The Fire Hose of Chaos: Government Debt

Photo of house made our of 0 bills

With everything that’s going on in the US, it makes sense that foreign investors decided to dump US T-Bills. But what does this mean for the government debt market and the future of the USD?

The selloff of $100 billion in T-Bills caused interest rates to spike and US Treasury yields to jump; however, the US remains the global financial baseline. Other countries simply can’t offer the volume, stability, or scale that the US Market can.

With no real alternatives, the US will remain in the number one spot. If things did heat up, the Fed can always monetize the debt (which is something they’ve never had to do at large scale). And the US has structural advantages and policy tools that will keep the US stable in the long run.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, all, Peter Zeihan here with a home office video. We’re gonna take a question from the Patreon crowd, and that is, do I worry about what’s going on with the government debt market? Specifically, some of Trump’s economic policies have been so erratic that they have been causing foreign investors, most notably the Chinese, to dump a lot of us T-bills on the market. 

We’ve had reports that as much as $100 billion has been dumped in a short period of time, and in doing so, the cost of financing that debt has gone up, with the US T-bills briefly hitting about 4.6% before falling back. Basically going up a half a percentage point in a day doesn’t sound like much, but typically if you go up more than like 5/100 of a percent in a day, it’s kind of a big deal from a financing point of view, because in the US, government has issued more debt to pay for the financing. 

And since there’s $36 trillion in outstanding debt, you move that needle just a little bit and all of a sudden the US government can get into a lot of financial trouble. And some version of that is what destroyed the Premier ship of Elizabeth Truss in the United Kingdom a couple of years ago. She instituted a policy of tax cuts that were going to be funded by debt, thinking that the growth would then make up for the difference. 

And the market absolutely destroyed the pound briefly. And she was out in only a few days. I don’t really worry about that from the American point of view. A few reasons for that. First and most importantly, the US T-bill market is the global standard. Whether or not it is the 80 list standard is not the point. 

The point is it’s the baseline that everything else trades around. So you can have governments with tighter fiscal ships like say, the Netherlands or Australia or Germany, whose debt is generally considered higher quality than the US. And it doesn’t matter because with $36 trillion, we are the baseline for pretty much all financial instruments, and that provides a lot of cushion against big shocks. 

The bigger problem is whether or not the United States is risking losing its position as the global currency, the global store of value in the currency of first and last resort. After April 2nd, when Trump put in the tariffs, it basically would have generated a global meltdown if they would have stuck around. The concern is that there is a flight to safety, and usually in a flight to safety, people go to gold because they interpret as it being inflation resistant, and they go to U.S. T-bills because they’re the global standard in the US economy. 

If something happens to it, the rest of the world has already melted down. Well, since the cause of the problem was the US government, the T-bills didn’t seem to be a particularly viable option and money went elsewhere. But if you look at the other options, they kind of suck. They went to the European Euro, and the euro has risen since the US dollar in the last couple of weeks. 

But at the end of the day, the countries in Europe are demographically dead, and they can’t provide this type of baseline activity that isn’t necessary to underwrite a new store of value or a new source of exchange. And the euro is bigger than all the other options put together. The British pound still hasn’t recovered from the Truss episode, and without the Empire behind them, they’re just a mid-sized country. 

They could never provide the volume. Canada, Australia. They run a tight ship. But you’re talking about countries with under 40 million people. In the case of Canada, under 30 million people. In the case of Australia, they just can’t compare to 330 million that are in the United States. Not to mention, the United States is a larger economy per capita than any of the others. 

And that just leaves Japan, which until recently had one of the most manipulated currencies in the world. People like to talk about the yuan, but the one is not internationally traded. It’s not even an option. There’s just nowhere else to go. But even in the worst case scenario where everyone, everyone decides they just have to go somewhere else. 

Which, by the way, does indicate a complete financial meltdown of all countries. Even in that scenario, the United States has an ace up its sleeve that has been used as a matter of course, by pretty much every other central bank for the last 30 years. You see, as countries have been demographically declining, their debt has become less and less attractive. 

And so the central banks have had to step in and monetize that debt bit by bit by bit, basically printing currency to buy up the government debt. It’s not that the US doesn’t do this, but the US has never done this on the scales. Everyone else has done it. And since the Covid crisis ended, the federal Reserve has basically been cleaning up its balance sheet month by month by month. 

And so there’s a lot of wiggle room for the fed to do just that. Now, that would still have consequences. But we’re talking here about an end of the world scenario, which is kind of my specialty. And in that scenario, you basically would have the Federal Reserve monetize large portions of the debt and become the buyer of government debt, a first and last resort. 

In that scenario, the existence of the US t-bill as the baseline for everyone else would be a little bit different, but it wouldn’t stop. So having that in your back pocket gives you a lot of options that nobody else has. Don’t feel great about it. We’ll be okay on this measure.

The Fire Hose of Chaos: What Is Hegseth Doing?

Official government photo of Pete Hegseth

Pete Hegseth, the current Secretary of Defense, has been doing his best to completely dismantle the United States’ ability to fight a war now or in the future. Let’s look at why this is happening…

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Peter Zeihan here. It’s Easter Monday. You’ll see this on Easter Tuesday. And today we have to talk about the Department of Defense and in particular, the Secretary of Defense. A guy by the name of Pete Hegseth. Pete Hegseth is the least qualified, most incompetent secretary of defense the United States has had. And over the couple of months that he has been in the office, he has done more to destroy the United States’ capacity to fight a current war, much less a future war, than really anyone in American history. 

And it’s worth exploring why. The big news that came out over Easter weekend that has prompted me to talk about this topic is that if you remember back a few weeks ago, we had the SignalGate issue where the Secretary of Defense, Hegseth, set up a chat room with a bunch of other top national security folks, as well as the Treasury Secretary. 

And somehow a reporter got invited onto it, and on an unsecured platform that the Russians had cracked the security on, started discussing active war plans and operational intelligence—something that under normal circumstances would have gotten everyone involved fired. But this is the Trump administration, and decisions are made differently these days. Anyway, turns out that around the same time that he did that, Hegseth had another single chat—again unsecured—but this time with personal friends, his personal lawyer, his wife, no one who had a security clearance. 

And to be clear, this is a felony that would get anyone in the armed forces put away forever and dishonorably discharged in a matter of seconds. The Trump administration has already said they see nothing wrong with this, and Hegseth will continue in his position. I think it’s worth understanding why the United States military is the most powerful military force in human history, and how Hegseth is looking to rip that up, root and branch. 

The first issue is education. When you have a force that spans the globe, you will need dozens of different skill sets, especially in your officer corps. So the United States maintains the most advanced staffed college system in human history to train up their mid-career officers for any possible outcome, as well as to teach them things like history, economics, trade, technology, electricity, energy, and all the rest. 

