Alex Krainer on energy wars, the petrodollar system, and the coming banking crisis
Glenn Diesen interviews Alex Krainer, author, market analyst, and former hedge fund manager, on the role of energy in geopolitical conflicts and its connection to Western financial stability.
Summary
Glenn Diesen speaks with Alex Krainer about the centrality of energy resources to imperial wars over the past 120 years, arguing that control of oil and gas — and ensuring those commodities are traded in US dollars — is the true driver behind conflicts in Venezuela, Iran, Ukraine, and the broader Middle East. Krainer explains that the real beneficiaries of this system are not oil corporations but Western money-center banks, whose highly leveraged balance sheets depend on dollar-denominated cash flows from global energy assets. He argues that military defeats in Iran and Ukraine, combined with disruptions to Gulf energy infrastructure and the collapse of the AI investment bubble, have placed Western banks in a structurally precarious position. Rather than a 2008-style collapse, Krainer predicts the response will be unlimited central bank money printing, leading to hyperinflation that will effectively rob the middle class of their savings. He closes with practical advice on protecting personal wealth outside the banking system.
Key Takeaways
FULL TRANSCRIPT
The role of energy in modern imperial wars
Glenn Diesen: Welcome back everyone. We are joined again by Alex Krainer, an author, market analyst, and also a former hedge fund manager, to discuss energy wars. Thank you for coming back on the program.
Alex Krainer: Pleasure to join you again, Glenn. Good to be with you, and greetings to everyone out there.
Glenn Diesen: You know, when the United States went after Venezuela, Trump essentially measured success in terms of how much wealth they were extracting and how the oil was now under American control. We saw the same with Iran — when they went after Iran, there were talking points on American TV that it was going to be short-term pain for long-term gain, and the long-term gain was measured in terms of getting access to Iranian oil. The Iranians would sell their oil in dollars. As the war went on, they were making the point that the Chinese were now being cut off from Iranian oil, and this was a good thing. And of course, the war on Russia as well had from day one a heavy energy component — the Americans destroyed Nord Stream, the Europeans cut themselves off from Russian energy, and they tried to force the rest of the world to join in on the sanctions, unsuccessfully. But also in terms of the actual war, not just Iran but with Russia, we see that energy infrastructure has become a key target. And at the same time, the retaliation against the Gulf States is focused on energy. We see key energy corridors — the Strait of Hormuz, the Red Sea, the Black Sea — all of this. And of course you can put the devastated Ukrainian energy market in the same category. I was just wondering how you see the role of energy in these wars. Why is it taking such a central focus? Because this war seems to be profoundly interconnected as well.
Alex Krainer: Energy has been the central factor of imperial wars for the last 120 years — since the British decided that oil was the energy of the future and they discovered that the Middle East was rich with oil resources. The imperial wars have been practically focused on energy ever since. The importance of energy is also recognized from the fact that today what they call fossil fuels — the hydrocarbons — do fifty times as much work as human muscle, and it's one of the key components of GDP. The more energy an economy uses, the wealthier it is. It usually has higher standards of living and prosperity and so forth. So it's absolutely central to the global economy.
And it's no wonder that the Trump administration resolved to gain control of Venezuela, which allegedly holds the world's largest oil reserves. I say allegedly because these are all self-reported, and every country that reports its oil reserves is incentivized to cheat, because their OPEC quotas have been determined as a function of their reserves. So the higher their reserves, the more they could export into the global markets. From that point of view, they had the incentives to cheat, and these oil reserves are basically magical and inexhaustible — the same reserve levels that have been reported since the 1980s and 1990s are unchanged up until today, in spite of the fact that 100 million barrels of oil get burned every day.
The United States, whose domestic oil production went into what was considered a terminal decline, never managed to reverse that decline until the advent of fracking. But the fracked oil consists only of light components, meaning it's good for the production of gasoline but doesn't have the heavier components to produce diesel, jet fuel, fuel oil, and the things that are essential for heavy transport, air transport, thermal power plants, ships and tankers that use heavy fuel oil as their fuel. So you basically have fuel for gasoline cars, and that's it. So they needed Venezuelan crude.
