Summary
➡ The article discusses the questionable practices of the Federal Reserve, suggesting that it uses crises, like the recent pandemic, as an excuse to print excessive amounts of money. It also highlights how the Fed’s actions, such as buying assets from non-banks, have changed the source of commercial bank deposits. The author expresses concern about the lack of transparency and control in these processes, which are largely in the hands of a small percentage of the population.
➡ The Federal Reserve (Fed) increased its asset purchases during the pandemic, buying from non-banks like Blackrock, which created new deposits and boosted the deposit base in the US. This action, along with bank loans, led to an increase in bank deposits from $13.5 trillion to $18 trillion. However, the fixation on interest rates affects the loan part of the deposit, as higher interest rates discourage borrowing, leading to a decrease in the deposit base. The balance between new loans made by commercial banks and asset purchases made by the Fed has resulted in a flat line in the deposit base, which could indicate potential market turmoil.
➡ The text discusses the banking crisis and the role of the Federal Reserve. It suggests that large depositors moving billions out of their accounts led to the failure of several banks. The text also implies that the Federal Reserve may have played a role in this, possibly to encourage bank consolidation. It ends by questioning the stability of the banking system due to these large deposit accounts.
➡ The discussion revolves around the potential instability of the banking system due to a high percentage of uninsured deposits, particularly those above $250,000. The speaker suggests that it’s wise to scrutinize your bank’s financial health. They also discuss the possibility of a return to a gold-based monetary system as a response to potential financial crises. The end game of the current financial system is uncertain, but the speaker believes that rising interest rates and the increasing cost of debt could lead to unprecedented scenarios.
➡ The text discusses the perceived unfairness in the system where certain individuals can commit crimes without consequences. It suggests that the way to protect oneself from this system is by investing in physical gold and silver. The text also mentions the inevitability of the system’s collapse, comparing it to a Ponzi scheme. Lastly, it suggests that the only way out of this system might be through a revolution, similar to the American Revolution in the 18th century.
Transcript
I went through it last week in preparation for this show. And John also does a once weekly podcast on Solari with Katherine Austin Fitz. And all of his links and socials and all his other monetary stuff will be in this link in the description below for anyone interested. So, John, I wanted to open this up with to tell you that I’m pretty excited about this first question I’m going to ask you because you said that you had an exact answer for it. So it’s like when you’re watching a football game and you do a freeze frame in your mind, like, I don’t know the score, and I’ll never not know the score until for the rest of my life.
And you want to put yourself into that mind where you don’t know the answer, and then, okay. And then you finally do and the game is over. So you said you haven’t answered this question, and I’ve never been alive knowing the answer to this question. It’s always annoyed me. So it was based on one of your videos where you explained that there was a guy who went into. Who conducted research on a bank with the balance sheet to see if banks create credit, or if they loan out existing money as credit, or if they create money or they not money, they create credit or they don’t.
And this guy had to do a research project to figure out the answer to this question. And my question was, how can people not know the answer to this question? Because it’s the basic mechanism of today’s fiat system. Banks, are they lying to us? Or are they just really stupid and they don’t know? Or what is going on here? Okay, so the video you’re talking about is, mommy, where does money come from? And it’s about a research paper written by Professor Richard Werner, who damn well knew the answer before he did it. But he’s like, listen, we’ve had 100 years of argument back and forth over whether banks borrow money, sorry, whether banks create money out of thinner or whether they’re reaching into accounts or are they using pre existing money to make loans, yes or no? So he does this scientific experiment where he goes into a bank in Germany.
It’s a small bank. He takes out a 200,000 euro loan, then he tracks through the bank software. At the end of the day, he’s looking at the picture of the snake after it’s eaten the goat, and he’s watching the goat travel through the snake. The 200,000 euro loan being so huge at a small bank that he’s able to do that. He concludes definitively that banks create money out of thin air when they lend. Now, why don’t people know that? Why is that not known? The reason it’s not known is that we’re taught the piggy bank model of banking, where theyve got the vault, they make the loan, theyve got to think hard about this and whether theyre going to lend you this pre existing money, this pre existing capital.
And that basic story of the piggy bank model has a lot of variations. Theres fractional reserve and theres all these different models, and its all a bunch of nonsense. The problem with trying to learn about the banking system is youve got to unlearn a lot of garbage that you have in your head. Richard Werner did this experiment. He shows it. Now the question is, do bankers inside the bank know that theyre, do they know where the money comes from? And I happen to know a guy who works inside the bank, and he does the software. He programs the pipes, the plumbing in the monetary system for his bank.
Hes got to know, because if hes wrong and hes got the money running into the wrong routes, he could destroy the bank in 10 seconds. So he has to know the answer to that. So what this guy does is an employee of the bank. Is he one day over? He’s done this for years. He periodically goes around and will ask a banker, hey, when we make a loan, he feigns ignorance and he says, hey, when we make a loan, where does that money come from? Does it come from reserves at the central bank? Does it come from other accounts? Does it come from the accounts we have at other banks? Do we created out of thin air? And he’s astonished that bankers, most of them don’t know the answer.
