DREW BESSETTE: What will be the ultimate impact of the coronavirus on financial markets and society as a whole? Michael Krieger, the author of The Liberty Blitzkrieg, argues that the coronavirus is already exposing the weaknesses in our systems that America has built-- from the financial industry to the health care system to the government in general. He tells me how we've gotten to this breaking point, why institutional response to the COVID-19 outbreak has been so inadequate, and what it could mean for the everything bump.
He traces the story from before 2008 to 2020 and beyond to provide a clear view of what this virus has revealed about our systems, culture, and financial markets. Krieger pulls no punches, and I'm sure that you will find this conversation as informative as I did. Enjoy.
We have Michael Krieger of The Liberty Blitzkrieg with us today. Welcome, Michael. Thank you thank you for joining us.
MICHAEL KRIEGER: Hey, Drew. It's very exciting to be on with you. I'm very-- very much looking forward to our conversation.
DREW BESSETTE: So my first question that I like to ask all of our guests-- it's a little funny, but who are you, and what is The Liberty Blitzkrieg?
MICHAEL KRIEGER: Sure. So obviously, my name is Michael Krieger. My background is my career started at the now defunct Lehman Brothers back in 2000.
I joined there right at the top of one of our last bubbles, that tech bubble. And I entered into the program as an oil analyst. So I worked for the guy who covered the major oils and refining companies-- so names like Exxon-Mobil, Chevron, Texaco, Tesoro, Valero, names like that. So I was basically in a cube for five years going through 10k's and spreadsheets.
And it wasn't exactly my idea of fun. But I learned a lot. The analyst that I worked under was extremely smart and talented in what he does.
So after that in 2005-ish, I joined Sanford Bernstein as a commodities desk analyst. So this is where I really-- I like to describe this as the job that fit my personality perfectly. I sat on the trading floor. I was looking at all commodities as well as the energy equities utility equities, all that stuff, plus just markets in general. So there, I was able to learn trading and sort of how markets work and really expand out into more macro everything.
And it was at that desk when the financial crisis hit. And at that point, I started asking questions, as I think a lot of people started asking questions. And I started to discover the system wasn't actually set up the way that I had assumed it was set up.
Prior to that point, I thought that-- I was making all this money. I was having such a good career because I was great. You know, I was so smart and all that.
But then I really realized with the crisis, when they started bailing out people like me, Wall Street, people that didn't need bailouts, I realized how gross and rigged the system was. And I really had a problem and a difficulty sitting in that chair. So I started writing about these things from my seat at Bernstein.
And then eventually, know I really couldn't be there anymore. It didn't make sense. I wasn't feeling good about the job.
And I left in early 2010. And I really had no idea what I was going to do. I continued to write because my job at Bernstein was to write about macro issues.
And I had a very large client list from the biggest institutional investors in the world-- hedge funds, mutual funds, everybody globally. So I kept that going. And then know one day, one of my articles got picked up on "Zero Hedge."
DREW BESSETTE: RIP.
MICHAEL KRIEGER: RIP from Twitter, the absolute top. Incredible-- pretty much the absolute top. But So they picked it up. And then I got a bigger audience.
And then I was interviewed by Max Keiser and Stacy Herbert of "The Kaiser Report" if you're familiar with that show. And they're brilliant. And so I realized, you know, at this point, you know, OK.
Well, there's an audience for this sort of thing. I think I have stuff to share. And so about a year, year and a half after that, in 2012, I decided to just put it in my own blog because prior to that. I was just emailing it out to people, emailing my thoughts out. And I did that then.
Same year as that, I discovered Bitcoin and started getting involved in Bitcoin. And that changed my life in a whole other different way. But basically, for the last-- essentially, for the last 10 years now, I've been writing about and trying to teach based on my experience and my knowledge and my macro sort of intuition and abilities, you know, what's really going on?
You know, how do things work at the biggest picture level? What does that mean? And the interesting thing about today is so many of the themes that I've been writing about for 10 years are all really coming to a head because of this pin, right, this pin that found its way into the balloon of this giant everything bubble. And so it's a pretty a pretty incredible time to be talking about all this stuff because it's sort of like the culmination of my last 10 years work coming to a head right now.
DREW BESSETTE: Yeah, I mean, when I reached out to you a few weeks ago, I didn't think that we would be sitting here today amidst an actual meltdown and this week, you know, two trading halts. And it's unbelievable. But originally, they were going to talk about your piece, "Financial Feudalism."
And you kicked it off with a Frederic Bastiat quote-- excuse me. "When plunder becomes a way of life for a group of men in society, over the course of time, they create for themselves a legal system that authorizes it and a moral code that glorifies it."