Trump is also keenly interested in adding Canada as the 51st state, which has some of the world's largest reserves of heavy fuel oil in the Alberta tar sands. And then there's the Middle East, obviously. So it seems to me — and it's not a declared goal of United States foreign policy — but if one wanted to corner global production of crude oil and natural gas in the same way that the British wanted to do before World War II, you would be doing pretty much exactly what the Trump administration is doing. You can speak about nuclear programs and ballistic programs, and you can talk about women's rights and freedom and democracy and all these things, but ultimately it comes down to energy resources — controlling them — and most importantly of all, making sure that they're being traded in US dollars. Because that way the United States gets control of all the trades, American banks get to fund that trade, and all those assets become the wealth and the assets of Western banking institutions.
How the petrodollar system channels global wealth to Western banks
Glenn Diesen: Yeah, it's a good point. All the rhetoric around human rights, democracy, women's rights — there are the interests behind a war and then there are the actual tangible interests, and then there's how you sell a war. Political propaganda takes the hard interests and sells them as altruism. But it's also interesting what you said about the financial aspect of this, because we see that the energy wars profoundly impact the financial system. You probably saw the clip — I think it was two or three weeks back — Scott Bessant was making the point that the great success with Venezuela was not just getting their oil but also that they would now be selling the oil in dollars, which would shore up the petrodollar. He was making the same point about Iran — not just that they were going to make a lot of money, but that they were also going to sell their oil in dollars, and they were going to use the proceeds to buy American agriculture, with America as the exclusive supplier. And also Russia, after the proxy war in Ukraine, would also likely return to selling its oil in dollars. He was making a big point of this — that all of Trump's foreign policy is organized around the idea of shoring up the central role of the dollar. And this is happening against the backdrop of huge efforts to shift away from the dollar and the US financial system — for example BRICS, which Trump has also said he wants to get rid of. Well, he even said he already defeated BRICS, essentially. But words don't matter that much anymore. BRICS, led primarily by China, is taking the lead in diversifying currencies, development banks, payment systems, and so on. I was wondering how you see the relevance of the competition over the financial system. How would you explain it?
Alex Krainer: Well, as far as economies go, this is all basically unimportant — unimportant in the sense that if you need oil, you're going to find oil at your gas pump anyway. You don't need military bases. You don't need to wage endless imperial wars. I'm sure you get oil in Norway. Okay, Norway is an oil-rich nation, but Austria doesn't have its own oil resources, Switzerland doesn't have its oil resources, Croatia has very minimal oil resources — and all my life you could drive up to a gas station and buy oil. It didn't take imperial wars. It didn't take military bases in the Middle East or Venezuela or Canada or Nigeria or anywhere else. Basically, it was global trade. We exported what we had and we bought what we needed. And this is true for every country. This is called normal, equitable, constructive global trade between different nations. The same option is available to the United States — they could just export what they have and acquire what they need.
But the financial layer of the whole economic equation doesn't gain anything if they simply trade oil. For them, the grand prize is keeping control over oil-resource-rich regions, because then they can use that resource wealth as their own collateral — meaning they can issue loans to their clients, companies like BP, Chevron, Unocal, all these oil majors — to go and develop those oil resources around the world and sell them for US dollars.
Why is that important? Because the minute — let's call it a JP Morgan bank — issues a loan to Chevron, let's call it a billion-dollar loan, that billion-dollar loan becomes an asset on JP Morgan's balance sheet, and Chevron needs to begin servicing that loan in US dollars by selling that oil in US dollars. And that way, let's say if the oil development is in Nigeria, or in Iran, or in Russia, or in Kazakhstan — regardless of where in the world that development is — it's going to spawn cash flows in US dollars, meaning that the wealth of Iran, Kazakhstan, Nigeria, Mexico, wherever, is going to flow towards Western money-center banks, which are usually going to be the majors on Wall Street and in the City of London.
