Building Empires Out of Gold (w/ James Turk and Grant Williams)
GRANT WILLIAMS: All right. Well this is a real thrill for me. James Turk, founder of Goldmoney, finally you and I get to meet. It's been a long time coming, but thanks so much for coming to see me today. JAMES TURK: Yeah, it's really great to see you, Grant, and finally have the opportunity. Anyone that's been in the gold market at any point in time in the last 25 years knows who you are. But what I want to do today is walk through your career, because you are one of the few people still active in these markets who witnessed the first great bull market in gold. Back then, you were looking for Chase Manhattan. But I'm fascinated to find out the differences, how the markets evolved. And I figure we could do that by kind of just walking through your career, seeing as you've been in that market the entire way through. So if we can, I'd love to go right all the way back to the very, very beginning, and how you ended up in this gold. Were you cognizant of gold before, or did you just end up in the gold market and grew to understand it? My father was born in Austria in 1912. And the family came to the United States after the Austrian hyperinflation. So I'd learned as a young boy, me and my three sisters, the value of gold, the value of sound money, not to incur debts, and things of that nature. And so I carried that throughout pretty much my life. And I always wanted to study when I went to the university, to focus on sound money, gold, silver, international finance. And that's, in fact, what I did. But the interesting thing is when I went to school, I graduated with a degree in international economics, and I'd learned how gold was a barbarous relic and it had no role to play in the international monetary system. This was the late 1960s, as the US was exiting from the traditional gold standard. And I realized that very soon after that, what I learned in college was totally wrong, and what I learned from my parents as a young boy was absolutely right. Let's go back to that, those formative years when you were learning this stuff from your parents. Because I think there's so few people alive today that experienced, certainly in the West, those hyperinflations, the Weimar Republic. Austria. Yeah. So I'm fascinated to learn the kind of lessons that they taught you and their kind of disposition having been through that, how it affected them and the way they viewed the world. Yeah. It wasn't just that. It was also the Great Depression. I was born in 1947, so that was still very much a part of their living memory. And it was imbued into me and my sisters how tough it was in the Great Depression, and what you needed to do. And one of the messages that I took away from that was that you needed to prepare for things that you just don't possibly expect. And what they told me was that 50% of the people got through the Great Depression OK. 25% had a tough time, and 25% was really, really just terribly bad. And so that sort of stuck with me, that you always have to be able to prepare for the unexpected and always try to get through, come what may. And sound money is always, in my mind, played a key role to being prepared for whatever happens in the future. So things like their spending habits or rather saving habits, that's something that we've seen-- I remember my grandparents who were alive at that year. Very, very different mindset. Never wasted anything. Every jar of food was scraped out, and then washed out, and saved to put buttons in. And over the years, that's dissipated now. People don't save. They don't. Yeah. It's amazing some of the things that you remember as a child. I still remember my parents wrapping up care packages after the war. This is even the early 1950s, when I was just a young boy. And sending them back to Europe, because children were starving in Europe. But the point about savings, yes. It was very much a function, very much something that we focused on. I would earn an allowance. I'd know how to save and accumulate money. And I started with a coin collection as one way of saving. This was back in the 1950s and early 1960s, as I was growing up. But that savings mentality disappeared, started disappearing in the 1970s. And I think it's pretty much totally disappeared in the 1980s, because it doesn't make sense to save fiat currency. You'd never catch up when you're saving fiat currency. What you need to do is you need to save gold or silver. Because what gold and silver do, of course, is preserve purchasing power over long periods of time. People have a real-- either they take to the whole gold, silver as money story like a duck to water, or it just never connects with them. Obviously it connected with you, and you have a very strong view about what gold is. So let's talk about that, because people have different views. It's an inflation hedge. It's a store of value, whatever it is. But you've got a much simpler understanding of it. Yeah. In 1912, JP Morgan in testimony before Congress said, "Money is gold, nothing else." And that really captures the essence of what gold is. Money can come from basically today, we call it two ways. It comes from the earth, with the putting in labor and capital. And you mine gold, and you mine silver. Or it can be created out of thin air by central banks. Now we've seen in recent decades the problems that arise when you're creating money out of thin air from central banks. And as a consequence, I think ultimately, we're going to go back to the normal thing, which is gold will circulate once again as global commerce. It's interesting what's going on in the States particularly, because we've been there before. After the War of Independence, the currency of the time, which was called the continental, collapsed, and there was basically a hyperinflation. And one of the reasons why the framers of the Constitution got together was to create a more perfect union. What they did is they created a common market with a common currency called gold and silver. And it worked pretty well for 170-odd years. And in the 1960s and then in the 1970s, when the link to gold was formally broken in 1971 by President Nixon, we've gone the other way. We've gone back to the same types of problems the country had after the War of Independence with that continental currency. So we either have to turn around and go back to what the Constitution requires, and once again start using constitutional money, or we're going to be facing, I think, quite a severe crisis, like 2008 but much, much worse, because there's just too much debt in the system. Well you talk about how everything, the troubles that have happened since we went onto this pure fiat standard. But the general acceptance to me, they don't seem to be able to join those dots. They see the fiat system-- and by that, I mean they see the central banking era as the saviors when problems arise, and not the linkage between this purely fiat environment and the problems themselves. Those connections don't seem to get made by most people. Why is it do you think that people have such a poor understanding of the damage that that purely fiat currency and free extension of credit does to a monetary system? Well using my own case as an example, what I learned in