August 24, 2023 – Matthew Piepenburg, co-author of a highly rated book titled Gold Matters: Real Solutions to Surreal Risks and Jim Puplava discuss how far major currencies have fallen over the past 20 years and why gold serves as important long-term hedge against currency debasement, which is likely to continue unabated.
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Timestamps:
00:00:00: Introduction and the return of inflation
00:00:08: Entry of Matthew Pipenberg, co-author of Gold Matters
00:00:30: Discussion on the performance of gold since 2000
00:00:57: Comparison of current inflation with historical events
00:02:01: Insight into the steady progress of precious metals
00:02:43: Discussion on the debasement of major currencies since 1971
00:03:04: Introduction to Andrew Dickinson White's book, Fiat Money in France
00:03:55: Parallels drawn between pre-Napoleonic 1789 France and current U.S. monetary policy
00:06:41: The downfall of France's economic system, rise of Napoleon
00:07:28: Comparison of France's situation in 1789 with US's current situation
00:08:26: Lessons from Andrew Dickinson White's book
00:09:09: Discussion on wealth inequality and its link to economy
00:09:45: Words used to hide bad math, political opportunism, Euphoric markets
00:10:22: Signs of credit market disruption
00:10:43: The end of American hegemony
00:11:07: Global debt issues
00:11:41: The rise of censorship and Wokeism
00:13:15: Bias in financial markets
00:14:19: The importance of informed understanding of risk
00:15:35: The cost of printing more money
00:16:31: Misreported inflation rates
00:17:14: Central bank policies' effect on the financial business
00:18:14: Bubble-like valuations and liquidity in financial markets
00:18:34: The top 10 percent owning 80 percent of bubble assets
00:18:38: The emergence of a feudalistic society
00:18:57: The foxes guarding the hen house in Wall Street
00:19:13: Twisted Realities of Financial Systems
00:19:22: Insight into Fractional Reserve Banking
00:19:47: Effects of the 2008 Mortgage Backed Security Crisis
00:20:38: Role of Federal Reserve
00:21:12: Death of Capitalism
00:21:46: Identity Politics vs. Wealth Inequality
00:24:09: A Look into Gold Market
00:25:17: Impact of Price Fixing in Gold and Silver Markets
00:26:46: Threat to Fiat Currency
00:28:01: The Petrodollar System
00:28:27: Derivatives as Weapons of Mass Destruction in Gold Pricing
00:29:08: The Impending Crisis
00:29:22: Asset Preparedness
00:29:27: Gold Market and New Exchanges
00:29:48: Gold Origin and Politics
00:30:04: American Politics and Central Banks
00:30:17: Historical Context and Policy
00:30:37: Future of Central Banking
00:32:06: Changes in US Payment System
00:32:35: Rise of International Partnerships
00:33:18: Bilateral Agreements and Impact on Dollar
00:33:41: The Slow Death of the Petrodollar
00:34:16: Sanctions and Global Backlash
00:35:00: Global Distrust Towards The US Dollar
00:35:22: The Importance of Political Debate
00:35:39: Policy Decision Making in the US
00:36:02: Political Consequences Globally
00:36:26: Considered Financial Suicide
00:36:40: Impact and Reality of De-Dollarization
00:36:55: Preparation for the Future
00:37:25: The Truth about ETFs and Bullion Investing.
00:38:22: Discussion on the risks of ETF and physical gold ownership
00:40:03: Discussion on supply and demand of gold and the increasing spreads
00:41:13: Future predictions on gold pricing and its worth
00:42:15: Debate on the safest way to store gold
00:43:14: Closing remarks and mention of the book 'Gold Matters real Solutions to Surreal Risk'
Transcript:
Jim Puplava: We are starting to see something over the last year or two that we haven't seen for over four decades the return of inflation. Joining me on the program is Matthew Pipenberg co authored a book, Gold Matters Real Solutions to Surreal Risk. In the opening of your book, you talk about something I think it's hard for people to grasp this, but major currencies have lost 80% of their value versus gold since the 2000. And also, I think I'd be surprised, the number one performing asset since 2000 has been gold.
Matthew Piepenburg: Yeah, it's interesting. It's 80%, really since 2000. But when you go back to 1971, just after I was born. So all of my life when Nixon closed the gold window since that period, that 50 plus year period, which remind you that Nixon promised that closing the gold window would only be temporary. Just like Powell said, inflation would only be transitory.
Matthew Piepenburg: And Bernanke said, QE, one would only be temporary. But 50 plus years later, every major currency, including the US. Dollar, every major developed economic currency has lost greater than 95% when measured against a gram of gold or a milligram of gold. So it's extraordinary off the kind of mindsets of most investors. It's not talked about in the mainstream media.
Matthew Piepenburg: It only makes up 0.5% of global assets. But gold is this little engine that could it's amazing to me how more people don't understand that as currency insurance and as macro insurance, and certainly as banking risk insurance, it's just always been slow and steady with the last laugh. And that's not meant to be an arrogant Zurich based gold apology or smug comment. It's just common sense that gold and silver and gold in particular doesn't get stronger. Currencies just get weaker.