And in that way, that's the modern mechanism of colonialism, because it always ensures that the wealth of colonized regions of the world ultimately flows to Western financial centers like London, New York, and Paris. And so in order to be sure that that happens — that Iranians don't by mistake fund their own development in their own currency and give those contracts to Iranian domestic companies — in order to do that you need to gain political control of the country. Meaning, if you have these ayatollah mullahs in Tehran who want to develop their nation independently, invest their capital internally, fund their own development, fund their own energy infrastructure companies, and slowly build their society up from the ground and make it richer and more developed and gain higher prosperity and standards of living — that then pits them immediately into war against Western colonialist powers, because those powers want to be able to extract that wealth from Iran.
The way they do this is by simply sending their own corporations, funded by their own banks. And here, people recognize Western corporations like BP and Shell and Chevron and KBR and Halliburton and all of these mega-corporations that we see everywhere in the world. But we have to differentiate between their incentives and the incentives of the banks. Because a Chevron could go to Iran, tender for development projects with the Iranian Ministry of Energy, and they could agree that if they win contracts, Iranian banks are going to fund this development and Chevron will be repaying those loans to the Iranian banks. Chevron doesn't really care — for them a dollar is a dollar, or a rial is a rial. It doesn't matter. But it's the banks like JP Morgan and Goldman Sachs and Citigroup who get zero if Chevron enters into a loan agreement with an Iranian bank or a Kazakh bank or a Nigerian bank.
So it's in the Western financial system where the ultimate incentives for colonization and wars of conquest are determined. That's where it emanates from. And then, to make sure that companies like BP and Chevron and Halliburton behave in a way that's suitable to their bankers, you will always find that on the board of directors of all these companies there will be somebody sitting there from Goldman Sachs or JP Morgan or a bank like this — just to make sure that these corporations don't start actually serving the interests of their shareholders, because it's more important to serve the interests of their bankers.
The consequences of defeat in Iran and Ukraine for Western finance
Glenn Diesen: Well, let's say for a moment that the war against Iran wasn't about liberating women or human rights, and similarly that NATO countries didn't start a war in Ukraine in 2014 to advance freedoms — but again, these are geostrategic interests. What do you see as the consequences of defeat? Because from where I'm sitting, again they're not over yet, but it does appear that the wars against both Iran and Russia will likely end in defeat. What does that mean for the United States and the political West in terms of its energy markets and its financial systems? We don't have a crystal ball, and this is new territory we haven't seen before. You are a market analyst — what would you expect to see?
Alex Krainer: Thank you, Glenn. That's the perfect question. The way I figure it is that you had this whole arrangement where corporations, which were clients of Western banking institutions, went around the world and built up oil production facilities, gas production facilities, mining concerns, farming concerns — all of this funded by loans from these banks. These loans were assets on those banks' balance sheets, meaning loans to their clients are assets to the bank. And these assets were producing cash flows that were flowing to these banks.
We have this magical fractional reserve banking system — which in itself is a big lie, but that's a different subject. Let's say that these banks are very highly leveraged. I think that today American banks are leveraged close to 20-fold, meaning they have 20 times as much in assets on their balance sheets as they have loss-absorbing financial cushion — as they have Tier 1 assets that, if some of their assets go bad, can cushion the blow and absorb those losses. What happens instead is that they are so highly leveraged that if 5% of their assets go bad, the whole bank is at risk of completely failing. And I think that for European banks it's even much worse — I think the European too-big-to-fail banks are leveraged as much as 30-to-1, meaning that if just 3.3% of their assets fail, the whole bank could fail.
