Introduction: James has specialized in international banking, finance and investments since graduating in 1969 from George Washington University with a B.A. degree in International Economics. Beginning his career with The Chase Manhattan Bank (now JP Morgan Chase), in 1980 he joined the private investment and trading company of a prominent precious metals trader. He moved to the United Arab Emirates in December 1983 to be appointed Manager of the Commodity Department of the Abu Dhabi Investment Authority, a position he held until resigning in 1987. James Turk has written several monographs on money and banking and is the co-author of The Coming Collapse of the Dollar and, in 2013, The Money Bubble: What To Do Before It Pops. He is also the founder of GoldMoney, a convenient and economical way to buy and sell gold online.
Daily Bell: Hi there. It's been a few years since we last interviewed you. Please update our readers on your activities. In particular, in December you released a new book, co-authored with John Rubino, called The Money Bubble: What To Do Before It Pops (DollarCollapse Press). It has been getting some great reviews on Amazon. Alasdair Macleod wrote, for instance: "… Above all, the book is written so that complex subjects, such as the creation of bank credit, can be readily understood by the layman. And for those readers seeking a vade mecum on precious metals markets as they operate today, they will find it here. I recommend this book to all financial experts as well as the layman." Give our readers a brief summary of what to expect in The Money Bubble.
James Turk: In our first book, The Coming Collapse of the Dollar, which was published in 2004, John Rubino and I identified two major trends. These were to buy gold and to bet against the then developing housing bubble, which turned out to be two of the best investment ideas of the decade. But we also expected that the dollar and much of the US banking system would collapse. It nearly did so in 2008, but unprecedented government intervention kept bankrupt banks and other companies afloat. As our new book explains, none of the problems John and I identified in 2004 have been fixed. Consequently, we explain why a dollar collapse will still be the eventual outcome. We then go on to identify how to position your portfolio to best protect yourself from this impending calamity.
Daily Bell: Obviously, you remain bullish on gold. In fact, you suggest in The Money Bubble that paper currencies will come to an end and be replaced by sound money, like gold and silver. Where is gold headed, and what about silver?
James Turk: Both gold and silver are headed higher, or to put it more accurately, the purchasing power of the dollar will continue to decline. Gold had risen twelve years in a row, so we need to look at 2013 as one down year in thirteen. And over those thirteen years, gold has risen by 13.3% per annum, making it one of the best asset classes this century along with silver, which has climbed 8.9% per annum over this period.
Daily Bell: Are you bullish on gold miners as well? What do you look for in a mining stock?
James Turk: Yes, I am bullish. On any historical valuation these stocks look very cheap, which is not too surprising because gold is also undervalued. The mining companies have had a difficult time because the rate of inflation has risen faster than gold prices, squeezing the margins of the mining companies. The key things I look for in a mining stock are the quality of management, the soundness of its balance sheet, and the grade of its mines. I also make sure that the company does not hedge by fixing the price it receives on future production, which is always a recipe for disaster in an inflationary environment. If companies hedge anything, it should be costs, not revenue.
Daily Bell: When will the mining sector take off, if ever?
James Turk: One would hope the sector will take off when gold takes off. There are never any guarantees, though, because mining companies come with risks one does not have with gold. For example, mining companies can be a target for tax-hungry governments. If the price of gold were to soar, some governments might slap a windfall profit tax on the mining companies, just like the US government imposed on oil companies in the early 1980s. So in addition to a higher gold price, mining companies also need a friendly capitalist country in which to operate.
Daily Bell: You are bearish on national currencies, of course. Where is the dollar headed – and when?
James Turk: We know where, but cannot predict when. The dollar is headed down a road that ends at a cliff. The monetary and fiscal policies being pursued by the US government cannot be sustained. Though politicians and central bankers would like to believe otherwise, money does not come from a printing press. Like all other things on this Earth, it comes from hard work, like mining gold and silver. So even though we know where the dollar is headed, it is impossible to predict when it will go over the cliff, but I think we are getting close. It took about 100 years for the Romans to destroy their money, and with it, their empire. The dollar today only has about 1% of the purchasing power it did when the Federal Reserve was created in 1913. So there has already been a century of dollar destruction, and if we follow the historical example of Rome, the end of the dollar is near – unless, of course, we get the needed reform. But I do not see any possibility of that happening.
Daily Bell: Some quick questions on the US … Is the US coming out of recession?
James Turk: No. The recession won't end until two things are achieved – more people are employed than there were at the peak in 2007 and average household income accurately adjusted for inflation is higher than it was in 2007. Neither of those two goals is within sight. In fact, the US economy seems to be slipping once again after achieving only modest expansion the last couple of years.