college was totally wrong. I learned a lot of Keynesian theory that had no real applicability to how the world really works. And what I did to re-educate myself is I eventually stumbled across the Austrian School of Economic Theory, which even though I earned academic distinction at the school, I'd never even heard of that. I'd never even heard of Austrian School of Economics until after graduating. But the books by Mises, the books by Rothbard, they really explain how people interact with one another, how we employ labor, how we employ capital to improve our situation in life by fulfilling our needs and our wants. And you do that by hard work and by saving whatever's left over that you don't consume. And that savings and/or investment is to prepare for your future in any unexpected events, and to improve your standard of living over time. You've grown up in that environment we've already discussed, where I'm sure credit is a four-letter word instead of a six-letter word. Did you notice the shift to a purely credit-based society? Were there any signs along the way that made you go, oh, wow. I can see where this is going. Yeah, very much so. Because I was in college in the 1960s, and started with Chase Manhattan Bank in the late 1960s. And I learned banking from guys that had lived and worked through the Great Depression. So I had a perspective and an educational basis very, very different from what came later. Those guys that lived and worked through the Great Depression, by the late 1970s, had retired, and were no longer in banks. And you started to see that transition within banks themselves, that the conservative traditional method as to how banking should be, that lenders are protected, the people who deposit money are to be protected, and the risks are to be associated with the buyers, all of that started changing. And we've reached the stage now where banking today, I can't recognize it to what I learned banking was back in the 1960s. They're more like hedge funds supported by the state rather than private enterprises trying to generate a profit by doing good for their customers. So in that environment when you're as a young man, idealistic, out of college, reading, learning more about this sound money system at the very point in time where the world is essentially eschewing sound money and moving purely into a purely fiat currency regime. How did you at that time, how did you reconcile that? I imagine there was either great angst or you kind of, it's just happening, and there's not much you can really do about it. It was a process that evolved over time. Remember after school, I thought gold was the barbarous relic. Right. And when gold got to what back then was considered to be the ridiculously high price of $50 an ounce, I sort of stepped back and said to myself, well, gold's very overvalued, or what I learned in school was wrong, right. And I started researching and seeing what was going on. And that's when I stumbled across the Austrian School of Economics, and Mises, and Rothbard, and all that, and basically re-educated myself as to how the world really works. And I realized that gold wasn't overvalued, and what I learned from my parents as a young boy is actually the most important lesson I could have learned in life, that sound money is important not only in terms of one's well-being from a financial point of view, but it's also important in terms of how people interact with one another in the world. Because we operate in a system of voluntary interaction. If we were to do a transaction with one another, it's because both of us believe that we are going to be better off by doing that transaction. That's Adam Smith's invisible hand. And the way that transaction best works is when you have a sound money to complete that transaction. Because when you have sound money, the economic calculation that flows from that sound money transcends time, and that's what gold does. It transcends time. And that's very, very important when we start thinking about saving capital and investing capital, because capital is too precious to waste. It's a lot of hard work, and we shouldn't be wasting capital. It's funny. That's in my mind, perhaps the greatest crime of all in the central bank era, is the fact that capital is essentially-- there's no cost to capital anymore, which is an absurdity itself. But we start throwing a phrase like that around, and we're numb to them now. We don't really think about what that means, and how important a move that is for the financial system. Yeah. One wag said because there is no cost to capital anymore, let's level the Rocky Mountains and fill out the ocean, because there's no cost to capital, which is, of course, absurd. But what that shows is how absurd these times are today. And that's why I call this environment the money bubble environment, which is the title of my last book. What we are is in an environment where we've lost sight of what normal processes, and procedures, and basis of interaction is, and we're off on a tangent. But that's the way humans progress. We don't go in a straight line. We go, and we start moving to one direction, and we hit a wall, and we come back. And we maybe hit a wall this way, and we come back. So it's a tenuous progression, but we do eventually realize that we make mistakes, and we get back on the right road. And I think that's what we've got coming in the not too distant future. Like the drunk guy getting home from the pub is just wall, to wall, to wall. And you get home eventually. Yeah, exactly. When you were educating yourself in the Austrian School, was there a moment? Was there one thing you read that suddenly crystallized all that was cloudy? Or was it just a gradual process over time of learning to understand? Well, there are a couple of good pamphlets by Murray Rothbard, The Case for the 100% Gold Dollar and What Has Government Done to Our Money? They're short pamphlets. I think they're probably 30 pages long, or something like that. Both of those were very, very critical. Mises' Theory of Money and Credit is much deeper. That's a hard read. I mean, it's great, but it's a hard read. But for me, that was really, I think, the eye opening one. And there was another book that you don't hear much about, but it was another eye-opener for me. It was called Organization of Debt Into Currency by Charles Holt Carroll, who was a businessman in the States in the 1860s, 1870s. He didn't actually write a book. He wrote a series of newspaper articles explaining how debts of banking systems was turned into currency, and why that was creating problems, which is what we have today. Liabilities of banks circulate as currency. And those liabilities of banks, the value of them can change considerably for a whole variety of different reasons, and that's what creates uncertainty in the financial system. But I think those were probably maybe some of the earliest books that I read. And of course, Atlas Shrugged, I first read that when I was 14 and read that again when I was 22, 23, something like that. So I recommend that one, too. What does Atlas Shrugged read like to a 14-year-old? I'm fascinated to know, because I could barely lift it when I was 14. Never mind plowed my way through. Yeah. My sister had a first edition of it, so