That then puts the whole system under strain and at risk of complete systemic collapse. Meaning that if JP Morgan fails, it will drag down with it many other large banks in the United States because they all have exposure to one another. All of a sudden, if JP Morgan fails, maybe Citigroup will find itself holding the bag because they have these massive derivative trades between themselves. So if JP Morgan has derivative losses it has to pay to Citigroup, well then Citigroup is never going to see that money, and maybe their own exposure will get so much worse that Citigroup will fail in turn, and so on and so forth. What you get is something like a 2008-style systemic collapse in the banking system.
Now why is this likely? Because I think that a lot of the assets of Western banks are exactly tied to regions like the Middle East — they had these massive investments in the oil sector, in the natural gas sector, in all of these bulk commodity sectors that were being exported from the region. They were always priced in US dollars, and the cash proceeds from those sales were servicing these debts, these loans that were the assets of these Western banks.
Today we know that, for example, Qatar has completely stopped producing natural gas and exporting it, which means that those cash flows dwindled to zero, which means that those assets on whatever bank is holding them are now bad debts that will maybe never get repaid — unless somehow miraculously the West wins the war and puts everything back together like it was before. The same thing about Saudi oil production, because right now Saudi Arabia is exporting close to nothing, close to zero barrels a day. So I think that what has happened in the Middle East — and we don't know the full extent of it, because obviously the bank is the last institution that will tell us the truth about their financial exposure — the whole edifice has hit the proverbial iceberg and there's no reversing it.
And then quite apart from that whole problem, there's the AI problem, where a lot of these banks have invested absolutely colossal amounts of money in the American AI industry. These investments turned out to be much larger than we knew, because in addition to about $1.35 trillion that we knew was invested, it turned out that there was another $1.6-plus trillion in debts concealed off the balance sheets of companies like Nvidia, Alphabet, Amazon, and so forth. But these debts are real nevertheless, because the United States — people in power, for whatever reason — decided to bet the ranch on AI. They were pretty much counting on having undisputed permanent global supremacy in AI and being able to hold the world to ransom: if you want AI, there's only one shop in the world where you can buy it. That turned out to be a big miscalculation as well.
So it seems to me that the American and in turn pretty much the Western financial system has found itself at the edge of a perfect storm, and the consequences I think are mathematically inevitable. It's just going to be a matter of time. But it's one of those things — when an airplane loses its engines and starts falling, you know that it's going to fall and you know that the unraveling is certain. But it's not the fall that destroys the plane and kills the passengers. It's the moment when the fall suddenly ends, when the plane comes to a sudden stop — that's the moment when everyone is killed.
And I'm afraid that this is now coming our way. I don't know that it's going to be reversed absent a complete overhaul of the Western monetary system and of the West's trade relations with the rest of the world. We would have to rapidly shed all the sanctions against Russia. We would have to rapidly start an honorable and equitable peace process in the Middle East. And I don't think that's realistic to expect in the short term. So I think this is our financial oligarchy holding us all hostage, because we are passengers on their Titanic ship which has hit the iceberg, and they will try to save the ship even if they have to sacrifice every last passenger on it.
Gulf energy disruption, the AI bubble, and market manipulation
Glenn Diesen: I find it strange that when I see the attacks by, for example, Yemen on Saudi Arabia — how devastating they are and how significant they will be — how little space they actually get in the media. And also, yeah, there seems to be some market manipulation. It's also quite evident that Trump, every time the oil price gets too high, starts talking about peace — making up stories that the Iranians are calling him and want to stop everything and let's make a deal. It's so much directly tied to manipulating the markets. And I can see why — as Trump said, they were near a critical spot, that's why they had to sign the MOU. And you had JD Vance arguing that they needed the MOU to open up the markets a bit so they could get some energy through. So they're quite open about what they're doing.
But you say the banking crisis is now inevitable — the plane is already headed down, we haven't hit yet. What exactly would that look like? What indicators are you looking at? Do you see the bonds falling apart, or how?
