James Turk: “This Has Never Happened Before In History”

James TurkKeep in mind that it’s only since 1971 that we’ve gotten off a gold standard. This has never happened before in history. Gold has always been the key underlying element. So we’re in uncharted territory.
What would you rather bet on? Something with a 5000-year history that still preserves purchasing power? Or fiat currency based on politicians and their promises that have a 40-year history?

 

Submitted by Tekoa Da Silva, Sprott’s Thoughts

>>Interview With James Turk (MP3)

I had the chance to sit down recently with James Turk, Director of Gold Money Inc. It was a fascinating conversation of monetary history and gold, with the 45-year veteran of international banking & finance.

Speaking toward the consequences of rising interest rates, James noted that, “We’re at zero interest rates…because central banks know that governments can’t afford to pay a fair rate of interest. [They] have too big a debt load…If you increase the interest rate, that increases the amount of interest expense they’ll have to pay…[Then you] get into a vicious cycle of borrowing and spending, borrowing and spending…[before] you ultimately destroy the currency.”

A destruction of currency is possible in the West, James explained because, “Even in America, the first currency of the country was the Continental. It collapsed in hyperinflation in the 1780s…[So] we shouldn’t be lulled into thinking currency collapses can’t happen here, because they have happened in many countries and it’s happened here once before.”

When asked of the real-world challenges wrought by currency debasement, James shared family-experience of post-WWI hyperinflation, noting his parents taught him that, “25% of the people did very well during the Great Depression. They lived very comfortably and weren’t really affected by it. 25% of the people got by, [but] about 50% of the people they estimated did very poorly because they didn’t plan for the future.”

“[So] one of the things I learned from my parents as a young kid,” James concluded, “[was to] plan for an uncertain future.”

Here are his full interview comments:

Tekoa Da Silva: James, pleasure to have you here. For the person reading, if they’re joining this conversation for the first time or just learning about you—can you tell us a little bit about yourself and your background?

James Turk: Sure. I have a 45 year background in international banking and finance. I was trained as a banker but a number of years ago started focusing more on investment management and specifically the area of gold.

I’ve written a couple of books, the most recent one being The Money Bubble: What to Do Before It Pops, and I’m the founder of GoldMoney, which was launched in 2001. It has grown to over 20,000 customers with $1.4 billion in customer assets safeguarded in precious metals stored in different vaults throughout the world.

TD: James, I’ve been following your work now for 10 years. I’ve noticed you seem to have a “calling” when it comes to advocating precious metals.

At what point in your career did you become infatuated with the metals, and why?

JT: It was probably when I was a kid because of what I learned from my parents and grandparents. My father was born in Austria before the First World War and my grandparents moved after the First World War looking for new opportunities.

So because they went through the hyperinflation after the First World War, I was always attuned to the importance of saving money, what sound money was, and what purchasing power was.

I learned about depreciation. I remember my mother explaining to me what depreciation was when I was probably eight years old. So I’ve been focused on this issue for a long time.

Interestingly, I went to university to study international economics in the 1960s. Gold was $35 an ounce at that time. I was taught that when the US government would stop supporting gold at $35, it was going to fall to $7.

Instead the gold price started climbing and I realized that either gold was very overvalued or what I learned in school was wrong. It turned out that what I learned in school was wrong and so I reeducated myself. I studied Mises, Rothbard and some of the other writers of the Austrian school.

So by the early 1970s, I pretty much had a good handle as to how the world really worked. I’ve continued to build on that through experience and knowledge by extensive reading. That’s my passion—reading and collecting books on money and currency. I have about 3000 books in my library.

TD: What were some of the more concerning observations you had during your career working as an investment banker—looking at the financial system, seeing how it all worked and observing the changes?

JT: Well, I think one of the most important things is that technology changes everything. When you look at money and currency, that’s definitely true.

Money doesn’t change in the sense that money does the same thing today, as a thousand years ago, or a hundred years ago. It enables us to communicate value, our own subjective view of value when we go into the marketplace to fulfill our needs and wants.

But when we actually get to transacting, that’s currency. So I always like to make the distinction between money on one hand and currency on the other. Currency evolves and changes over time. Just in my lifetime, we’ve had cash or checks used since the 1960s, then the plastic card started becoming currency.

