Gold, Silver, And The Future Of The Dollar
July 29, 2014
This transcript is adapted from an
interview with Mark Thornton and
David Morgan at The Morgan
Report. Mark Thornton is available
for media interviews. Contact him
David Morgan: Could you give us
your personal assessment on the
current economic landscape?
Mark Thornton: Well, I guess we’re
at the point in history that I always
thought was going to occur. Ever
since I was a young man, very young
man, I realized through study that
going off the gold standard was a big
mistake. That was really my first
interest in economics and it just expanded outward from there and I found the Austrian School and got
involved with the Mises Institute and went on and got my graduate degree.
I have been studying this issue ever since. The only thing that has really surprised me about this is
that it has taken so long to get to this place in time and by this place, I mean a world in which fiat
money is the sole circulating means of exchange and where central banks are engaged in a world
currency war, trying to manipulate the value of their currencies downward in a simultaneous battle
across the globe. But in particular the United States, the European Central Bank, Japan, and China
and then of course many other countries engaged in the war in a defensive status where countries
like Switzerland and Norway are pumping up their money supplies and engaged in quantitative
easing in order to stabilize the exchange value of their currency.
So here in the United States, the ramifications of that are fairly easy to see that the Federal Reserve has
manipulated markets to an extreme and to a level that I never thought they were going to be willing to
go to. But they’ve manipulated stock markets and bond markets have created bubbles throughout the
economy in the US in terms of, of course, the stock market reaching all-time high levels, bond markets
reaching all-time high levels, junk bond yields down to historically low levels, rising real estate prices,
rising art prices.
It’s truly remarkable to the extent that they’ve been able to engineer this. They’ve taken so many
unprecedented measures. I really never thought that central bankers would go to this extreme but
they’ve done it. So right now, what we’re looking at is a worldwide currency war. We’re looking at real
estate housing bubbles all around the planet, whether it’s Canada, in Asia, in Manhattan, in Washington
There are these housing bubbles and real estate bubbles rising to the extreme. Then one of the things
that I like to follow as an indicator is the Skyscraper Index. The Skyscraper Curse is the eerie
correlation of the building of record setting skyscrapers and world economic crises.
Basically going around the planet, we see all sorts of
huge skyscrapers being built and even more recently,
China and Saudi Arabia have announced plans to
build worldwide record-setting skyscrapers. So that’s
the way I view it, that we’re in unprecedented
territory at this point and time in terms of markets.
DM: The way I see it, all debts are either paid,
defaulted upon, or partially paid off. But at some
point in time, there is a reconciliation of the
You’re either going to default outright saying that we
cannot pay back the debt or you’re going to default
on a currency, which means that you’re going to
continue to print money until the currency becomes
worth less, worth less, and then it’s worthless.
Can we default outright? Can we default via currency default, or do we have a combination? What are
MT: Well, David, it’s a very good question and it’s a very, very important question. As you say, all
debts are ultimately paid. The question is, “By whom?” Is it going to be the borrower or is it going to
be some other party that ends up footing the bill for those debts?
The governments of the world have built up huge national debts and obligations going forward that are
unsustainable and that in my view cannot be paid off in a rational way which is using part of your
revenues to pay off or pay down those debts.
Right now, we’re living in a world where governments are able to borrow money very inexpensively at
low interest rates. But if and when interest rates were to rise primarily through an inflation premium,
the interest burden of those debts would be very difficult and put enormous pressures both on the
treasury as well as the economy itself. Both would be burdened of those higher interest rates.
So the question becomes, as you suggest, “Are you going to try to pay off those debts in a rational way
or are you going to use, resort to inflation in the printing press to pay off those debts?”
The problem with fiat money is that it always leads policy makers and politicians to the second answer
which is using the printing press to pay it off because that’s more politically acceptable in the short run.
But in the long run of course, it eventually causes the economy and the government to fall into a vortex
where they’re required to print up ever increasing quantities of money to keep that system going.
So generally speaking, of course it’s better not to go into debt unless you’re buying productive assets
that are going to be able to pay off those debts. The government is clearly not doing that. The second
best alternative is to either pay off or default outright on those debts. This is something that
governments and central banks are also loath to do, although that imposes the least economic burden on
society across the board.
So the more likely, the most likely alternative and one that looks increasingly obvious to me is that they
will continue to use the printing press. They can pull back at anytime but the pain, the political pain and
the economic pain in the short run is so difficult for them to accept, that it’s likely that they’re going to
go down the path of printing up ever-increasing quantities of money, engaging in quantitative easing
and so forth.