Also, you mentioned the Gulf States and their vulnerable position — how much could that pop the entire AI bubble in the United States? Because from my understanding, one of the key problems in the US is that they don't really have the ability to monetize their AI. It hasn't really been successful, so it keeps depending on this bubble, which is key to keeping the whole thing alive. It looks like it can collapse. Do you see the Gulf States' vulnerable position having an impact on the AI market and the whole bubble existing there now in the US?
Alex Krainer: Yes. But the difficulty in answering this question, Glenn, is that markets at the moment are being a little bit schizophrenic. It's very difficult to interpret, very difficult to understand how markets are interpreting geopolitical events these days. So what you just laid out makes absolutely perfect sense, but markets don't have to acknowledge it and they don't have to agree with you.
This is very mysterious to me. Just to give you an example: on Saturday 14th September 2019, the Houthis launched a missile attack on Saudi Aramco facilities in Abqaiq, Saudi Arabia, which is close to the Persian Gulf. The next trading day, which was Monday, the oil price surged — it had the largest surge in terms of dollars per barrel in history, going up by something between eight and a half and nine dollars a barrel. Okay. There was just one Houthi attack on Abqaiq Aramco facilities. Everything else was pretty much normal. There was no war in Ukraine, no war in the Middle East, no war between the United States and Iran.
So we are today, 27th July. Yesterday — it wasn't maybe Houthis, it was maybe Iraq-based militias which are also allied with Iran — they struck the same Abqaiq facilities in Saudi Arabia. How did the market react this morning? The market is down two or three percent. The oil price, after it fell about 7% on Monday, so you had basically between the beginning of those attacks on Sunday and today, which is Tuesday, the oil price fell by more than 10% — about 12% — in spite of the fact that we are still dealing with an unresolved disruption to the oil market, namely the closure of the Strait of Hormuz, which before the war was carrying pretty much 20% of global oil supplies every day.
The Saudis reoriented a lot of their exports through the Red Sea and Bab el-Mandeb. Ansarallah closed Bab el-Mandeb to Saudi oil traffic. They struck their facilities on the Red Sea — the Yanbu and Jazan terminals, I forget the exact name — but they inflicted enormous damage on their Red Sea oil export facilities. And then on Sunday they struck the pipeline that goes from the east to Yanbu, to the export terminals in Yanbu. And then some militia from Iraq struck Abqaiq. So the situation is completely disastrous — orders of magnitude worse than what happened in 2019. But in 2019 the markets reacted with a very sharp oil price spike, and today the oil price for some reason is collapsing. The markets are responding exactly in the opposite way that you would expect.
The situation is orders of magnitude worse than what we experienced in 2019, yet exactly the opposite reaction. So the market is reacting as if there was a flood of good news — oil production is rising through the roof, there's an oil glut, everything is fantastic. And I think that simply is not true. I think it's achieved through market manipulation in whichever way. I saw market commentaries saying that somebody dumped something like 100,000 contracts of Brent crude oil into the market before the regular session on Brent crude opened on Monday morning. I don't know if this is true or not, but it's probably close to the truth, because somehow these things happen.
And then the Trump administration is trying to reassure the markets with this constant wash-rinse-repeat cycle of: "Oh, we're bombing the Iranians. Oh, they're calling us, they're asking us to please stop. They want to negotiate. There's going to be an end. We're going to open the Strait of Hormuz." Somebody counted and it's more than 20 times that Trump has announced that the Iranians want to negotiate, that they want to open the Strait of Hormuz. And the market swallows it every time without exception. Markets can be slow and they can react to psychological manipulation, but fool me once, fool me twice — after more than 20 times, you would think they would say, "We no longer believe you." So then there would have to be also dumping of naked shorts.
And this is taking us to extremely dangerous territory, because now you're talking about the destruction of the integrity of Western markets — integrity which they never had, but at least on the facade it was there. Most people believed that Western markets were above board, that the price discovery process was valid, and all this. But now it's becoming hard for even school children not to notice that something is very, very wrong.