And I think that warms up our conversation today with everything moving so fast. We're actually going to talk about your latest piece, which is called "A Shaky Foundation." and so what we've seen is coronavirus viruses exposing a lot of the weaknesses, I would say, in our financial, political, and public health systems. But before we get into that, I want to ask why did you call it "A Shaky Foundation?" Can you explain that and maybe introduce the Jimi Hendrix quote that you use to kick it off?
MICHAEL KRIEGER: Right. So yeah, castles made of sand fall into the sea eventually. I mean, that pretty much describes how I see our civilization at this point, you know?
And I do think-- and I've been saying this for a while. I think we need to rebuild the entire civilization, in a lot of ways. But we can do that. It's necessary to do that, and we should do that. And so I think you know there is an optimistic way to see all of this.
But the bigger point is, look-- a lot of the shaky foundation that we're living in started way before I was even born. In the early '70s, as you know, 1971, getting off the gold standard, that really kicked off financialization in earnest, right?
So what I like to talk about is after World War II, obviously the United States became a global empire. But that empire was based on not a shaky foundation. It was based on having the world's manufacturing base after everyone was bombed out, playing a part in winning the war, and being relatively unscathed and then all of the things that the United States already has, like,is blessed with naturally.
And so that lasted for a few decades-- let's say, 2 and 1/2 decades. The US was, let's say, an industrial empire-- a military empire but also an industrial empire. It was based on making things. It was based on a real, actual economy, and actual economic strength.
Starting in 1971, we just started taking the easy way out to empire. And I call it-- this is the beginning of the financial empire. And that's what we live in now. We're not an industrial empire anymore.
Clearly, right? Like, coronavirus is exposing that. For example, we ship 95% of our mask-making capacity out of the United States. Can't even make masks that we need.
We're reliant on other countries to provide masks for us. That would never have been the case right after World War II. We're just a different country.
So what is a financial empire? Financial empire is one that really basically controls the world or has control of the world via the financial system itself, via the fiat US dollar and control of that financial system, which is based on the US dollar. And this made us very, very lazy and very, very weak because if all you have to do is run the financial system with this imaginary currency that you can create and use as a weapon at will, you get to the point where you don't need to actually do anything, right?
A lot of people talk about the military bases and all this. But all of that can go away very quickly if the dollar is not there. The dollar is what actually underpins. People like to say, oh, well, the dollar is backed up by the military.
I actually disagree with that. I think the military is backed up by the dollar and the financial system. If the dollar didn't have the position that it had or it has or-- we'll see how long it lasts. But if it didn't have that, then the military wouldn't be able to function everywhere in the way that it does, right? We're basically on an unlimited budget. So that's what we created.
And what that's done is it hollowed out the country because we all got lazy, essentially. And elites just started saying, well, we don't need manufacturing. We just have the dollar.
We have the financial system. We have finance-- you know, financialization. So they shipped jobs overseas, increasingly making money just on scams, using a lot of leverage and buying assets and buying back shares. I mean, you discussed on "Real Vision" this sort of thing. It's a huge laundry list.
But the point is, a financial empire that's based on something so shaky as a fiat currency that dominates is one that at some point will obviously collapse. But it's interesting that it's taken so long. And what that means is that there's so much more rot underneath than people can even imagine.
And so if people want to look back, I've been writing, you know, like I said, on my website since 2012. I've been writing about all of the different points of weakness for all that time. And it's basically every industry. I mean, we've hollowed out and put the most corrupt people in charge of virtually everything in the society.
DREW BESSETTE: Yeah, so I mean, you talk about corruption and hollowing out and kind of covering up that rot that you describe, right? What was the effect of 2008 in that? Because that was a huge crisis.
And it seems very similar to what's happening right now in financial markets. What was the result of that? Why is it allowed to get to this point?
MICHAEL KRIEGER: Yeah, you know, it was very frustrating for me as I described earlier. I tell this story sometimes. I remember when TARP-- when TARP didn't pass the first time, right?
And then they made Congress vote again so they could pass it. I couldn't sleep, and I got into the office very early that morning. And there was like five people.
But the head at the head of trading was there. And I stood up, and I was just ranting. I was like, this is it.
You know, we're never coming back from this as the same country again. It'll never, ever be the same. And my boss was like, Mike, sit down, take a walk around the block or take a walk around the block.
So I just sat down. But I'll never forget that moment because it was very clear to me that there was just opportunity. There was an opportunity to really say, OK, there are systemic problems here.