Now we’re again evolving into new forms of currency with the internet and this is something that GoldMoney Inc. is really focusing on through its BitGold division, by expanding the opportunities to enable currency to be efficient, low cost, convenient and safe in global commerce.

The basis of course is using not currency based on some government or person’s promise but something that has been money for 5000 years which of course is gold.

TD: James, some technology companies are changing business through user empowerment. Airbnb and Uber might be examples of that. What are you seeing through the GoldMoney Inc. business globally as far as consumers embracing gold?

JT: Yeah, I like that term “user empowerment” because that’s really what it’s all about. When you look at something like Airbnb—it’s now the largest hotel company in the world and they don’t even own a hotel. Uber is the largest taxi cab business in the world and they don’t even own a taxi.

So the technology is changing some of these old structures and this is a good thing because new technologies lower cost, increase efficiencies, convenience, and safety. So we should embrace these new technologies rather than fight them.

But if you look back through history, people tend to be comfortable with the status quo and they’re afraid of changes. We’ve all learned in school about the Luddites in Great Britain who broke the cotton mills because they wanted to spin cotton by hand rather than doing it through machines.

But you can’t stop technology and in particular what they call “fintech,” which is financial technology.

So the internet has changed a lot of things but it really hasn’t changed too much on the financial technology side yet. I think that’s what we’re going to see over the next five to ten years.

I’m hopeful that GoldMoney Inc. will have a big role to play in delivering another choice to consumers, a different currency that if consumers want to use it—there’s no force. They can choose to use it or not use it. But it’s something that I think is going to become more useful because of the advantages that it brings with it.

TD: When you look at the GoldMoney Inc. business, what is it telling you as far as people reaching out and voting for a different store of value for their money?

JT: I think we’re filling a need and the reason I say that is one of the target markets that we’re appealing to are the millennials, people who are between 18 and 34 years old.

They’re having a tough time in this environment of financial repression, with central banks pursuing zero interest rate policies. How are you going to save the money needed to make a down payment on a home or have enough money for retirement?

When you’re building a portfolio, one of the most basic components is savings. Once you have some savings accumulated, maybe start making investments in different things. So the role of savings is important, but in today’s environment, you don’t get interest income.

You also have the risk of a bank bail-in, particularly in Europe. We’ve seen what happened to Cyprus and Greece and the banks. They’re still overleveraged.

But the amazing thing though is when you make a product available that has advantages and people see its usefulness. They respond.

So over the first four months, we’ve grown from basically nothing on the BitGold side to over 300,000 users. We report the statistics every month to show our growth and over that first four-month period, we have grown more rapidly than companies like Uber, Airbnb, Facebook, PayPal and Twitter just because people like what we have to offer and this is global. We now have customers in over 100 different countries around the globe.

TD: How would you say the idea of gold playing a formal role in the monetary system is developing? Do you feel the idea is more closely considered today by governments than maybe 15 or 20 years ago?

JT: Yeah, without any doubt. 15-20 years ago, Asian central banks were not big factors and Western central banks were dishoarding gold. Today, Western central banks are still dishoarding gold because you see the gold coming out of their vaults. But the Asian central banks are absolutely acquiring huge amounts of physical metal. Not only the Asian central banks but Asian individuals as well.

So if you look at a country like China, it has probably gone from very little gold holdings say 20, 30 years ago, to probably now one of the largest gold holdings of any country in the world. My colleague Alasdair Macleod thinks China probably has 20,000 tons. But whether it’s 10,000, 15,000, 20,000 tons or more, it has become a major player.

And it’s not just central banks that are factors. Individuals globally are looking at their currencies and finding alternatives. There had been over 100 currency collapses since the end of the Second World War. We’ve seen one recently in Zimbabwe. Venezuela is in the process of a currency collapse. There are a lot of questions about the high inflation in Argentina and whether that currency is going to collapse.

So people are looking for alternatives. But when you’re looking for alternatives, inevitably, you have to come back to something with a proven track record as money for 5000 years. That’s gold and silver, and that’s where people are going to turn.

TD: James, let’s say a person in the United States, thought to themselves, “Well, currency problems happen in far-away places, third world countries, that are not as important or as great as the U.S. We won’t experience a problem like that.”