I'll just say this: I rolled into my hometown last night, on Monday night. Normally I just drive straight home when I arrive. This time I thought, I don't know what's going to be happening over these coming days — I'll just go to the gas station and fill up my tank so that I'm sure I have a full tank of gas in case I need to go somewhere. So I went to the gas station before going home, and for the first time in 30 years I came to a gas station and the guy tells me, "We're out of fuel. There's not a drop. Keep on driving." Thankfully I found gas at the next one. But once people see that gas stations are turning away cars because they have no fuel, their next reaction is to drive to the first next one. People panic-buy, and once that starts to happen you start getting shortages and long lines at gas stations. And then it's very difficult to justify why the oil price would be going down when we have a shortage.
So I think eventually there is going to be a reckoning. As I wrote in my report this morning, every empire on its way down has tried to bend the laws of economics to their will, and every single one of them failed eventually. And so that's going to be the case this time as well. We're going to go into a period of high inflation and economic stagnation. I think there's no way to reverse that at this point anymore. It's only a matter of time.
Why central banks will print rather than allow collapse — and the hyperinflation outcome
Glenn Diesen: Well, if we are watching this kind of market manipulation, I guess the smart money would be buying oil now, given that it's being artificially kept low. But you mentioned earlier why it's important to keep the illusion going that Iran can still be defeated — if you want to keep the money going. Do you see the same logic in terms of the economic logic behind why the Europeans are so reluctant to accept defeat in Ukraine? They're even reluctant to start any negotiations, because they seized a lot of Russian assets. They've given a lot of money to Ukraine which they call loans, and a lot of these loans are premised on the idea that Russia will pay reparations one day — which is a very strange assumption to make if the Russians are winning the war. But overall they need to keep the money flowing into Ukraine in order to have a chance of defeating the Russians. Is this part of the economic logic? Because I keep thinking about how much of the seized Russian assets they have dipped into, and at least they're stealing the proceeds. I'm just wondering how much economic logic is there to the inability of the Europeans to accept peace at some point.
Alex Krainer: I think the economic logic is absolutely central, because a lot of this money that has changed hands was in the form of loans. Ukraine was given loans by Western powers. Among other things, Ukraine also sold a lot of bonds to Western private investors — tens of billions of dollars worth. And now, if you hold one of those loans, if you're an owner of one of those bonds, and let's say it's trading at 50 cents on the dollar — if tomorrow the mainstream media in the West acknowledged that the war is lost and the fighting should stop because Ukrainian men are dying for no good reason, these bonds would probably go close to zero. The bondholders would face a complete wipeout.
And then another thing is that they wouldn't be able to turn to the Bank of England and say, "These bonds are going to be as good as money in the bank. They're temporarily impaired because Ukraine is suffering a crisis, but these are good bonds, so we would like to obtain a loan in exchange for these bonds and you should be recognizing them dollar for dollar." Because this is what actually happened in the summer of 2024. The Bank of England announced that it was stepping into the repo market, and they said that normally in the repo markets the central bank would accept very low-risk collateral in exchange for loans — for cash, for currency. So you would have to have either British government bonds or US government bonds or French government bonds on your balance sheet in order for the Bank of England to say, "Okay, these are good assets and we'll recognize them as collateral and give you the loan."
A lot of bondholders in the West had a lot of these Ukrainian bonds, which were at that time trading in the 60s — about 60 cents on the dollar. And so the Bank of England came out — without naming Ukraine — and said, "Well, we need to step into the repo markets, but we should also be a bit more open-minded about what we accept as collateral to enter into these repurchase agreement agreements with other financial institutions." Which meant basically: we should accept very questionable, risky assets as good collateral. They never mentioned Ukraine bonds, but if you knew what was going on and knew how to read between the lines, it was pretty much: if you own Ukrainian bonds, don't worry, we have your back. You can turn around to the Bank of England and you'll be offered liquidity dollar for dollar, and you're not going to fail over this.