it had been in our family library for a while, when it came out in 1956 or '57, something like that. I think I probably read it more as a novel at that age rather than the message. But it sort of resonated with me in terms of how things get screwed up by government intervention, and also that there are people in the world that don't see things normally, and they proceed in an abnormal fashion, and that ultimately creates problems. I think those are probably the messages I took as a teenager. When I re-read it again when I was in my early twenties, obviously I read it at an entirely different level. So let's get back to you your career, your JP Morgan Chase. Now, were you working in the gold market when the London Gold Pool episode transpired? You just missed it. Yeah. I was doing my international finance and economics course at school as the British pound devalued in December of 1967, which literally shook up the international monetary system. So I was obviously following the Gold Pool, and I was still in school, and then immediately joined Chase Manhattan thereafter. But I was following very closely all of those developments, because remember, gold was a barbarous relic, and I was just trying to figure out why the price was rising, based on what I had learned. So I was very familiar with what was going on in the Gold Pool. Well, let me interrupt you there. And I hate to do that, but perhaps you could actually-- because there will be people here that don't know the story of the London Gold Pool, and it's such a fascinating story, particularly as the reserve currency of the world at the time ended up devaluing, which people think it can't happen. So if you could tell that story as you saw it, that would be great. It's really quite simple. Too much debt was expanded. And the amount of debt was collapsing in order to get back into gold, because people realized that these pieces of paper they had as currency didn't have the strength and the value that they once thought it did. It'd probably be better to explain it going back to the 1930s, because it's the exact same thing happened in the 1960s. In the 1920s, you had this great expansion of debt. And when the bubble finally popped, people moved out of deposit currency in the banking system into cash currency, because back then they still had gold certificates, which were redeemable into gold. But as the 1932 election started progressing, and there were rumors that Roosevelt was going to confiscate the gold, that caused a run on the banking system that people then started moving out of paper into actual gold itself. There was a very brilliant former Federal Reserve banker and economist by the name of John Exter in the 1970s who developed this concept of an inverted pyramid. If you could imagine gold at the bottom of the pyramid, and the further and further you went up, the pyramid expanded, and you had paper pieces or commitments that supposedly were wealth, but relied upon someone's counterparty risk. And was this bank, or was this individual going to make good on that money that I loaned to them when I need that money in the future? And what happens during a collapse, whether it's the 1930s or the 1960s, the size of that pyramid shrinks. People move from these uncertain levels at the top further and further down to gold. So what Roosevelt did is he actually devalued the dollar from $20.67 to $35. He reduced the gold content of a gold coin from 22 fine grains to 13 fine grains is essentially what happened. Now when Nixon was faced with essentially the same thing as Roosevelt, what he chose to do, rather than devalue the dollar, he chose to break the link, and go into a pure fiat currency, so that there was no dollar formal link to gold anymore. So technically, he defaulted on the US government's debt, which is the second time, because Roosevelt defaulted on US government debt because people who held gold bonds expected to be paid in gold. And instead, they were paid in paper money. But Exter's pyramid's a great example. And the parallels with '08 are to me, very, very strong. Because what happened, it was exactly that same extinction event. Yes. But in the '30s and the '60s, those top layers just went away, and they were written off. And what we had in '08 was the same problem. But because the pyramid had got so wide at the top, they couldn't let that top layer go away. They had to kind of prop that up. Well, that's what they argued. No, no. Yeah, absolutely right. That's what they felt they had to do. But the top layer of that pyramid's going to go away sooner or later, and that's what actually is going to cause, in my mind, the big crisis, which is coming. Whether it's this year, next year, five years, who knows? But 2008 didn't solve anything. It just deferred the problem, kicked the can down a little bit of road. But as I like to say, the can is no longer a can. It's now a 10-ton boulder. You can't kick that much further because of the amount of debt that we have in the system. And the only way it's been able to be sustained, it all comes down to cash flow. This is what I learned in banking. And the only reason why this debt is sustained, because interest rates are near zero. If the government was paying a normal rate of interest, let's say the US government with $20 trillion of debt, was paying a normal rate of interest of, say, 5%. That's 5% more than what it's paying now. That's basically a trillion dollars a year in interest. It only generates revenue of $3.2 trillion. So the way a currency gets hyperinflated is the debts become so huge, the government can't pay it. They call the central bank to buy that government debt, and turn it into currency, and let it circulate, The Organization of Debt Into Currency. And ultimately, the currency just gets debased, what's going on in Venezuela at the moment, as an example. Well, it's an interesting thing. We're going to get back to the young James Turk in the '70s in a minute. But that Venezuela example is an interesting one to me, because you're right. It's happening right now. But there's a disconnect. People can't substitute the name "Venezuela" for a Western democracy. Just physically, they don't have the ability to do that, even though it's exactly the same system. OK, it has its perhaps bigger flaws than perhaps some of the West ones, but we're several bad decisions away from being Venezuela. And it's the same story right there through time. You and I are both keen financial historians. And you see it over, and over, and over, and over again. What is it, you think, that makes people think, oh, that's terrible, but it could never happen here. Yeah. Well as we were discussing before, the American philosopher George Santayana said, "If you ignore history, you're doomed to relive it." And we don't really learn from history. Not everybody learns from history. Put it that way. If you do learn from history, you'll see that these are repetitive cycles. And you'll learn the difference between money and a money substitute, which is something very, very fundamental. Money is a tangible asset. A money substitute is circulating in place of that tangible asset, but has counterparty risk, which means it's dependent upon somebody else. It's moving up that inverted triangle. A lot of people, I