John Exter´s Pyramid

John Exter was an economist who worked in the FED and contributed to the foundation of the Central Bank of Sri Lanka. Although, he is mostly known by being the author of his famous pyramid, “Exter´s Pyramid” a simple economic model where he explained how the current system would eventually end.

Exter´s pyramid was an inverse model where gold rested at its base and the most synthetic financial assets formed its top layers.

John Exter inverted pyramid of assets

From top to bottom there would be commodities, stocks, bonds, cash, and finally gold, which was evidently the ultimate extinguisher of debt.

According to John Exter, the end of a FIAT monetary system, just like ours, would be consequence of a deflationary crash where people would be going from assets at the top of the inversed pyramid (financial derivatives) to the tiny base, which was gold.

One of the most curious things about him is that, besides working for the FED (an organization pro-FIAT system and therefore, anti gold), he belonged to the Council on Foreign Relations (CFR), well known for being an organization that promotes Keynesian and socialistic ideas and, therefore, not very favorable to gold.

Exter also was well known for being an excellent financial adviser and investor, making huge profits out of his investments in gold during the 1970s.

There is an interesting story told by John Butler, where he tells us that once, John Volcker asked him for advice in 1981, when inflation seemed to be out of control and everything seemed lost after the FED (Volcker) raised interest rates to 20%.

It seems that when Volcker knew that Exter was in the city, he cancelled all his appointments and called Exter for personal advice. Exter agreed, and when the met, told Volker that he should be quiet because his policies were going to have an effect finally, and that he would soon have to decrease interest rates to support the economy.

John Exter deflationary collapse

One of John Exter´s friends was Ludwig Von Misses, with who he had apparently many debates about how the end of the fiat system would be, whether by inflation or deflation.

Mises took, of course, the inflationary side.

That is a debate that is being present for many years now, and nobody has won yet evidently. The system has not collapsed yet.

The truth is that the past years have not confirmed the fearful hyperinflation awaited by the inflationists and gold bugs.

Actually, the last eight years the deflationary thesis seems to be winning. The inflationist have been preaching that we were going to enter hyperinflation since many years ago, but on the contrary, there seems to be not much inflation.

The truth is that despite the monetary base being multiplied by many factors, there seems to be no demand in the economy.


It is as if all the money created by the central banks is somewhere else, maybe, as Antal Fekete says where the real fun is: the bond markets. And, that, is not, obviously, an inflationary scenario.

Even in cases where national bonds raised a lot, like Greece or Portugal, there were no signs of inflation, but on the contrary, clear signs of deflation.

You do not hava a 90% stock market crash in an inflationary environment.

John Exter’s liquidity pyramid

Exter´s Pyramid is formed by a masive top based on illiquid instruments, made out of synthetic debt, which reach its maximum height at the end of the credit bubble. Those instruments would be, for instance, subprime mortgages.

When the next phase of the crisis arrives, the citizens would go to the next layer of the pyramid to safer investments, like diamonds, small stocks, commodities, municipal bonds.

Later on, with the panic accelerating, the money will go to corporate bonds, blue chips stocks, government bonds and finally treasuries and cash, until the end of the pyramid is reached: until people go to gold.

Contrary to the rest of the assets, physical gold is the only one that does not depend on anyone else´s balance sheet, unless you have it stored in someone else´s vault. Stocks, bonds and cash depend on the government that issue or control them. That government can confiscate those assets with just pressing a bottom. Gold cannot be confiscated that way.

In the scenario expected by Exter, the massive quantity of debt in the system will create a massive amount of defaults in the system, which will end up with the destruction of all that fiat money previously created.

Defaults will follow defaults and people will go to their most liquid assets, like cash, to make payments in a desperate situation.

Evidently, we have not reached a scenario like it yet. For it to happen, we should see many things yet, though we should not be surprised if the final act happened overnight.

Of course, all Keynesian economists, which mean almost all the economists in the World, pay no attention to Exter´s Pyramid. In many cases, they just do not know what it is about.

The problem is that what Exter saw, was the end of our current system, and well, his predictions will not be confirmed until the worst happens.

What is very clear, is that the best economic academic jobs are paid to defend the current system and the acceptance of the Keynesian and socialistic point of view.

None of those academic economists will defend the validity of such a pyramid.

John Exter’s end game

I think, that Exter, succeeded in synthesizing  in a simple way what the future collapse of the current system will be, which could come in a few years or in many decades. Who knows?

I have no doubt that, contrary to what most gold bugs think, after the final collapse, we will not envision a new system based on gold and liberty, but on the contrary, when that happens, I think that we will witness the beginning of the Socialistic Era.

This is because, when the final collapse occurs, the governments of the World will take advantage of it and propose their “solution”. That solution will come in the form of a totalitarian system, what some people know as New World Order. A system where there will be total control of the population and where there will not be, despite appearances, genuine private property, and nothing will escape to the control of the all seeing eye.