Which means that there's a very high-level political decision to say: we're going to treat all these assets as good assets, because we intend to win this war, and we're never going to stop trying to win the war, and we're never going to allow Ukraine to stop fighting or to declare capitulation or to negotiate a peace with Russia. Because then it would make the impairment of all these assets permanent, and hundreds of billions of dollars of bondholders' wealth would evaporate overnight. So it's the people at the top of the financial pyramid who will never allow the war to end. And you could say the very same thing about Iran.
But the war in Iran has a different dimension as well, just to circle back to what you said earlier about the AI race — why this is quite important. The whole energy war, the petrodollar system, is a key component of this. The Gulf States get their security from the United States, and in return they sell their oil in US dollars, and they take those US dollars and invest them back in America. I'm wondering how much of that is being used to fuel the AI bubble. Because if the Gulf States feel that their alliance with the United States invites disaster instead of keeping them secure, they might be very tempted to decouple from the security arrangements with the US, make a deal possibly with the Iranians, the Chinese, or others. And anyway, if their economies are completely destroyed and their energy fields destroyed, they wouldn't have any money to invest in the US overall. How much could that defeat pop the entire AI bubble in the United States?
Alex Krainer: Yes. But you see the difficulty in answering this question is that markets at the moment are being a little bit schizophrenic. It's very difficult to interpret how markets are interpreting geopolitical events these days. So what you just laid out makes absolutely perfect sense, but markets don't have to acknowledge it and they don't have to agree with you.
I mentioned the 2008 financial crisis. I don't think that's going to happen, Glenn. And it's not because the situation is not as grave — it is much more grave than it was then. But the banking oligarchy has meanwhile staged a coup and taken political control of the economic systems in the West. What I mean by that is that back in 2008, you'll remember that Henry Paulson had to beg Congress on his knees to give them a $700 billion bailout for the banking system, because otherwise everything was going to crash. At that time, the bankers had to go to Congress and seek approval for bailout funds. They have completely done away with that. Japanese banks, American banks, British banks, Western European banks — central banks can now provide liquidity with no restrictions to their banking systems.
So what does this mean? Let's say JP Morgan's assets in the Middle East collapse — they're no longer being serviced, their clients are no longer servicing their debts. This would risk capsizing JP Morgan, except let's say that JP Morgan goes to the Fed and says, "Look, we have all these assets and they're good assets, because that whole situation in the Middle East — Trump's going to win, we're going to defeat the Iranians, all of this is going to be fine. So these are good assets but right now they're impaired. So why don't you issue us cash and we'll issue bonds for you — JP Morgan bonds — and you're going to loan us this money. So we're going to be financially liquid, but these assets are just going to be temporarily impaired until we win back our colonial possessions in the Middle East."
And so the Fed, obviously, because they cannot risk a collapse of the banking system, is going to simply be printing money out of thin air to plug up all these holes for JP Morgan, Citigroup, Goldman Sachs, whoever needs it. Because any large systemically important bank in the system — in the United States, in Britain, in Europe, wherever — if it failed, it could start a domino effect that would wipe out a large proportion of the financial system in the West, which would usher in a depression, economic collapse, mass bankruptcies, massive unemployment, and so forth.
So to avoid that, the central banks will just print money — conduct quantitative easing programs without any limitation — to plug up all these holes. Because they can. All it takes is just printing up paper, which doesn't even take printing up paper. They just digitally create the currency that they give to their banks — banks who are members of the Federal Reserve system — and then the banks will be liquid infinitely. They will not fail. But all this printing of money out of thin air will ultimately create hyperinflation.
