Maurice Jackson: Joining us for a conversation to discuss a new Bretton Woods movement, the United States transition into a digital currency, and the opportunity before us as precious metals investors is Andy Schectman, the president of Miles Franklin Precious Metals Investments.
Thank you for taking time out of your busy schedule and coming on such short notice to address the significance of the proposed economic and monetary events that are taking shape right before our eyes. Before we delve further into today's discussion, Andy, would you please introduce the IMF and the BIS as they are germane for today's discussion?
Andy Schectman: The Bank of International Settlements (BIS) is more or less the central bankers' central bank, and it's located in Basel, Switzerland, and it sets the rules, so to speak, to all of the major banks in the world, whereas the International Monetary Fund (IMF) is, I guess you could call it an international organization. And this is an organization that's located in Washington D.C. And last time I checked, there was somewhere I think north of 190 maybe almost 200 countries that comprise the International Monetary Fund and its mission statement talks about securing financial stability and facilitating international trade and what have you, the conspiratorialist will tell you they are interested in lending money to the world, and indebting everyone, the third world countries notwithstanding.
And they are an organization that more or less finances the world in many respects, finances countries to facilitate trade. So two distinct organizations, one located in Switzerland, one located in the United States. The Bank of International Settlements is more along the lines of working with the banks. And the International Monetary Fund is a little bit more diverse, works with countries, and is more concerned with trade and the balance thereof.
Maurice Jackson: Speaking of the BIS, it passed a significant milestone last year that is known as Basel III. Why is Basel III paramount for all precious metals investors to fully comprehend?
Andy Schectman: I believe Basel III is the most important event of my 30-year career. If we go back to 1944, the end of World War II, the Bretton Woods agreement anointed the dollar as the world reserve currency, the petrodollar, and even backed it by gold at that point. And from that point forward until recently, the U.S. Treasury market was the only tier-one asset in the world. Now, you could argue that an escrow dollar account would also have been tier one. And it was as far as the central banks were concerned. In other words, if the Bank of England was trading with the Bank of Switzerland, it would not have been pounds or francs used as collateral. It would have either been United States Treasuries, the only tier one asset, or a fully escrowed and funded dollar account with dollar bills in it that also would have been considered tier one.
The definition of tier one is riskless, meaning the central banks viewed for the last nearly 80 years, the U.S. Treasury market as riskless. And gold had always been a tier-three asset, which meant only 50% of the value was calculated on a balance sheet. And that in it of itself on top of the volatility in the gold market, the fact that it cost money to store and the fact that it paid no interest were reason enough for people or central banks rather than to not accumulate gold. It incentivized the central banks to send all of their gold to New York City, to Fort Knox or to New York City, the Federal Reserve, where we would keep it for them on the account and pay them money for it.
Of course, the dollar bills that they would take back at that time were fully backed by gold. So, it was a good deal for them because they could take those dollar bills, and then they could buy treasuries with it. And the treasuries would pay interest, which was a tier-one asset, and all of it could be redeemed for gold at any point. So, the central banks of the world gave us their gold and we held it until of course 1971, one when Nixon closed the gold window. But I digress.
The bottom line is simply this: Since 1944, Maurice, there's only been one tier-one asset, U.S. Treasuries. In 2017, at the end of it, if we would have looked at a recap of that year, we would have said that central banks were net sellers of gold and had been up to 2017 if I were going to generalize. In 2018, nothing had been announced yet. And the central banks as a group bought more gold together than they did in the 60 years combined previously. In 2019, that trend was up over 90% and continues today in 2020.
In April of 2019, the BIS had the Basel III decision to reclassify gold as the world's only other tier-one asset. Now, the central banks were voraciously accumulating it, as I mentioned, almost a year and a half before this decision. They were front running it. And they continue to do so today. And again, if you look at what the definition is of a tier-one asset, it's riskless. So, you have the most influential traders on the globe telling you that gold is a riskless asset, and they've been accumulating it for the last two years. To me, that is the most significant event of my career, because if you think about it, institutions like the BIS that have followed a set of guidelines for nearly 80 years do not make decisions like that in a vacuum. I think it tells us where the long game is or what the long game is for gold and how gold fits into the future monetary system. To me, it is without question, the most important decision in my 30-year career.