They don’t know the answer is that we create that money out of thin air. Somebody at the bank has to know. Do they? The programmer asked. He’s got to know. Operates without intelligent design in charge of the system. Pilots fly planes all the time. They don’t know how the engine work. You know, they don’t know where the gas is coming from. They know the fuel gauge says they’ve got gas, but that’s it. Well, I mean, that’s a little bit different, because with a plane there’s actual gas. I mean it’s a physical thing and there’s a limited amount of it.
But in order to be a bank, to be able to create credit that counts as us dollars or claims on us dollars, they have to be plugged into the system in such a way that they can do that, or else all of us could do that and we could all be counterfeiters. And then you have hyperinflation in 5 seconds. Right. So the accountant, at a minimum, at a bare minimum, the accountant of the bank has to know, because when you make a loan, and if you created out of thin air, let’s say you make a $1000 loan, if you know that you create that out of thin air, you know that when you made that $1,000 loan, you created a $1,000 liability in the form of a new deposit account or a new $1,000 in an existing deposit account on the liability side.
And you also know that you have a new $1,000 asset in the form of new loan papers. And so you have to know that. The accountant would know that. And a well trained banker, I happen to know a banker in a credit union, and she knows the deal and she’s a vice president, so she’s, that’s not, that’s kind of a garden variety title. So there’s a lot of bankers who do know, but there’s a lot of bankers who don’t. Okay? Which is breathtaking. That goes to show you that monetary theory and banking is not taught. We’re not taught about how the money system in the US works.
And the reason we’re not taught is when you boil it down, it’s like, well, it shakes down to this. You’ve got a tiny fraction of the population that’s able to create money out of thin air and lend it to the rest of the population at interest. It’s a blatant, to me, it’s a fundamental violation of the rule of law. There’s no level playing field. There’s a tiny group of people who can create money out of thin air, and there’s everybody else, and everybody else is borrowing it. That’s why it’s not taught. Yeah. So in terms of violation of the rule of law, it’s a very delayed violet.
It does lead to that in a philosophic sense. It is a violation of the rule of law because it is theft. But it’s theft on a very long fused delay that’s very difficult to spot. And also the breakdown of law and order happens at the collapse of the system at the very end, when all of the consequences that we’re going to suffer for this, they all come at once. It’s really a way of thinking, the debt based monetary system, creating money out of thin air, it’s always an asset, always liability, and you have to think that way for about three years for it to sink in.
And that’s no lie. Right. I just wanted to riff off of this for a second. I noticed a lot about your other videos are fantastic in the medical sphere. And I don’t want to get, I don’t want to start using keywords here, but I think we all know what I’m saying, and I’m totally fine. I put up a really hard fight over here in Israel, and I got arrested a few times, but everything’s fine. Don’t worry about that. But what you’re describing about the monetary system in terms of some bankers, some bankers at the top are aware of it, but most of them aren’t.
It’s the same with certain medical procedures, that certain people are aware of the history of what happened in the 1980s and how these things got approved, and how it’s all just based on itself. And no turtles all the way down, but the science behind it is very, very shaky. I’m not saying it doesn’t exist, but it’s very, very shaky. Same kind of thing just lies all over the place with not much of a foundation and very few people in the industry aware of it. Excellent point. The people who are able to print money out of thin air because they have that capacity which is sovereign, that’s a sovereign privilege.
It really doesn’t belong in the hands of 1% of the population, not the other, but they control that ability, gives them the ability to control the press and the control of publications and to control the direction of research. You know, I don’t think very many people know that the National Science foundation gets a ton of money from the Federal Reserve. That’s a big. And I got that little tidbit from a guy who worked at the New York Fed. So the tentacles from the central banker, there was a guy Alfred Owen Crozier, who wrote a book opposing the Federal Reserve in 1912.
And he’s famous not for that book, which is called us currency versus corporation currency. He’s famous for the diagram of the octopus with its tentacles reaching into all facets of american life. And that diagram says it all. But one of the tentacles, to be sure, like you just said, involves scientific publications. There’s a lot of propaganda out there. And one of the reasons I decided to track money is the one thing that powers that be don’t really lie about is money, because they are so intent on keeping score with each other, they’re dead serious about money and reporting money.
So that’s why I find a lot of the reports, at least, about monetary stuff, on inflation or on, say, the labor force participation rate. Regard some of those graphs with a degree of skepticism. But when they tell you that the reserves are this level and the liabilities on the other side of that, I tend to believe that because in a debt based monetary system, there’s always two counterparties. And if you’re overstating your assets, then you’re shorting the other guy. The other side, that’s not going to fly. Right. Do you think the mysterious virus of unknown origin was a convenient excuse to print ungodly amounts of money? Yes, I do as well.