One of the things that Hegseth has said is that anything that does not directly encourage activities for an active war fighter should be cut. That includes all of the staff colleges, which is where we get all of our officers. Basically, it’s a return—or an attempt to return—the training system to something that was much more reminiscent of what we had in the Civil War, where you just threw bodies at everything. 

Gone would be the efforts of leveraging technology or anything else. The second issue is these educational institutions that we have to keep in mind: globe-spanning military force. So we do two things. Number one, we fly the troops to the educators. We try to fly the educators to the troops based on the circumstances. In addition, there’s the little issue of allies. Because the United States has the best training system in the world, we kind of lend it out, if you will. We invite other war fighters from allied countries to come to our training institutions to basically get a doctorate in the American way of warfighting, as well as seal up alliances and potential alliances with countries that are not, yes, treaty allies. Well, that requires people moving about. 

And one of the things that Hegseth has done is a blanket travel ban on all the educators so that they can’t travel. So if you want a war fighter to get trained, he now absolutely has to come to where the university happens to be, whether that’s in Annapolis or in Monterey. And everyone else is just shit out of luck. 

So we’ve seen what is arguably, in my opinion, the single biggest advantage we have long-term whittled down to just a weak spot. Then there’s technology. You may have noticed, but since the age of computers, the type of hardware that we are using in the world has been evolving, especially in the last few years with the Ukraine war. 

So, for example, the military gets a lot of crap, I think, fairly or unfairly, for being kind of stodgy because the technologies that they have used really haven’t evolved or mutated a lot in the last hundred years. I mean, yeah, yeah, yeah, we got jets after World War Two or at the end of World War Two. We got tanks at the end of World War One. We developed missiles during the Cold War. But guns, artillery, missiles, jets, helicopters, ships—you know, the general playbook hasn’t evolved all that much. The same basic platforms haven’t evolved. We just upgrade specific technologies and put them together in different packages and throw them at different problems in different ways. 

But the pieces really haven’t changed all that much. Well, starting about five, ten years ago, that really started to shift because we got breakthroughs in things like information technology and energy transfer and digitization, and they’re all happening at the same time, and they’re combining into new weapons systems that we’re only now starting to game out and design. And the Ukraine war is famous, of course, for drones. 

And drones are absolutely the leading edge of this revolution. But we don’t know what this is going to look like in five years or ten years or 15 years or 30 years. And keep in mind that we have a lot of weapon platforms that we designed back in the ’50s that we’re still using. So you have to have an institution within the military that games out the future. 

This takes two forms. First, you get the best and the brightest from the Intel systems within the military. You put them together in a room and get them to imagine the sort of thing that the president is going to be demanding of the military forces in ten, twenty, forty, eighty years. Then you need a technical team that can design a weapons system that will not just be useful ten and twenty years from now but can be upgraded and still be used a generation or two from now. 

Well, Hegseth is firing all of those people. The Office of Net Assessment—whose job it is to do the first part of that, imagine the future—has already been disbanded, and we’re seeing massive cutbacks in excess of 70% for all the officers that do the technical work. So basically, the United States is taking a giant technological step backward in its warfighting under Hegseth. 

And then the third issue is recruitment. Remember, we don’t know what the weapons of the future are going to be. So why in the world would you put any restrictions on how someone might choose to serve their country? We need everyone of every background. And if you look back at the history of the U.S. military going all the way back to before the Civil War, it’s not just that the military has always been a social ladder for underprivileged groups to attain status within a society. 

It’s a way they can attain leadership. They can get the skills that they need to remake their own futures. And from the American point of view, from the military point of view, from the tactical point of view, from the warfighter point of view—we need everyone we can get. Newsflash, folks: straight white dudes are less than one third of the population. 

And if you put restrictions on how the other two thirds of the population can choose to serve the country, you will never meet your recruitment goals. So in the last two months, we’ve seen a series of things go down. Most notably, Hegseth recently changed the physical requirements for what you have to match in order to serve in the military. 

Gold review phraseology—a policy that almost seems like it was custom-designed to kick all women out of the U.S. military. And then, of course, recruitment for any place that is not totally stocked with white dudes has basically been cut to zero. Even Black engineering universities are no longer being visited. And I know, I know, some people are going to say, well, if you’ve got a standard and everyone can’t meet it, it doesn’t work. 

No, no, no, no, no. The Israelis broke the seal on women in the military over 50 years ago. And today, every first-world military has a substantial proportion of women in the field. So if you can’t adjust for that, you’re going back to the 1840s. Moreover, there are some jobs—like, say, fighter pilots—where women are better because they can handle the G-forces better. 

So is Hegseth going to change the policy so only chicks are fighting in the jets? I don’t think so. What we’re seeing is it’s all adding up to the greatest degradation of American warfighting potential that we have ever seen. And this is only two months in. I also don’t think this is the end of it. Yes, Hegseth has now committed multiple felonies. 

Yes, Hegseth is an unmitigated disaster in his leadership. And yes, his entire inner office has now been fired. Oh, this is rich—he fired everybody in his office saying that they were all leaking information. I have no idea if that is true, but Hegseth has a history—especially in the SignalGate stuff—of saying something that is just a bald-faced lie, knowing that the information is out there to prove him wrong. 

And it’s usually released in the next couple of days. So by the time we see this video, we will probably have multiple lawsuits against Hegseth personally, for people firing, quitting, etc. So by the time you see this video, it’s entirely possible that the office that was fired—they will have all issued wrongful termination lawsuits and provided the information that will prove this guy is just an absolute moron. 

Okay. Do I think he’s going to go? No. Remember, the Trump administration did not build its cabinet because it thought these people were capable or change agents. He chose them because they were incompetent. The first time around, when Donald Trump became president, he really didn’t expect it. He thought he was going to lose to Hillary Clinton. And so he didn’t have a cadre of people around him because he had never been in government. 

Well, he reached into the Republican Party, pulled their policy experts, and—especially on security affairs—relied very heavily on generals and admirals to fill out the billets. Well, what he discovered in that environment is when you have generals and admirals who have been through the staff training program and they know how the world works intimately, they have opinions about how things should be done, and they can point out consequences if you do things the wrong way. 

Well, whenever that happened, Trump fired them. And so he went through more cabinet members than any American president in history. Just a huge number of generals rotated through the White House in positions like, say, Secretary of Defense or CIA Director. Fast forward to this most recent race. 

Trump had decided while he was out of power that rather than build a team of competent people who could push an agenda through, he wanted to make sure that there was never anyone in the room who would tell him no. So he reached out and hired people like Pete Hegseth, who I would argue three months before he became Secretary of Defense, had no idea that that was in his future. 