Maurice Jackson: Basel III incentivizes the world central banks to procure gold. Now, let's bring the IMF into the discussion as it's proposing a new Bretton Woods movement. And you alluded to Bretton Woods. Let's just go back to 1944 and introduce us to the original Bretton Woods. And then let's segue that into the new Bretton Woods movement.
Andy Schectman: The original Bretton Woods agreement was a meeting was among all the Allies involved in World War II. And they agreed to the dollar being the world reserve currency and the petrodollar and classified treasuries as the tier-one asset. And it was a good deal for the world. They would give us their gold and take our dollars and buy treasuries with it. They could then earn interest for their gold and the dollars that they would get back were redeemable for that gold at any time. It was a really good deal for the United States and the rest of the world, that financing of, if you will, of our treasury market helped us grow our country and our economy. And the rest of the world knew that the dollars that they had from us were as good as gold and redeemable in gold.
And the fact that gold paid no interest and cost money to store alleviated two of the biggest problems they had with their gold. Now, they would earn interest for it and have it stored for them courtesy of the U.S. government. Of course, all of that changed in 1971, but in essence, Bretton Woods laid the foundation for the United States to live well above its means for the last 75 years as the world reserve currency and the petrodollar.
Maurice Jackson: What is the IMF referring to when it announced a new Bretton Woods movement?
Andy Schectman: Well, they were somewhat cryptic about it. It was just announced. In watching the release, I watched it from the actual IMF release on its website, which it's front and center. I guess what I look at is all the pieces of the puzzle that fit into place. You have the reclassification of gold as the only other tier-one asset. You have the banks voraciously accumulating the gold and de-dollarizing. You have the governments around the world's reaction to COVID that has more or less blown up Keynesian experiments, and currencies are being devalued. These currencies are being devalued so aggressively right now that I think it's time for a new system is more or less what they're saying. They're saying it's time for a new system of world reserve.
Now, they weren't specific, but each little piece that we keep seeing, like the talk of a digital currency, I think is indoctrinating us into a new reality. And that new reality is of a new monetary system that's common. And when you have the BIS, which is the central bankers' central bank, the most influential people in the world, and then a conglomerate of nearly 200 countries who have all used the U.S. dollar as the world reserve currency for the last 80 years now saying it's time for a new Bretton Woods agreement. They weren't definitive, but I think we can all agree that change is coming. And I think that's really what 2020 has been for so many of us, learning to adapt to a tremendous amount of change. And I think the world's monetary system won't be immune from that change. I think it's coming. And that's really what they're saying. They're telling us that a new system is on the horizon.
Maurice Jackson: It's interesting. I'm going to digress here, speak on the politics regarding this. As I'm watching the presidential debates, I'm just shaking my head as the moderators are not asking any questions regarding this subject matter. And it involves every single living person, not just the United States, and it's a conversation, let alone, you don't hear any reference to the Constitution made either, but this is not being discussed on the world's biggest platform. And I'm just shaking my head here. I can't fathom how this is not being discussed. Now, we're talking about the monetary system and currency. You referenced it. Let's now switch to the Federal Reserve. It is proposing a new digital currency.
Andy Schectman: One of the things that people in this industry like to talk about is the inflationary effects of what the Federal Reserve is doing. And on one hand, I understand where that comes from. The Fed has created, I don't know, $9 trillion worth of wealth in the last year, starting with the repo market crisis of last September. It took this country 300 years to create $800 billion. And the Federal Reserve has created $9 trillion in a year. The Federal Reserve, when they buy bonds, they call it quantitative easing, many people believe that that is hyperinflationary. When in reality, it's deflationary.
I'll try to be as brief and succinct as I can on a complicated issue. The Federal Reserve have two ways of making policy. One is that they can buy assets. That's why you're seeing many people believe through unison with BlackRock and the treasury, they're buying up assets. And those assets go on the balance sheet. They can buy assets on their balance sheet, and they can also deal with the federal funds rate, they can lower interest rates. And so what they can't do is create inflation.
