John Butler Predicts a Golden Revolution

John Butler's new book,

predicts that the era of paper currency is coming to an end, and a return to a gold-backed dollar is basically inevitable. He speaks so passionately on the subject that it's difficult to disagree with him. Butler spoke to Benzinga about the coming global gold standard, and explained how history is on his side.

I worked for many years as an interest rate currency and commodity strategist with some major banks. I was a managing director at both Lehman Brothers and Deutsche Bank prior to setting up my own independent investment and advisory firm here in London. As part of my business, as part of my remit, I produce a regular investment newsletter called the Amphora Report, and that is circulated to a number of investors around the world, and is also posted to a handful of financial websites. I've recently completed my first book,

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I think gold polarizes because it's a flashpoint for so many things around which there is always some degree of disagreement. When times get tough, those disagreements come to the fore. Gold cuts across essentially all aspects of modern concepts of both monetary policy and its role in a modern economy, but also fiscal policy. So it gets tangled up into discussions about what the banks should be doing, and what the government should be doing with respect to tax and trade policy and whatnot. So regardless of where you fell on any of those issues, chances are that when it appears that there this some sort of crisis, that something's not working, you'll get ultimately sucked into this debate on one side or the other regarding whether or not a gold standard type system would help to resolve those issues. To be fair, this debate will arguably never end. It's one that clearly has not been settled, it simply went dormant for a while when things looked rather ok. Clearly, they no longer do look ok. So what's happening now is consistent with what happens historically when you do get into a financial crisis and cannot find a solution within an existing policy regime.

First of all, it's worth pointing out how we got here. Keep in mind that, for the vast majority of its existence the dollar was explicitly backed by gold. Gold may not have been used in everyday transactions, but nevertheless there was this explicit legal backing which traces its way back to the coinage act of 1792, and prior to that to the reality that gold and silver were the actual circulating coinage used in the United States. So the fact that the dollar has been an unbacked paper currency for just over 40 years now is the exception to the historical rule. So it's perfectly legitimate to question whether or not the existing regime is indeed the one that best serves the interests of the United States or other countries. Also, consider how it came about. The U.S. left the gold standard in August 1971, not because of an amendment to the constitution, not because of an act of congress. It left the gold standard via an executive order by President Nixon citing temporary emergency reasons why the U.S. would temporarily abandon the gold standard, and that as soon as his emergency policies worked their magic, the U.S. would return to the gold standard. That's how it was done. That was 40 years ago. Now, because the constitution of the United States very explicitly gives the congress, not the President, the power to coin money and regulate the value thereof, the U.S. has arguably been living in an unconstitutional monetary state for over 40 years. So on economic grounds, historical grounds, but also purely legal and constitutional grounds, it is entirely legitimate, crisis or not, to question whether or not the current monetary regime in the U.S. with the dollar is indeed desirable.

Indeed, and that's why there's a whole section of my book devoted to scenarios which, based on historical experience, financial practice and theory, are ones that are worth entertaining. Basically, there's one possibility that I actually discount very heavily, that policymakers in the United States go about returning the dollar to a gold backing of their own accord, because the crisis drags on and on and attempts by the federal reserve to stimulate the economy continue to fail because the banking system remains dysfunctional. It just goes on, and the amount of trust and credibility that has already been lost in fact pales in comparison to what has subsequently been lost. You just get to the point where nobody trusts the powers that be, that the fed or the government will restore any degree of sensible monetary order to underpin a sustainable, healthy recovery. That's one possibility. We just get so far down this road of the fed, the fiscal authorities and government losing credibility that the political winds shift in favor of a return to a gold standard. I do think that's unlikely because, when you look outside the United States, the pace of events has accelerated dramatically since 2008, and in fact continues to accelerate. Already this year, you have had several developments which indicate, in my view, that other countries are actually planning to implement their own form of gold standard as a way to reduce their dependence on the U.S. dollar. You're seeing other countries taking this issue and running with it because they perceive that U.S. monetary and fiscal policy is not in their interests, and yet they're the ones who are forced to go along with it as long as they use the dollar as a transactional currency or use the dollar as a reserve currency. So they are subject to the consequences of U.S. monetary and fiscal policy.

I do believe it's inevitable. When you step back from the issue and you take a look at the way things are today with the U.S. share of the global economy slipping below 20%, you have a significant change in global economic power. Also, you have structural problems in the U.S. economy which require real economic reform. You have too many countries around the world, including South Korea and Thailand, that, when you out all these things together, I do believe it's inevitable. If you put game theory analysis to where we're at, that suggests that, even as small countries start to change their behavior, ie. Accumulate fewer dollars, for every small country that doesn't accumulate those dollars, a larger country has to. Before you know it, the larger countries find that they're carrying the system. Eventually, even the large countries start to determine that they need to act before someone else acts. That game is very much afoot. It's not generally appreciated within the United States just how much things are changing outside of the country.