Daily Bell: Will Janet Yellen be able to help the economy?
James Turk: Only if she closes the Federal Reserve and works to restore a constitutional dollar, and the prospect of that happening is next to zero.
Daily Bell: Is the Fed going to contract the money supply?
James Turk: Not in a million years. The Fed only knows one thing – print, print and then print some more. That's why the dollar has lost so much purchasing power since the Fed was founded 100 years ago. Printing is the only thing the Fed knows, and other than promulgating pro-dollar propaganda, creating dollars out of thin air is the only thing the Fed does. And this dollar creation – whether printed of pieces of paper or recorded on bank accounting ledgers – always results in more inflation that erodes the purchasing power of the dollar. The terrible thing happening for years is that household incomes are not keeping pace with the inflationary pressures, meaning that living standards are declining. And the prospect for that decline being halted anytime soon is not bright because inflationary pressures are building,
Daily Bell: How much unemployment is there in the US, really? Do you expect unemployment levels to go down?
James Turk: I follow the statistics compiled by John Williams of ShadowStats.com, and his work shows that the unemployment rate has been over 20% since early 2009. Sadly, things are not getting any better because job growth is only about the same as the growth in the potential workforce, so the number of unemployed and underemployed remains huge and troublesome.
Daily Bell: Is there anything the Obama administration can do to boost the economy other than "talking"?
James Turk: That's a good question, and requires some background to answer it. There are two sectors to the economy. They are normally called "public" and "private" sectors, but a more meaningful label would be tax-eaters and tax-payers. It must be recognized that wealth is created only in the private sector. The government does not create wealth; it simply redistributes what it takes in taxes from the wealth-creating private sector.
The problem the US economy faces is that the tax-eaters have become too large a portion of the overall economy. It is too big a burden for the tax-payers to carry. This imbalance is unsustainable and therefore has to be corrected. A massive restructuring of the economy where the role of government is reduced is needed, and it will eventually happen in either of two ways – chaotically or in an orderly way following a rule of law that provides a level playing field so bankrupts do not get a handout from the government to stay afloat. It's anybody's guess as to which of these two outcomes will prevail, but the tax-eaters have been in control for decades.
I therefore suspect they will continue to loot until the dollar collapses, meaning we face a chaotic event in the future. In short, a sound economy needs sound money, and the US has neither of these. The best thing the Obama or any other administration could do is roll back the federal government to the limits and intent of power the framers put in place. The federal government will not, of course, do this willingly, but I take some hope from the efforts recently happening with some state governments trying to limit in their state any federal authority to the 17 specific powers delegated to it in the Constitution.
Daily Bell: What's your opinion of Obamacare? Is it being rolled out badly on purpose to bring on a single payer system?
James Turk: It's just another government boondoggle. It's another extension of the nanny state, and assumes that people are incapable of deciding things for themselves. Like all government schemes, it is based on the premise that there is a free lunch in this world, when everybody knows that there isn't. And its flawed implementation is typical of the quality one gets from government, which highlights the problem when relying on government.
If a company has a flawed rollout, it loses revenue, maybe ends up losing money and could even go out of business. Sadly, governments do not have this bottom-line accountability, and only rarely do the bureaucrats accept responsibility for their mistakes – and it is even less frequent that any bureaucrat gets fired for mistakes, which again is not how things work in the private sector. So it is not surprising that we see government time and again mismanage whatever task it sets out to perform.
Daily Bell: What about the euro? Will it continue to exist? Will the European Union split up?
James Turk: Given the economic pain the eurocrats in Brussels are causing to large swaths of the European population, it is surprising that the EU hasn't broken up already. We should get an indication of the EU's prospects in the European elections scheduled for next month. Early indications are that the euro-skeptics in several countries seem poised for large victories, which should ignite some change within the EU. Hopefully, any change will be peaceful but given the high unemployment and poor economic prospects in so many parts of the EU and particularly within the eurozone, I don't rule out the possibility of chaos and civil strife, which could be even worse than what has already occurred.
Daily Bell: Let's look at China. What's going on with the yuan?
James Turk: It has been weakening, which I think is the key point. Whether this weakening is coming about by deliberate government action to stimulate exports or is a result of market forces is irrelevant. It shows that the Chinese economy is facing problems. The miraculous growth of recent years is ending.
Daily Bell: We don't think the Chinese economy is doing very well. It sounds like you agree.