Well, because Trump values incompetence near him, there is no reason to expect Hegseth to be dismissed. I mean, of course he should be dismissed. But of course, in a normal administration, he would have never been nominated, much less confirmed. And that brings us to the next problem: Hegseth and people who are at his level of general incompetence—that includes the Director of National Intelligence, who is Tulsi Gabbard, or the Health and Human Services Secretary, who is Robert Kennedy Jr. 

All of these people should not be in their spots, but they’re going to stay because Trump values their lack of expertise. He values their yes-man mentality. He values the fact that they’re not keeping him informed because it allows him to live in his hermetically sealed, Obama-esque bubble. The only way that these people can go away is if they are impeached. 

And since the Trump team has basically gutted the Senate of anyone who is willing to stand out, that’s a really tall order. As Senator Murkowski of Alaska pointed out, retaliation against Trump is real. And so she’s considering leaving the party and being an independent in her home state of Alaska. That would still leave us with 52 Republican senators who are either unwilling or unable to stand against the president on issues of national security. 

And if you’re going to impeach someone, you have to get two thirds of both houses of Congress. So now you’re talking about roughly 20 Republican senators having to flip. In this political environment, I just don’t see that as feasible. So we are looking into the long, painful, drawn-out crash of the United States’ ability to manage its national security concerns under a leadership that is thin, that is broken, that is incompetent—and unfortunately, that we are stuck with for the foreseeable future.

The Fire Hose of Chaos: Corruption

Photo of a bronze trump doll on stacks of 0 bills

The Trump administration has introduced a level of chaos that can only result in one thing: corruption. I’m not talking about starting a cryptocurrency or manipulating the stock market, this is deeper.

Trump’s arbitrary tariff policies are destabilizing the US economy and eroding the rule of law. The ever-changing nature of these policies makes it impossible for importers to plan for or comply with. And in a broken system, corruption is bound to seep in. And since the US relies on self-reporting tariff obligations and has very few guide rails in place, businesses will likely turn to bribery to keep their goods flowing smoothly.

This is reminiscent of 1990s Russia, or even what happened in Argentina, which aren’t the best examples to be compared to…

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey all, Peter Zeihan coming to you from Colorado. Today we’re going to do the most recent in our Firehose of Chaos series, looking at the economic impacts on the US from corruption that is being imposed upon the system by the Trump administration. And we’re not talking about here corruption at the top, like when Donald Trump forces foreign dignitaries to stay at his hotels, or when he starts a Bitcoin program to basically scam people, or when he does pump and dump systems with the entire stock market. 

That’s a separate topic. And we’re not talking about a more traditional corruption that happens in a federal bureaucratic environment when bureaucrats basically pad things like invoices and take a cut themselves, not the Chinese style. We’re talking here about corruption that is being imposed by the Trump administration on the broader economy, where it can have a much bigger, deeper impact and really start eating away at the cultural advantages that we have of the United States, including rule of law and all has to do with the rapid, rapid, rapid changes in economic policy, most notably tariff policy. 

I’m recording this on tax day, April 15th, and we have now had 94 tariff policies in 44 days, all coming from Trump himself. This is not counting the policy suggestions that are coming from cabinet secretaries or the back and forth that’s happening within the administration is they’re trying to come to grips with whatever. The most recent thing to come out of Trump’s mouth is. 

This is just hard. Trump tariffs. And in that sort of environment, it is impossible for companies who are doing importing to really know what to do because there’s a process for collecting terrorist. I mean, think about the volume here. It’s roughly $3.8 trillion in goods imports every year. That’s over 62 million container units. And we have no none, zero staff at US ports to collate those things, to understand what the value is of the product. 

And so therefore what the terror should be, the way tariffs are collected in this country is the importer self-reports what is coming as it crosses the border and into the port of entry, and then pays the taxes electronically. And in that sort of environment, clarity is absolutely critical. And having 94 tariff policies in 44 days and knowing that much, much, much more is coming down the pipe means that no one’s really sure what to do. 

Because oftentimes we get multiple tariff policies in a single day. We’ve had two days already where we got six tariff policies within an eight hour period. And so even if you are attempting to follow the rules to the letter, you can’t because you never know what is going to come out of Trump’s mouth. These tariffs happen instantly, or maybe with a 48 hour lead in. 

And then it’s just a question of enforcement and there is no enforcement. So take for example auto tariffs on May 2nd. We’re supposed to get a new tariff that’s 25% on all auto parts. If you have a container of auto parts coming in on a truck from, say, Ontario, when that hits the border, you need to know each an individual part that is in there and then report it. 

But what if it’s something that is dual use, like say, wiring? Is it an auto part? Is an electronic part, is it a welding part? Is it something else. So the administrative cost of that goes through the roof and probably is going to be higher than the part is in the first place. The other problem, let me give you another example is what’s going to happen with electronics, over a two week period starting on April 2nd. We had tariffs going up on China. We start with 20%. We went to, I think 54%. Then we went to 80 something percent, down 104%, then 125% and finally 145%. 

So everything coming in from China had that kind of scale going up, and the importers didn’t know what to do. Now think about electronics, a specific subset over $100 billion of electronics coming from China every year. Well, what we did originally was 145% tariff. That’s why I bought my extra phones and my extra computer. 

And then about April 11th, Trump said, just kidding, they’re in abeyance. In fact, we’re not even going to charge our 10% base tariff on electronics products. So it used to be relatively simple, relatively, where every container in just had a flat 145% tariff. Now they had to do a carve out for electronics the next day. Coward, like the Commerce secretary said, this is temporary. 

Don’t get used to it. So they started putting it back on again the next day, Trump said, no, it really is off. And so they started peeling it off again. And then the next day Donald Trump said, actually, no one is going to get an exemption. We’re just going to have a different bucket for computing and electronics products. 

It’s going to be part of our semiconductor tariff. So what now? We’re going to have an additional tariff on every thing that has a computer chip in it. Well, that includes everything from backyard grills to white goods to your fridge. No one knows what the system is, so no one can choose to follow it dutifully because the rules keep changing, they’re not clear. 

And instead of being built up by the bureaucracy who puts this all into the public register where anyone can follow it, it is literally, often nothing more than a Trump tweet. So where does that leave us? Well, it’s a question of how do you administer these things? There’s two problems there, too. Number one, Donald Trump fired all those, fired all of the temporary workers in the federal system. 

Imports and exports don’t flow in the same, scale on for the same products every single day. So we have a lot of temporary workers who work in the ports to help out with the work, as it needs to be done specifically for border Patrol. Those people have either been fired or directed to other tasks, and so they’re no longer is a staff to do it. 

