EFTA01384456

18 September 2017 Long-Term Asset Return Study: The Next Financial Crisis • The various breaks with gold based currencies over the last century or so has correlated well with our financial shocks/crises indicator. It shows that you are more likely to see crises/shocks when we break from hard currency systems. Some of the devaluation to Gold has been mindboggling over the last 100 years. Figure 4: Gold Prices in various CM rendes (Dec 1925 = 100, Y-axis in logarithmic scale) and DM Financial Shocks (RHS) 1.000.000 100.0rk 10.000 1.000 IC-3 10 IIIMMION DM ShOrkt IRKS) ESP A'S IEP us San* M.1•'AI an PPM rewricwit DmBMtbpi IP "FIE E P 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Perversely, the current post Bretton Woods system also allows for huge operations/stimulus to overcome any crisis/shock. We also shouldn't underestimate the positive impact that this can have on nominal asset prices. Cash is arguably a far more dangerous asset in a fiat currency but unstable regime than it is in a more stable less crisis prone one. However, by continually using stimulus to deal with crises and not letting creative destruction take over, you make a subsequent crisis more likely by passing the problem along to some other part of the global financial system, and usually in bigger size. In a fiat currency world, intervention and money creation is the path of least resistance. In a Gold standard world, mining new gold was the only stable way of increasing the money supply. • We think this leaves the current global economy particularly prone to a cycle of booms, busts. heavy intervention, recovery and the cycle starting again. There is no natural point where a purge of the excesses is forced by a restriction on credit creation. • So we're quite confident that there will likely be another financial crisis/shock pretty soon with their frequency continuing to be high until we create a more stable global financial framework. So where will the next crisis come nom> • An obvious issue is how we resolve the combination of the unwinding of unparalleled central bank balance sheet sizes at a time of record peacetime government debt and multi-century record low yields (Figure 5). Deutsche Bank AG/London Page 5 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0084654 CONFIDENTIAL SDNY_GM_00230838 EFTA01384456