James Turk: I absolutely do agree. A key factor in the economic growth in China was the accumulation of a huge amount of debt, which has now become unsustainable, even at today's relatively low interest rates. What is really worrying is that this debt financed a real estate bubble just like occurred in Spain and Ireland, and we all know what happened in those two countries. It looks like China is soon going to suffer the same outcome. I think the peak of the bubble was reached last year, so the bubble has only recently popped. Expect some dire consequences to appear in the months ahead, with the reverberations felt throughout the globe.
Daily Bell: Who is buying gold in China? Government officials? Private individuals? What's the plan regarding gold from a Chinese perspective?
James Turk: The government has been adding to its gold reserve for the last 15 years. However, it makes these purchases in secret, and only reports to the IMF the resulting increase in its gold reserve when the government believes it is advantageous to do so. China last disclosed its gold reserve in 2009, when it announced that its holdings had risen to 1,054 tonnes from 600 tonnes in 2003. I believe that its gold reserve has probably increased to at least 2500 tonnes at present. But individuals are buying gold too. In fact, their purchases have been greater than those of the Chinese government. When taken together, China has become a dominant player in the gold market.
Daily Bell: On to gold manipulation … A few weeks ago we interviewed Bill Murphy of GATA. What's your take on gold manipulation? Is the gold conspiracy falling apart?
James Turk: GATA has done a wonderful job exposing the market manipulations of government, and I encourage everyone to visit GATA.org to review the body of material compiled there over the years. But there is no conspiracy. GATA has compiled enough documentation, including from the government's own records, to prove that the manipulation of the gold market is a government policy.
Fortunately, the central planners are fighting a losing war and will eventually throw in the towel, just like they did in March 1968 with the collapse of the central bank cartel called the London Gold Pool. For years they have been in what I call a managed retreat. They are trying to contain the forces of the free market, which recognize that gold is undervalued. And the forces of the free market are bigger than any government or group of governments acting in concert, which brings up an interesting point.
The dollar is being debased at about the same rate at which the gold price has risen since 1999. So gold remains as undervalued today as it was 15 years ago. The dollar has lost that much purchasing power, and here's a good example to support my point. At the low of $253.70 per ounce in July 1999, crude oil was $20.28 per barrel. Since then both gold and crude oil have risen fivefold. Gold preserved its purchasing power over the last 15 years, while the dollar has lost 80% of its purchasing power.
Daily Bell: When the dollar rose against gold in 2013 – or the price of gold fell, as the national media likes to say – was that a normal market reaction or something else?
James Turk: For 12 years the central planners could not stop the gold price from rising, and then 2013 broke that streak. One could argue that the drop in 2013 was a normal market reaction because it is rare for anything to rise 12 consecutive years except, of course, when the dollar is being debased for 12 consecutive years then one would expect gold to rise. But the dollar was also debased in 2013 by quantitative easing and other debasement schemes pursued by the US government, so we have to look elsewhere to explain what happened to gold in 2013.
That, of course, brings up the point of government intervention, which explains what happened last year. The bullion banks that operate for the US government drove the price of gold lower by selling paper instruments like forwards, futures and options, which triggered a spike in the demand for physical metal when the price fell. This demand was then met by huge amounts of physical metal dishoarded from Western central banks, most of which was shipped to China.
Daily Bell: The reaction was furious, however. Do you think the manipulators may have gone too far? And if they did overreach, what will that do for the price of gold in the near term?
James Turk: Yes, they overreached in the sense that their actions drove the gold price to very undervalued levels. We know that to be the case because in July gold became backwardated, meaning its future price was less than its spot price. And gold has remained in backwardation most of the time since then, which has never happened before. Without getting into a detailed explanation, this prolonged backwardation can only mean one thing – gold is exceptionally cheap at these levels. In other words, the gold price at these low levels is an aberration.
Daily Bell: Will it have a knock-on effect on silver?
James Turk: It has impacted silver, which also is in backwardation. So both gold and silver are exceptionally cheap at these levels, which is one reason why I am so bullish on both precious metals. The other important reason is that they both are money outside the banking system, which remains on the edge of collapse and could implode at any moment – particularly if economic activity continues to weaken – because the banks are stuffed with bad loans and sovereign debts that will never be repaid.
Daily Bell: Generally, we are seeing serious economic difficulties around the world. You give much detail as to how you see this playing out and specifically what people should do to protect themselves in The Money Bubble. Can you give us a brief summary of your main suggestions?