think, basically take for granted what they hear from politicians, read in the newspaper. They're focused on making a living, keeping their heads above water, trying to save or invest so that their children have a better life than they did. And so there are a lot of pressures on people that they may not necessarily have the time to spend reading things like Rothbard, or Mises, or looking at what could happen in the future. But I think that's why we tend to ignore these things. But also then, I think there are politicians who are either dumb or unscrupulous who actually, because they seek power, as the case in Venezuela, cause misery for the population as a whole in order to increase their power base, increase their own wealth, and stash millions away in some other country so that they can go live with their own family and leave the country a mess. We've seen it many, many times over the years. It just repeats. So let's get back to the '70s, because the gold market in the '70s was a wholly different beast. Today, we have all the demand really for physical gold certainly coming out of Asia. Back then, Asians had no money. These were very poor countries back then. So the demand side of the equation was very much Western, which is hard to believe that today, but it was. But again, you saw the break of the link on August 15, '71. And then you saw this, you saw gold let free. You saw the price start to move to a market price, rather than a government-mandated price. And so you would have caught that run-up from $35 to $800. So walk us through the market, and that what you saw change, and how that felt at the time, to be involved. First of all, the price of gold was going up, but its purchasing power was basically the same. Yeah. In other words, when we talk about the price of gold going up, we're talking really about the purchasing power of the dollar going down. And I like to use the example that an ounce of gold today buys the same amount of crude oil it did 60 years ago, 80 years ago. It doesn't necessarily increase your wealth. It preserves your wealth, which is what it's supposed to do over long periods of time. There are, of course, some cycles to gold, because you have four forces at work. You have the supply and demand of gold compared to the supply and demand of that particular product, good, or service, or commodity that you're measuring its price. So you do get some fluctuations. But over long periods of time, gold tends to preserve purchasing power. And it does this for one very simple reason. This above ground stock of gold, which is what I call gold's M3-- we talk about dollar M1, M2, M3. This above ground stock of gold, which is all the gold that's been mined throughout history, still exists in people's pockets, or in bank vaults, or whatever. And it grows by about 1 and 3/4% per annum very consistently year, after year, after year, which is approximately equal to world population growth and new wealth creation. That's why you have this consistency of gold's purchasing power. It's a natural form of money. The other thing that makes it stand out is that there's no entropy when you come to gold. It doesn't rot. It doesn't shrink. It doesn't disintegrate. An ounce of gold today is no different than an ounce of gold in Roman times. It may have been mined in different locations, but it's still the same. Nothing else in the world has the characteristics that gold does. So it's given gold value because of its usefulness as money. You don't build houses with gold, but you use gold as a means of economic calculation, measuring prices, bartering when you go into a market to interact with other people as you go about your daily life seeking to fulfill your needs and your wants. So gold really is something special and unique. I got a little bit off on a tangent. No, no, no. Not so, because you're right. It was important distinction to make. There's me talking about the gold price. Going back to 1974, you had a free market, more or less, in gold at the time. It wasn't until the late 1970s that the US government started this hoarding gold to try to control the gold price and keep it from rising. And there's been a lot of documentation put together by Chris Powell and Bill Murphy in terms of-- and various people, including myself, who've written about it-- showing how there was an attempt back in the 1960s and the 1970s to remove gold from the international monetary system. And what it did is it was to enhance the power of the state and reduce the power of the individual. If you go back to the readings of the framers of the Constitution, the reason why the Constitution worked is there was a balance, checks and balance, in many, many different respects. And one of those was the checks and balance between government itself, the federal government, and the people. And you can control the federal government when you use sound money, because there's only so much sound money in the world, increasing at 1 and 3/45 per annum. And anything beyond that, you start building debt, and you ultimately create problems on that debt side, and go into the debt boom bust cycle again. So going back to 1974, though, it was more or less a free market at that time. And it was very different. First of all, it was only in the early 1970s when you started seeing the commoditization of everything. The CME, the Chicago Mercantile Exchange started trading currencies because they were now fluctuating. They were no longer tied the way they used to be under the Bretton Woods Agreement. Then you started seeing commodities fluctuating wildly because the value of money was going up and down because of inflation. There were a number of bank failures. New York City almost went bankrupt back in the mid-1970s. And then eventually, T-bonds became commoditized. So everything is commoditized today in the world. There is no stability other than gold. So that's, I think, the big difference between now and then. But when that bull market got started in the late '80s, how did that feel? Because there's a clear shift in sentiment there. Inflation expectations ramp up, but the gold market just sees this crazy influx of interest. Yeah. I think initially in the early 1970s, there was a little bit of disbelief as to what was going on, because the dollar was being fundamentally changed. And people were thinking, I think, that the dollar would eventually come back, as it always had, to some kind of a sound basis. During the American Civil War, the dollar was taken off of gold for a period of time, and it eventually came back to gold in the pre-war basis. So I think there's a little bit of disbelief. And eventually, people started understanding that prices were going up. Nixon put on a wage price control, which was not effective, and never is effective in trying to control inflation, because there's just too much money being printed by the banking system. So we had that first initial move that took gold all the way to $200 an ounce from $35 an ounce from the late 1960s, when the London Gold Pool broke up because it was no longer sustainable up till December of 1974. You then had a correction down to $100, a 50% correction. Carter was elected. And in August in 1976, during the Democratic nomination, that was the low. And gold started rising