Is that faulty thinking?

JT: Well, we shouldn’t fool ourselves with that kind of thinking because we can’t predict the future and anything can happen. Look at Germany after the First World War. It was a major industrial power, one of the most highly-educated countries in the world and they went through a hyperinflation.

Even in America—the first currency of the country was the Continental. It collapsed in hyperinflation in the 1780s. One of the reasons why the framers of the constitution created a document to make a more perfect union, was to create a monetary union by using the silver dollar as the common currency for the country.

That’s why they put into the constitution in Article 1 Section 10, that congress shall have the power to coin money. It doesn’t have the power to print money—only to coin money and regulate the value thereof.

When you’re coining money, what “regulate the value thereof” means, is that you’re either coining gold or coining silver. So congress had the power to set the gold-silver ratio to make certain there was always enough metal in the country.

If they chose to stay on the silver standard or go to a gold standard, they needed to ensure there was enough silver or gold by adjusting the ratio to make certain there was always enough money available for coinage.

Very few people understand that today. It was the original intent of the framers of the constitution. So we shouldn’t be lulled into thinking currency collapses can’t happen here, because they have happened in many countries and it’s happened here once before.

But because we abandoned the wisdom of the framers in 1971, we now have the same system in place as they did during the time of the Continental currency which ultimately collapsed.

So this is one of the themes in the book John Rubino and I wrote, The Money Bubble. People think that what we’re using in commerce is money but it’s not. It’s only a money substitute circulating in place of money. Money is gold and silver. Paper and these other things are really just money substitutes.

In my view, the debts are unsustainable in this country. The government will repay its debts, but you’re not going to get the purchasing power back that you loaned to the government. That T-bond or T-bill is going to continue to be debased in terms of purchasing power. That’s why the price of gold has risen over time.

At the turn of the previous century, gold was $20.67 an ounce. Franklin D. Roosevelt devalued the dollar and the price of gold rose to $35. In the late 1960s, early 1970s, rather than devalue the dollar again, Nixon broke the link to gold.

But the point is that gold still has the same purchasing power. I like to use the example that an ounce of gold still buys the same amount of crude oil it did 50 years ago.

Gold is still the standard. We just don’t use it as currency anymore until now with BitGold. You have to remember gold is owned by millions of people across the globe but there hasn’t been any modern day banking technology or apps applied to gold until BitGold came along.

So I think it creates an opportunity for the company and that’s what we’re focusing on. So far the response has been very positive.

TD: James, what are your thoughts surrounding traditionally-used currencies such as the dollar or other world currencies—in terms of the managers of those currencies seeing other competitors coming into the space, that maybe they’re not comfortable with?

JT: Well, again, you can’t stop technology. It’s going to happen. Even if some countries try to stop the technology, other countries are going to embrace it. Things will change.

Technology raises our standards of living and in the area of payments, if we can make payments lower cost, safer, more convenient, and more efficient, we’re creating more opportunities to interact with one another.

That creates more opportunities for commerce. More opportunities for commerce means people can raise their standards of living. Just think about what’s happening now with the internet.

We’re sitting here in New Orleans. We can get on our cell phones and communicate with people in China or any other part of the world. If we had a good means to make payment, I could buy data or have a product shipped and do it through my cell phone. And the person in China knows they’re going to be paid.

It’s interesting because some of the existing mechanisms of circulating currency show that people are looking backward as to what a currency has been rather than forward as to what currency can be.

If you look at the automobile industry, as a comparison, the first car looked like a carriage without a horse. It was only after a period of time that people realized they weren’t restricted as they previously were. With the combustible engine, they weren’t constrained by power and things of that nature.

They now could put a body with a roof on pneumatic tires and over a period of time, a car emerged from those inventors’ garages.

It’s the same thing in currency. By looking at plastic cards circulating as currency on the internet, you’re looking backwards as to what currency has been rather than using technology that’s available today towards what currency can be.

That’s why I think BitGold is important. We’re changing the nature of currency by making the world’s oldest money circulate once again as currency and doing it in a modern way, low cost, convenient, safe, et cetera.

TD: Before we wind down—life lessons and wisdom that you garnered from your parents given the tremendous life experience that they had. Anything stand out in your mind?

