Jason Hartman hosts John Truman Wolfe, former senior credit officer for two California banks, and editor and publisher of The Strategic Financial Intelligence monthly newsletter. Wolfe discusses his two books: The Coming Financial Crisis and Crisis by Design, to illustrate where we are in our financial system. They discuss the next crisis and whether a bubble will pop. John explains the Bank of International Settlements and the Bail-In Policy. Then they look at whether banking will lead to a global digital currency.
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Jason Hartman 1:00
It’s my pleasure to welcome john Truman wolf. He is the Creator and author of the award winning Tom McKenna private AI series. He’s a former senior credit officer for two California banks. He’s editor and publisher of the strategic Financial Intelligence monthly newsletter, and author of several books, including the best selling the coming financial crisis to look behind the wizards curtain and crisis by Design The Untold Story of the global financial coup, and what you can do about it. JOHN, welcome. How are you?
John Truman Wolfe 1:33
I’m great. Thanks very much. Good to have you. And where are you located? I’m in the mountains north of Los Angeles, about an hour north of LA and up in the mountains in the Los padres National Forest. Fantastic. Well, I grew up in the Socialist Republic of California, and
Jason Hartman 1:51
I got out move to Florida for no income taxes. So what do you know?
John Truman Wolfe 1:56
A lot of my friends,
Jason Hartman 1:57
yeah, you talk a lot about, you know, the derivatives bubble. And I’m not sure I’m characterizing that the way you say it, but you talk about derivatives. And we’ve discussed that on the show over the years. I I love to call derivatives. Very simply the thing about the thing. Very simple simpleton term. You know, how big of a concern is this? I know the numbers are absolutely enormous. And when you look at the size of the derivatives market, and what will happen when this eventually starts to implode, or will it doesn’t ever have to implode? What are your thoughts?
John Truman Wolfe 2:38
Well, I think, you know, there’s a statement that did that you mentioned earlier, all bubbles do do break this sub bubble. And these numbers are huge. They’re mind numbing 1.2 quadrillion dollars with the derivatives on the planet. The major New York banks have 220 7 trillion with a T dollars with derivatives and there is a point where you go well, there’s, you know, Counterparty one person, one’s one person loses. And about 75% of the derivatives on the market are basically bets on the direction of interest rates. So what percentage is on interest rate that’s about 75%, at various,
Jason Hartman 3:19
three quarters of the derivatives market as interest rate oriented derivatives got exactly
John Truman Wolfe 3:24
correct. And we can get into what the Fed may or may not do with interest rates, they’ve said they’re going to keep them essentially at zero until 2022. Maybe they’ll do that. Maybe not. But sooner or later, you know, I think this thing will go awry. And it’s all fine if everybody’s financially healthy. But you have, you know, JP Morgan Chase has got over $50 trillion worth of derivatives exposure. And the other big banks in New York money center, banks used to be in a city bank, Wells, banks of that nature have got trillions and trillions of dollars worth. And if the interest rates if slash when the interest rate, bubble breaks, and a bank can’t honor its obligations. All you need is one incident like that. And I don’t like to be the beginning of the bear pessimistic good news. But if one of those big banks takes a huge derivative hit, I think we’re looking into financial crisis. Jason.
Jason Hartman 4:26
So do you think the powers that be the central banks and governments around the world would allow that to happen? I mean, it’s kind of ridiculous that now, I actually kind of can’t believe I’m saying this, but I think we can literally hang our hats on the fact that they’re going to rescue us with more QE and fake money printing and, I mean, it’s just a new world we live in, you know, I don’t think that the public will tolerate any sort of You know, serious pain? Well, they?
John Truman Wolfe 5:02
Well, it’s it’s a good question. I mean, the protection mechanism that the Bank for International Settlements has put in place. And for your listeners that aren’t familiar with that bank, and maybe people are not the Bank for International Settlements, I referred to as the godfather of the financial global financial mafia. This is the central bankers central bank. Right? It’s in Basel, Switzerland, they basically call the shots. Now, a couple of years ago, they implemented a policy globally called bail in policy. bailen policy says, if a bank is failing, then that bank has the right to take depositors currency deposits, and convert it to bank stock without any permission whatsoever. It’s kind of a Cyprus esque sort of thing, isn’t it? It that’s exactly what it is in Cyprus was the test case, for the BI s implementing this policy. They did it in Cyprus, there was a good deal of press from this little offshore bank, which held the deposits of a lot of ex KGB characters. And that incident was the pilot for bailing policy around the world, there are now bailing policies mandated in Europe by the President of the European Central Bank, Canada implemented it. And there’s actually a document folks can go online and look at it written by jointly by the FDIC and the Bank of England, that explains how by lm policy will work here. And then Ben, by the way, we should just give our listeners a little backdrop for that, john. So you know, back maybe, what, 810 years ago, if you went to sleep, and you you were a Cypriot citizen, and you woke up and check your bank balance, again, you would have less money. Right? They literally just took your money out. Exactly. Right. And that’s what bailing policy, you know, can do they just, you know, they took a certain percentage of the deposits and converted it to bank stock. Well, you know, I mean, who wants to buy stock in a failing bank? Yeah, maybe somebody but not the average Joe,
Jason Hartman 7:14
especially when you didn’t want to be a shareholder, you didn’t agree to become a shareholder, you just were essentially forced. If it’s like, here’s the gun to your head, buy our stock with your deposit money?