So, for example, on April 11th, when the software for this entire system failed, we just didn’t collect tariffs that day. Oh, there’s also the issue at the upper levels. There’s no one to interpret what Trump says. Remember that the top 1400 positions across the federal bureaucracy were basically cut when Trump cleared out everyone, including the people who are typically not fired between administrations because they have the all the organizational knowledge and technical skills, they’re all gone. 

So there isn’t a cadre of people at the top that are loyal to Trump that also have the ability to design these programs. And even if there was, you know, they’d have to do it hour by hour. Well, we have seen this before. This reminds me a lot of Argentina, where the Peronist government, through the 2000 to the 20 tens, kept changing the rules over and over and over and over and over again for personal, political or ideological reasons. 

And it became easier for everyone to just find ways to avoid them. See, the problem is, is when you make the rules impossible to follow, the only way that business people can function. Is to have a personal relationship with the people who are enforcing the rules. The way tariffs work, you self-report and then there are spot checks. We have set up the perfect system that will, for force American importers and businesses to bribe the people who do the spot checks, and that is something that will corrode out through the broader system. 

This is very Russian 1990s right now. We’re setting up the stage where we’re telling our business community that they have no choice but to violate the rules if they’re going to function, because the rules are almost designed to not be valuable. Is that even a word? Anyway, it would be nice if this all settled down in the near future, but Trump has promised us in the next few weeks we’re going to have tariffs on sector products. 

So agriculture, car parts, semiconductors, medications and so on. As with everything, there is no one in the upper echelons of his administration who knows much of anything about these economic sectors. So it’s all going to be arbitrary, it’ll all be based on the ideas that Donald Trump is having at the time, based on whatever data point he happens to find egregious. And there will not be a rules creation system. 

It’ll simply be imposed by tweet. No one will know how to follow it, and it will set us up for an erosion of rule of law throughout our corporate world. Bye.

Why There’s No Fentanyl in Easter Eggs This Year

Photo of easter eggs in a basket

US efforts against fentanyl have been ramping up. Specifically, the Trump administration has turned its focus to one specific Mexican cartel – La Familia Michoacana.

The US has increased financial sanctions on the fentanyl trade, specifically targeting the cartel’s foothold in Lázaro Cárdenas – Mexico’s largest Pacific port. This position allows La Familia Michoacan to import the precursor materials direct from China and India. In case that wasn’t enough, a bounty has been placed on the cartel’s leaders, the Olascoaga brothers.

Fentanyl will remain a problem for the US, but at least there won’t be any in your easter eggs this year…hopefully.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hello, Peter Zeihan here. Coming to you from Colorado. Happy Easter. Let’s talk about drugs. Specifically fentanyl. Last week, the Trump administration. These are courtesy of my niece, by the way, and my sister. And they have no taste. Anyway, last week, the Trump administration upped enforcement of, basically financial sanctions against folks involved with the drug trade in Mexico, specifically a group by the name of La Familia Michoacan, which is a cartel in the southern part of the country. 

Music. Milliken state. Why does this matter? Well, Sentinel is a really difficult drug to move against because it’s a synthetic. It only takes a few seconds per dose to produce, basically do 100,000 doses in a garage and in the course of a week, as opposed to cocaine, which has a long agricultural supply chain stretching it back to South America. 

And so most of the things that the United States has done, before and during this current Trump administration has almost been pointless, because if you’re dealing with dozens, hundreds, thousands of mom and pop operators that are building this stuff, a traditional military or law enforcement approach just doesn’t work. The volumes are too small or too easy to smuggle. 

And since it’s synthetic, you basically can put it anywhere. So even if Mexico, working with the United States or on its own, was able to get rid of fentanyl production, it would just move to Oklahoma or Nevada or somewhere else. There has been a recent breakthrough with the de minimis shipping exception being closed, and that will greatly reduce the volumes of the precursor materials that make it in from India and China. 

And that will complicate the drug production, but it doesn’t solve the problem. Ultimately, it’s small scale and it’s hard to fight, of course, within every general trend there is an exception and la familia Michoacan is the exception. They are a cartel that instead of built around the smuggling of cocaine, is built a blurring the mass production of fentanyl. They are the only one of the major, narcotics trafficking groups in Mexico that has followed that business model. 

And because they control the part of Lazaro Cardenas, which is the largest Pacific port in Mexico, they have easy access to the raw materials that they need to basically produce fentanyl at an industrial pace. And they are largely immune to anything that happens with the de minimis exception or law enforcement in the United States. In many ways, they’re powerful enough to be a state within a state, and they control all of the corruption that goes along in the port as well. 

So rooting them out is going to be very, very difficult. In addition, some of the military options that the Trump administration really are inappropriate for this, not just because this is a major commercial port that would have a lot of complications and problems, but it’s on the wrong side of the country. It is on the southern coast of Mexico. 

It is nowhere near the U.S. border, so it’s just not in the sort of place that, the Trump administration or the United States in general can act. That said, the Trump administration has definitely named and shamed the brothers. Alaska Bagwell, who are in charge of the cartel, are now bumped up on the most wanted list. And I believe the new bounty is $8 million, in addition to a whole series of financial sanctions and indictments from US federal prosecutors. There is no good solution here. If there was, fentanyl wouldn’t be a problem. 

But because there’s an industrial scale production in this part of Mexico, U.S. authorities working in league with the Mexican government might actually be able to do something. It’s one thing to go door to door through every Mexican and American city looking for a drug lab. It’s quite another when, you know, the largest fentanyl labs in the world are in one specific city. 

That happens to be a port doesn’t make it easy, but it does mean that the sharp end of American power is a little bit more appropriate for this specific fight than for the rest of the drug war.

The Fire Hose of Chaos: Bye-Bye De Minimis

Cargo ship with containers

The US is plugging a loophole in the trade system called “de minimis” which allowed imported goods under $800 to bypass tariffs and traditional customs processes. This system will end on May 2, and these small packages will now face a 90% tariff and $75 minimum fee.

Many Chinese businesses will take a hit from this, but the biggest fish in the pond is the disruption of the fentanyl trade. Since shipments of drug precursors were abusing this loophole, the flows from China/India –> US –> Mexico will be disrupted. No this isn’t going to eliminate fentanyl, but it will slow things way down.

There haven’t been too many tariff policies to get excited about lately, but we’re going to slot this one down in the ‘win’ column.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

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Transcript

Hey all. Peter Zeihan here. Coming to you from a Colorado morning. We are going to talk today about something called de minimis, which is how shippers around the world get stuff to the United States to avoid tariffs. Basically, you make it small. If the declared value of any package is below $800, you don’t have to register. You don’t have to pay customs. 

You don’t have to tell people what is in it, aside from like a one word description, which does not have to be accurate because it’s almost never checked. That ends on May 2nd. On May 2nd, the Trump administration’s tariff expand to the de minimis system. And it used to be as long as the declared value was under $800, you were in the clear. 