The people that they brought in to engineer this process are PhD economists, and PhD economists are
some of the most dangerous
people in the world in terms of
economic policy. Right now we
have a world in which many of
the financial and even some of
the political institutions are
controlled by PhD economists,
Keynesian economists, many of
them MIT economists.
We shouldn’t forget for example
that Mario Draghi who is in
charge of the European Central
Bank was officemates with Ben
Bernanke at MIT when they
were in graduate school. So
they’re out of the same exact
mindset where the professional economist can engineer an economy, can manipulate policy in such a
way, in the same way a child plays with a toy.
In my estimation, it’s a very dangerous situation. I don’t think the world has ever been in a more
dangerous economic situation than it is today.
We just had some photographs taken of our summer research fellows who are graduate students from
around the world who come here for the summer to study.
We were doing this photo shoot and one of my bosses came in and said, “OK. Which one of these
geniuses is going to be the next billionaire?” I thought to myself, “All of these people could be
billionaires in the very short run, just as soon as hyperinflation is ignited in the economy.”
It’s a very short path to where the standard of wealth has jumped from being a millionaire to a multi-
millionaire, now to a billionaire, multi-billionaire. But when the hyperinflation, when that process is
sped up tremendously, and then you will be looking at people who are trillionaires and multi-
trillionaires because the value of the currency can very rapidly deflate when faced with the enormous
increase in the money supply which has so far been pent up on the balance sheets of central banks, on
the balance sheets of treasuries, and on the balance sheets of the large money central banks.
So it’s not directly flowing to consumers and so if consumers don’t have the money, it doesn’t show up
in the consumer price index. But it has shown up in terms of stock market values and bond values
because all that money has been funneled in that direction.
But money doesn’t stay put forever and any safe outcome would rely on the completely unfeasible idea
that somehow central banks are going to be able to wiggle their way out of this process.
DM: I get a call for a consultation and Mr. X says, “I had a big real estate portfolio and now it has
declined 30 percent. I can’t borrow against it even anymore, even though I have great equity still. You
advocate precious metals as a protection, David. They really haven’t done much the last three years. I
have good liquidity. I have good cash flow. What do I do now? I don’t know if we’re having the
inflationary blow-off or if we’re actually going into a deflation as Robert Prechter states.” What do you
MT: Well, of course the inflation-deflation debate is very important and it has been muddled by
mainstream economists. The traditional notion of inflation was that inflation was the government
increasing the money supply and deflation was a decrease in the money supply.
Mainstream economists have flipped that on its head so that inflation is a rise in general prices and
deflation is a decrease in general prices. So, the traditional version was cause and effect where it
focused in on the cause which was government increasing the money supply rather than the effect,
which is an overall increase in prices.
So with that muddled definition, we entered this era of central bank manipulation to an extreme and
therefore you’ve gotten this somewhat confused debate about inflation and deflation.
The way I view it is that in a policy sense, the government is going to continue to engage in a monetary
inflation, but one of the deflation scenarios that I see is a deflation in asset prices because the economy
is always trying to work to correct the errors that occur because of the central bank’s manipulation of
interest rates and central banks have been manipulating interest rates downward. This has caused
entrepreneurs to make investments in capital goods, in companies. That’s what has pushed the prices up
and that’s what has pushed prices up in particular industries.
So there are a lot of hot industries, the internet stocks, although they’ve come down; the social media
stocks, although they’ve been hit a little bit. It has forced things like gold stock prices down until very
So the way I look at it is we’re going to see a continuation of monetary inflation by central banks that
will ultimately be confronted by an asset price deflation, caused by markets, realizing that there has
been so many investment errors in the economy and miscalculations as to the value of companies.
So you can have those things occurring simultaneously or contemporaneously because there are really
two different phenomena. One is the central banks trying to manipulate the economy with more money
and artificially low interest rates and the other is the economy trying to correct the errors that the
central bank is creating and that would see lower stock prices, lower bond prices, and even lower real
estate prices and lower land prices.
So it’s just a battle between those two forces of central banks versus economic reality.
DM: In theory, the US dollar could be saved. What do you think of a chance of some major reform in
the near future on the US dollar?
MT: Well, it doesn’t look like there’s much chance. But there has been a small ideological revolution
that has taken place over the last several years and that’s the key to it. Don’t expect any policy reforms
to come out of Washington DC, or Tokyo, or Brussels.
