Merk, Merk Funds; author ofSustainable Wealth

"The Golden Revolution is another indispensable step on the road map back to sound

money. John Butlers experience of the modern fiat banking world, combined with his

understanding of the virtues of a disciplined monetary system, allow for genuine insight into

the practical steps that could, and surely will, be taken to reestablish gold as money."

Ned NaylorLeyland, Investment Director MCSI, Cheviot Asset Management

"Ex scientia pecuniae libertas (out of knowledge of money comes freedom).John has used

his exemplary knowledge of money to lay out a cogent framework for the transition of society

based on fiat money to a more honest society forged by gold. He has taken complexity and

given us simplicity. Monetary economics and its interrelationship with geopolitics, finance

and society is extraordinarily complex, but he has managed to assimilate a vast array of


0 12/2/2012 1


10/10

Print Like 23 Tweet 15 2

information and distill it in a simple and thoughtful framework. That is an art many academi c

writers never achieve."

Ben Davies, cofounder and CEO, Hinde Capital

Source: Amphora Report

About John Butler

John Butler

Chief Investment Officer at Amphora; Atom Capital

Primary Tel: +44.20.7659.9907

63 Curzon Street London W1J 8PD

john.butler @ amphora-alpha.com

http://www.amphora-alpha.com

John Butler Archive

11/08/2012 The Keynesians New Clothes

10/16/2012 A Tweet Too Far?

10/02/2012 A Vicious Cycle

09/18/2012 Par for the Pathological Course

08/02/2012 The Tale of Jack the Pie-Maker

07/24/2012 Caught in a Debt Trap

06/25/2012 Breaking News: Regulators to Classify Gold as Zero-Risk Asset

06/15/2012 From Deflation Push to Inflation Shove

05/18/2012 The Canary in the Gold Mine

05/04/2012 John Butler, The Golden Revolution

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