John Truman Wolfe 7:26
That’s exactly right. Okay, go ahead. So the BI the Bank for International Settlements, implemented this policy because they saw what we were talking about, that the derivatives, the interest rate sensitive derivatives had gotten so huge. That bail in policy basically protects the banks. So if you know, the derivative bubble breaks in a particular bank, that bank has the right now, under B is policy. And in the US, Dodd, the Dodd Frank bill legalized that in the United States, they can come in and take a certain percent of your deposits. Yeah. Right.
Jason Hartman 8:07
So so that was really in the in the what, 2300 or so pages of Dodd Frank, that’s extremely confusing. Well, aren’t they all confusing? They all that was stuck in there, too, huh? No, nobody was talking about that. Unbelievable.
John Truman Wolfe 8:22
Yeah. So we’ve got Dodd Frank. So do you think that would be a amount over the 250,000 FDIC limit? Or any amount? Or super good question, the memo that the FDIC and the Bank of England jointly wrote, does not mention FDIC insurance? There is, you know, online traffic where it appears that the FDIC insurance would not apply. But I’ve contacted the FDIC, they’re non committal on the subject. So I I actually don’t know what would happen. I think it would depend on how big the crisis became.
Jason Hartman 9:04
Yeah, and the FDIC certainly doesn’t have anywhere near enough to cover a real crisis by any means. But my contention is that government will just fill the void with the money. So what should we do with this information? I mean, you know, for those people who have extra cash that’s not in the stock market, it’s not in real estate, which is where it should be it should be an income property. I say, what should they do? I mean, you know, what banks are safe. Do you go with a big banks? Or do you go with the most financially sound banks, the theory being the big banks are going to get bailed out, even if they’re not financially sound? But but the banks are not really as they’re not as reckless as they were before the Great Recession or right things are things are better for the banks now, at least that’s what people say.
John Truman Wolfe 9:52
Well, again, I think what puts the banks at risk is the amount of derivatives the big banks announced. To answer your question, which is a really good one is this baling policy applies to banks with assets in excess of $50 billion. So I encourage folks, you know, if you’ve got money in one of the big money center banks, if that’s a, you know, the household budget money, okay, it’s a few bucks, but open your major accounts in a regional bank, a smaller regional bank, a bank with assets under 50 billion, because as it stands now, bailing policy applies only to banks of 50 billion and larger,
Jason Hartman 10:38
right. So the problem with that is that the small banks may not be able to withstand a crisis, but at least you won’t have a bail in recce risk. Right. So it’s like, you’re damned if you do damned if you don’t, maybe, huh,
John Truman Wolfe 10:52
at least they’re not gonna come and take your deposits in the middle of the night without your permission.
Jason Hartman 10:58
Right, right. But they might fail. That’s, that’s the thing. So then you have to get into really, really doing something Americans just aren’t used to doing at least not since the you know, before, before during the Great Depression, is understanding how sound your bank is, and then keeping track of it, because that is a moving target.
John Truman Wolfe 11:17
This is why I did hundreds of hours of research and wrote a book called The 99 strongest banks in America, because after I wrote the bank and kind of pointed this out, I got into tremendous amount of traffic going, Okay, good. Well, where do I bank? So I just went through the balance sheets of the banks all across the United States, and at least made recommendations of about 100. Really sound banks with good loan to deposit ratios and, and, and healthy loan portfolios.
Jason Hartman 11:48
And that’s a fantastic tool. I just wonder, don’t we have to worry about it changing all the time, right? We do.
John Truman Wolfe 11:54
It do. We do? Indeed, you know, the real estate market changes. I mean, it’s surprisingly healthy Now, given the, you know, current economic situation in the country, the real estate market continues to boom, Oh, good. But
Jason Hartman 12:09
you’re said guy. I know, the markets booming, that’s for sure. But you’re kind of implying that the banks are really tied to real estate, like they were the last time around is that way by you’re mentioning real estate?
John Truman Wolfe 12:19
No, I mean, I don’t I mean, there are still so called mortgage backed securities, nowhere near the amount that there were during the crisis of 2000 2017.