Now there is a minimum 30% tariff, which has to be a minimum of $25, which basically ends most a minimum shipping. And then by June 1st, that will increase to a minimum of $50, which will definitely put a bullet in its head. Turkeys. Two things come from this. Number one closes a loophole. 

I mean, there’s there’s not a lot of income here. The de minimis exception with the word minimis, I hope kind of communicates that as it most of these tariffs are just considered too small to be worth collecting. And by putting a system into place, the Trump administration is basically ending the practice, which means that most people aren’t going to ship things like that at all. 

And that’s, you know, a minor issue. I mean, if you get a lot of stuff from TMO, it’s a big issue. And and for China, this means a lot of small companies just lost their primary source of income. So it’s a problem over there more than it is over here. Over here the single biggest impact is going to be fentanyl. 

Right now what happens is, chemical plants in primarily in China but also in India produce the pre precursors and the precursor materials for fentanyl and then ship them in the US post to the United States, where they are repackaged into larger packages and then shipped down to Mexico for processing into fentanyl. And then the finished drugs are sent back. 

It’s all covered under de minimis. So basically, the Post Office has been the single biggest contributor to the drug trade in recent years. And this will pretty much kill that, which is great. Comes at an economic cost, but most of the cost is over there, if a little bit more inflation over here, which used to be a minor issue, but with the rest of the tariff war going the way it is, you know, every little bit hurts. 

This doesn’t solve fentanyl. I don’t I gotta underline that. I mean, while this stuff is currently sourced from mostly China, a little bit from India, and comes in through the post office, anyone with a chemical sector could source this, and the volume of stuff that is required is very little. Best guess is that all of the fentanyl that was produced in Mexico last year, all the pre precursor materials would be about the equivalent of under 100, drums, like oil drums. 

If you only got one deals that would be enough for everything. So it doesn’t take a huge amount of volume to get this going. And we’ll definitely be seeing things coming from other directions. It’ll probably go in a little bit more informal direction, like meth, where the pre precursors are actually synthesized at the labs. And that does increase the friction. 

That does slow the process. That does require a little bit more technical skill than what happens in fentanyl. And these are all good things. But this will drive up the cost of fentanyl, drive down the supply, at least in the midterm, and it’ll probably take 2 to 5 years before the fentanyl labs figure out good workarounds. Just keep in mind that once we’re to the other side of this, it will resemble the meth industry a lot more, with a lot more fabrication happening right here in the United States. 

Because once you get the precursors, the rest of it is really easy. You don’t even need a college chemistry experience to do this stuff and volume. And if you have college, chemistry experience, you can produce a huge amount of stuff. We’re talking hundreds of thousands of doses every week, so step in the right direction. Believe it or not, comes at a cost. 

Everything does. But for once, we have a tariff policy. This actually addressing a problem, and I’m going to take that as a win. 

Never mind. The tariff is not going to be 30% on de minimis items. It will be 90% with a minimum of a $75 charge. Everything else stands for now. 

The Fire Hose of Chaos: Don’t Expect Many Trade Deals

Photo of a bronze trump looking at a globe

The Trump administration can put out as much trade deal fluff as they want, but the reality is that the internal dysfunction and unpredictable nature of this admin will impede most deals from ever making it out of an email chain.

Trade negotiations are complex and take years to develop. Given the state of organizational paralysis, there’s just not enough people to handle most of these talks. All of that back and forth, up and down, and dragging through the mud has left a sour taste in most countries’ mouths. And with no real beta on how to successfully approach these trade deals, what’s the point in trying?

So, take those official claims that ‘progress is being made’ and ‘real trade talks are happening’ with a truckload of salt.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey all, Peter Zeihan here. The fire hose of chaos continues. And today we’re gonna talk about trade deals and why you really shouldn’t expect many. First of all, let’s talk about the organizational side of things. Usually it takes the United States about six months of consulting with industry and consulting with Congress just to build its general position on a trade talk. 

And then you go into talks with the other side, the fastest trade deal the United States has ever negotiated with Singapore. It took about 18 months. Most of them take the better part of a decade because there are so many pieces in motion. Even the Treasury secretary says that meaningful talks aren’t going to begin for another five weeks, and the first results aren’t going to happen with six months. 

Even that is just a grossly optimistic time frame. And what you normally do is the trade talks reach a point of stagnation down the road. Then you start throwing around the threat of tariffs. By doing it in the front end, everybody’s kind of on the wrong foot. And to be perfectly blunt, the United States isn’t ready to have these talks. 

Part of that is also organizationally, when the Trump administration came in, he came in with a much smaller Cordray than most presidents do. It’s really just the cabinet and a few senior aides. The Trump administration then proceeded to gut all of the departments of everyone in the top, several echelons, and then never staffed those positions with anyone but loyalists. 

And so there really aren’t a lot of people who even know how to negotiate in the first place, much less do a trade deal. So there’s really only four people in the US administration that are capable of holding the talks. You’ve got Jamison Greer, the US Trade Representative Office. You’ve got Howard Slotnick Commerce. You’ve got Scott percent at Treasury. 

And then, of course, the president himself. That’s four. And all of them have other things to do. Normally you would have literally hundreds of people taking care of all the technical aspects of the talks. And so when another country reaches out to the United States to do exactly what Donald Trump says he wants them to do. Open conversations on all of the topics. 

There are no people at the lower levels to carry on those conversations. It’s just the four at the top, and all of them are very, very busy doing everything they do with their normal day job. On top of several dozen trade negotiations. And so we’re hearing reports left, right and center from even larger trading partners that messages are going on responded. 

And any offer that they make is just met with silence for their part. The Trade Representative’s office says that it’s sending the things on to the president that he thinks are worth the president’s time. But everything just snarled up because the president is doing other things. That’s kind of piece one. Piece two is much more visceral because of the way Donald Trump has approached these things. 

There isn’t a lot of trust. So consider the situations of our top four trading partners outside of China. So first, Canada, Canada took a hard line position of resisting what the Trump administration did in its early days. And as a result, it got slapped with tariffs that haven’t come off. Mexico decided to bend and give the Trump administration everything it wanted. And as a result, it was slapped with tariffs. So with our top two trading partners, no one knows what the approach should be because the result is the same as for the Europeans. It’s a security issue. Trump administration came in, basically withdrew support for Ukraine. Ukraine is fighting Russia. Russia is the only reason that NATO alliance exists. 

It was created by the United States to contain the Russians. And so the Europeans quite rightly see the United States as a security threat. And anything that happens on the trade front, as a subsidiary to that. And the Trump administration doesn’t want to talk about the security situation at all unless the Europeans buy lots and lots of weapons. 