I think the narrative was a convenient excuse. In fact, I show that in videos. Like, well, early on, I think I did a video about March 29, 2020, called why is the Federal Reserve lying about coronavirus? In which they come out, they say, oh, my God, coronavirus is here. We need to print $500 billion of. Of new treasuries, and we need to buy $500 billion or 250 billion new dollars of mortgage backed securities. And at that time, even if you took everything the narrative said about the coronavirus and the pandemic and all that as true, there was still no earthly justification for what the Fed was doing.
It was clear that they had an agenda, a preordained agenda from the very beginning, and that money printing was absolutely excessive. And you know who said as much? Mervyn King, former former governor of the bank of England, drew the Fed under the bus. And he said, you know, even after the danger had gone, the Fed continued to print money. That’s a scathing indictment for someone of that stature. To throw the Fed like that under the bus. It was amazing. This whole situation is amazing. It continues to be amazing. And we’re only feeling some of the consequences now.
But the worst is yet to come, or the best is yet to come. Depending on how you look at it. The next question I wanted to ask you is something that’s been frustrating me, and maybe you’re one of the few people who can answer this. I don’t know. But we have interest rates. I know they’re nominal, uh, of, let’s say, what, four and a half, 5.5%. And. And we haven’t seen, um, an economic calamity yet, or even much of a slowdown. We’re seeing some signs of a slowdown, et cetera, but not nothing of any kind of crash proportions.
And the way that I explained that months ago was that reverse repos, the extra money that was printed through 2020 and 2021, they’re. They’re. They’re just, like, being absorbed into the system. So you’re having sort of a QE without belated QE from the leftovers from 2021. Since they’re expanding the money supply or keeping it from falling, then the bust isn’t here yet. But now it looks like the reverse repos have bottomed out at, like, somewhere around 500 billion, and still we’re not seeing a crash. And the money supply appears to be growing again, or at least the debt supply or the credit supply.
What is going on here, and how is this happening? That’s a very interesting question. It’s interesting to hear you come at it from the reverse repo angle. I look at two different indicators. I look at commercial, commercial deposits. You know, deposits at commercial banks is one indicator, and at the same time, I look at deposits at the Federal Reserve. So basically, reserve dollars, which are slightly different than reverse repos. In other words, if you back and you could have, say you got $1,000 at a bank, that might be divided in, say, $800 in a checking account and $200 in a cd, that’s like a bank having a billion dollars at the Fed and 800 million in their deposit account, and 200 billion is in, or 200 million is in reverse repos.
So it’s still a billion dollars. Right. So the reason I look at that is that if you look at up until QE, up until 2008, the vast majority of commercial bank accounts, what we think of as money in the bank, almost all of it came from loans made by the bank. That’s how new money gets introduced into bank accounts is new loans. That was the low reserve. They call it the low reserve instead of excess reserve regime or something like that. They have a different name for it. Thats exactly right. In fact, if you actually look at Fed graphs, youll see that the feds balance sheet is composed almost entirely by currency in circulation, which means cash.
Almost all of it. Their entire balance sheet was driven by cash. A tiny fraction of it was electronic. It was deposit accounts held by commercial banks, the Fed. And they needed those small deposit accounts. This was up until 2008. Up until 2008, it was like that. Okay, so 95% of bank accounts. You could account for 95% of commercial bank accounts in the US by. It came from loans. They were sourced in commercial bank loans. What changed in 2008 was QE. Where the Fed. When. When the Fed. Now, when the Fed buys an asset from a bank, it doesn’t have any effect on a commercial bank account.
When, by contrast, the Fed buys assets from a non bank. Say the Fed bought an asset from you, Rafi. How does that work? You don’t have an account of the Fed. How does the Fed even pay you? And they’re not using. They could pay you in cash, but that’s not how QE works. Works electronically. The way the Fed would buy an asset for you. Let’s say the Fed came and said, you know what? We want to buy your car. We want to give you $100,000 for your Ford Pinto, which is what the Fed does. How does that work? You don’t have an account of the Fed.
The way that works is the Fed goes to your bank. Let’s say, I’ll use my favorite bank example in my videos. It’s cool cat bank. You bank at the cool cat bank. That says, Rafi, we’re going to buy your car. The way we’re going to do this is we’re going to go to the cool cat bank, where you bank. We’re going to give that bank, cool Cat Bank, $100,000 in reserves. We’re going to credit their reserve account at the Fed. So your bank now has a new asset called $100,000 in reserves at the same time, so that things balance out at the cool cat bank, we’re going to create.
That bank now has to create a liability of $100,000 at the Kool Cat bank. And that $100,000 deposit account is in your name. And that’s how you get paid for that car. But notice what happened where you just had $100,000 of new reserves created at the Fed, and in parallel, you had $100,000 of new deposit accounts created in the US due to the sale of your car. And that was QE. And so what started happening, to a limited degree in 2008, was banks purchasing assets from non banks and driving up commercial bank deposits. And suddenly, over time, that 95% figure starts to drop.