Matthew Piepenburg: And so the reason we're seeing and there is price volatility, but there's obviously a steady trend upward since 1971. The reason precious metals continue to push forward through all different types of market cycles. Inflation deflation strong dollar, weak dollar. The real bottom line is the inherent purchasing power of currencies just keeps getting weaker as we monetize extraordinary and unsustainable debt levels with mouse click money. That is inflationary, and it debases the currency.
Matthew Piepenburg: And as currency's inherent purchasing power falls, precious metal, monetary metal prices rise. And so, yes, since 71, which was a watershed moment when we welched on the 1944 Bretton Woods agreement to have our world reserve currency backed by a credible world recognized chaperone like gold. When we welched on that in 71, inflation of the currency and the debasement of the major currencies of the world, including the world reserve currency, has been steady and solid ever since. And so it's a tragic example, sadly an historical example throughout history, when you get your back against a debt wall as a nation, the first thing you do is debase the currency. And that's where gold kind of acts as a counterweight.
Jim Puplava: In your book, you cite a Professor Andrew White who wrote a book called Fiat Money in France. Looking at his book, he makes some parallels. He was talking about 1789 France, which led to a revolution as inflation really took hold of the country. And the parallels to the 2020s, we're moving down that same path. Explain that.
Matthew Piepenburg: Yeah, that's extraordinary. Again, Andrew Dickinson White was someone I'd never heard of, and certainly Why Would You was kind of a forgotten book written in 1912 with this idea that you could solve a debt crisis with more debt and pay for that debt with money created out of nowhere. It's fascinating the parallels between pre Napoleonic 1789 France and the current state of the US monetary policy. What it was, and I'll try and do as briefly as I can, is in 1789 France, much like the US, was one of the great powers of the world, if not the greatest powers. But it found itself in a debt trap.
Matthew Piepenburg: It had extended wars, its markets were down, its currency was still strong, but there was not a lot of faith in its economy. There was distrust on the streets and there was a need for some immediate solution, much like we saw in 2008. There was distrust on the streets. Markets were tanking, the dollar was still strong, but there was a need for a miracle solution. And there was what would be the equivalent of a Ben Bernanke in 1789?
Matthew Piepenburg: The central bank, or the main finance minister at the time in France was a guy named Necker. And his solution was, why don't we print some money? Basically they were called Asignants in France, but it was basically a version of QE One. And Necker, like Bernanke said, we can only do this once. This is dangerous.
Matthew Piepenburg: We don't want to get carried away. We can give a little stimulus, print some money, pay down some debts, support the markets, keep people happy. It'll be a temporary solution and that'll be that. And just like Bernanke and then Necker got a little addicted to that, it was a pretty nice solution. Hey, we've got a debt problem, we've got a surplus problem, we've got a deficit problem.
Matthew Piepenburg: Let's just print a few more hundred million and solve, know magically with the wave of a wand. We don't have to have this money chaperoned by gold or by a service or a real asset. We'll just create out of thin air. And that was euphoria until there was a hiccup. And then they went to what was the equivalent of QE Two and then QE Three and QE Four, just like we saw post Bernanke with Yellen and Powell.
Matthew Piepenburg: Remember, Bernanke promised in 2009 that QE One would be temporary. And we've gone to QE. One QE two QE three QE, four Operation Twist, and then unlimited QE after March 2020. So this temporary solution becomes very addictive, just like it would be if any of us had a money printer in our basement and we could legally create money at will whenever we needed to pay a bill. Who wouldn't want to use that solution?
Matthew Piepenburg: The problem is, it's not legal for US citizens, but it is totally legal for the central banks in 1789, France, or in 2009, America to do that. And it buys a great deal of euphoria. As I used the book example, there were years where everyone looked smart, everyone looked brilliant. At the same time, there were a few lone voices in the National Assembly in France, just like there are, and there were in the US, like Rand Paul and others, and a few brave senators that said, wait, this isn't smart. This can't end well.
Matthew Piepenburg: And no one wanted to hear those lone voices because we're France. We're France. We're the center of Europe, we're the greatest. And we've got this great system, just like in America. Hey, we're the world reserve currency.
Matthew Piepenburg: We're a world power. This can't hurt. You know, long story short, it destroyed France, it destroyed its currency, it led to social unrest, it led to the debasement of the currency, it led to a political cataclysm, and it led to an open door to opportunists and demagogues and centralized control, like Napoleon. And what I was trying to draw a conclusion was, again, this pattern has been seen in all the empires in some version of it, but it's very, very similar to the US. Where you had a consensus of crazy that made everyone happy.
Matthew Piepenburg: And so they ignored the inflationary effects of adding this much fake money into a system. Just like if you add buckets of water to a glass of wine, you dilute the wine. Well, you dilute the currency. And that happened slowly and then all at once, and it was a major crisis. Again, very similar patterns of the US.
Matthew Piepenburg: Many would argue. Yes, but unlike France in 1789, the United States is the world reserve currency. It's the world power. It's unstoppable. Those were the same things the French were saying to themselves, too, until it all blew up.