from then, and it went to the big $850 price in January of 1980, when Reagan then came into the White House. And Volcker was now head of the Federal Reserve, and raising interest rates sky high in order to convince the market that the dollar was still worth holding. But it took 15% government bonds to hold the dollar. It's funny. Something you said there really resonated with me, because you talk about people in that era expecting the dollar to go back onto a gold standard of sorts. Which if we parachute ourselves back to the mid-1970s, of course, that's a very easy assumption to make. Because at that point in time, A, we’d never had a pure fiat regime in the currency world. Right. And the dollar had been on a gold standard of sorts for more than it had been off one for 200 years. Yes. And it's amazing what that extra 40 years has done. Because today, if you talk about a gold standard, I mean, people look at you like you're from Mars, and you have two heads. That could never happen. Back then, even though gold and silver had stopped circulating as currency-- gold by the 1930s. Silver stopped circulating in the mid-1960s-- people still intuitively understood that gold and silver were money. But remember also when Nixon made his announcement on August 15, 1971, he instructed Treasury Connally to "suspend temporarily," quote, unquote. So everybody had the expectation that, well, if it's just a temporary suspension, we are eventually going to go back to gold, which is what the Constitution essentially requires. But we never did. And we've been going further and further down this road, building a bigger and bigger inverted pyramid with a small amount of gold at that at the bottom. But 40 years later now, because no one really has any experience of gold-backed reserve currency-- my grandparents do, and people have a vague recollection. But it's been such a long time that the people now working banks, working on Wall Street, running businesses, they don't know anything else. And so for them, it's such a leap to conceive of a sound money-based system. And obviously a lot of the press that you read about the gold standard talks about why it caused problems, why it was the root cause of problems going into World War I, for example. When the truth is there's not one gold standard. There are all kinds of different gold standards, and the gold standard adjusted over the years to be partially-backed or fully-backed, depending on what the trade flows were at the time. And this idea that we could never go back to a gold standard as though it's one potential thing, it's laughable to me, because I think it will be forced upon us at some point, sooner or later. How do you see that transition taking place? A couple good points you raise. And again, it relates to my own situation back in the late 1960s, early 1970s, who had forgotten what I'd learned from my parents and was focusing on what I learned at university. And when gold started going up, I was saying, what's going on? And I had to re-educate myself, as did many other people at the time, to adapt to the new circumstances so that you could save money, and prepare for the future, and interact in the marketplace, fulfilling your needs and your wants. So that type of process, many people will go through again. We saw a little bit after 2008 when people swore that they were never going to put that much debt again, or, I'm never going to buy a CD again, or stuff like that. But they forget. And eventually, we'll have another crisis. So there will be that learning process going on when this happens. But then I got off track to the point you're asking. No, just how do you think the reversion to some form of gold standard. How do you think it happens? Well, we are in a gold standard. There's a question between is it a formal gold standard or an informal gold standard? Gold is the standard. Gold is the measuring stick for all goods and services. It's been that way for 5,000 years, and is likely to be that way for the foreseeable future. We went off any kind of formal standard pretty much in an evolving process through the 20th century until 1971, when all links were broken, and now we have an informal standard. You cannot redeem dollars for gold, but you can sell dollars for gold. And that's where the standard essentially comes in. And when you measure the price of goods and services in terms of gold, as I was explaining before about a barrel of crude oil, you see why gold is the standard, why it's the basis for economic calculation. So to say that it's silly that we can't go back on a gold standard is silly, that we are on a gold standard. We're just not on a formal one. So the question is really, will central banks ever go back to a gold standard? And I don't think so. First of all, central banks are an arm of the state. And states use, governments use central banks to enhance their power. And let me give you a little story, because you might find this interesting. It explains the point. People recognize today that the Deutsche Bank-- excuse me, the Bundesbank, the German Central Bank was independent, and the governors of the Bundesbank could do whatever they wanted. And you have to ask, why did they have this independence, and how did that come about? Well at the end of the Second World War, the three alliances, Britain, United States, and France, they basically created the predecessor of the Bundesbank. And they instilled in the articles of incorporation and in the minds of people that the central bank and the government has to be separate. Because if they're not separate, the central bank is under the control of the government, and can print as much money as it wants. And the last thing the allies wanted at the end of the Second World War was to have the German Bundesbank printing more money for a third World War. So you have to recognize that central banks are an instrument of the state. And therefore, unless central banking fundamentally changes to what we saw back in the 18th century, which I don't think is likely to happen, central banks are not going to go back to gold. But the question is, is the market going to go back to gold? Are people going to start using gold once again for currency? I think that's likely the way it's going to evolve. The question is, is it going be a smooth evolution or is it going to be a rough transition, where governments try to prevent gold from circulating as currency? If we go that way, we know the bad results that occur when governments interfere with the market process and disrupt people voluntarily interacting with one another, and when they exchange goods and services for goods and services, and use money as the means of calculating in that exchange. So my expectation is that there may be one or two central banks that go back to gold. Maybe Switzerland, maybe not. I don't know. Maybe a couple of other smaller countries. But keep in mind too the IMF says that central banks cannot use gold as a form of money, or currency, or anything of that nature. Everything's stacked against gold except the intellect of people who understand what gold brings to the table, and have read and understand gold's history. Yeah. So it's funny that idea that human history repeats. Gold is a constant through all of recorded human