In other words, a greater and greater fraction of commercial bank deposits in the US are coming not from bank loans made by the commercial banks but by QE actions by the Fed, the Fed’s purchases of assets. So if you look today I think something like I guess here, 65 or 70% of bank accounts in the US come from bank loans and the other 35% maybe 30% come from quantitative easing where the banks, where the Federal Reserve is buying assets from non banks. And the Fed really doubled down on that strategy during the pandemic. And I’ve done a bunch of videos saying listen, when the Fed buys assets like it did during pandemic, it buys them from non banks.
Say it buys it from Blackrock, which it did in scale. It creates new deposits in the US. And thats what propped up the deposit base because remember when all those businesses started to close the money supply, the commercial bank deposit base in the US began to drop but it was counterbalanced by the feds asset purchases. And ultimately what happened is the commercial bank deposit base went before the pandemic. It was 13 and a half trillion dollars in bank deposits in the US. When it was all said and done it was 18 trillion, it was four and a half whatever it was, $4.5 trillion new deposit money due to the Fed’s purchase of assets from non banks.
And that’s what propped up the deposit base and that’s what led to inflation. And I’ve done videos about that too, but it’s flattened out now. So the whole fixation on interest rates is the loan part of the deposit. The theory of interest rates is well if you raise interest rates to 100% no ones going to borrow money and there will be no new money created. And the only thing thats going on in the commercial deposit base is people paying back their loans. And when that happens the deposit base drops. Because when you pay $100 of principal on a loan that money, $100 gets erased from the commercial electronic bank money supply.
Thats really whats going on. And you can see that thats borne out in the Fed Fed graphs where the deposit base is flattened and it’s been flat for a while because it’s a counterbalance between new loans made by commercial banks and asset purchases made by the Fed. Although the Fed’s balance sheet’s dropping. So now what you see is you see the commercial, the banks are making loans so that’s going up but the Fed’s balance sheet is going down. And so the net of that is a flat line, which in a debt based monetary system is a bit.
That’s a bit of a concern, because oftentimes when you see the flat line, it precedes. It precedes major turmoil in the markets, decline. I’ll show you, for example, private credit creation is basically what’s keeping the system afloat right now. Yes. Even with 5% interest rates. Yes, yes. There are still loans being made by commercial banks. Let me. Let me go. I’m going to show you a graph. Loans, at least, so you know that I’m not making this stuff up on the fly, which. Yeah, here we go. Looks pretty good. It’s flattening out more than I thought, because I was expecting.
I mean, I’m just a humble amateur here, but I was expecting crashes. February, March, April. Nothing. Nothing. No, I know. It’s the system’s remarkably resilient. Let me cut to a graph here. This is. This is loans and leases, okay? This is global financial crisis 2008. This gray bar here is pandemic. Okay? You can see those. Yeah, those. It’s. They’re still going up. Loans and leases are still going up. Right. So we haven’t. There’s. They’re not going up much. Right. If you cut back there, you can see that up until 2022, they’re going at one trend. And this trend line here is, since 2022, it’s flattened out quite a bit.
I would assume that the flattening out has to do with the rising interest rates. Right. If you raise interest rates, your loans are going to be made. Right. Okay. Yep. You’re exactly right about that. Say that one more time, Rafi. No, the slope, what John showed us was that from 2021 to 2022, the slope was, like, steep, and then it kind of leveled off once interest rates started to rise. That makes sense. Yep. Okay. The interest rates start going up there. Slope cuts. And that’s. That’s loans and leases and commercial bank credit right there. All commercial banks.
So, another technical question that I got you on. The technical angle here is the bank bank reserves. I’ve been. I’ve been watching personally, and what I’ve been reporting on in the end game investor is, I’m assuming, and I don’t even know if I’m right here, I’m assuming that the next banking crisis, or whatever crisis is going to be some kind of monetary banking, financial panic or whatever it is. I think it’s going to happen at about $3 trillion in reserves somewhere around there, because the 2023 regional bank crisis happened at around 3 trillion in reserves. And you can see on the graph of reserves that if you go to Fred, maybe I’ll share the graph with you also.
So here was QE three, and these are bank reserves. And then we hit another crisis here at the previous level prior to qe three. Right. And this is the repoch. Right? September of 2019. Right? Right. So that was the previous level of reserves prior to qe three over here. And then what we have here is this is the COVID printing, and we hit a peak here. And then over here is the regional banking crisis. And that was about the level of before that second wave. Right. So I’m assuming that the next banking crisis is going to be somewhere around this level of 3 trillion.
What controls this number of bank reserves? And how is it different from deposits and loans? And. And all these things confuse me, and even I can’t get my head wrapped around them. And how can reserves go up if the balance sheet is going down? What is going on here? And where’s that level? Where is the next crisis? Is it at 3 trillion? Am I. Am I right about that? Could I be wrong? You could be wrong. You could be right. It’s hard to tell. I did a video right before the banking crisis of 2023. I did it in February, and I said, the US banking system is entering a crisis right now.
I predicted the crisis three weeks ahead of time, and I called. The title of that video is, why is the Federal Reserve provoking a financial crisis? What I was looking at, I wasn’t looking at the Fed data. What I was looking at is you could pick off a crisis in advance. When banks start to borrow, they’re not going to the Fed because everybody’s watching the Fed, you know, going, if you need a drink, like I said this in a video, when you need a drink, you don’t go to the bar, because everybody knows that people drink at the bar.