Jason Hartman 12:29
And also, to be fair to the banks and the mortgage industry. You know, they’ve been a lot more conservative this time around. I mean, I’m not saying they’re perfect by any means. But there’s, there’s at least there are some entities putting brakes on the system this time around. Whereas last time around, nobody was putting brakes on the system. It was everybody was incentivized to just put out more toxic loans.
John Truman Wolfe 12:54
Yeah, you’re absolutely right, although things have started edging in the, you know, in the direction of 2007 2008. But you’re right, there are a lot more regulations in place. And I think banks just from for their own survival, have been more judicious in terms of the kinds of loans that they’re making.
Jason Hartman 13:13
Now, I’m looking online now. And I see the 27 best banks, but I don’t see a 99 banks. I’m not sure how long ago this book was published. So you know, that’s another question you said in the book was called the 99 best banks that.
John Truman Wolfe 13:30
Remember, the 27 banks, when I started doing the research, and it took a fair amount of time. And as you noted, my bio, I’m a, I’m a former senior credit officer for a couple banks here in the West Coast. I wrote the 27 best banks, and then I got a fair amount of traffic. Well, yeah, but what about my state? So I’m back and I and I basically updated it. So the 99 it should be up there and Amazon? I don’t go look at it every day. I don’t see him,
Jason Hartman 13:57
you know, in the 27. Bank book is four years old, how old is 99? Two years. Okay. So and how, how quickly do you think I mean, you really have to look at your bank, like every year and evaluate their financial condition on an annual basis. That’s, you know, that’s a hassle.
John Truman Wolfe 14:17
It is a hassle, you have to know what you’re looking for. I mean, the bank rating aid. One of the reasons I wrote the book is is that the bank rating agencies and they’re a couple of them, were giving five star ratings to banks that had loan to deposit ratios in excess of 100%. In other words, they not only lent out all the depositors money, but then themselves went and borrowed money and lent it out. And that’s just not healthy. But these rating agencies at all is a Five Star Bank, and I you know, not not five stars in my heavens.
Jason Hartman 14:52
Yeah. And remember the movie Moody’s ratings the last time around, right. Yeah. Unbelievable. So you talk a lot about this being a, this or the last crisis, I guess, being a crisis by design, you know, my listeners are familiar with the concept of a false flag. What do you mean by that in? What’s the point of designing a crisis?
John Truman Wolfe 15:14
Well, the truth is, my feeling is, is that crisis was designed to take down the US dollar. And if you look at the strength of the dollar, and what has happened to it over the last few years, it has slowly declined to the point that it is it’s it certainly still has its reserve currency status, but it’s slipping. You know, China and India now do business in their own currency. So the BRICS is set up that economic organization of, you know, Brazil, Brazil, Russia, China, India, and South Africa. And they’re all doing business in their own currencies, which was maybe 10 years ago, this was unheard of all international trade was done with US dollars. Not anymore.
Jason Hartman 16:00
Yeah, I know, there’s an inkling of that. But I’m not too in fear that the US because, you know, the problem is the US. It may be bad in all these ways, but compared to what I mean, what we think, are we supposed to think that like Russia and Brazil are better off financially than we are.
John Truman Wolfe 16:17
Fair enough. And that’s why the dollar still stands as it stands. But it’s my point is, if you kind of look at a graph of it, it’s slipping, it does not have the strength that it had Now, does that mean you run from the dollar tomorrow? No, it does mean that the yuan is gaining strength. I mean, China is inhaling gold. like there’s no tomorrow. I mean, so is Russia. But China’s intro to newsletter, on the gold war between the US and China. I had when I when I wrote the book, originally a friend of mine in Taiwan, send some people in Beijing. And you know, and then she sent me an email, she said, you know, the government of China would like to talk to you about the solutions. And the book, I thought it was a joke. I hadn’t fly me over a business class and put me up here, I in the Beijing a few times, she sends me an email back, they’ll fly you wherever you want, however you want, put it wherever you want. So I flew to Beijing, I spent a week there talking to people that had founded the pboc, the People’s Bank of China, and also met with the president of China gold, which is the largest gold mining Consortium, in China, and probably around the world, this guy has 40,000 employees. And Jason he’s buying a bowl mines around the planet like Pac Man, everywhere, the US South America. So for so they’re making a very strong run to if not back the RMB the Chinese currency with gold to make that currency stronger than the US dollar. So while that’s not a crisis situation today, I think it’s one that’s coming.
