Pyramid Of Safety

John Exter, formerly of the Federal Reserve Bank of New York and one-time custodian of earmarked gold locked up in the Liberty Street fortress in Manhattan, is best-known for his model of the money supply represented as an inverted pyramid. Exter belongs to the school teaching that the current experiment with irredeemable currency is more likely to lead to a deflationary than an inflationary catastrophe.

The inverted pyramid is delicately balanced on a tip of pure gold. Its upper layers consist of money of increasingly greater proliferation such as Federal Reserve notes, T-bills, bank deposits, as well as other bank liabilities. The layers are graded according to safety, going from the safest, gold at the bottom to the least safe, the layer of electronic dollars at the top.

In times of financial panic, money flows from the top levels of the pyramid to the bottom levels seeking safety. As is easy to see, there is not enough gold to go around when the derivatives bubble finally bursts and everyone runs for the safety of gold.

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