When the central bank buys bonds from the commercial banks, the treasury bonds, the money that is paid for those bonds does not go to the commercial bank's balance sheet. It goes to a reserve account at a member federal reserve bank in that bank's name, the only way the bank can access that money is through lending. So now, the banks have all of this money on reserve that can only be and utilized for lending. Money creation centers around lending and borrowing and spending, of course, but if no one is borrowing and no one is lending, the velocity grinds to a halt.
Now, you go back to September and you see the commercial banks were all reeling from the repo market crisis. And you look at what's happened since you have an economy that's been decimated by COVID. And many businesses that are hanging on by a thread will be gone by year's end. So you have banks that have lent money to so many of these companies and corporations that are now dead, dying, or almost gone, which is making a tenuous balance sheet even worse, a fragile balance sheet even worse. So the banks are not lending. And when the Federal Reserve buys the bonds out of the system, it contracts. It's pulling liquidity out of the system. Under normal times, in normal times, the banks would be lending. People would be buying.
If you look at the velocity of money, it's the lowest it's been, maybe ever, in a very, very, very long time. Lots of people trying to take out refinance, mortgages, or loans or or buy homes with a mortgage. A lot of these applications are being turned down, and most of them. The banks have no interest in expanding their balance sheet. So what that means to you and me is that we're not witnessing inflation yet. The only people that are taking these loans are the hedge funds let's say who has a beautiful balance sheet that can borrow the money at next to nothing and then put it into the stock market along with the Fed buying inflated assets that will continue to go higher because that is what one of the barometers of the health of the country as measured in asset prices, people feel rich. The Fed certainly does not want to let the asset prices tank. That is one of their primary objectives is to keep asset prices up high, make people feel rich, but it's a problem if the banks aren't lending.
And so what you have is the rich getting richer and the poor getting poor. It's a K-shaped recovery you'll hear very often where the upper 45% or 50% are going up and getting wealthier and the bottom 50 or 55% are getting crushed. And that's exactly what has happened. So, the Federal Reserve is trying to make a workaround. Remember, they can buy the bonds, pay for it in money, held in a reserve account in the bank's name, the other banks that are selling the bonds to the Fed. Those banks need to lend money into existence. If the banks aren't cooperating and refuse to lend, no inflation. That's where the Fed comes in and says, "Ha, how about we give everyone a Fed wallet and we do a workaround, a flow-through, a pass-through? Go right around the commercial banks that aren't cooperating with our lending programs and we will deposit money right up to modern monetary theory, right into everyone's account. Even if they're not working, we'll give them money right into their Fed wallet."
Now, if the Fed wanted to create inflation, they would put a period on that money. They could say, "We're going to give everyone $5,000 of new digital Fed coin, but you have to spend it within 60 days or it disappears." And now everyone would run out and spend it. The bottom line is simply this. If the Fed creates a Fed wallet like this for every man, woman, and child in this country, they now can create massive inflation with a click of a mouse, because they're usurping the lending process, they're usurping the banks who are refusing to lend and give money directly ala modern monetary theory, right to the public.
And what that would do is ignite, many people believe, the fuse of hyperinflation, because what we're facing right now is hyperdeflation. Assets are deflating and assets are defaulting and businesses are going under, and people are saving instead of spending. No one is going out and spending frivolously any longer. They are battening down the hatches and paying off debt. And that is exactly contrary to the playbook that the Fed wants. So, they talk about a wallet that will enable them to go right to the public, which could very well quickly ignite massive inflation.
Maurice Jackson: When one looks at the pernicious acts of the Federal Reserve, you would think they'd want the best for our nation, but they are causing devastation. It's going to cause so much turmoil for families. And the Fed will never take the blame. There's always a scapegoat, such as the speculators, the precious metals investors, but in reality, we're making the prudent moves and decisions that anyone should make. You should save a portion of what you make, and the Fed doesn't want that. You're exactly correct. They want you to spend, and they don't like our actions. So, let's recap here. We have Basel III, a new Bretton Woods movement and a new digital currency being proposed. What does that suggest to precious metals investors?