Matthew Piepenburg: And it did blow up. And again, it wasn't the end of France, it wasn't the end of the world, but it was the end of a fake France, and it was the beginning of a much more painful, economically controlled and less free France under Napoleon. And that is the warning and the pattern that we've seen throughout history. Again, 1930s fascism, the rise of Bolshevism, the powers that take control in South America, it always from inflation leads to some type of centralized control with more debasement of the currency and more scapegoats and really less and less civil liberties. So it is more than just a financial problem, it's a social problem, and it's a political problem again.
Matthew Piepenburg: But it's extraordinary, the parallels. And that book written in 1910, 1911, published 1912, ironically, was a warning against central banks and a warning against something as stupid as what the French did. And no one thought that could happen again. And ironically, a year after that book was written is when the US Fed was written into law under Woodrow Wilson. So it's very ironic that that book came out as the Fed was meeting secretly in Jekyll Island, a cabal of bankers to create this beast called the central bank.
Matthew Piepenburg: The Fed. And reminder, Thomas Jefferson has warned that a central bank would be the end of America. And Andrew Jackson later said that a central bank like the Fed would be the prostitution of the government at the expense of the many for the benefit of the few. And that is exactly true. The Euphoria that the Fed created with all this money printing was a massive stock and bond bubble, for which the top 10% of the US population enjoyed 90% of those returns.
Matthew Piepenburg: So there was historical wealth inequality in the boom times since we started printing money. And for many of us, that's fine, but for the majority of Americans, especially the middle class, they are being crippled. And we're not even in a market crisis yet, a real market crisis. So these things are very, very patterned. History doesn't repeat itself perfectly, but as Mark Twain said, it rhymes.
Matthew Piepenburg: And that example in 79 in France was just one of many. But I thought it was incredibly telling. The overlap of words used to hide bad math, political opportunism, Euphoric markets, a debauched class of speculators, just like we saw in the.com bubble or the real estate markets in the MBS bubble. It was very, very similar. It creates wonderful Keg parties followed by horrific hangovers.
Matthew Piepenburg: And we have been postponing that hangover with a mouse click at the central bank, at the Echoes building. And that seems magical, but it's not commonsensically. We all know that. If it seems too good to be true, it is. And again, it's not sensational.
Matthew Piepenburg: History points the way. The problem is for people say, well, when is it going to blow? And no one knows. But I think the signs that we're seeing in the credit markets, the credit event disruptions we've seen in the last three years and the desperation by our politicians to hide very bad math with comforting platitudes is more and more a sign that we're coming, I think, very close to a tipping point. Again, not the end of the world, not the end of America, not even the end of the US dollar as a world reserve currency, but definitely the end of American hegemony and definitely the end of the Euphoria and the good times that we've known really for so many decades.
Matthew Piepenburg: It's going to be a very different America. For those who are unprepared, particularly, I just really, truly believe that you bring.
Jim Puplava: Up a statistic and this is, I guess, supporting where we're heading here. Global debt is now 300 trillion. So it's not just a US issue, it's a Europe issue, Chinese issue, Japan issue, things like since 2008, m two is up 500% tenfold in one decade and a growing movement towards what we see censorship. You're seeing it in social media, and I just wonder how long those of us in the financial world are going to have to be able to talk freely about the things that we see and warn people about.
Matthew Piepenburg: I think as cynical as still, and even as an American living overseas, I still think America, I have more faith in America, and I have faith in alternative media platforms that aren't wacky but are just legitimately alternative. I still believe, yes, we're seeing that at Facebook. We're seeing that at Google. I don't believe Facebook and Google or even YouTube is the real voice of America, just like I don't believe CNBC or CNN or even Fox is the voice of America. But luckily, Americans find a way, when they're curious to search and think critically and find voices that speak to them and resonate with them that they could agree or disagree with me.
Matthew Piepenburg: But I think they'll listen to different peoples and they'll come up with their own judgment. But yes, there's been censorship is another symptom of a more desperate economy and a desperate politics. And the rise of Wokeism, which is supposed to be about tolerance, is incredibly intolerant in the name of being offended or in the name of national security. Things from important things like whether a vaccine is effective or whether alternative treatments are effective or whether there's risk. Important things, debatable things, I don't have the final answer.
Matthew Piepenburg: But very important things were simply denied as fake news or as a threat to national security or as a danger to our health. And again, I'm not here to give the final answer on any of those debates. The problem was there wasn't even allowance for those debates. And that's a scary thing in America. It's kind of like a McCarthyism, a kind of Sanctimonious McCarthyism or a Salem witch hunt kind of mentality among those in control to be completely intolerant of any other views because they're afraid of other views.
Matthew Piepenburg: And the financial markets, it's a known thing on Wall Street that bears get fired and bulls get promoted. So it's very hard to work at Goldman Sachs and Morgan Stanley and have a cynical view of bank policy or central bank policy or unsustainable markets. And I think there was a great, great quote. It was Upton Sinclair. It's amazing what men and women are willing to forget if their salary depends on not understanding something.
Matthew Piepenburg: And the consensus thing, I think, in Wall Street, which I was certainly a member of for years, is toe the line, be positive, keep clients happy. Markets always rebound. Central banks always save us. Don't worry and don't start looking too dangerously into the corners of these dark statistics and these money supply things and these things that seem boring at first glance but are incredibly important. So yeah, there is a risk of that we're certainly seeing.
