James Turk: Global Money Bubble To Burst

Founder of GoldMoney.com explains why the world of easy money will soon unravel.

[This interview originally appeared on HardAssetsInvestor.com and is republished here with permission.]

James Turk is the founder of GoldMoney.com, which is a European-based precious metals firm that presently safeguards $1.3 billion of precious metals assets owned by customers. He is a popular speaker at conferences as well as on radio and television. Turk’s 2004 book, “The Collapse of the Dollar,” recommended buying gold and betting against the housing bubble, which were two of the best investment ideas of the decade. His latest book is “The Money Bubble: What To Do Before It Pops.” HAI Managing Editor Sumit Roy caught up with Turk to discuss his current views on gold and the financial markets.

HardAssetsInvestor: Last year when I last spoke to you, we had an interesting conversation about your new book in whichyou discuss the money bubble. You talked about how the money bubble is going to burst, and it’s going to ignite tremendous volatility in the financial markets. Is that still your view?

James Turk: Yes, but the money bubble has not yet burst, although we’re getting close to that moment in time. We’re seeing some unusual events that have occurred over the past 12 months.

For example, although interest rates have moved back up recently, a couple of weeks ago, people were paying money to have the German government take their money for 10 years. That's a sign something is amiss. Capitalism doesn’t work that way. If you pay to have your money decrease over 10 years, you're destroying capital.

Still, we haven't had the pop of the bubble yet, but we’re on a clear trend toward the bubble popping, which it will if we don’t go back to sound money policies. The popping of the bubble means that fiat currencies will no longer be used and trusted in commerce the way they are now because people will have lost confidence in them.

HAI: In that context, what do you make of the recent rally in the U.S. dollar? Is it just one fiat currency rising against other ones? Is it meaningless?

Turk: It’s basically meaningless in the sense that nothing fundamental has changed for the better for the dollar. The federal government is still running huge deficits. There's still too much debt. There are still a lot of problems in the banking system. There's just too much money-printing going on around the world.

What's happened is that for six months or so the dollar rallied because of all of the problems that were emerging in Japan and in the eurozone. The dollar jumped all the way up to 100 on the Dollar Index, but it was an emotional knee-jerk reaction. People were moving their money into the dollar to avoid the problems plaguing other currencies. They were also drawn to the dollar to try generating a rate of return, or if that was not possible, to at least avoid the negative interest rates in the euro, yen and Swiss franc.

So a lot of hot money flowed into the United States and that strengthened the dollar. Additionally, a lot of that money went into the U.S. stock market, pushing it to new record highs. But the fundamental point is that the problems with the dollar haven't changed. The problems with the euro haven't changed. The problems with the Japanese yen, British pound and all of these other fiat currencies haven't changed. There's just too much money-printing going on around the world.

Turk (cont'd.): Governments are saying that the money-printing will get economic activity going, but it’s not really doing that. Economic activity remains very sluggish. It’s sluggish in Europe; it’s sluggish here where I am in the United Kingdom; it’s sluggish in the United States; and it’s also sluggish in Japan.

The reason economic activity isn't improving is that there's just too much debt. There's not enough wealth being created to service all of this debt. The central banks are trying to make servicing of the debt easier by debasing the currency. But when you debase the currency with money printing, the result is that they are hurting economic activity.

HAI: You just touched on the troubles in the eurozone. Recently, you said there's still a lot of trouble lurking when it comes to Greece, and that something big could happen in that country. Is that true?

Turk: Yes, that’s true. Remember that Greece has 320 billion euros of debt. The European Central Bank has about 112 billion euros of that debt. The ECB is not going to take a loss on that debt. They're going to follow the Cyprus script. They're going to take the money deposited in Greek banks to repay themselves, and bank depositors are the ones that are going to be hurt as a consequence. Depositors in Greek banks are going to lose money just like happened to the people in Cyprus who had deposited their money into Cypriot banks.

HAI: Do you have a forecast for inflation?

Turk: Inflation is much higher than the government reports it. I follow the numbers of John Williams at ShadowStats. I also look at prices of goods and services that aren't counted in the CPI, but they're things that we have to live with day in and day out. Things like the rise in medical expenses, the rise in college tuitions, the rise in a lot of other everyday living expenses that aren't captured in the CPI.

There's no doubt we’re in a situation where, even though inflation is reportedly tame, there is inflation, and it’s constantly eroding the purchasing power of all currencies. And because interest rates are lower than the inflation rate, that erosion of purchasing power means you're losing wealth with bank deposits. If you put $100 in a bank today, at the end of the year, you maybe have a $100.50 because of the interest that you're earning, but your purchasing power might be $98 or $97. In other words, you're losing wealth by holding fiat currencies.

There has also been some impact limiting inflation, to a certain extent, from declining oil prices. Oil went all the way down to $43 a barrel. Oil is now back up to $60 a barrel. Gasoline has risen five weeks in a row. Inflation is probably going to come back with a vengeance as crude oil prices go back to a more normal level, which, in my mind, is something over $80 a barrel. So my view on inflation is that it will worsen.