Andy Schectman: Well, I think that if you put it all together, you have a digital currency backed by gold, because who the heck would drink the Kool-Aid ever again when you see that governments since the beginning of time, destroy currencies? Dr. Franz Pick once said all paper currencies inherently are meant to die. They all go to zero. They all go worthless because the governments that control them destroy them. And if you do not have a peg, a tether to some form of a governor if you will as to how much spending and money creation is created, then the currencies will always die and no one would ever drink that ever again. So, I think if I had to guess, if I were put on the spot, I would say this, that they will back a new currency. And I think this is going to come first, if not first, very close, I think you'll see this coming out of China, by the way.
I think the Brazil, Russia, India, China, and South Africa (BRICS) nations are going to be a step ahead of us. And they're going to try to do the same thing. I believe China just launched its first digital currency last week. I think it's the opening shot across the bow. And when these countries peg it to gold, whichever one does it first, it'll be the beginning of the end of the United States dollar as we know it. And I think that what they will do is it will not be convertible, meaning you can't go into the bank and trade a dollar for a piece of gold. But what you will see, if I had to guess, would be maybe a 10% backing. So every new Fed coin is backed, 10% of it is backed, maybe 15% backed by gold. And the gold will be immutably guaranteed on a distributed ledger.
Now, who going to house it and who's going to audit it, that's another question altogether. But if I had to guess, that's exactly what they will do. They will issue a gold-backed digital currency with custody of that gold denoted on a distributed ledger. And it will be a digital currency where they will be able to track everything that you do, everything and anything. We'll probably have six months to turn in all our currency because COVID can live on the paper currency they tell us. So, everyone will be forced to turn in their currency. Most people will comply happily to help eradicate COVID of course, and you will have a cashless society with a new currency backed by gold. And I think you'll see something almost identical or very similar coming out of the BRICS nations and China. And I think this is almost here. I think it's coming. It's coming quicker than people think. I started talking about this in March when right after all hell broke loose in this country.
Nancy Pelosi came out with her House subcommittee finance bill and called for a digital currency because COVID could live on supposedly on paper currency. She called for it. Now, it was voted down. But the minute I saw that knowing what I already knew about the reclassification of gold, it just a light went off. Since I started in this industry in 1990, everyone would always talk about a cashless society. I could never see how they would do it, ever. Well, they figured out a way to do it. I'm not saying that COVID was man-made and this was done to reset the system, but I'll tell you one thing, you take a step back and look at this and put your conspiratorial eyeglasses on.
And it's pretty hard to not at least have it flit through your mind because what this has done is blown up all of the Western economies at the same time with no scapegoat. Well, China, I guess you could blame, but you have a situation where now countries will be willing to start over because their economies blew up, the debt is not serviceable and it wasn't anybody's fault. So, let's start over. And I think that's what you're going to see. And I think it will be a digital currency. I think it'll be tied to gold some way. And I think the dollar bills in our wallet will be hanging from a frame in the Smithsonian before too long. I do believe that.
Maurice Jackson: I don't even think we even have to introduce the word conspiracy here. You've laid out the economic generals. They have laid out for us the strategic moves they're going to be making. Basel III was the first move. And so it makes sense for China to continue to add to its position to gold, then it should be the first one probably to make the move towards a digital currency backed by gold. And now we're reverting to history. You have the new Bretton Woods movement, and it almost sounds like a quasi-gold exchange standard if you have a 15% backing because it was before it was 40% backing.
Andy Schectman: Yes, that's exactly right. I think that's exactly what will happen. And I think that's exactly what they'll do. And at 40% doesn't give them enough latitude, but I think that 15% would. You have to be able to create money and be able to still have aspirations of a world reserve currency status. And if you're tied too closely to gold, either that or you have to raise gold to a much higher price will never come back down because it will be pegged to a new world reserve currency. Those numbers become realistic when you look at it that way. Quite frankly, I've never been a proponent of picking numbers out of the air, but I think it's coming. I think it is very, very soon and it is coming. And I think we all need to prepare.
Maurice Jackson: We often discuss the ratios as a proven strategy for building wealth. Andy, can you explain the strategy, and what do the numbers suggest to purchase right now?