Matthew Piepenburg: I'm very concerned about it, but I still think more and more people are finding ways to get this data without it being tinfoil hated or end of the world or flat earth. It's just you have to be more careful. You have to be more critical, you have to be more curious, and you have to be more patient trying to find voices that resonate with you or books that resonate with you. And I always say, even for those who follow gold and believe in a lot of things that Egan von Greier is and my partner and I say, I always say, even challenge our views, challenge your views on crypto, challenge your views on bull markets, challenge your view on bear markets. But the more you look into these things, you'll start to rely more and more on your own informed judgment.
Matthew Piepenburg: I think what's missing today is a lack of informed understanding of risk. But I'll also be honest. I was bearish six, seven years ago. I never thought the Fed would go to three and a half trillion balance sheet, or four and a half trillion balance sheet. I was waiting for markets to explode years ago.
Matthew Piepenburg: I remember a lot of the analysts who worked with me in my family office said, matt, you're so not don't worry, it's going to be fine. And I was so bearish. In some ways they were right. But like David Stockman, I couldn't believe the Fed would go from four and a half to seven to eight to 9 trillion balance sheet. I couldn't believe it.
Matthew Piepenburg: So I underestimated the drunken behavior of our central bank. I underestimated them. Or maybe I overestimated their intelligence and underestimated their stupidity because we've simply bought more time. And could the Fed print another 9 trillion? Another 6 trillion.
Matthew Piepenburg: Look what they did. After March of 2020, we doubled our Fed balance sheet in less than twelve months. More money printing than we saw in years prior. So technically, I suppose a central bank can nationalize, so to speak, wall street socialism, support, bond and stock markets artificially with printed money. I suppose technically you could argue that modern monetary theory can prevent markets from ever going down.
Matthew Piepenburg: But there's always a toll booth, there's always a cost. And if you print that much money to sustain the bond market, and hence invite indirectly the stock market, you're only doing so at the cost, at the expense of your currency. So you'll have a heroic victory of a so called market sustainability, but you'll destroy the currency. And that's when we're talking about scary things like inflation or even hyperinflation, which is another issue, because when you're in control of the money and you're in control of the message, you can, and this isn't conspiracy theory misreport inflation by 50%. So even when people feel it on the street or at the grocery store, at the gas tank, on their vacation, on their hotel bill, or in their car payments, even when they feel it, the Fed will tell you, no, don't worry, there's only this much inflation, when in fact it's twice as much.
Matthew Piepenburg: But when you tweak the message and you tweak the data, you can at least politically say you're fighting inflation, reducing inflation, when in fact you're running uphill in roller skates. So again, it's just looking at this data objectively without trying to be sensational and drawing your own conclusions and challenging even your own worst assumptions or best convictions, that's something we all have to know.
Jim Puplava: It's amazing because so much Matthew, what we focus on in the financial business is central bank policy. We're always talking about the Fed. Will they or will they not? Are they going to raise it another quarter point? Are they going to go on pause?
Jim Puplava: So we spend a lot of time focusing on the central bank message. And what people don't realize when they create money, money can do a number of things. You can just keep it in a mattress, you can put it into the economy or a third outlet, which we have seen consistently. It goes into the financial market. So you look at these bubble like valuations and we give such credibility to these guys.
Jim Puplava: But in your book, you quote some of these quotes, like, for example, Janet Yellen in 2018, you will never see another financial crisis in your lifetime. Hello, Powell. There's no reason to think the bullish cycle can continue for quite some time, effectively indefinitely. So we get these quotes and we spend so much time talking about them, and Wall Street loves in the markets, love liquidity. It's what drives these prices.
Jim Puplava: As you mentioned, you looked at what the Fed was doing in the balance sheet and you think, oh my God, this can't continue. But look what happened to assets. What I find rather interesting in your book, you quote, 80% of the bubble assets, bonds, stocks and real estate are owned by the top 10% in the country. We're almost moving towards a feudalistic society.
Matthew Piepenburg: I think we're in a feudalistic society. And I think those quotes are fascinating. I was looking at them the other day, just in another presentation I'd done last year in Frankfurt. It was astounding the hubris and the complete falsity of statements by our central bankers. They were just dead wrong.
Matthew Piepenburg: But memories are short and fantasy is long. And again, it's not meant to be sensational. The foxes guard the hen house. And I'm a member of Wall Street. I went to Ivy League schools, I worked in hedge funds, I worked in banks.
Matthew Piepenburg: I'm not saying this is some angry wannabe. I was in that world and it was appalling. It's like being in a room without air. Eventually you have to leave. It's so twisted.
Matthew Piepenburg: And again, you just have to bring your curiosity and your integrity to the conversation and think about the foxes guarding the hen house. This is why Henry Ford said, if people understood the way fractional reserve banking worked, which is basically banks using deposit money as hedge fund for investments, if more people understood how banks work, there'd be revolution, there'd be riots in the streets. But most people watch Netflix and worry about their rent. And I understand that they don't realize how there has been a historical wealth transfer since the 2008 mortgage backed security crisis. All Bernanke did was create a massive wealth transfer and everyone on Wall Street saw, well, they're bringing out the liquidity.