James Turk: The overriding recommendation is to own things rather than promises. Own tangible assets like farmland, timberland, oil wells, buildings used productively and, of course, precious metals instead of financial assets like bank accounts and bonds. Avoid those assets denominated in national currencies. Don't believe in any government promises because many, if not most of them, will be broken as we move toward the next financial crisis, which will undoubtedly be worse than 2008 because the problems in the global banking and monetary system have grown since then.
We also strongly recommend that investors internationalize their wealth by diversifying globally. The key here is twofold. Diversification mitigates risk, but just as importantly, an objective should be to place your wealth in those countries that still respect private capital and property rights. Sadly, it is becoming harder to find countries that have these attributes given the spread of socialistic policies throughout the world.
Daily Bell: With all the central bank activity, it seems like economies are monetary rather than industrial. In other words, these aren't real economies anymore, are they? They're bubble economies. Even when they are doing well, they are not functioning as a normal economy would.
James Turk: Yes, you are exactly right, and to call them bubble economies is a good description. A bubble mentality prevails pretty much everywhere these days, even in money, as John and I explain in The Money Bubble. What we are using today is not money in the true meaning of that word, but only a money-substitute circulating in place of money.
Daily Bell: We're on record as analyzing the near future in terms of a Wall Street Party. We believe there is a window of a year or more during which time the US stock markets in particular are going to be forced up relentlessly – before a final unwinding. In The Money Bubble you predict a similar path. What do you expect during this period leading to the "unwinding" and when do you expect the bubble to burst?
James Turk: We first have to ask ourselves why stock markets have been rising since the low after the 2008 financial collapse. It is not because economies are growing and strengthening. Rather, it is simply because central banks are printing money. That money has to go somewhere, and so far mainly just the super rich have it figured out. Their logic is that it is better to put $100 million into an Andy Warhol painting than a bank account because there will be no more Warhols produced, but the Federal Reserve will be creating trillions of more dollars, debasing its purchasing power even further. So to escape national currencies, the super rich have driven the collectibles market sky-high. For the same reason, real estate prices in perceived safe havens like London and Singapore are also soaring. So, too, with the stock market.
Daily Bell: Like you, we think it's an opportunity for those who carefully manage their exposure and understand the risks.
James Turk: Yes, exactly. Investing in stocks is not easy. It requires hard work. One has to make careful choices, but it can be rewarding in the long-term.
Daily Bell: Last time we spoke you told us that one of the big ways governments – especially in the West – control money and economic prospects is via propaganda. How are Western governments doing on that front? Are they beginning to lose the propaganda war thanks to the Internet? Hillary seemed to think so.
James Turk: The Internet is a wonderful force for change – and truth. But sometimes the truth can be buried because there is so much information available these days. So you have to dig through the rubbish to get to the valuable stuff. But it seems to me that governments are losing the propaganda war because an increasing number of people are turning away from the mainstream media. I always like to point out that newspapers were given that name for a reason. They report the news. They are not called truthpapers. The same logic applies to TV network news.
Daily Bell: When the power elite is challenged, it often turns to war as a way to introduce chaos into society and thus retain control. How are the modern wars doing?
James Turk: Geopolitics is outside my area of expertise, and I only follow these events to see whether they might impact the precious metals. But the "military-industrial complex" that President Eisenhower warned us about in his farewell speech seems to be in even stronger control today than it was back then. So expect more of the same from the warmongers.
Daily Bell: What happened in Ukraine? Are things going as scheduled from the Pentagon's point of view? We obviously think the West was behind the agitation there.
James Turk: The Crimea was part of Russia until 1954 when the then Soviet Premier Nikita Khrushchev gifted it to Ukraine in celebration of a 300-year-old treaty of friendship. Little could he foresee the consequences it would have six decades later. I don't know who was behind the agitation, but as is typical, the autocrats on both sides were focusing on the wrong thing. They were focused on boundaries, which are nothing but artificial constructs dreamt up at conference tables, when they should have instead been focusing on the rights of individuals. Ukrainians in Crimea should be guaranteed the same rights as the Russians there, just like it should be ensured that Russians in Eastern Ukraine receive the same rights as Ukrainians. By instead focusing on boundaries, I won't be surprised if the Ukrainian crisis escalates, just like it did in the Balkans where boundaries became more important than human rights.
Daily Bell: Is Putin going his own way, away from the West? We figure he's a creature of the West ultimately but maybe you have a different opinion.
James Turk: I really don't know. But I have a general rule when it comes to politicians, whether in the East or West. I don't trust them until they prove themselves by consistently doing whatever they can, whether in acts, speeches or whatever, to ensure to their utmost ability the protection of everyone's inalienable right to life, liberty and the pursuit of happiness. So other than Ron Paul and perhaps a few others, there are not many politicians who I trust or respect.