Andy Schectman: I think silver and platinum are still very undervalued. Ridiculously so, but I think there will come a time when we move to gold. Not yet. I mean, I'm still a big advocate of gold, and I don't think that it is wise to bet against gold right now. When you have the most influential traders in the world telling you it is part of a next system, I would be accumulating it, but it does not have anywhere near the same level of value that silver and platinum markets do. I think the silver and platinum markets are unusually cheap and offer values that you could argue are once in a generation opportunity.
Maurice Jackson: What is Andy Schectman buying right now?
Andy Schectman: I am buying silver almost exclusively, have been for the last year. I typically buy on a scale of 1 to 10, I'd put about 80% of my money into silver and 20% into gold. I have plenty of platinum, I've been buying it the whole way up over the last several years. I think people should own platinum. I don't mean to ignore that question, but to me, platinum is a tertiary investment. It does not have the monetary history that gold and silver do. Now, some people will say it was used in Russia a few hundred years ago as monetary this and that. It does not have the same monetary history as gold and silver.
I think that gold and silver are where we want to be for now. Platinum is a good value, but I think when the world gets frightened, they run to gold and silver. Silver to me is the best choice because not only does it have a huge industrial aspect component, but it also is the only item that has a monetary history too. You look at a metal like copper that is all industrial and a metal like gold that is almost all investment. Silver is the best of both worlds, industrial and monetary. And I think people will realize that and they will start running in that direction. I do believe that's coming.
Maurice Jackson: And just for the record, because I know I get this asked as well. So, let's address it now. I'm a very big buyer of platinum and recently I've added a little bit of semi-numismatic gold to my portfolio. And before we close, sir, what keeps you up at night that we don't know about?
Andy Schectman: I think these are scary times, Maurice. And I think that we have to learn to adapt, to change. Things are going to change an awful lot. And I'm less concerned about what we're talking about financially. I have been buying gold every two weeks for 30 years and I've never missed it. And when I say gold, that means something gold, silver, platinum. I've never missed two weeks. To me, that is wealth. I'm less concerned about that and more concerned about the world my children are growing up in. More concerned about what comes next in this crazy world. And so to me, it's more about the social aspects than it is the economic aspects. I think we'll all be fine. Owning gold and silver will be a life raft, but the world that we live in right now is a shell of what it was just a few months ago.
And I'm concerned, especially here in Minnesota, it's a snowstorm here in Minnesota, today, five inches of snow on the ground the earliest I can ever remember. Just icing on top of a 2020 cake. And when you talk about what that means to a place like Minnesota or any of the northern cities, it's devastation for any of the hospitality that's been hanging on by a thread. All the restaurants that have had outdoor seating, all of that stuff, it's over. And I'm very, very, very frightened for what the world looks like now, after the election, over the next several months, how does it play out? And I think that to me the finances should come in secondary to the greater picture, what we're seeing in the world. So, that's what keeps me up at night, what the world looks like that we find ourselves living in and what happens as time passes especially here in the winter.
So, that's what keeps me up at night, It's just living in the epicenter of craziness here in Minnesota. And now that there's snow on the ground, the golf courses are closed. The restaurants that have been hanging on by a threat are going to close. The hotels are going to close. The Uber drivers are going to have no job. Go down the list and things that once made up the things that we find enjoyable about life are few and far between right now. That's what's keeping me up at night more than anything.
Maurice Jackson: You said something so important there that I noticed, and you do all the time, is your concern of the social and human component at stake here. Not the financial component, is human because, in the end, we're all human beings, and life matters. And we care about you, the reader. We want you to prosper financially, but we want you to also be alive and healthy. That's more important than anything. Mr. Schectman, before we close, for someone listening and wants to contact you, please share the contact details.
Andy Schectman: I can be reached at (800) 255-1129, my direct dial, or [email protected].
Maurice Jackson: Mr. Schectman, it's always a pleasure speaking with you. Wishing you the absolute best, sir.
And as a reminder, I am licensed representative to buy and sell precious metals through Miles Franklin Precious Metals Investments, where have several options to expand your precious metals portfolio, from physical delivery of gold, silver, platinum, palladium, and rhodium, to offshore depositories, and precious metals IRAs. Give me a call at 855.505.1900 or you may email: [email protected]. Finally, please subscribe to www.provenandprobable.com, where we provide Mining Insights and Bullion Sales, subscription is free.
Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.[NLINSERT]
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