history. Yes. And it's hard to believe that at some point, that connection won't be made again. It's there already in places like India, or China, or the Middle East. The connection is there. It's never gone away. It's gone away in the parts of the world that have had this massive financialization, and this easy build-up of credit. And you kind of understand why it's gone away. Yeah. But a lot of this began in the '80s. We saw stock markets bottom. We saw credit markets bottom, in terms of the bond prices. Being in the gold market after interest rates peaked in 1980, and the gold price peaked, those next 20 years, that was a desert to be in the gold markets. What was that like? Because as much as gold is maligned now and has been over the last 15 years as it's gone up from a couple of hundred bucks to $1,900 at one point-- Yeah. You're there in the gold market when it went from $800 down to $200. And not quickly, so you could get out the way. This took 15 years. Yeah. Well gold was overvalued in 1980. Assets become overvalued, they become undervalued. And the key to successful portfolio management is to get rid of those assets that are overvalued and accumulate those that are undervalued. From a career point of view, because I did well in Chase, and my plan had always been to be with them for 10 yea rs to develop the experience, the connections, and then move onto something else. I resigned from Chase in 1980 and joined a commodity trader in Greenwich, Connecticut. It was one of the top commodity traders in the States at the time. And gained valuable experience working with him, looking not just at gold, but other commodities, and how they interrelate. And then it was from there that I was headhunted and went to Abu Dhabi to manage the commodity portfolio for the Abu Dhabi Investment Authority, which is that country's sovereign wealth fund. And I was there for a few years until leaving, resigning in 1987. And since then, I've done a number of other things, focusing ultimately on Goldmoney. Yeah. Because the idea for Goldmoney actually goes back to 1979, believe it or not. We'll come on to that in a second. But I just want to get back to your period in the Middle East, because you moved from the establishment bank in Chase Manhattan. You go learn about the commodities markets. Now when you move to run a sovereign wealth fund in a part of the world where gold is understood, commodities are understood because their entire economy is based around one particular commodity, how were the attitudes different? Did you find that when you were there, it was a completely different perspective on the whole thing? Yeah, it was very different perspective. And just to give you an example, I was discussing this just recently with somebody else. During the Arab oil embargo of 1973, the Yom Kippur War was going on, and the Americans were supplying arms to Israel. And the Middle Eastern oil producers implemented the embargo, and stopped selling oil to the West. Now most people tend to think that that was because the Americans were sending arms to Israel. But it actually goes back to what Nixon did in 1971, and how the dollar was debased between 1971 and 1973. And the Arabs, as I learned when I was there in 1983, '84, they calculate the price of crude oil in terms of gold. And they realized they were getting a lot less gold for their oil than they had been prior to 1971. So that was as important to them as a reason for the oil embargo as it was that maybe sending the arms to Israel. But you don't read about that in the West, but it was one of the things I learned when I was there in Abu Dhabi. But we're in a kind of similar position today now, where gold and oil, when you look at Middle East, and you look at Russia, and you look at China, and the likes of Turkey, and Iran, there's this block forming of countries that either import or export oil, and all have an affinity for gold. And there is a clear system evolving there, which will enable all these countries to trade between each other to move oil around and pay for it in gold, and bypass the petrodollar. Cut that out of the system. Now that's a huge development, were it to happen. It changes the game completely. Yeah. When you look at that, do you see that happening? From your experience in the Middle East, is that something that's long been on the minds of that part of the world, or is this a new development? No, it's not a new development. And I think, yeah, things are happening over there that we have to pay attention. Empires do end. They've ended many, many times throughout history. And they've tended to end for the same reason-- too much debt debasing the currency. It took the Romans maybe 150 years to debase the currency and to bring about the end of its empire. The British Empire took about 50 years to debase its currency to bring about the end of its empire. The debasement of the dollar started in 1913, so we're at 104 years. So we're going to be somewhere between the Romans and the Brits in terms of debasing the currency and seeing the end of empire. At the end of an empire, what's next? And it's quite clear that China, with the wealth that it's accumulated, and Russia, with the resources that it has, it's a natural attraction to one another. China's got the labor, the wealth, and Russia's got the resources. You can create a lot of wealth by bringing all of those things together. But I don't think that they're going to do anything to trigger the collapse of the system as it presently exists, perhaps out of fear of war, perhaps out of fear of reactions, unintended consequences, and things like that. So they'll play the system as much as they can, until eventually, the system is no longer sustainable, and they'll create their own system. But it also has implications. My colleague Alasdair Macleod and I have discussed this a number of times. And he brought to my attention a British strategist in the early 1900s, a guy by the name Mackinder, who wrote that-- Yes. Are you familiar with his work? I am. Yeah. If you bring together Central Asia, that's a real economic powerhouse. It seems to me that the Russians and the Chinese sense that. They sense that they are the future, or they think themselves are the future. I sort of hesitate when I say that. Because to really have a successful society, and wealth creation, and opportunity for people to interact with one another, you have to have some key basics. And this is why the British Empire was so successful. You have to have rule of law. You have to have private property. It's also why the US had been so successful. Without the rule of law, without private property, you can't really run a command economy successfully. It just doesn't work. Eventually, command economies collapse, as we saw from the various parts of the Soviet Union. I would add tea to that list as well. The British empire, without tea, we wouldn't have been able to run the empire. So I think that's a very important one. Yeah, that is probably a very important one, too. So yeah, it's going to be interesting to see how the geopolitics evolve in the years ahead. But regardless how they evolve, my view is that gold's still going to be there. And even if it's not circulating its currency, it's still going to be money. It's still going