JT: Yes. Be prudent. Don’t get into debt. Save your money. Plan for an uncertain future. One of the things I learned from my parents as a young kid—I was born in 1947, so they had gone through the Great Depression, but they made a very important point to me.

They said that 25% of the people did very well during the Great Depression. They lived very comfortably and weren’t really affected by it. 25% of the people got by, and about 50% of the people they estimated did very poorly because they didn’t plan for the future.

So I’ve always thought, “OK, I’ve got to plan for the future.”

When you look at what happened in the Great Depression—the buildings were still there after the collapse. The factories were still there after the collapse. What collapsed were the financial assets.

It gets back to the point that when you look at wealth, it comes in two different forms. You have real things and then you have financial things. Financial things have counterparty risk. Money deposited in the bank, if the bank goes under, you can lose your money. T-bills or T-bonds, if the government refuses to pay, you lose your money.

But at the end of the day—farmland is still there. Timberland is still there. One of the things I’ve learned over my own experience—I’m 68, so I’ve seen a lot of cycles economically speaking. You have cycles where money flows out of tangible assets and into financial assets, and then out of financial back into tangible.

Since 2000, at that market peak, we’ve seen money basically coming out of financials going into tangibles. I think that is still underway because people understand there’s a lot of risk today in financial assets. Counterparty risk is high. There’s too much debt in the system.

The only reason we’re at zero interest rates is because central banks know that governments can’t afford to pay a fair rate of interest. They already have too big a debt load.

If you increase the interest rate, that increases the amount of interest expense they’ll have to pay. They’re not going to cut back in other areas of their spending. They’re going to borrow more and you then get into a vicious cycle of borrowing and spending, borrowing and spending. Then you ultimately destroy the currency.

But the currency is getting destroyed now anyway. It’s just being destroyed more slowly than it would be in a hyperinflationary environment.

TD: Any thoughts on the production side of gold? It seems we’re in a pretty interesting market environment at the moment.

JT: Yes, exactly. I look at it differently than some of the mainstream thinking. To me, the gold supply is the 170,000 metric tons that exists in the above ground stock.

Gold doesn’t disappear. It doesn’t get burned up. It doesn’t get used up. It’s always there. It’s not like commodities. It’s not like crude oil and soybeans which get used and disappear and consumed.

But gold just gets accumulated. All the gold mined throughout history still exists in this above ground stock. The above ground stock about 170,000 metric tons, I call it gold’s ‘M3.’ The dollars have a quantity of money and they call it M1, M2, M3.

Well, this above ground stock is gold’s M3. The interesting thing about this above ground stock is that it grows by about 1.75% per annum.

So it follows precisely Milton Friedman’s K rule in which he said that to have a sound money, you have to have the money stock grow consistently by the same amount year after year after year.

That’s exactly what gold does. It grows by about 1.75% per annum year after year after year. It’s very consistent, which is why gold preserves purchasing power over long periods of time. Why does an ounce of gold today buy the same amount of crude oil it did 50 years ago? It’s for that reason.

The way gold is dispersed in the earth’s crust is very fortuitous because as technology improves, it becomes easier to find gold that’s more and more dispersed. But the gold stock still grows at 1.75% per annum.

It’s a shame that college professors don’t recognize how simple it is and that gold really is the best form of money. That’s why it has been money for 5000 years.

Keep in mind that it’s only since 1971 that we’ve gotten off a gold standard. This has never happened before in history. Gold has always been the key underlying element. So we’re in uncharted territory.

What would you rather bet on? Something with a 5000-year history that still preserves purchasing power? Or fiat currency based on politicians and their promises that have a 40-year history?

That history of the latter isn’t very good, given all of the problems we’re having with currencies around the world, and given the fact that over a hundred different currencies have collapsed around the world since the end of the Second World War.

Going with gold and silver to me seems very logical.

TD: James Turk, Director of GoldMoney Inc., Thanks for sharing your comments with us.

JT: Thanks Tekoa.

Silver Army Men SDBullion

For questions or comments regarding this article, or on investing in the precious metals & resource space, you can reach the author, Tekoa Da Silva, by phone 760-444-5262 or email[email protected].

 

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