Matthew Piepenburg: This is game on for us who have the ability to afford hedge fund managers or private equity managers or just go long. The markets. It's been the greatest tailwind in history, and that's benefited a very small minority of the population. I think the rest of the population doesn't even realize how much they've been had. And those that have taken the most spoils from this are keeping quiet and worrying about, like you said, what the next FOMC meeting is going to say?
Matthew Piepenburg: Rate up or rate down? What's scary to me, and this is what, again, von Mises or Thomas Jefferson or Andrew Jackson and all these others, david Hume in the 1750s warned, don't let these central banks take control of your economy will end horribly. But the very fact that the Fed runs our economy and certainly our markets like a portfolio manager, that the Fed is the market, but they're a very bad active manager. They're a very poor portfolio manager. But the very fact that we look to the Fed rather than natural market forces, natural supply and demand forces, the things that Adam Smith wrote about, the fact that the Fed is the market, that that market benefits only a small minority of Americans, is a blatant and non sensational example of Wall Street socialism.
Matthew Piepenburg: It just is. I wrote years ago, the capitalism died a long time ago. Frankly, it died in 1913, but it really died in 2008 when we created the greatest asset bubble I've ever traded or experienced or studied and called that a solution. All we got for it was repressed inflation that's about to emerge and a massive wealth transfer. And of course, all of these economic disturbances and all of this inequality.
Matthew Piepenburg: People don't even realize that there's identity politics, there's BLM, there's woke this, there's woke that, there's transgender all these debates. But the real problem, I think, in American society is there's wealth inequality and there's distrust and there's anger because financial feelings are very political. People may not be experts in markets or politics, but when they feel broke, they become very angry and they become very emotional. And what we have in the media today, whether it's watching something as I think imbecilic, as the view, are a lot of so called experts just screaming emotions at each other. They're very uninformed.
Matthew Piepenburg: And instead of having debates on objective facts like wealth inequality, central bank policy, currency destruction, bad banking, dishonesty from the Fed. We're arguing about identity politics and being offended, and we're not even realizing that the biggest offenders of our system are the very people we entrusted with it. But again, the Fed was never supposed to have this type of power under our Constitution. It was never supposed to have this power. And many presidents prior to 1913 warned against it.
Matthew Piepenburg: Unfortunately, Woodrow Wilson knelt before the bankers and signed this beast into law, much against his will and much later to his regret. But that's how powerful these banking forces are. And again, it's not sensational. It's not some star chamber of a few men in a room with cigars planning to control the world. It's a collection of a minority of smart financial minds who know how to rig the system in favor of a very small class of people.
Matthew Piepenburg: And that's not American. I'm a capitalist, and I've definitely enjoyed the benefit of being in the top 10% for most of my adult life. But that's not, to me, America. That's not the America of balanced budgets, of Eisenhower. It's not the america of our founding fathers.
Matthew Piepenburg: It's not what we were supposed to be. It's actually very disturbing. It makes me very sad. And I'm the beneficiary of these bubbles. And it's still again, I take no pleasure in saying that I'm proud of our Wall Street.
Matthew Piepenburg: I'm proud of our central banks. I'm certainly not proud of our politicians. And that's even nonpartisan, because you can name any president, left or right, red or blue. They have all benefited from postponing recessions by informing the Fed and having the Fed print more money to bail them out of a dilemma, just like Nixon did when he closed the gold window that was to get himself reelected. It wasn't for the benefit of our nation.
Matthew Piepenburg: It wasn't for sound fiscal and monetary policy. It wasn't for a thriving and robust middle class. It was for a small minority of insiders. From the day it was formed to the day it ends. That's how it's going to be.
Jim Puplava: You know, I want to move on to the gold market itself, and we've seen a lot of innovations in the financial world, from derivatives to ETFs. I want to talk about real, physical gold versus paper gold, because if you take a look at the markets today, whether you're looking at GLD SLV or just the futures market, I'm just blown away by the amount of leverage that's in this system. I think the figure is something like 20oz of silver short for every 1oz that's available for delivery. It's less so with gold, but it's still there. And when I think about this, Matthew, I think about if I was, let's say, a short seller.
Jim Puplava: Imagine if I wanted to short a stock, and I go in and short 20 times the amount of shares that have been issued, what I could do to the price. But this goes on every day in the gold and silver markets.
Matthew Piepenburg: Yeah, Jim, as we spoke before, this call, it's appalling. It's misunderstood by many. It's more than just the apology of a precious metals investor. It's an open secret. Even before I really understood gold and know mentors like Egon or brilliant advisors like Ronnie Sterfala who understand precious metals, you can listen to Lou Groman or Glenn Ruthergland.
Matthew Piepenburg: There's some brilliant minds that have shaped my thinking. But even before I really understood precious metals, it was an open joke on the OTC market, the over the counter market, that there were a number of prop tests whose sole job at these LBMA banks was to have a permanent short, a permanent boot to the neck of the natural price of gold. And know when you've got massive amounts of natural long contracts from normal retail investors, and then a small handful of deep pocketed LBMA banks using immense turns of leverage just to short gold and silver every day, legally is effectively legalized price fixing. And then you back up from that again, very few would understand that or care to know or think about that again. Most people, why would they have to know?