But still do everything the United States says. And so we’re getting a split in the security identity of the entire Western civilization. Because of this disconnect between the two, what the Trump administration says it wants, what it’s doing. And then throwing the tariff situation into the mix. And so the Europeans really don’t see a benefit to discussing anything with the Trump administration until such time that the NATO situation is untangled. 

And then finally, you’ve got Japan. Japan has tried to take a relatively low profile in this, and it’s mostly one of, it’s kind of a combination of betrayal and disgust that they’re feeling. 

During the first Trump administration, Shinzo Abe, the Japanese prime minister, specifically came to Washington, cut a humiliating deal specifically to get in with Donald Trump so that whatever the future of the United States would be, whatever the future of Japan would be, the hard work would be done, and they could proceed together. 

So the deal was negotiated by Trump, was signed by Trump, was enforced by Trump. And in the last month, the Trump administration has basically abrogated the deal and told the Japanese to start over. And the Japanese position is, if you want, honor your own deals, why in the world should we bend over backwards to negotiate another one with you? 

And so the official story is that everyone is reaching out to negotiate, and lots of good deals are being made. But the bottom line is, none of our trade partners really see the point in doing this, because everything is so erratic today is April 16th. Today, the Trump administration announced its 95th tariff policy in 45 days, raising the tariff rate on many Chinese products to 245%. 

As long as everything is so erratic, there is no point in having a conversation with the United States. Even if you can get someone on the phone because the rest of the world just doesn’t know yet what this administration actually wants. The goalposts are changing on a daily basis, sometimes an hourly basis until that settles. 

Trade talks. Real trade talks can’t even begin.

The Fire Hose of Chaos: Wait, The Recession Is Already Here?

Photo of man holding empty wallet

What could have happened much, much further down the road (or even avoided given the right circumstances) is now in the headlines – the US is headed into a recession. And if you wanted to send a thank you card to someone, you could send it to 1600 Pennsylvania Ave and address it to the Trump administration.

Between the unpredictable tariffs and constantly evolving regulatory shifts, this recession seems like it was part of the “plan” all along. The four big contributors are government spending remaining high, industrial construction on hold since March, manufacturing getting hit hard by tariffs, and consumer spending slowing.

Even if Trump’s reshoring efforts worked perfectly, we’d still be looking at two years of inflation and recession. And nothing in this administration has been done perfectly so expect this recession to be much deeper and longer than necessary.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey all, Peter Zeihan here coming to you from Iowa. Happy Easter week. Happy Easter week? Happy Easter week. Any who, a lot of you have written in to ask, whether I think we’re going to be in a recession and why? Short answer is. Yeah, yeah. First, the caveat. When the United States was making its presidential transition back in January, pretty much all of the signals for consumption activity, for industrial activity, for government activity were all green. 

I don’t mean to suggest there weren’t some complications in there are some things to kind of keep an eye on. But we were in the middle of an economic expansion. There was no reason for expect that to change. But the policies of Donald Trump have been so erratic, so consistently, ironically, that business confidence, has collapsed. And the United States is now in a situation where it is dealing with regulatory and geopolitical risk, which is something that business communities hate. 

On top of that, you have the tariffs, where in the last six weeks we’ve had 92 tariff policies, which make it impossible for anyone, business or consumer or even state and local governments to plan. So we’ve seen everything freeze up. And this is definitely going to cause a recession and a rough one and one that is completely unnecessary. 

So let’s just kind of go through the four categories of where the growth comes from. First, government. This is actually the one I’m least concerned about. Despite everything that Doge has done with firing people, it turns out that the president doesn’t have the authority to fire most federal workers. Neither does the Office of Management and Budget, and certainly Doge, which doesn’t even have a congressional mandate. 

Instead, every department in the federal government does have a federal mandate. And as congressionally mandated activities. So you can’t fire these people without congressional activity. So everything that Doge has done is pretty much already been unwound. The total budget savings and the low double digits of billions and 90% of the workers have already been rehired, doesn’t mean that they won’t be fired. 

Now, the Trump administration, in kind of round two is actually doing it the right way, going through the cabinet secretaries and getting legal structure from Congress for the reductions. And that will work. But that won’t manifest this quarter and probably not next quarter. So what that means is, even with the federal government being in chaos, the spending is still happening. 

So we’re getting none of the functionality of government, but all of the cost of government. And from an economic point of view, that is a slight negative, but not a big one. So government’s kind of a non-factor right now. Next up is industrial spending, primarily on construction of new industrial plant. Now, in calendar year 2023 and 2024, we were setting records every single month, and it all came to a screeching halt on the 1st of March of this year because of all the changes in the regulatory structure programs, and because of all the chaos with the tariff policy, no one knows what the cost structure is any longer to build in the United States. 

And so no one is building in the United States. We have already had a longer stretch of zero industrial construction, at any point, in the United States, since World War two. Now that is only about 10% of the economy, but it’s at a huge drag right now. Next up is manufacturing. Primarily the problem here are tariffs on Canada and Mexico, which are coming in and out and changing on a regular basis, just like with everything else. 

But it’s really hit things like auto spending, Your average automotive has 30,000 parts and on par, all of the parts basically go back and forth and back and forth and back and forth across borders to whichever one of the three NAFTA partners do the best. And on May 2nd, we don’t simply have tariffs on Finnish cars. 

We have it on all of those auto parts. And so we’re looking at the average cost of a vehicle going up by 12 to $20,000. If it’s made in North America. And that is going to be crushing. So with the existing tariff that we have right now that was implemented on the first week of April, that was already enough to trigger manufacturing recession and the really heavily auto committed places like Tennessee, Kentucky, Michigan, Indiana, Ohio. 

And what we’re going to see, in the 1st of May is that will spill out to the other 25 states that are big into transport technology, and that’s everybody from Washington to Texas to, South Carolina. So then we get a manufacturing, recession. That’s another 15 to 20% of GDP. And then finally there’s consumption, which is the big boy, three stories here. 

First of all, Trump says we’re going to get agricultural tariffs very, very soon. In fact, by the time you see this video might have already happened, for the bottom quintile of the American population, one third of income is spent on food. So that immediately is enough to translate into a consumption recession for the poor and especially poorer parts of the United States, such as the Deep South or some parts of the Rocky Mountains. 

Second, the wealthy, most of their consumption is tightly correlated to what’s going on with the stock market. And that’s been a shit show for the last couple of months. So all of a sudden, the people who have the highest amounts of capital are probably going to be drawing back. And third, the tariffs at the time of this recording, we have 145% tariff on, on China, which is where most of our electronics and consumer goods come from. 

So you throw that on top of what everyone would normally purchase and, you get a consumption led recession across the entire system very, very quickly. Now, the end goal here, of course, of the Trump administration’s policies are to expand the industrial footprint in the United States and get back into manufacturing in a big way. But that takes a lot of things like steel and aluminum, copper. 

