David Lifschultz: The Banking and Dollar Crisis will End the Dollar Reserve System




By David K. Lifschultz

Compliments of the Lifschultz Organization, Founded in 1899

This is a one plus one equals two analysis.  When interest rates were below one percent on bonds the banks invested their money in the low yield US bonds as that was all that was available. Then the Federal Reserve addressed the inflation problem largely caused by supply chain disruptions as a monetary phenomenon by raising interest rates on Federal Funds to 5% today whereas it was 1% in 2017 but below that before. Bond prices sharply fell based on rising interest rates leaving most banks bankrupt in a technical sense holding 1% or lower bond yields as they no longer can cover a run on deposits except by selling the bonds at a sharp discount. These sales create huge losses on the bank balance sheet.  If there is a run on the banks, then they will fold unless all deposits are covered by the FDIC or Central Bank. In order to hold the US system together, the regulators are allowing banks to use their purchase prices of the bonds as their nominal asset so that they do not have to show their losses. This is, of course, a fraud. And they are essentially suggesting that all bank deposits will be protected though without an explicit guarantee that might in itself prove detrimental when the analysts start adding up what the humongous protection cost might be.–as-long-as-losses-are-unrealized-124755456.html

Banking is supposed to be simple. In the old days a bankers’ job was matching maturities of their own loans with maturities on their borrowings. Let us say I lend a bank ten billion dollars at 5% due in January of 2030 then they must match their loans at say 6% to be due at 2030. If they cannot, they cannot accept the loan. The same principle applies to deposits. If I have demand deposits of ten billion dollars on my balance sheet, then I must have the ability to meet them by very short term loans matching my demand deposits. This was the basic principle of banking. The dollar itself was backed by gold so that it was not a fiat instrument representing a imaginary transubstantiated value or as Karl Marx put it the transubstantiated Jealous God of Money.  

The crisis we have today is based on the fact that banking as was once known is long gone, and the banks largely do not match their loans with the maturities on their borrowings counting on the FDIC and or Central Bank to conduct a bailout if things go awry as they are now. That is why Nouriel Roubeni has said most banks are technically near insolvency if you calculate their actual assets to liabilities. This is not the worst of it for if everyone wants their money the banks will have to sell their bonds forcing down their prices and increasing their losses.

Incident one:




On 9 March 2023, a US$42 billion bank run[41] on Silicon Valley Bank led to the closure of the bank by California and United States regulators, with FDIC-insured deposits assumed by the Deposit Insurance National Bank of Santa Clara.[42] This is currently the biggest bank run in history.

Incident two:

The mass withdrawal was sparked by the fact that 68 percent of First Republic’s deposits were uninsured — meaning they were above the Federal Deposit Insurance Corporation’s (FDIC) $250,000 limit — a higher rate than many other regional banks.

New YorkCNN — 

First Republic Bank, facing a crisis of confidence from investors and customers, is set to receive a $30 billion lifeline from a group of America’s largest banks.

“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the Treasury Department said in a statement Thursday.

The major banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Trust.




The losses cannot be covered as the losses will be too high wiping out their ability to redeem all their depositors’ money. So the Federal Reserve and regulators say that all the deposits are guaranteed. Presto. Problem solved. The runs stop as the depositors are guaranteed. They have not said this about all bank credit but the implied commitment is that whatever guarantee will be needed to save the system will be made no matter how large it is. They do not want to say it up front for an analysis of the dimensions of such a commitment would be mind boggling so as to be potentially destructive in itself as a concept in its inflationary implications.

The inflation that Paul Volcker faced in 1979 was based on an inflation that was created by the effort of the US Central bank to cover the inflation initiated by the increase in oil prices in the Arab boycott by issuing whatever credit was necessary to buy the higher priced oil. This created inflation. If the US Central Bank had acted correctly in a classical sense they would not have intervened in creating the credit for paying the higher price of oil and the US economy would have massively contracted in the face of massively higher oil prices. The price of oil would have risen only as a temporary phenomenon as the demand for oil would have collapsed as most people could not afford the price. It would have been self-correcting. In other words, as the Middle Eastern suppliers had decreased their production of oil the constant central bank credit would not have permitted the population to have bought the soaring oil price as they would not have have had the credit available to them to do so. This would have been politically unacceptable as unemployment would have risen dramatically.  

