The Foundation of Exter’s Pyramid
Exter’s Pyramid is a simple but powerful idea created by John Exter, a central banker. It explains how the global financial system is built and what happens during times of crisis. When people lose trust in the economy or banks, they move their money from risky investments into safer places. This movement is called the “flight to safety.”
The pyramid shows how assets are stacked in order of risk — with the safest at the bottom and the riskiest at the top.
Gold and Silver: The Base of All Value
At the bottom of Exter’s Pyramid sit precious metals like gold and silver. These are seen as the most trusted and stable forms of money. In earlier times, when currencies were backed by gold, this base gave strength to the entire monetary system. Even today, when paper money dominates, gold and silver continue to represent true value that can hold up during times of uncertainty.
Layers of Money and Credit
Above the precious metals lies base money — the cash and reserves that support the banking system. In countries like the United States, every dollar of base money can support around nine dollars of credit. On top of this come layers of government bonds, municipal bonds, corporate debt, and real estate. Each step upward represents higher levels of risk and more dependence on trust and confidence in the system.
The Risk of Too Much Leverage
Over time, people and institutions have created more complex financial products like derivatives. These are built on existing assets but carry much higher risks. This makes the system top-heavy, meaning there is a large amount of financial value resting on a small foundation of real money and assets. When confidence fades, as it did in the 2008 crisis, these complex layers can collapse very quickly, causing panic in the markets.
When Confidence Breaks Down
Exter’s Pyramid shows how a financial crisis usually unfolds. The collapse starts at the top — derivatives, real estate, and stocks — and then moves downward as fear spreads. If the situation worsens, even government bonds and banks can come under pressure. At that point, only the base — gold and silver — remains solid. These precious metals can then be revalued to help rebuild the financial system from the ground up.
Why This Idea Still Matters
Exter’s Pyramid is not just a theory from the past. It helps explain how trust, risk, and value move in cycles. Whenever there is uncertainty, people still seek safety in assets like gold and silver. Understanding this pyramid gives us a clearer picture of how money flows during good and bad times, and why the foundation of real value never truly changes.