The reform is not going to come from there. It’s going to come from the hearts and the minds of people
across the country and I think that to a large extent, Americans are now disillusioned with their political
system that the Fed in particular is seen as arrogant and more as the cause than the solution.
Historically, the Fed has always been able to paint themselves as the solution to our problems rather
than the cause of our problems. I think the percentage of people who view the Fed as the cause of our
problems has risen, continues to rise, and will likely continue to rise even further.
I see more and more people both around me and around the country and around the world trying to put
themselves as much as possible on their own personal gold standards, so that they’re transferring their
wealth from US dollar denominated assets into either productive assets or into precious metals.
So if you transfer your cash wealth from dollar denominated deposits in banks to gold denominated
accounts or physical gold, paper gold, then you’re moving yourself personally to the gold standard. So
it’s impossible to predict how and when there will be a return to the gold standard. But I think that the
probabilities are actually much higher than most people would predict or admit.
There has always been this long train of beliefs that the US dollar is as good as gold, that the dollar is
the world reserve currency, that the dollar is the international trade currency and things like that. That
the central bank of the United States is the most powerful institution and there are a lot of cracks in the
Fed’s edifice and the dollar’s invincibility and you see that in the actions of other central banks, and
you see that in the actions of Americans and Chinese people and Indian people and people around the
They’re saying there’s a possibility which seems to be increasing that these central banks are going to
be willing to depreciate the value of currencies by a significant amount, and that they don’t show any
tendency over the last several years to either admit their mistakes or to let up on the pedal of monetary
inflation and quantitative easing.
So I think that the probability of a return to the gold standard is relatively high but it’s only going to be
the result of two things happening. One, the Fed continues to cause economic destruction of our wealth
and two, is the ideological change where more and more people accept the Austrian position on
economic policy and they don’t have to necessarily understand all of the details. They just need to
accept the ideas that private property is the foundation of a strong economy, that free markets are the
way to allocate resources and to produce the greatest consumer satisfaction and standard of living and
that that is possible only under a system of sound money, which means basically gold and silver coins.
Here at the Mises Institute we are planning the Mises University, where we bring in 150 college
students. Then of course we broadcast it to tons of other people on the internet.
We show them step by step the science, the economic science behind these propositions, most of these
kids are not going to go out and necessarily become professional economists or teach economics at the
But once you go through the process of seeing the implications of free markets and seeing how free-
market prices emerge and how entrepreneurs’ savings cause economic growth, how sound money
produces a stable economy, providing another foundation for economic growth and prosperity, once
you see the science behind all that, you don’t necessarily have to remember it all.
What you remember is the judgment that Austrian economics entails and therefore you accept the
Austrian position with respect to how economic policy should be established. So I think that’s the way
that things are ultimately going to turn out. When I started down this journey, there was nobody really
who believed or taught Austrian economics.
Fast forward about 35 years and Austrian economics is being taught at universities around the world.
Here in the United States, many, many young people, young adults, teenagers, college students, and
college graduates consider themselves libertarian whereas 35 years ago, nobody knew what a
libertarian was or had ever heard of the term.
Now Austrian economics is a very, very popular topic among these young people. While it’s not
necessarily a majority of these young people, it is the case that the people who have already studied this
and have accepted this and are advocates for Austrian economics, they are really the leaders of the
future. These are the people who are going to take on leadership positions in society whether that’s in
business, finance, whether they’re entrepreneurs or educators or media, journalists, so on and so forth.
So in the long run, I think you’ve got to be incredibly optimistic about where we’re heading today. It’s
just that that road is fraught with a lot of dangers at the same time, economic dangers.
DM: I want your take on why gold has had a significant premium over silver especially in the last
This follow-up question is, “Any thoughts on why Asia is accumulating gold at a rate that has really
leaving silver as a secondary role, knowing that China was the last to come off the silver standard?”
MT: Well, David, that is a great question and all of the interviews I’ve done, that is the most under-
asked question of them all. I think it’s really one of the most important questions in terms of a general
outlook of where things are and where they’re likely to go.
I love silver. I think silver is the natural money for the last millennium and likely to go forward for the
next millennium. Historically if you go back further in time, you have copper being a prominent
medium of exchange, silver being a prominent medium of exchange.
But gold really wasn’t a commonly used medium of exchange throughout most of history. Generally
speaking, Austrians recommend it — they talk about the gold standard but what they’re really talking
about is a gold-silver-copper standard where there’s no fixed ratios of prices between one and the other.