If you need a drink, your Johnson, you go to the liquor kiosk, because, you know, the normies don’t know about the liquor kiosk. Our camera was there as this woman tried to use a wine kiosk. After swiping her driver license and credit card, she blows into a breathalyzer twice. Then she waits and waits and waits. So you wait and you wait and you wait and you wait. We found another LCB employee working on a book at a kiosk in McCandless. After we’d been watching her for a couple minutes, she decided to sit on her book. That’s where you buy it.
Sounds good, though. The liquor kiosk right. They look like a lot like newspaper stans, but they’re around. They’re around an abundance in New York, just to ask Tim Geithner. But the liquor kiosk in the financial system is. It’s not the Fed. It’s similar. It’s like a junior varsity version of the Fed called the federal home loan banks. And when you see elevated lending in federal home loan banks, by banks, you got a problem. Because before every financial crisis, before 1999, before 2001, whatever that crisis was, before 2008, all these crises, you see elevated lending. And I could see that in the FDIc data.
I was like, whoa, look at the explosion in bank borrowing from federal home loan banks. That’s a problem. You’re going to have a crisis, like, predicted the crisis. Preston, is that what, Fannie Mac, Freddie Mac? Or is that something different? No, that’s different. That they’re government sponsored enterprises. They’re doing something else. These are privately owned banks. It’s remarkable how similar the federal home loan bank system is to the Fed. There’s like twelve Fed banks. I think there’s eleven fhlbs around the country. There’s a substantial overlap in cities, but not entirely. Anyway, I said, listen, you’re going to enter a bank crisis, and if you look now at the FDIC data, I don’t see any elevated lending from FHLB.
Now, that said, one of the reasons there’s no borrowing from FHLB is the Fed has made it very easy for banks to borrow from the. There’s a new facility, BTFD, or whatever it is, where it’s attractive to borrow from the feds. Long and short of is, a, I don’t know when the next crisis is coming, b, the Fed’s data, they do provide a lot of data on Fred and whatnot, but it is. It is kind of opaque. It is confusing. It’s like, well, why are reverse repos going up and deposits going down? Banks don’t really need reserves anymore because there’s no reserve requirement.
That went bye bye in March of 2020, the Fed scotched it all together. There’s no 10% reserve requirement. What are they doing with all these reserves? Well, it’s propping up their balance sheet, for one thing, because it’s an asset. So I don’t think you’re going to get the answer trying to read the tea leaves from the Fed at this point. I don’t think it’s going to help you. But the second thing I want to say about the bank crisis is once the crisis happened and once Silicon Valley bank failed, and First Republic failed, and I think signature bank failed, and one of them didn’t technically fail, but those three banks failed.
I did a video calling deep diving the Fed’s killer whale crisis and showed that what drove that crisis really was, it was large depositors moving a billion dollars at a time out of their bank accounts and out of their checking accounts. It’s like, well, the question I had was those accounts are only insured up to $250,000 anyway. I mean, if you had a billion dollars, you’d leave it in a bank. It’s like, hell no, the bank could fail. And you’re out all your money, right? You’re like the Great Depression. So why were the, to me, that debt crisis in 2023, that was a takedown by people who had a billion dollars in a checking account, which economically doesn’t make any sense.
If you have that kind of money, you put it into short term treasuries, you put it into whatever, whatever the minimum length of paper is, which is pretty short, and you keep it chopped up and you keep it rolling and you get some interest on it, and you’re not at risk of a total loss, you’re not exposed to total loss in treasuries. You could lose. But if the government fails, all bets are off. You got way bigger problems. But the bank fails. A bank can fail and no one ever noticed. It’s insane to keep a billion dollars in a checking account.
And yet that was going on. And those accounts started to move. They started to move out in volume in Silicon Valley. And the congressional testimony was ten depositors at Silicon Valley bank had $13 billion on account, and they all walked out the door within 6 hours of each other. Complete takedown. Because when that money moves out, I mean, that’s like your spleen left your body. That ain’t good. And that’s what killed Silicon Valley bank and a couple others, was volume deposits moving out. To me, there’s an aroma about that bank failure in 2023. It never passed a smell test.
And the financial press, quite frankly, bell flat on its face by not asking the right questions, despite the fact that you had an abundance of congressional testimony pointing to takedown. So what do you think it was? I think it was a takedown. I think it was a takedown of the banks and I think it was the Fed, because. Let’s back up a second. Why would they do that? Let me back up a second. Why would those accounts exist in the first place? And I showed this in the video, deep diving the Fed’s killer whale crisis. Those huge deposits exist for the reason I said earlier, the Fed was buying assets from non banks.