The US military could have invaded the Middle Eastern countries to stop this boycott but it did not. It is strange that later invasions such as in Afghanistan which had nothing to do with 9-11 in 2001 or Iraq in 2003 over non-existent weapons of mass destruction in themselves accomplished nothing but huge US expenses whereas the artificial oil price rise was truly a direct attack on the US which the US did nothing about.

When Nixon went off the gold standard in 1971 paving the way for this inflation it was because the US had created huge amounts of Federal Reserve Credit far above the gold reserve. The dollar value in gold or about twenty dollars an ounce had lasted nearly a hundred years based on the experiences of the early US currency called the Continentals which created the expression not worth a Continental. The gold price recently hit $2,000.00 an ounce from about $20.67 an ounce in 1920. That price lasted for over one hundred years as seen next below. That means 99% of its value has been lost but in actual fact it is worse than that.

The official U.S. Government gold price has changed only four times from 1792 to the present. Starting at $19.75 per troy ounce, raised to $20.67 in 1834, and $35 in 1934. In 1972, the price was raised to $38 and then to $42.22 in 1973.

The expression “not worth a Continental,” meaning “not worth a Continental Dollar,” came into the lexicon during the Revolutionary War, when recourse to paper money drove up prices, ruined the economy, and nearly caused us to lose the war.

The 1973 oil crisis or first oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC), led by King Faisal of Saudi Arabia, proclaimed an oil embargo. The embargo was targeted at nations that had supported Israel during the Yom Kippur War.[2] The initial nations targeted were CanadaJapan, the Netherlands, the United Kingdom and the United States, though the embargo also later extended to PortugalRhodesia and South Africa. By the end of the embargo in March 1974,[3] the price of oil had risen nearly 300%, from US$3 per barrel ($19/m3) to nearly $12 per barrel ($75/m3) globally; US prices were significantly higher. The embargo caused an oil crisis, or “shock”, with many short- and long-term effects on global politics and the global economy.[4] It was later called the “first oil shock”, followed by the 1979 oil crisis, termed the “second oil shock”

The 1979 oil crisis, also known as the 1979 Oil Shock or Second Oil Crisis, was an energy crisis caused by a drop in oil production in the wake of the Iranian Revolution. Although the global oil supply only decreased by approximately four percent,[2] the oil markets’ reaction raised the price of crude oil drastically over the next 12 months, more than doubling it to $39.50 per barrel ($248/m3). The sudden increase in price was connected with fuel shortages and long lines at gas stations similar to the 1973 oil crisis.[3]

I was called upon to write the Volcker plan in 1979 which worked and established about 40 years of prosperity. In order to end the inflation we had to reverse the inflationary trend and we significantly curtailed credit and raised interest rates very significantly. We created a new non-inflationary foundation for the economy.

The currency problem discussed above was studied by Alfred Marshall at Cambridge who taught John Maynard Keynes in that the usury system is theoretically unworkable in the long run. Aristotle had pointed out that the problem with usury is that gold does not procreate so that if I lend all the gold in the world or about 240,000 tons at ten percent interest payable in principal and interest at the end of the year the total amount cannot be paid as only 240,000 tons only exists. Keynes covered this at Brenton Woods by what he called the Bancor. This is what we call today the SDR. This recognized the essential flaw in the usury system which makes it unworkable. This is a theological truth.  




Dante placed the usurer in the seventh rung of Hell in that he created the interest on the gold from that which did not exist that was impossible which was a sin against nature that we can attribute to Keynes, and Dante also placed in the sixth rung of Hell the sodomist who uses a procreative function in manner that cannot be fruitful which is also a sin against nature which was also a sin of Keynes.

The bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher conceptualized in the years 1940–1942 and which the United Kingdom proposed to introduce after World War II. The name was inspired by the French banque or (‘bank gold’). Today this is called an SDR.


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