Matthew Piepenburg: If you're a doctor, a bricklayer, a dentist, a lawyer, a single parent, you've got other things on your mind. But when you look could you actually look at this from 30,000ft? Why are there a cabal of banks price fixing, the natural, physical price of gold through paper contracts and futures contracts on the OTC at immense turns of leverage just to keep gold and silver down? Because gold and silver, like Bitcoin, for different reasons, is an existential threat to a fiat currency, a distrusted, bogus oz behind the curtains fiat currency. If gold rips too high, it embarrasses the dollar and embarrasses the hegemony of the US world reserve currency.
Matthew Piepenburg: And you can understand why there's such an interest, a hidden interest in kind of secretively, in plain sight, reducing and distorting and corrupting the natural price, the natural supply and demand forces of gold and silver. And I know that when Nixon got off the gold standard, the central bankers would come into his office every day. They remained their first question. Volker's first question is, where's the gold price? Where's the gold price?
Matthew Piepenburg: They were terrified of a skyrocketing gold price to discredit the fiat dollar that Nixon gave birth to in 1971 and that we've been able to fake for almost five decades as a world reserve currency because we've exploited our inflation to the Third World. But their biggest concern was gold ripping too fast, too quickly, because that would be clear that having an unchaperoned world reserve currency was a bad idea. It wasn't going to work. Incidentally, right after we got rid of gold as a chaperone to give credibility to the US dollar, we immediately went out towards Saudi Arabia and OPEC to get a petrodollar so there'd be natural demand for the. US dollar and oil sales.
Matthew Piepenburg: And so we handed off gold and jumped onto energy. What's scary and we can get into is that Petrodollar is also under threat now because the US dollar and the US Treasury has lost so much credibility post 2022 and the sanctions. But it is, to your point, an open rigged spot price on paper, gold price through these LBMA banks and the OTC markets, and the use of derivatives and leverage, which are weapons of mass destruction, as Buffett said about derivatives in general. But it's particularly true in the gold and silver pricing. It's not, again, a sensational conspiracy theory.
Matthew Piepenburg: It's an open, objective fact. Anyone can do the research on this, and it's certainly in gold Matters in our book. It's worth understanding. And it's also worth understanding why it's so necessary. It's not just because a few bankers and a few prop tests decided they didn't like gold and silver.
Matthew Piepenburg: There's a very political reason for that, and there's a very powerful reason for that, I think. And as EGA and I have written, and no one knows when, that derivative market is a ticking time bomb, though there's so much counterparty risk on the other side of those contracts, especially in a rising rate environment, as derivative markets delever. I don't know when or how it is a ticking time bomb. It's almost I hate to say it's like a cancer diagnosis. Some people survive, some people don't.
Matthew Piepenburg: Depending on the type of cancer, it's almost certain. And there is a cancer in the derivative markets which will implode. I don't know when I'm prepared for it. But that's also true in the gold price. You know, again, without getting onto too many tangents, since the sanctions against Putin last year, there has been a move, and it's slow and steady, to create a new gold exchange called the Moscow World Standard to do more fair pricing of gold and silver.
Matthew Piepenburg: Because more than 70% of the world's gold is actually sourced in Eurasia and in Russia and those places. And having been sanctioned, now they're being very creative. 70% of the gold may be refined in Switzerland, but most of it comes from the east. It's no coincidence that countries in the east have been stockpiling physical gold year after year as America goes deeper and deeper into fiat debt. So I'm very pro American.
Matthew Piepenburg: I don't want to see a world where Russian values or Chinese politics rule the world. But I'm saying we've done this to ourselves, and you can say anything you want about China or Russia, and there's plenty to say. But they're not stupid. They understand history. They've watched American debt policies and currency policies, and they've watched the price fixing the gold and silver markets.
Matthew Piepenburg: And it's not going to replace the US dollar overnight. It's not going to replace the LBMA markets overnight. But there's already a slow but steady shift away from all of these things. And one of those things is more fair gold pricing, how long do you.
Jim Puplava: Think they'll be able to continue this? Because I'm watching central banks, whether it's Brazil, whether it's India, whether it's Middle Eastern countries, russia, China, you're seeing a movement away from it. In fact, in Ghana, they're paying for oil with gold. So as more and more countries go in this direction, how long are they going to be able to keep this suppressed through the derivatives market?
Matthew Piepenburg: It's a very important question, and I think it's important for us to understand the difference between the US dollar as a world reserve currency and the US dollar as a payment system, as a means of payment. I think at 30,000ft, the world reserve currency status is not going to change anytime soon. It's not going to be replaced by the yuan, it's not going to be replaced by the ruble or the mimbi or the Swiss franc. It's certainly not the Japanese yen. So as a world reserve currency, where the US dollar is 60% of the value of all currencies, and where it's 40% of all debt in the world is settled in US dollars, whether that's in US banks or European or Asian banks.
Matthew Piepenburg: So the dollar is still a very important currency. And I'm not here to say that it's over, that the dollar is over. There are some who may argue that. I don't think so, as cynical as I am, and as anti fiat currency as I am. But I do think also all central banks use US dollar, US treasuries as reserves.