Daily Bell: We tend to think that at this point the banking elites have decided to aggressively point the world in the direction of a more global currency and single central bank. Is the dollar being taken down deliberately over time?
James Turk: I think that is a real possibility. Kill the dollar in order to bring in a supranational Amero at the domestic level to have a North American counterpart to the euro. Then expand the use of the IMF's SDR at the global level. What they won't do, though, is go back to constitutional money, gold and silver.
Daily Bell: Are the top people in the BRICS and China – and even Russia – working to create a substitute to the dollar with the blessing of the BIS, etc.? Is this a kind of "secret" directed history in the 21st century?
James Turk: I would be very surprised if the Shanghai Cooperation Organization were not developing plans for a Russian-Chinese dominated monetary system that would operate outside the dollar's sphere of influence. Even if it does not team up with Russia, China is taking steps to go it alone to lift the yuan to global status. You may have noticed all the bilateral trade deals China is arranging with various countries where yuan is exchanged for the currency of its trading partner, completely avoiding the dollar. The financial sanctions the US has been imposing in recent years, for example, on Iran and now several Russian individuals, is hastening the process within Russia and China to create a monetary system completely outside the dollar.
The big question, of course, is will they go back to gold? China could return to gold easily given the size of its dollar reserves. It simply has to set a fair price, which we explain in The Money Bubble would need to be at least $12,000 per ounce, and that price would also define the yuan as a specific weight of gold. Then China would simply exchange that amount of dollars or yuan for every ounce of gold presented to it, just as occurred under the classical gold standard, which would make the yuan the world's preferred currency.
Daily Bell: We think Saudi Arabia is being deliberately discarded by the elites, as they no longer need nor want the petrodollar. Admittedly, this may be a longer-term trend but nonetheless a viable, ongoing one. Your take?
James Turk: It is clear that considerable friction has arisen between Saudi Arabia and the US in recent years, which I think is simply driving the Saudis and maybe the other Gulf states as well into the arms of the Shanghai Cooperation Organization. China clearly needs a source of oil, and the Middle East is a logical back-up source for what cannot be provided by Russia. Greater friendship with the Gulf states also provides China with the means to diversify the suppliers of its energy needs to make sure from the competition this implies that it is always getting the best deal.
Daily Bell: This has been a great – if grim – trip around the world. Any other points you want to make?
James Turk: Just one. If you believe gold and silver are right for your portfolio, I always recommend buying physical metal. Stay away from the paper products like futures, options and ETFs. All they do is provide you with exposure to the gold and silver price, but they are not safe havens. So leave the paper instruments to the professional traders. The safety and security that gold and silver have provided throughout the millenniums only come when you own physical metal, or in other words, a tangible asset with no counterparty risk.
Daily Bell: What are the most important – seminal – articles or interviews of yours that you would encourage everyone to read, in addition to your recent book? Where can they be found?
James Turk: Much of my writing can be found at GoldMoney.com. Two articles that I think are particularly important are "The Aboveground Gold Stock: Its Importance and Its Size" and "A Perspective on Money from Howard and Warren Buffett." Both are free and available at this link: www.goldmoney.com/research/white-papers. You can find The Money Bubble: What To Do Before It Pops on Amazon, and it can also be ordered through your local bookstore.
Daily Bell: Thanks for your time, once again.
James Turk is never hesitant to look beneath the covers to spot realities that others might not want to confront. His points about the dollar and Saudi Arabia seem on point to us, as are his general points about gold and silver.
It seems obvious there is some sort of manipulation aimed at gold and silver – a manipulation that works better on some occasions than others. It is not likely that the power elite enjoyed the dollar's fall versus gold and silver, especially when it eventually took US$2000 or so to buy an ounce of gold.
It could be that the dollar continues to travel up against gold and silver in the near future, but as Chinese buying shows, the reality of gold and silver is that these money metals have historically proven to hold their value.
Over time, as well, junior miners have produced significant value – though the window for opportunity among junior miners is often a short one.
Turk advises holdings of physical gold and silver, which is surely prudent. But exposure to certain junior mining stocks may also be advisable, given the potential upside and limited timeframe.
No one can say exactly when junior miners will rise, but if we assume the business cycle remains stuck in a "golden bull" then sooner or later investors will see significant appreciation in certain mining assets as well.
Anyway, our thanks to Mr. Turk for an interesting and informed perspective, as always.