Jason Hartman 18:00
But you know, I just, I don’t know, I hear that a lot. And I just, you know, respectfully have to disagree, I just think the US is going to maintain its hegemony for a long, long time. You know, China in 10 years, has a giant demographic problem. After COVID nobody trusts China anymore. You know, those jobs are moving back to the US, a lot of them a lot of that manufacturing is moving back here. And they’ve got one aircraft carrier, we’ve got What 12? It’s just, I don’t know, you know, and I don’t think China is going to go to war with us either is, you know, much as I hear those things, you know, you don’t go to war with your customer, your biggest customer? And, yeah, you know, the US is it’s a little thing, the whole global economy is built on smoke and mirrors. It’s absolutely impressive in a way we got to this point. I mean, don’t you think it’s so it’s like the biggest show game ever? You know,
John Truman Wolfe 18:57
it’s a good point. And your point, and your points are well taken. And, you know, I talked to friends that have strong points of view as yours. And they’re basically like, you know, China’s so far from us. It’s true. But if you look at a graph, the growth in strength of the Chinese economy, and particularly the RMB, the Chinese currency is up. Now, does that mean that the dollar is going to fall, you know, fall to nothing tomorrow? I think what’s more dangerous, Jason for the dollar, is the fact that the Fed is throwing what, four or $5 trillion in the economy out of thin air.
Jason Hartman 19:35
5.2, I believe is the latest number. It’s It’s insane. I can’t keep up with it. Yeah, yeah. But you know, other other central banks are printing too. I mean, you know, it’s not like we’re the only one and we just have this fantastic position, reserve currency. The most debt in the world is owed to us and it’s all denominated in US dollars, which makes the dollar stronger. The biggest military the biggest economy, the fact that all the Chinese people want to bring their money here, because, you know, we still got that Brinks truck reputation, but I tell you, if a bail in happens, we’re going to lose that quickly. Okay, and people might feel safer keeping their money offshore. I don’t know, you know, it’s just a very, it’s just a very complex mix of things. What I fear more, though, is a move toward a digital currency that says central bank and government sponsored digital currency that would cause us to lose spending privacy. And that would cause you know, and it might be a move toward a world digital currency. And if that ever happens, it’s just checkmate, you know, that there’s no freedom whatsoever, because you can’t go to another jurisdiction to have any degree of privacy or, you know, change the system. So that that’s, that’s what I hear more is this this this world government concept? And, you know, or in it, maybe it’s probably not a world government, per se, but a world monetary system that is stronger than the world monetary system we have now dictated from Basel II. Any thoughts on that?
John Truman Wolfe 21:14
Well, you’re one you’re absolutely right, too. I’ve written on that subject at some length three, you may or may not be familiar with the Christine Lagarde, who was at the time the head of the IMF. She was in New York for a conference and some reporter asked her about that very after about digital currencies. And surprisingly, she said, You know, these, you know, these are going to be good for the future. So I think that’s a real potential problem. That the, you know, in some way, they’ll make the SDR, which is the IMF, currency, digital, or they’ll be a digital a global digital currency. And then as you say, there is no national currency, there’s nowhere to go. So I think that’s something to be very concerned about. Digital cryptocurrencies, the Bitcoin and friends are not going to go away. They’re here to stay. And the question is, how are those going to be dealt with China is developing a national digital currency. So it was Russia, there has been peeked out of the Fed, that they’re doing going to do the same. It’s definitely coming, they’d be crazy not to do it. Number one, it makes them look modern. But number two, it gives them so much control over the population. Absolutely. Like, if you don’t get the vaccine, you don’t get your government digital money, you know, or you can’t use your money, you know, with China doing their social scoring, something like that could be
Jason Hartman 22:36
see the difference is the US the people in the US won’t tolerate is much of that they’ll Yeah, they do it slowly. How do you boil a frog Of course, we’re all getting boiled. But there’s this kind of rugged individualism that just pervades that, you know that, you know, don’t tread on the Gadsden flag mentality in the US, thank God that keeps the government somewhat at bay, you know, it’s, it’s less men, but at least there’s a move there in China. You know, when I look at what’s happened in Hong Kong recently, I mean, China’s getting pretty scary. And cat, there’s going to be massive capital flight from China more and more with with that kind of totalitarian crackdown that they’re having. So wrap it up for us, give out your website and tell people where they can get newsletter, you know, books, all the usual places, of course, but you maybe your newsletter,
John Truman Wolfe 23:26
yeah, the newsletter is strategic financial intelligence.com. That’s kind of a mouthful, but that’s what it is strategic, you can go to strategic financial intelligence.com. And the newsletter is called strategic Financial Intelligence. I write it monthly. In addition to that I do a weight, a weekly radio show called the junk removal financial hour, and I take that converted to text and send a transcript audio and written to the subscribers each week. And we have you know, we interviewed the various folks and that’s the newsletter strategic financial intelligence.com.
Jason Hartman 24:05
Excellent. Well, john, thank you so much for joining us.
John Truman Wolfe 24:09
My pleasure. Thank you so much for having us. It was a good discussion.
Jason Hartman 24:17
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