Matthew Piepenburg: So the reserve currency status is not going to change overnight and not even in the next few years. What is changing dramatically and is very telling is the US as a payment system. And that really was something we said from the get go. Egan and I wrote about this Lily, from the get go of the sanctions. Again, regardless of your views on the war in the Ukraine, to have the audacity to freeze Russia's FX reserves and kick it off.
Matthew Piepenburg: The Swift system just accelerated a process of de dollarization and the rise of partnerships in the BRIC nations, and of course, between Russia and China in particular. All these countries that for years have been sitting on US treasuries, which offer a negative return when adjusted for inflation. And all these years where countries in the Third World were bullied by taking out debts in US dollars, as the rates in those dollars got higher, their debts became harder and harder to pay. Look at a country like Argentina. It is an appalling crime to see the inflation happening in Argentina.
Matthew Piepenburg: It's reminiscent of Venezuela. It's not all the fault of the US dollar, but a big part of it is. And when the US raises rates on that weaponized dollar or freezes the assets of a major country like Russia, the rest of the world looks at the US dollar with its eyebrows raised and then looks at each other and says, we got to find a better way to do this. And it's not a coincidence that since 2022 you've got 41 countries now in bilateral agreements, trade agreements, deliberately designed not to settle their trades in US dollars. You have BRICS.
Matthew Piepenburg: Again, they're not going to replace the dollar as a world reserve currency, but the BRIC nations are doing everything they can to come up with a BRICS bank and settle currencies in the aggregator bilaterally outside of the US dollar. And probably more importantly, and most importantly, and not making the headlines at all, is the slow death of the petrodollar, as countries like Saudi Arabia are talking to Iran and China and Russia about selling oil outside the US dollar. Remember before, we had the short sightedness to go after Putin with sanctions, which, by the way, even Obama said, don't go that way, don't weaponize, don't freeze FX reserves in a country like China or Russia. He said that in 2015 it would be destructive to our currency. But nevertheless, somewhere between 2015 and today, we lost our minds.
Matthew Piepenburg: But these countries are settling and looking to settle oil purchases outside of the dollar. The only two countries that had the courage to try this pre Russia, was Gaddafi and Libya and Saddam Hussein in Iraq. And we know what happened to both of those guys that didn't work. One wanted to trade oil and gold, the other wanted to do in euros. And somehow they both disappeared off the face of the map.
Matthew Piepenburg: America can bully countries like Libya and Iran and it certainly can bully the Third World and it could certainly bully Iraq. It cannot bully Russia and China. And that's what we've done. And it's going to have again, it's not about being anti American, it's really not pro Russia or pro China. But we have just shot ourselves in our own foot.
Matthew Piepenburg: And so it's not just rising bilateral trade agreements. It's not just de it's, it is the slow and steady distrust of the US dollar and a move towards a non petrodollar settlement of oil. These have huge ramifications on the trust, strength and hegemony of the US dollar going forward in the near term and the long term. And I don't think this is talked about nearly enough. It's certainly not debated nearly enough.
Matthew Piepenburg: I don't know who is giving the advice to Biden because I know, regardless of whether you're left or right, and I was a Democrat for many years, but even as a democrat, it's very clear that Biden isn't making decisions. He's not in the mental state to do that. So who is making these decisions to push the buttons of a country like Russia and China, which have independent natural resources and the means to negotiate deals outside of the US dollar? Again, we could do that with Venezuela or South America or banana republics, or we could do that with Iran and we could do that with libya, and we could do it with Iraq. You're playing in a whole different baseball field when you're talking about Russia and China.
Matthew Piepenburg: And I don't think that was thought out long enough in 2022, when it was just this immediate knee jerk reaction to suddenly make Zelensky George Washington 2.0 and Putin Hitler 2.0. We didn't think far enough ahead. And again, even Obama was no friend of China or Russia warned against this years ago. And yet somehow in 2022, we shot ourselves in our own foot. It has nothing to do with right or wrong in terms of the moral views people have pro or against Putin or pro or against Zelensky.
Matthew Piepenburg: It's basic financial suicide. And we are seeing that playing out right now very clearly. Again, not making the headlines, but there is a clear and obvious shift towards de dollarization in general and delinking from the petrodollar in particular, and that is going to be devastating for the US. Dollar.
Jim Puplava: What would you be doing, Matthew, given this? I think we both know that the inflation numbers are understated. We've got bubbles and asset markets, and we know that the price of gold and silver being manipulated through the derivatives market. But the question is, if you want to buy bullion, I mean, take a look at I don't care where you're going. If you're looking for silver eagles, gold eagles, the markups over spot sometimes are as high as 80%.
Jim Puplava: What would you be doing? And also, I guess, warning people that when you own something like GLD and SLV, you really have paper gold and silver.
Matthew Piepenburg: Yeah. It's two separate but important questions. First of all, Egon and I and Egon particularly, have written for years about the skunk in the wood pile of ETF paper gold. Without getting into every detail, certainly ETFs can be a way to play the gold price, but it's not a way to own gold. I mean, a lot of hedge funds or institutional traders use ETFs just for their arbitrage trades.