And we now have tariffs on all of those things. So building out this industrial plant will be very, very expensive. And if everything goes the way that Donald Trump says it will, we won’t see the first output from these new factories within two years, which means that this transition period best case scenario, according to Trump’s words himself, is two years of inflation and recessionary activity. 

That’s assuming that he’s made the plan perfectly. He hasn’t. And that assumes that he’s right about what he’s doing. He’s not. So yes, recession probably starting off formally, statistically in the second quarter, certainly in the third, and lasting a lot longer than it would have ever needed to.

Should the US Stay in the Middle East?

Photo of a Marine on top of a HESCO barrier

Here’s a video I recorded while I was in New Zealand at the end of 2024. In this video, we cover a question that the US is still trying to answer – should the US maintain its presence in the Middle East?

The US has been involved in the Middle East for quite some time, but times are changing. The US is now energy independent, but US involvement in the region was never about energy for the US; involvement in the region was about securing energy supplies for US allies and maintaining strategic alliances against the Soviet Union.

The US has a few paths to choose between, and each option leads us to a very different geopolitical picture. Remember, this isn’t just about energy, this is about alliances, power, and strategy.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here on the Tongariro Crossing in New Zealand. The weather. So we’re not seeing much, but I figured I’d take a question from the Patreon forum. And specifically it is, I’ve always been told that the United States was involved in the Middle East for oil, but now that the US is energy independent, does that change? 

Is there a reason to stay? Great question. I’m not sure I’ve got an answer for you, but I can at least inform the debate. Keep in mind, until 1973, the United States was an oil exporter. We were an importer from roughly 1973 until roughly 2013. I mean, you can fudge those numbers a little bit, but about that. 

But the United States remained one of the world’s largest oil producers. Right up until the 1990s. And we most of the crude that we got came from the Western Hemisphere, with Canada, Mexico and Venezuela being our three largest sources. It was pretty rare for us to get more than 10 or 20% of our crude on a daily basis from the Middle East. 

Most of what we did get was typically, equator, Saudi Arabia. And in order to make sure that we had an interest in defending them, what they would do is park a supertanker off the US Gulf Coast and basically wait for an order. Because they knew that they couldn’t defend themselves if push came to shove. It is a Kuwait. 

That was absolutely true. Anyway, the point is, is that we didn’t use much of their crude. Most of the crude that, is exported from the Persian Gulf went to our allies, first in Europe and later in Northeast Asia. Keep in mind, during the Cold War, China was an ally. So the reason wasn’t so much for oil per se, but for the strategic alliance that we built to contain and beat back the Soviet Union. 

Keep in mind that the Soviet Union is a land based power that takes up a very large chunk of Eurasia, and there was no way that the United States, a maritime power, could counter it at all points of the compass at all times. We needed allies for that, and that means we needed allies that were willing to take a degree of risk. 

So you basically indirectly support countries like Britain and France and Italy and Germany and Korea and Taiwan and China and Japan, in order for them to be able to hold onto the alliance. And if for whatever reason, the United States proved unable or unwilling to do that, then these countries that were serving American strategic interests would have to have a deep conversation with themselves about whether or not the alliance is going to work for them at all, because if you don’t have oil, you’re talking about a deindustrialization process and a catastrophic drop in economic activity and standard of living 

Anyway, some version of that is what the conversation needs to be in the United States today. We don’t need the oil. That’s obvious. In fact, we’re even retooling more and more of a refining complex to specifically run the light, sweet crude that comes out of the shale fields. But the rest of the world needs middle Eastern crude. 

And so one of the things that we did after World War two is make that globalization for a security deal that brought us to more or less the current day. It is time for the United States to lead a conversation with the allies on what the next chapter of that looks like. Now, the last president in the United States who started us down the road of having that conversation was George Herbert Walker Bush. 

And if you remember the 1000 points of light in the New World order, that was the core of it to renegotiate the deal. We voted him out of office. And in every election since then, we’ve voted for someone who is actually less interested in maintaining the global order. I would actually argue that, Joe Biden was less interested in that than Donald Trump. 

So it’s kind of a wash. This last one. 

But this is a conversation we need to have, because if our decision is no, we’re not interested in the Middle East. We’re not interested in maintaining an alliance of nations to help us achieve our goals. Then we have to do it all ourselves. And then we have to decide whether we want to basically ostrich here in North America or massively expand the military complex so we can at least attempt to do it all by ourselves. 

Personally, I don’t think either of those are particularly attractive options. If you look at the long run of American history, every time we do truly, nationalist and really do ostrich down, something happens in the Eastern Hemisphere that draws us back in in a very ugly way that costs us hundreds of thousands of lives. But I’m not the only one who’s a decision maker here. 

And this is the conversation that we all need to have. 

Oh, one more thing. There’s more to maintaining a presence in the Middle East than just being Mr. Nice Guy for an alliance. For example, China today is the world’s largest oil importer, bringing in somewhere between 12 and 14 million barrels a day based on whose numbers you’re using. If the United States controls the ability of the region to send crude out, you could shut off China in a day. 

Food for thought. 

I Hope You Didn’t Want to Buy a Home

Photo of a home in the United States

Trump’s endless tariff policies will likely hit just about every corner of the American economy, but the US housing industry is poised to take a devastating blow.

Mortgage rates are higher, there’s a labor shortage, and material costs are on the rise, which all make the concept of homeownership less attainable. You would think that the aging population would help free up some of that real estate, but the boomers are aging in place, rather than downsizing or going to a retirement home.

So, if you already own a home…good for you! If you do not…I hear Van-life is all the rage right now!

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Peter Zeihan here, coming to you from Florida, doing kind of an open ended series now on the effects of the tariffs on the US economic structure. And today we’re going to talk about housing. It is probably the sector that’s going to get hit hardest, with the exception of electronics imports. Both from the point of view of supply and from the point of view, of course. 

So let me just run through it real quick. First of all, if you want to buy a house, you have to get a mortgage, unless you’re incredibly lucky and mortgage rates are going up for a couple of reasons. Number one, if the Trump administration does what it says it wants to do, it’s going to increase deficit spending by roughly 1 trillion US a year, which will put pressure on the debt market hugely. 

And all those ten year Treasury bills the Treasury Department is going to have to issue, are going to add up and raise the cost of a mortgage because it’s based on the ten year Treasury. That’s number one. Number two, we were moving in this direction anyway. Most of the free capital in a system comes from a population of people aged 55 to 65, who haven’t yet retired but are preparing to. 

Their incomes are very high, their expenses are low, and the difference between those two generally gets shoved away for the future because they know when they retire, they’re going to have to basically cash out of their high velocity investments. So stocks and bonds become T-bills and cash. Well, as of January of this year, two thirds of the American baby boomers, the largest generation we have ever had, have retired. 