And that’s why, if you look at the average, the Fed tracks wealth bans in the US. They track checkable deposits of households in the US in five different wealth bands, the top of which is the 0.1%. And if you look before the pandemic, the average household had $565,000 in their checking account. Before the pandemic, after the Fed’s QE was done, that number wasn’t 565,000. That number was 5 million. And that huge number is driven by those gigantic whale accounts now. And so that, in other words, QE, the buying of QE pandemic, the buying of assets in volume $4.5 trillion from non banks, led directly to that crisis.
Because propped up, you now had these whales in the pond around these banks. Now, why would the Fed do that? Your other question, I can guess, is that the feds, you know, the Fed. If you look at the history of banks in the US, going back to the early 19 hundreds, it’s been back in the twenties, there were 30,000 banks in the US. Right? Now, in the US, this is in the thirties, the 1930s, there were 30,000 banks in the US. And now today, there’s something, there’s 4000 in change. So I think the Fed has a very big interest in rolling up banks, in the consolidation of banks.
I mean, going into the global financial crisis, the top four banks, Citigroup, JPMorgan Chase, bank of America, Wells Fargo, their deposit base was something like 40% of the country’s total. And that’s what made them too big to fail. They put a gun to your head and say, you give us what we want, we’ll take down your whole system. And they meant it. Now it’s even bigger. Now the concentration is even bigger. And the way to get even bigger is you focus on the banks. You’ve got a top. I think there’s something like 30 banks with assets over 100 billion in the US.
The top four, the giant ones, really the top six. But then that layer between, say, number seven and number 30, that’s a big fat layer. And I think there was a push to consolidate banking even further into the monsters as time goes forward. And I don’t know what the Fed has in store for the well run small banks, but the Fed has historically had animosity toward smaller banks. And I think the Fed has also had a strong proclivity toward concentration. I think that 2023 was part and parcel of that, of the latter factor. But I don’t know that.
You know, all I, all I can tell you is what I know from the data. And I can tell you from the data that Silicon Valley bank that was, that was orchestrated, quite obviously. Okay. I never thought of it that way. Phil, you want to, you want to go in here? You’re describing it’s a wonderful life, the movie, in a modern form, like the Fed, I guess. Mister Potter. Yeah, well, I mean, people have written about this before. I mean, ask yourself, at a minimum, who holds a billion dollars in a bank account? Who does that? I mean, there’s no good answer to that question.
I found two answers historically before, say, the global financial crisis. Then the two answers I found is like, give me examples of people who put that much money, it’s uninsured, north of $250,000, or before the global financial crisis, north of $100,000. Who keeps that much money in the bank? The two answers I found weren’t good. One was Bernie Madoff, who had $5.4 billion sitting at JP Morgan Chase. Why did he do that? Because he was lying to people, saying he’s investing their money. He wasn’t investing their money, he was depositing it. JPMorgan Chase, which was looking the other way, going, no problem here.
The other example I found was in a book by Alfred Owen Crozier, who gives an example of, how do you take over a bank? You have a big deposit or roll into town, he puts a big deposit in the bank. Now the bank’s on the hook. They go out and make a bunch of loans. The big depositor then turns around and threatens to leave. And if he leaves, he flushes the bank down the toilet. So what does the bank do? They have fractional reserves. Yeah, because they offer. They offer money anymore? They offer the whale depositor, not a deposit account.
They offer him an equity stake in the company. Basically, it was a bait and switch. Yeah. Yeah, basically. All right, so I never considered that. That’s interesting. I mean, you have pretty deep thought processes here that I have to digest before I make an opinion or have an opinion about them. So you think right now your best estimation is the banking system as a whole is resilient and stable? I mean, it’s obviously not permanently so, but it is, for the time being, resilient and stable like we shouldn’t be? I don’t think so. I don’t. I don’t think so.
I mean, where’s the, where’s the, where’s the current weak spot. The weak spot is in the huge deposit accounts. And you don’t know. Okay, one of the things, there’s another agency, it’s not the FDIC, but I talk about it in deep diving, the Fed’s killer whale crisis. I go through the data. I think it’s the FFIEC, if I remember, they present data. And you can go in bank by bank. You can go. And for your bank, okay, and again, to go back to the cool cat bank example, you can go into your bank and find out a couple of very interesting pieces of information.
One is you can find out how many accounts are in your bank above $250,000 and how many are below $250,000 and what percentage of the deposit base is above $250,000. And with the three banks that failed in March of 2023, all three of those banks were at the very top of the list of banks with the highest percentage of deposits north of $250,000. There’s a massive number, I think Silicon Valley bank with something like 94 or 95% of their deposit base is uninsured. That’s a weak point in the system. So you have to really go bank by bank.
And I don’t have the time to go through those forms, 4000 of them, and do that. But I know the route, not 30,000 anymore. You could do it in like a six of the time. Yeah, except. Right, so instead of taking six years, it would only take me a year of full time work. Yeah, there you go. Because you have to go form by form. It takes a long time to do that. But that’s an interesting thing. And the reason I know that those big, huge accounts are still out there is from basic statistics, is like, well, if you’ve got, by the way, after I released that video showing the top point, one where San had these huge bank accounts, the Fed stopped reporting it, which I found they probably subscribe to your channel.
