John Exter's Chart of Inverted Liquidity: Gold Is at the Bottom -- Most Liquid
Dec. 30, 2009
John Exter was a member of the Council on Foreign Relations. He was an economist with the Federal Reserve System after World War I. He worked for Citibank for a time. He was the advisor to the governmnent of Ceylon in 1950 when it set up the central bank. He died in 2006 at 95.
He proposed an inverted theory of liquidity. At the bottom is gold. He said this is the most liquid asset.
In a financial panic, which he said is inevitable, there will be a rush for liquidity. The dollar will rise in value. Gold will rise even more.
He was the first person to argue for gold as a deflation hedge, despite the fact that Nixon in 1971 had de-coupled the price of gold from the dollar. This position made Exter popular in hard-money circles, for he offered gold as both a deflation hedge and an inflation hedge.
So far, his theory has yet to be tested. We have not seen a rising dollar and a rising price of gold.