That liquidation has already happened. I’d argue that most of the reason we’ve seen a quadrupling in capital costs across the overall economy these last five years hasn’t been Covid. It hasn’t been Biden or Trump or the fed. It’s just been the boomers doing what you do when you retire. Well, that hits mortgage rates as well. And then we have Trump’s more specific policies, basically liquidating the migrant workforce. 

Trump says he wants to send about half of at home, roughly 5 million people. Well, the industry that migrant workers are most likely to work in after agriculture is construction. In addition, we have tariffs on steel and aluminum, which are two of the four biggest components that go into home building, the other two being copper and wood, which are also under sanctions. 

So all of the inputs that are necessary to build a house in the first place are seeing their prices go up even as finance goes up. And there’s one more angle to keep in mind if something happens to your car, if something happens to your housing, if you draw upon your insurance policy for rebuilding, you still need labor and steel and aluminum and copper and wood. 

While you might not need wood for the car, but the rest of it. And so insurance premiums are probably going up 20 to 30% just this year, specifically because of new policies out of the federal government. Finally, the boomers themselves, unlike the generations that have come before, who move into smaller units when they retire, whether it’s an apartment or assisted living or something like that, boomers are far more likely to stay in their home and age in place. 

And there’s nothing wrong with that. But what it does mean is the single largest concentration of homes that owned by the boomers is not getting freed up as part of this demographic turnover. And so if you are a millennial and especially, a member of generation Z, the quantity of housing simply isn’t there. The older generation is staying in place. 

The newer construction costs more. The home insurance that you have to get to get the mortgage costs more. And the mortgage mortgage itself costs more. You add it all up and housing is just expensive and only going to get more. So we cannot build it fast enough. And even if we could, the components that go into it are more expensive than they have ever been relative to the average income in American history. 

So if you happened to own your house, of course, this is all great news because we’re entering a higher inflationary environment, which will eat down the cost of your loan relative to your income. So if you were in a position where you have already established yourself, this is great. If you’re trying to get going. This is awful. And that is one more problem that we’re going to have with inequality down the road.

Is Trump Playing 4D Chess?

Photo of a chess board

If you’re like me, you’ve probably sat at your computer for hours on end, reading tons of articles, watching countless interviews, and you still have one question…Does Trump have any strategy at all?

Here’s the most recent example as to why my answer is no. The Treasury Secretary hinted at a plan to unite US allies first, then confront China – that makes a lot of sense. Trump, however, has taken the approach of threatening and pissing off all the US allies – that doesn’t make a lot of sense.

Relations with China are in shambles, there is no leadership in the government, multi-country negotiations are laughable, and there are no clear goals or an end in sight. If you still think that Trump is playing 4D chess, I hope for everyone’s sake that you’re right.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Peter Zeihan here coming to your Denver airport. And, in the aftermath of all the back and forth on tariffs, specifically with China, it’s worth asking the question, is there a strategy here? We’re all looking for our own world, desperate to find one. And by we, I mean Americans in general in the wider world. 

Everything at the white House seems completely chaotic, and it may well be, but we did have the Treasury secretary. Mr. Bassett mentioned that, the specific goal was to box in China. In his words, we’ll probably strike a deal first with our allies that they’ve been good military allies and plus good economic allies. And once we have that deal in place, then we were all together. 

Go and confront the Chinese. And for someone like me who plays in the world of big geopolitics, that’s really sexy and really attractive and is probably potentially a very effective way to do it. But there are a few problems. I mean, the first and most obviously, that is not how it’s happened so far. The Trump administration. 

Well, actually, let’s be honest here, Donald Trump has threatened all of the allies, some with military invasion, and that’s usually not the sort of activity you want to do if you are going to then try to build a coalition. There’s also the leadership issue and the coordination issue. The Trump administration, again, Donald Trump personally gutted the upper tiers of every department, including defense and state as well as commerce. 

So there simply aren’t a deep cadre of staff that can carry out multiple negotiations at the same time. It’s really just Donald Trump himself. And even if you believe that he’s the best negotiator in human history, still just one guy and he’s got other things going on. So the idea that he can build a coalition of several dozen countries and then lead them in negotiations against the power, that definitely flies in the face of what your lying eyes are seeing on a regular basis. 

Third, the value of the tariffs. We’re now up to 125%, I believe, is the current number for the tariff level with China. That’s enough to freeze commerce between the two countries, with the notable exception of a few things that we can’t get from anywhere else, which will just kind of suck up the cost. Trade is basically going to collapse already, and that’s before you consider that on April 17th, Chinese shipping companies and Chinese ships are going to face an additional fee on top of everything else when they hit an American port. 

There’s not a lot of room here for negotiation and putting the Chinese in a box. While I do enjoy seeing it, is not really conducive to having a meaningful negotiation relationship. And then, of course, there’s the little Intel thing. As I’ve started doing pieces on the tariff issue, I had people from the administration contacted me from time to time. 

And the most enlightening 1 or 2 of them, number one, was a guy who’s deep in MAGA world who said that the morning of the tariff announcements on April 2nd, that they still haven’t started putting together. And if you remember, the tariffs that were adopted on, April 2nd, the reciprocal tariffs were nothing of the kind, rather than looking at what everybody’s tariff levels were and what non-tariff barriers such as currency manipulation might have been, all they did, all Trump did was take the trade deficit and divide it by what we export. And that was the number, no basis in fact, no basis in reality had nothing to do with trade policy whatsoever. 

It was just a fabricated number. So nobody knows what it is that the Trump administration is actually after. So there is no way to position yourself for meaningful talks because you don’t know what success looks like. Canada has definitely been on the receiving end of this in the worst possible way. Trump originally said it was about fentanyl, but the U.S. sends a couple of orders of magnitude more illegal narcotics north than comes south. 

And he said it was about illegal migrants. The U.S. sends more illegal migrants north and south as well, again by an order of ten. He said it was about dairy, but we don’t send them in enough dairy to even qualify for their terrace level. So now it’s about Canada becoming the 51st state, and that really doesn’t leave a lot of basis for negotiations, negotiations. 

It’s not just about providing people with a method of meeting you part way, but you have to let them know what it is you actually want so they can actually think about giving it to you. And we haven’t established that relationship with anyone yet. So the more likely outcome is we just get a direct clash between Chairman XI of China and Donald Trump of the United States, and that goes on a lot of very interesting and particularly dangerous directions. 

Now, again, this is all great for me. Chaos and dysfunction are my jam. But in the meantime, the world’s largest economy and really everybody else’s economy are hanging by a thread in the meantime. And we’re looking at a recessionary stagflation area environment until this is resolved one way or another, assuming it is resolved at all.