to provide the same usefulness that it does today, in terms of economic calculation, measuring things over a long time so that a businessman and entrepreneur can wisely decide how to invest his capital when he calculates prices and goods of services in terms of ounces and grams, rather than dollars, or euros, or any of the other fiat currencies. So that's, in my mind, the basic bottom rock part of every portfolio, it's having money, and real money with no counterparty risk. Own some of that bottom of the pyramid. So what was it do you think that changed after witnessing the gold bull market of the late '70s, and then this 20-year fallow period where gold just ground lower, and lower, and lower. What do you think changed around the turn of the century that put a floor on the gold, and suddenly people all around the world started thinking, I need to own some of this crazy yellow rock again? Yeah. You can only push an asset to a level of overvaluation or undervaluation so far. And even a government cannot stop a reversal of that trend. In was it 1990, just before Warren Buffett started accumulating silver, which he was doing in the 1990s, a pack of cigarettes was more than an ounce of gold, just to put it into perspective how cheap-- excuse me. An ounce of silver-- just to put it in perspective how cheap an ounce of silver was at the time. So silver was extremely undervalued. The market does not like anything way overvalued or way undervalued. Money moves to undervalued assets, and that's what started happening by the 1990s. So you went from 1974, when gold was very overvalued, to 1976, when it was undervalued. Then when Carter was elected, you went to 1980, when gold was very overvalued at $850. And by the late 1990s, gold was very undervalued, when you were talking about $250 an ounce. So you had money or wealth moving into it because people understood this was good value. And it proved to be the case. So you had 12 years in a row when the gold price was rising. And that seems to me to be a fundamental shift now. We can talk about-- there's a lot of argument about gold, where it would go back below $1,000. But I go back to 2007, and all the talk about, will gold ever break through $800 again? This was the big debate. Yeah. Once it went through $800, it never looked back. Once it went through $1,000, it kind of went from $1,000 to almost double. Yeah. And now we're back at $1,200, and people talking about it going below $1,000 again. It's hard to see when you look at the amount of debt that's being piled on top of the existing debt load, it's really difficult for me. And I'm very happy to be convinced otherwise. I know that you're not going to be the guy to do that. But it's very difficult for me to envision a set of circumstances where gold goes back below $1,000 and stays there. I mean, could there be a wash-out? I guess. I don't see it happening. The only way it could possibly happen is if all of these money substitutes were to be cut in half, like we had in the 1930s. A lot of dollars disappeared because of bank collapses. If dollars disappear again because of bank collapses, and the government doesn't try to put those dollars back into circulation, you could potentially see the price of gold rise. You have to look at the quantity of gold available in the world versus the quantity of fiat money available in the world, and then decide, where are people putting their resources? Where are they moving their wealth? Are they moving into gold because it's undervalued and out of dollars, or is it vice versa? And the last five years, gold guys have gone through the wringer because of what's been happening in terms of the take-downs from time to time, et cetera. But we have to remember the correction probably ended in December of 2015, which was the low in gold. And December '16 was higher. And even with this bad correction the past several weeks, we're higher still. So it looks like we have an uptrend forming, and we have a new bull market, which makes sense, because of all of the problems that we see out there in the world. Today is a little bit like maybe 2002, 2003 in terms of where gold is in relative valuation terms. This is brings us nicely around to the present and the future, which is every bit as important. Let's go back and talk about Goldmoney, and how and when you formed it, and what the genesis of that was. Well the genesis, it actually goes back to the 1970s. There was a West German bank called Herstatt Bank that collapsed in 1974. And I was in Thailand at the time working for Chase Manhattan. And it literally brought the international monetary system down to its knees. And I thought, this was sort of bizarre. How can a medium-sized West German bank do this to banking behemoths around the world? So I basically stepped back and decided to study it and see if I could come up with a solution. Keep in mind, this is a time when I was still trying to get rid of the thought, what I've learned in university and re-educate myself as to how the world really worked. So I took it on. And five years later, I finally realized what the problem was, and conceptually came up with the idea of Goldmoney. But I just didn't think it was going to happen in my lifetime, because the technology didn't exist. It was impossible to make a Transpacific phone call from Thailand to New York. Or if you did, it was going to cost an arm and a leg. I didn't buy my first personal computer until September of 1979. It was an Apple II with 45k of memory, because it had an accelerator card in it. But the idea was so powerful that I didn't let go of it. And I continued to refine it and think it through the 1980s. Continued to build up my knowledge by collecting and reading books on money, and banking, and gold, and silver. And by the late 1980s, early 1990s, I realized the idea might happen sooner than what I thought, so I started researching patent law, or patent law, as you say here in the UK. And realized that it was a patentable idea, because it advanced the prior art. It created a new type of currency that solved the Herstatt crisis problem. So I hired a patent attorney in 1992, and we filed the first patent application in February of 1993, long before the commercial possibilities of the internet were realized. But because I was studying what was going on in the technology, I realized that it was moving this way. So I wanted to start carving out some intellectual property. So just explain at that point in time what was the idea of Goldmoney? How was this conceptualized? Gold circulating as currency digitally, rather than hand-to-hand. And it was actually physical metal moving. And the way it would move is it would overcome all of the issues related to gold in the past. People would say it was heavy to move, if you wanted to transact in large amounts, or you could scratch it, and that would debase, or take away some of the value of the gold, and all kinds of other excuses. But what the idea was is that the gold would stay in a warehouse vault, safe and secure. And you would click gold from your account to someone else's account simply by changing the title. So instead of having a paper representation, which is what bank liabilities are under the old gold standard circulating, you actually had gold