You probably got pal as a subscriber in some kind of pseudonym. Yeah. So you would, you would think it would be prudent to assume that the banking system could fail at any moment, like any day. I don’t, I don’t know. I don’t think it’ll fail altogether, but I think that you would be well advised to sniff around your bank with whatever data you can. And I give you a pretty good trail of bread comes in that video. That video, deep diving the Fed’s killer whale crisis is the longest video I’ve ever done. It’s some of the best work I’ve ever done.
It’s largely ignored. And I get that. I don’t do the videos to get circulation. I do videos for my own. I’ll put it in the description. I’ll find it in the description. My last question for you is I’m the end game investor. People want to know what I think about the end game. My contention is that I think you’re familiar with mises work and the regression theorem, the regression principle of money, that it all goes back and everything has to stretch back in time on that principle. Gold is money and everything else is a derivative, just like JP Morgan said.
And in the end, when all of these derivatives fall and their true value is revealed, then we’ll have no choice but to go back to gold and silver coins for a period of time until I don’t know how long it’s going to last. It’s not going to be permanent until we can reestablish a derivative system where we don’t have to trade these coins anymore, which is more efficient, but it has to be honest or else it’s theft. So that’s the end game in my head. What’s the end game in your head? How does this end? Well, okay, let me start with mises.
I’m not as familiar with mises work as I am. I’m more of a, to the extent I’ve follow libertarian economics at all, I’m more of a Rothbard guy because Rothbard, Rothbard on the same page with the regression principle. It’s essentially. Yeah, essentially. But Rothbard was more, I think, open about. Now there’s guys who aren’t honest and are fraudulent in the system. The other thing is that my theory of money is like, well, it’s really, it’s a creature of law, and that’s kind of where I begin and in on that. But when you introduce gold to me, the reason you’re doing that is that there’s some dishonesty in the system or there’s a tendency to dishonesty in the system of debt based money.
And because of that, you got to tell people, you convince people that it’s okay because it’s all tethered to gold. The weakness in that we saw in 1971 where up until 1971, countries could redeem their accounts, the Fed gold for $35 an ounce. Right. And what happened is Charles de Gaulle sends a ship to the East river or whatever in New York and says, yeah, $35 an ounce. I got, I got $35 million in cash on my boat. Where’s my ounce? Where’s my million ounces? Of gold. What happened? Yeah, no more. And so since that time, that was an important date.
That’s a really important date, 71, because after, since that time, if you think about it, the liabilities on the Fed’s balance sheet really aren’t liabilities. Okay? Your deposit account is a real liability to a bank, because if you could go into the bank and say, hey, I’ve got $1,000 on account, give me $1,000 of Federal Reserve notes. And the bank does not print Federal Reserve notes. It has to buy them at par, right? The Fed is not like that. It was like that until 71. Because if you had a million dollar reserve account, use an easier example.
If you had a $35 million reserve account, if you’re a foreign country, you could cash that out for a million ounces of gold. You couldn’t do that after 1971. Since 71, the Fed’s completely untethered. There’s no, those liabilities aren’t really liabilities. So in other words, if you go to the Fed now and say, hey, I’ve got a $100 bill, I want to redeem this, you know what you’re going to get back? $520 bills. Or if you’re a bank, you get $100 credit in your account, there’s no liability. So it’s untethered. Where does this end? I think to me, the monster in the box here is the interest on the debt, because interest rates are rising.
I don’t see the Fed backing off on that. The percentage of money that the US is spending on interest payments alone is now massive. And as you know, once you have to borrow money to pay the interest, it’s ballgame, it’s over. And so I think what’s going to happen is ultimately the Fed is going to have to buy treasuries directly, and then we’re going to enter into unchartered territory. I don’t know what’s going to happen. Theres say again, it happened in Israel, 1978 to 1984. We had hyperinflation here for that very reason, Preston. It’s also the John Law’s Mississippi bubble.
That’s when John Law started buying his own assets with his own liabilities. It hyperinflated. I’ve taken that position, but I’ve begun to reconsider, like, well, the Fed would turn. The Fed’s answer to that would be when you’ll pay us all this interest on the money, because we’re not backing off interest rates. But remember, Titus, and concerned citizens, remember that when the Fed has to turn over all its profits back to the treasury. So there’s no problem with us buying treasuries willy nilly. So I don’t know the answer to your question, Rob. I don’t know what the end game is.
But on the other hand, with gold, I’m kind of like Alexander Del Mar, 19th century monetary historians, great writer, and he came out on gold. He says, listen, I’m not necessarily the biggest gold fan, but the fact is that gold plays a very important historical role and you got to acknowledge that there’s some power in that and there’s some wisdom in that and you have to own up to it. And so a gold based monetary system, that may be, there’s something about gold that sort of people like and people feel stable in it, and that goes a long way.