We shouldn't just try-- we should take this as a lesson, and we shouldn't just try to patch it all back together and pretend nothing's wrong. There's clearly things that are very wrong. And so the response was-- and you see it in the data since to help people that needed help the least to-- you know, all the people involved heading up these financial companies, you know, whether they went bust like Lehman or not, they all came out of it extraordinarily wealthy, not in jail.
That was the lesson, OK? That was one of the big lessons. So any sort of criminal-- right?
Any sort of criminal worth their weight is going to look at that and say-- corporate criminal, white collar criminal is going to say, oh, it's open season now. Nothing's going to ever happen to us. So let's just go for it.
And you know, Epstein is another example of it. Now Weinstein's finally in jail. But the point is, elite criminals-- basically, I call them super predators because they're the most dangerous-- basically took that as a signal that, OK, well, there's nothing that we can do that will put us in jail. There's nothing that we can do.
So the last 10 years just became this gigantic looting spree. And I was very frustrated at the time by the reaction from a lot of people. I know a lot of people were upset.
But what I now realize is we were facing a generational crisis at the time that we just weren't prepared to sort of have a reaction to because you know if you're a younger millennial or you're like a middle millennial, you were too young then to realize. So in other words, the generation, that millennial generation that was about to get shafted and turned into debt slaves forever, essentially, it looks like, they were too young to understand and appreciate what was happening to them.
Some of them were still in high school. Others were maybe starting into the workforce. But they didn't understand the extent to which that they were getting scammed.
And now they do. So it's going to be interesting to see the response of that generation that has been so shafted going forward. But that was that was, I think, a big part of the problem. The people that were going to be hurt the most generationally were just too young to know what was going on.
DREW BESSETTE: Yeah, so I kind of want to move a little bit forward and then bring this into the coronavirus context, right? So on January I think it was 27, you tweeted out, one thing I've learned from this coronavirus response thus far is institutions will never do the right thing fast enough in a situation like this to prevent a global disaster when that day arrives. And I don't know.
I think we're there. That was a month or so ago. And why have public institutions been so late and inadequate with their response to this?
MICHAEL KRIEGER: Yeah, because-- again, because what we've done in the last 10 years in particular is created this environment that is so-- it's like the opposite of anti-fragile. It's super fragile. It's been coddled so much-- like, any downtick in the markets, you have to save the markets.
Any problems, immediate Band-Aid has to be put on rather than reckoning. So world leaders have created this-- it's like this delicate flower that the slightest thing can knock it over. But anything big is going to completely pummel it.
And something like a global pandemic is like the black swan of all black swans for something like this because nobody actually considered it. So I think what was going on from a leadership point of view is this complete inability to reckon with something this big because they knew that they couldn't handle something this big. I think they know that the system can't handle something this big.
So instead of actually thinking that it could be this big, they just decided to put their heads in the sand because it was too scary to contemplate. And you saw that right off the beginning. I mean, you didn't have to be a genius to look at China building hospitals in four days to know there's a problem. At that point, we didn't know how far it would spread or anything, but you knew there was a major problem in China. And you had to assume that since flight we're still leaving China that it was going to spread.
So what I saw-- you know, what really tipped me off other than the fact that China was building hospitals overnight was the fact that these global leaders were just downplaying it so much. And it's sort of like one of those little signals because you know they tend to hype things up, right, fear, when it's to their advantage.
So like, after 9/11, I mean, the fear mongering just went off the charts, you know? I mean, it was clearly just, like, be as afraid as possible. And then they pass things like the Patriot Act and other stuff like that that we've been living with ever since. Our civil liberties have been essentially destroyed in a lot of ways in this country thanks to 9/11.
So when there's a crisis and I don't immediately see the world leaders or establishment or status quo trying to make you afraid to take away more of your rights, that just sent off an alarm bell to me. That to me was just like, OK, they really don't get this at all, and they're just not dealing with it. So that's how I knew. And you just have to assume that the leadership today across the world because of how, let's say, easy It's been, particularly in the US, have no ability to manage any sort of a crisis scenario.
They don't know anything like it, and they're not going to be able to do it. And that's what you're seeing right now. You know, you cannot trust authority to-- you can't trust what they say at all, period, end of story.
Like, just don't. And I hope that's a lesson for people out of this, you know, to think for yourself, to analyze the facts, and use your own intuition because no one's coming to save you. A politician is not going to come save you.
The government is not going to come save you. When you need it, they're not saving you. And by the way, they didn't save you in 2008 and 2009 either as I like to explain.
You wouldn't have Donald Trump elected. You wouldn't have had the upsurge in Bernie Sanders, right-- it's a youth-led political movement-- if things were just so great after that the crisis. I mean, we're still dealing with the consequences of that.
DREW BESSETTE: So do you think the reason that there was