circulating, but it stayed in the vault, because you're changing title ownership from one person to the other. That's why we used the term in Goldmoney, a holding, instead of an account. It's actual physical ownership of gold that you own, and which you can use to pay other people. So this was an idea a long, long way ahead of its time. This was an idea that really was a dream at that point, because the mechanics with which you could have done it essentially didn't exist. If you were one of those nerds with their Apple II reading all these trade mags, maybe you had an idea. Working with VisiCalc, if you can remember that. Yeah, I do. But you maybe were ahead enough in trade magazines. You understood that the internet, whatever it may be, was coming, or certainly some means of global communication. Yeah, I didn't know it was going to be the internet. No,of course not. But there was going to be some means of communicating digitally with one another. That was my conclusion, and that's why I started carving out the intellectual property. So when you finally get to launch that business, when all the bricks are in place to enable you to establish it on a solid footing, how was it received, and how did it grow? Well what we did is in the late 1990s, I realized the time was probably right, because the gold market was likely to be turning soon, because it was very undervalued then. And I wanted to have the wind in my sails. So I got together four other guys and myself, we put together some money and started the business. We formed the company in 1998, as I recall. And it took about 2 and 1/2 years to actually build the network. And we launched in February of 2001. That's good timing right there. Yeah. And it started very slowly. We put three bars of gold in there. And I was waiting for everybody to come and start using it, because it was such a great payment mechanism. And it quickly became clear that Gresham's law was taking effect. The guys that understood gold knew that Mr. Sir Thomas Gresham, who was Queen Elizabeth the First's financial adviser, that people spend the bad money and they save the good money. And what was happening is everybody-- my natural market was because I was understood. People knew me from the gold market. The natural market was people who wanted gold, and understood gold, and wanted a more convenient, and economical, and safe way to transact in it. They didn't want to actually spend the gold. They wanted to save it. So within a very short period of time, we started changing the focus on Goldmoney more and more as a savings mechanism rather than as a spending mechanism. But recently with the transaction that we did with BitGold, we're focusing more and more on the spending side, because I think the timing is right to have an alternative means of making payments outside the banking system, and that's what Goldmoney offers. And that's what I want to come onto, to wrap this thing up, and that is the present and the future. You sold the business to Josh and Roy, who were then of BitGold? Well, we merged. You merged. I beg your pardon. I've never sold any shares. No, you're right. You're right. My family's never sold any shares. And these are two of the brightest young men I've come across. Yeah, they're both very bright. They're really brilliant thinkers, super nice guys. But there's a weight and a depth to their intellect that you don't often find, particularly amongst bankers. Josh is an engineer, but Roy is a banker. But these guys just think about this in a way that most people don't. So when they started talking to you, what was the vision for the company? Because here's a guy who's been in the gold market since the '70s, is a sound money guy. You couldn't be more traditional. Yeah. And here's two guys who are thinking things that the world probably isn't ready for yet. How did those conversations go? It went very, very well. My first conversation with Roy, a mutual friend had introduced us, and I really wasn't expecting much. But I thought it would maybe be a 15-minute conversation. We ended up chatting for an hour and a half. And at the time, I was recognizing as well, I'm seven decades on the face of this earth, so there has to be a transition, and the transition to take it to a new level. And I saw Roy being able as the ideal person to take Goldmoney to that new level. So from my perspective, that's how I saw it, and the other shareholders saw it as well. And it's worked out very, very well. I've been very happy with the progress that's been made over the last couple of years. And we just announced this morning that there's going to be another improvement in the Goldmoney business in Jersey, which is the original business, where we're going to start payments once again for people who have Jersey relationships. So I'm quite excited about the future for Goldmoney and its potential, particularly given that we're like 2002, 2003 again. We've got several years ahead of us where gold is going to start flying, and that's going to be bringing a lot of attention to gold. Well we started off talking about gold being money, and nothing else. Yeah. It's been anything but money for a long, long time. Money being gold, and nothing else. Yes, exactly right. And it's been anything but for a long, long time. And it feels as though we've seen the first seeds get sown of money being gold once more. I don't know how the transition goes from here to the point where it is again. I don't know what it looks like when we get there. But it feels as though the world is on an inevitable path back to that point in time again. Yeah, that's the way I see it. And hopefully it'll be a smooth evolution without war, and things of that nature. If governments just allowed people to get on with one another and interact in a level playing field, where the government doesn't have any advantage or the people don't have any advantage-- and you can achieve that level playing field with sound money-- I think we have a very bright and prosperous future for mankind. That's the way I see it. We're just going through an aberration like we've done many, many times before throughout history, an aberration where we've gotten off the main path. We've got too much debt. We're using a money substitute rather than money itself. People have lost sight as to what money is. And ultimately what we're seeing is it's unsustainable. And the interesting thing is it's unsustainable in a number of different ways. You see the depletion of fishing stocks, and you see all of these homes being built in the south of Spain that are still unoccupied 10 years later. All of these things relate to malinvestment of capital. When you make capital cheap-- and that's what central banks do-- it destroys normal market processes, and comes up with bad consequences, like all of these homes in Spain, or too many fishing boats plying the North Sea. So we have to go back to basics. We have to go back to sound money. And it's going to happen sooner or later, and hopefully it'll evolve in a smooth process. James, it's the perfect way to end it. It's been a fascinating hour. Yeah, I've really enjoyed it. I'm so pleased we got to do this finally. So thank you very much for the time. Well thank you for the opportunity. I really enjoyed chatting with you.