Confidence goes a long way in the monetary system. So Del Mar kind of came out like, you need a combination of reasonable management strategies and accommodation for gold, to be sure. But I don’t know the end game because to my mind, we’re dealing with criminals. There’s no beats and bounds on what can happen. You know, we just, we just look what we lived through starting in March of 2020. I didn’t see that coming. I was completely bonsai. I was hitting the back of that by a two. But I was living in Chicago when that hit. You know how crazy they were over that stuff.
Yeah, I had to move, but I didn’t see it coming. No, I know exactly what you’re, what you’re talking about. I was talking to friends who are like on our side of the liberty spectrum and saying, like, that’s all they had to do. Say there’s a new virus and then all of a sudden the entire planet falls in line. That’s it. And we’re like, oh, yeah, you walk around for a year with a diaper over your face, socially, 6ft, all this stuff, it was unbelievable to me. I was stunned by what happened. And I’ll tell you something else.
For my money, this all started really under Obama in 2012 when banks like UBS and say HSBC would get caught doing crimes and admit to crimes and plead guilty and no one will go to jail. And the DOJ Department of Justice would come out and say, well, they can’t go to, you know, we can’t do that because there would be collateral consequences in the system. Meaning they’re basically not only too big to fail, they’re too big to jail. It would disturb the system if we did these prosecutions. I warned people back, back then. I said, listen, this is.
You’re open to pandora’s box. This is a big mistake. This is going to blow up in your face big time. You just wait. And here we are. So to try to me to try to make predictions, that’s the x factor, is the crime, is the crime that there’s a certain stratum of people that are allowed to commit total crime with crimes with complete impunity, and then there’s the rest of us who got to play by the rules. Good luck trying to pick predict what the elite criminals are going to do. Well, the way I stay out of it, and this will close off and feel, if you have any closing words, feel free to add them in.
Look, I know that they’re all criminals, but they’re in a system where they’re profiting off of inflation. And I don’t mean the rising of prices, I mean the creation of monetary liabilities they can use to spend on whatever they want. And the way that I get out of that is that I own physical gold and silver. As long as we’re out of the game, then we won’t be directly affected. We’ll be secondarily affected for sure. There’s no full escape from it. But if you’re into physical metals, then from my view, you are in an asset that is the basis of the inflationary liabilities that they’re creating because that’s how the dollar was born.
You step out, you get that stuff. I’m not saying go exclusively into it or anything, you know, that’s. That’s how you get out of it. And that’s the. That’s at least for monetary safety. And then, you know, you have to have ammunition and all this other stuff. If you’re a prepper, you can go as far as, or as shallow as you want, but for division of labor, we need money, and for, if we need money, we need gold and silver. Phil, what do you got to say? Yeah, I would just say there’s, you know, you cannot keep a ponzi going forever.
It is a ponzi. And I mean that in a literal. I say this to people all the time, and they think, I mean, it’s a scam or it’s dishonest, it is all those things, but it’s quite literally a ponzi. So the debt must grow, it must stay on that exponential growth curve, or the whole thing blows up and you can’t stay on it forever. So whenever the last dollar cannot be loaned out, we’re going to find out what the end game is. Yeah, I’m a big. I’ve been for a long time a big fan of silver.
And I tell you, I like the. I like the coins, you know, the silver dollars, the half dollars, the quarters and the dimes, the 90, 90% and 10% copper. I had that. Those have gotten me through some. Some lean times. And you got to like silver this year. It’s been on a tear. Yeah, well, so I. Yeah, the. The truth will out. We’re not going to stay. It’s not possible for us to stay in a criminal syndicate forever. No, it’s not. I, to me, ultimately, the other way out of the criminal syndicate. I don’t think you’re going to vote your way out of this.
No, I think there was. I don’t think that there’s really a legal. I think the way out is revolution. Unfortunately, that’s just how things work. That’s where the colonists were in 1775. How do they deal with abusive authority? They revolted, and I think that’s where we’re headed. But the revolution, to be clear, what’s important is people in people’s minds. Once you win, the people in their minds. You know, those guys back then, they talked about this. I think Ben Franklin’s like. Or maybe it was John Adams. The revolution was in people’s minds. The revolution was over before the first shot was fired, because Americans were ready to band together as a whole and leave.
Yeah. I don’t know if I have as much faith in the leaders of the country as I did back in the. I mean, I wasn’t alive, but in the 18th century. We have a much lower quality stock right now. I mean, we have high quality people. I don’t know if there’s enough, but I guess. Let me. Let me tell you this. Sam Adams said, and I completely agree with him, he says, listen, you don’t even. You don’t need a majority of people to win. What you need is an irate, tireless minority intent on setting brush fires in people’s minds.
And I think we got a pretty good start on that. All right, well, let’s move forward. John, this is actually, to be frank, to be completely honest, this was one of the. My. My favorite interviews that I’ve ever done. You’re the. The way you think, it’s like. It’s very refreshing, and just thank you so much for coming on. Thanks for having me. You’ve interviewed me, like, ten times, Ralph. I’m not talking about. All right, have a good day. Thanks, man.
[tr:tra].
See more of Rafi Farber on their Public Channel and the MPN Rafi Farber channel.
Author