Matthew Piepenburg: But for those who see gold as a protection against these risks to the US dollar and to the purchasing power of their currency, the only way to protect yourself is physical gold and physical silver. And the problem is ETFs. Like GLD or other trusts, they'll promise that they have one to one ratios on their balance sheets of gold to your units in the trusts or in the ETFs. And they'll mean that. But if you look deeper into the counterparty risk and the chain of command, so to speak, between you, the ETF buyer, and the end vault where that gold actually is held, you really don't own anything.
Matthew Piepenburg: You have a paper interest in a custodial bank, which custodies for an ETF or a trust. And between that trust and that custodial bank, there's great deals of leverage, operational and counterparty risk, which means when you actually want physical delivery of the gold promised by that ETF, it's very, very likely that it won't be there when you need it most. Which is why sophisticated gold investors of whatever amounts, whether it's a small amount or a large amount, are always looking towards physical gold or physical silver. And by the way, you could make a similar even owning physical gold in a commercial bank, a large, respected commercial bank is an absolute no no. If you look under the hood again, there's so many examples of runs on gold and silver in banks that didn't provide delivery.
Matthew Piepenburg: And these are name brand banks. They just didn't have it because banks do what banks do best, they lever and they hypothecate their assets out, even though they promise on a balance sheet it's there, it's just not there when you need it. So if you really are serious and you decide that physical precious metals is one way you want to prepare for an uncertain future in a very beleaguered currency, you have to own the metal physically. And to your second point though, the spreads are getting higher and higher, especially if you're buying coins and you're not spending millions on kilogram bounces or kilo bars of gold in Switzerland. I understand it's a challenge.
Matthew Piepenburg: And unfortunately, I think those spreads are only going to get worse as demand for gold increases. Because gold has an infinite duration but a very finite supply. The stock flow ratio of gold is very specific, like Bitcoin, it has a relatively fixed amount. The number of ounces mined per year is only so much. Gold is not available on trees.
Matthew Piepenburg: You can't pick it down when you need it. And as demand for gold increases, the spreads and the premiums on smaller 1oz coins are going to get higher and higher. And unfortunately, I don't have an easy answer. I can't say, go to this source and you can avoid the spreads on Spot. There just isn't.
Matthew Piepenburg: And that is painful and it's unfair, but that is actual supply and demand dynamics at their best. It's not what we see on the OTC markets or the price fixing on the comics, but for individuals looking to buy gold and silver, not only they have to make sure that that's real gold and silver, which is a whole other conversation. They have to get it from a trusted source. They're going to have to bite the stick of those premiums and they are going to get worse. If and when gold surges, as I think it will, there can be price flows in gold between now and its ultimate highs.
Matthew Piepenburg: We can talk about what those could be. But sadly, even with those premiums, though, I think those that are willing to think longer term as investors as opposed to as speculators, even those painful premiums are worth suffering because I think they're only going to get higher if gold does what I think it will do. And so you have to pay that toll booth, so to speak, to get the other side of the gold ownership. But I would not. And I'm not just saying that as someone who recommends vaulting gold in Switzerland, because that's not for everyone.
Matthew Piepenburg: Not everyone can afford that. But whether you're buying coins or you're buying kilo bars, you have to buy physical gold and silver and store it and vault it or own it in a way that's safest for you. And that's very different for each investor based on the amounts and based on their situation. But you do not want to own ETF gold or paper gold. It's really just levered paper.
Matthew Piepenburg: And even for those who can afford larger amounts, you need to hold that gold outside of a banking system for so many reasons, even more obvious since Silicon Valley Bank. But you need to hold that gold outside of a banking system. And then the next question is, well, then your biggest counterparty risk is the hole in the ground or the vault or the cave where you put that gold. And that's also very complex. And naturally, we think we have the best solution at Matterhorn.
Matthew Piepenburg: We do. But that, again, isn't for everyone. It's not affordable to everyone. But the only real counterparty risk you have with physical gold is where you keep it and how you keep it secure and keep it safe. And again, that's very different for each investor based on the amount and based on their own concerns about safety and security.
Matthew Piepenburg: There are people who keep it in their own homes. I think that's going to be very dangerous. If anyone finds out you have physical gold in your own home. That's an open disaster, I think. But again, for those who do own physical gold, it's time to be very quiet about that.
Matthew Piepenburg: But I think the premiums, unfortunately, are part of the game, and I don't have an easy answer on that one, Jim.
Jim Puplava: Well, just know that when you own it, it's nobody else's liability, and it's just a matter of where you want to store it. Well, Matthew, I want to thank you for joining us on the program. You and your partner have written a fabulous book. It's called Gold Matters real Solutions to Surreal Risk. The stats, the statistics, the stories and the case you lay out for gold.
Jim Puplava: I haven't read something this good in a long time. I want to congratulate you and your partner on writing this book.
Matthew Piepenburg: Well, thank you, Jim. That means a lot to both of us. I'm glad you enjoyed it, and I hope others do as well. It's a good tutorial on the history and the current and present need for this ignored and unloved asset, which I think is going to be very important in the years ahead.
