John Exter (1910-2006): The Central Banker Who Made A Fortune In Gold

John Exter (1910-2006): The Central Banker Who Made A Fortune In Gold. Posted 1/23/2013. Some quotes from Mr. Exter. The following is excerpted from a 1981 interview with Exter:

I lived through the great depression. I remember it vividly. I know what it did to people. I remember the 25% unemployment. So I’m very unhappy when I have to say this depression is going to be worse.

A time will come when housing prices will weaken so much that many people who bought houses recently will lose all their equity. Once they lose their equity, they may say: “Why should I go on paying the bank? Why don’t I just let them have it?” So I think you’re going to have defaults on mortgage loans and foreclosures…

More foreclosures, of course, put more pressure on home values. Then more defaults-and when people start to default on their debts, troubles multiply. This is one reason why I think we cannot avoid a banking collapse.

I think people have rather been seeing—in their heart of hearts—that a depression is coming, or at least some sort of hard times…When your income shrinks and you have a debt burden, the debt burden becomes more and more onerous-and you get desperate to borrow…I expect the government to respond to the deflation by trying desperately to re-inflate. I expect huge budget deficits. So I expect the dollar ultimately to become worthless.

The Federal Reserve has already defaulted-gone bust. When I was a young man, the Fed had to redeem its liabilities in gold at $20.67 per ounce. As a matter of practice, any of us could go to any bank in the US and write a $100 check and take out five $20 gold pieces. To maintain that obligation, the Fed had to avoid borrowing short term and lending long term. But it didn’t. As a result it had its own liquidity squeeze and defaulted on its IOUs-the paper dollars circulating-are not promises to pay anything. They’re IOU nothings.

Paper is worthless as a store of value. The only thing that can give the US dollar any value is its promise to pay something that is a good store of value-primarily gold-to the holder. The government now has welched on that promise, so these paper IOUs are not really worth anymore than the paper they are printed on.

Sooner or later the public will catch on and the dollar will become worthless…As the crisis intensifies; as the results of the liquidity squeeze become apparent and illiquid debtors start to default; as the depression and deflation set in; gold will once again emerge as the supreme store of value.

…This is hard for me to say, for I am a banker: On the subject of income, I’d definitely stay away from banks. Bank deposits are paper IOUs. A bank owes you Federal Reserve notes. Even Federal Reserve notes are not good. A bank is even worse because you have the added risk that it will default on its promise to pay such notes. Remember: gold never defaults.

In October 2011, Jay Taylor, an expert on gold stocks, interviewed Exter’s son-in-law, Barry Downs. During the interview, Downs discussed the signs Exter said to watch for, signs which would signal the approach of the coming economic downturn.

In credit-based economies, aggregate debt levels must constantly grow and when they don’t, it signals the economy is entering a dangerous phase; and, if aggregate debt contract, i.e. shrink, that is a far more dangerous sign. That signals a deflationary depression is beginning; and in 2008, Downs noted that levels of aggregate debt began to shrink.

Note: Taylor’s interview with Barry Downs begins at the 20 minute mark and ends at the 30 minute mark, see Pondering the Possibilities of a Greater Deflationary Depression.

This is why the Fed, the Bank of Japan, the Bank of England and the European Central Bank have thrown caution to the wind in a desperate and last ditch attempt to save their ponzi-scheme of credit and debt that has served them so well.

Exter told Barry Downs that once aggregate debt levels began shrinking, nothing central bankers could do could reverse the process. A tidal wave of deleveraging debt would sweep aside any and all attempts to inject enough credit to reverse the process.

QE3 will be no more effective than QE1 nor will QE4 or QE5. No amount of bond buying, no amount of credit can turn back the tsunami of defaulting debt that has already begun to gather momentum. The tipping point has been reached.

Excessive central bank credit has turned into such levels of debt that no amount of credit can subsume it. This is why it’s called the end game. Credit-based capitalism was headed towards this finale in 1694. In 2013, it arrived.

The Japanese central bank said it would aim to achieve a rate of 2 per cent inflation – up from its current goal of 1 per cent – “at the earliest possible time” by shifting to the kind of limitless stimulus embraced by the US Federal Reserve and the ECB.
Financial Times, January 21, 2013.

The End Game And The Better Times To Come

Ben Bernanke’s belated attempts to restore US employment levels and economic growth through even more monetary easing is as futile as Lance Armstrong’s attempts to salvage his tattered reputation.

No amount of optimism, no amount of denial and no amount of credit can fix what central bankers themselves broke. Nothing lasts forever. Not even the dream of bankers who attempted to live off the productivity, ingenuity and labor of others merely by printing debt-based paper coupons they could loan to others as money.

It might be assumed by readers that my expectation of another depression is evidence of a pessimistic outlook. Nothing could be farther from the truth. After the coming collapse, I expect a far better world will emerge; and, although the process will not be easy, it will be rewarding beyond our greatest expectations.

John Exter, in his wisdom, firmly believed that when laws fail, human beings working with moral consciousness could do wonders.
W A Wijewardena, Deputy Governor of the Central Bank of Ceylon

…the vulture feeds neither upon the pastures of the bull nor the stored up wealth of the bear. The vulture feeds instead upon the blind ignorance and denial of the ostrich.