They all would float independently and exist in markets that they were most well-suited for and so as
we move into a gold reform era, where we go back to the gold standard, I think what you’re seeing
right now is that people are reacting to fiat currency by investing heavily in gold because it’s the easiest
commodity money to store.
The storage cost of gold, the transport cost of gold are very, very low and so you can transmit and store
a huge value in terms of gold so that if you were to use gold to buy a house or buy a car, it’s very easy
to transport that and also to store that, whereas if you were to try to buy a house in silver, it would be
much more difficult.
On the other hand, it’s easy to make transactions in terms of silver and copper coins because of their
relatively lesser value compared to gold. So I think that the type of money that would exist in hand to
hand transactions would be very little in terms of gold but much more in terms of silver and copper.
So if we were to return to a commodity coin standard, I think you would see the ratio of gold to silver
values return to their historical norms.
Now the only thing that would act against that is of course how we can store our gold and silver and we
could theoretically store our gold and silver in bank accounts, and draw on those bank accounts in
terms of checks and in terms of debit cards and so forth.
There wouldn’t be as much of a demand necessarily for silver. But I think as we do reform the
monetary system, that there would be an increase in the demand for silver relative to the increase in the
demand for gold.
Another reason why gold has done so well relative to silver is that the Chinese population, in particular
the Indian population — of course it’s also the Thai population — have historically been more
favorable toward gold and holding gold in the form of jewelry, in ornaments. They built up their wealth
by acquiring gold ornaments, jewelry, etc., rather than silver.
So there’s a higher cultural demand in those areas for gold relative to silver. So there’s a cultural effect
there and of course that has been compounded by the fact that the increase in relative income in China
and India has been enormous in Asia, relative to the real decline in income in the US and other Western
So there have been definite reasons why gold is outpaced in almost a very abnormal way. The price
increase of silver, because of those factors like storage cost, transport cost — it’s also because the
demand has come from countries that have historically had higher demand for gold, and their incomes
DM: Very good. I’m not going to try to lead you on this, although I might sound that way. But what I
want to get a further comment on is gold really is mainstream. I mean even though Wall Street pooh-
poohs it and you don’t hear it on the mainstream financial channels, etc., look, central banks still have a
gold balance sheet. The Bank for International Settlements used to only settle only in gold. They quit
doing it sometime ago.
So really gold is pretty much an establishment metal relative to silver. There are no central bank hordes
of silver anywhere. No one in the establishment considers silver as money. So do you think that has
something to do with the silver to gold ratio as well?
MT: Oh, yeah, there’s no doubt. I mean when you go from a world where people are actually
exchanging gold and silver coins to where the commodity money is all horded by central banks, they’re
certainly going to the central banks that left a gold standard rather than a gold and silver standard. So
the central banks are the largest holders of commodity money and that’s gold. So that certainly plays
into it because you have a world that went off a gold standard where central banks were the largest
holder of gold. But when they disgorge themselves of that gold, that puts tremendous downward
pressure on gold prices as well, so the relative value of gold versus silver would also adjust back
toward historical norms.
DM: What are your thoughts on the US dollar as a reserve currency of the world going forward?
MT: I’ve written about this on mises.org as well. Barry Eichengreen came out with a book that tried to
address this whole question of the dollar as the world’s reserve currency.
He basically came to the conclusion that the world had no choice. There were no competitors for the
US dollar as world reserve currencies. I openly challenge that whole idea that there were no
alternatives and therefore everybody would be stuck with the US dollar. I think events before that book
came out and then after that book came out indicate that Barry was wrong and that there are potential
and existing alternatives for central bank reserves. That would include of course gold and silver, and
central banks have been purchasing gold.
It also would include other currencies and so the other currencies of the world, the British pound, the
euro, the Japanese yen, and the Chinese renminbi are all potentially world reserve currencies, and of
course China is actively trying to achieve that. They’re using more gold in their central banks. India is
using more gold.
So a lot of central banks have already turned toward gold in other currencies, but there’s a lot of
uncertainty for them. So the dollar hasn’t been completely removed. It has only been partially removed
but it’s no longer the case that the dollar makes up 90 percent of the central bank’s balance sheets.
The figure is much less than that today and declining. So I think the status, the monopoly status of the
US dollar as a reserve currency has already been broken and I see that trend continuing.
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BECAUSE THERE'S A WAR ON FOR YOUR MIND