This is exactly the same syndrome that caused practically every hyperinflation in the 20th century. Basically, a system — in Venezuela, in Argentina, in Zimbabwe — starts failing. The corporate debts become unpayable. The banks are on the hook. Banks are going to fail, meaning the whole economic system is going to collapse. There's going to be bankruptcy. People are going to be losing jobs en masse. And so what the monetary authorities always resort to is printing money out of thin air. This happened in the Soviet Union, in Zimbabwe, in Argentina, and so forth. You get hyperinflation. You get economic stagnation. You get the destruction of the middle classes. And ultimately you get an inflationary unraveling.
Basically, inflation rescues the system by robbing everybody else in society. And you don't rob them by going into their bank account and stealing their money, because that would be too obvious. The way you rob them is you dilute their money's purchasing power by giving it first to your banks. And so people find themselves — maybe they have money in the bank, but maybe the money they were counting on for their retirement is now enough to maybe fill up a tank of gas.
So this is probably going to be the way the crisis unravels, because the alternative — a financial and economic collapse — is politically too risky for the ruling establishment. If you destroy the economy and end up having tens of millions of unemployed in the street, you risk losing control of the whole system. You risk a revolution or a civil war or something like that. That would be the style of collapse we saw in the Soviet Union, which completely collapsed on the back of that financial crisis. And so did Weimar Germany. Germany up until World War I was the world's most rapidly rising economic power — between roughly 1875 and 1914, Germany was tremendously prosperous. Its industries were growing by leaps and bounds. Everything seemed to be going in the right direction for Germany until World War I was imposed on Germany. They lied to us about that in history — it wasn't how they told us. Basically, war was imposed on Germany through similar manipulation as war was imposed on Russia in 2022. And then Germany started to slowly gradually implode. Again, it was unrestrained money printing that caused the 1922 Weimar hyperinflation, and everybody's savings were depleted to zero.
Practical advice: protecting personal wealth outside the banking system
Glenn Diesen: Well, if we are watching this kind of market manipulation, I guess the smart money would be buying oil now, given that it's being artificially kept low. Any advice — before we wrap up — do you have any advice on where to put smart money at the moment? What do you do when you're facing these kinds of troubles?
Alex Krainer: Well, we are all very vulnerable to the banking system. If the banking system collapses, people will find themselves with no money — kind of like what happened in Greece and Cyprus in 2008 and 2009. So I would advise people to take some cash out of their banks and simply have it on them in cash. And I would also advise them to look into acquiring some physical gold and silver.
And then I also want to say — these are not solutions to the crisis. These are buffers. Cash and gold and silver are passive assets. They are a temporary refuge. You still need to participate in the economic system. And I think one great idea is to try to find share-farming arrangements.
Our farmers are also going bankrupt in droves, because they need money to fund their operations and they usually go to the banks, and banks usually find a thousand ways to push farmers towards failure. And then people on the other side have some money, some savings — they need to invest in something, but again, if banks fail, you're going to lose all that. So share farming would be an arrangement where people come together with farmers, and farmers get funding from people — but instead of it being a bank loan, it's either a loan from citizens or it's a share arrangement. Saying, okay, let's say a farmer needs €100,000 and I have €5,000 to invest — I can come together with other people and say, "We'll put together €100,000 for you, and if you can't pay us money, you can pay us in kind." You produce milk, eggs, meat, sausages, potatoes, whatever — and you're going to give us that as repayment for this funding.
It can be good for the farmers because you're not going to repossess their farm. And it can be good for people. And the best part of all is that this whole arrangement can be done outside of the banking system. Meaning if the banking system fails and you have this arrangement with the farmer, you can still get your payment in eggs and chickens and potatoes or whatever the farm produces. So I think this is very creative, but we need creative solutions at this moment. And if it's a win-win for both sides, then that's probably one of the arrangements to consider, because we're going to need food when things get bad and the farmers are going to need funding. This would be one of the ways that would make communities much more resilient than they are if we all depend on banks and supermarkets.
Glenn Diesen: Alex, thank you so much for your time. You're just back in Croatia, so I'm going to leave you some time to actually spend with your family. Thanks again.
Alex Krainer: Thank you, Glenn. Good to see you again.