Global Depression Is Coming Sooner Than Expected

I know the tariff policies coming from the Trump administration are giving everyone whiplash, but that’s not the cause of the impending global depression…the tariffs are just accelerating the timeline.

Demographics and deglobalization are the two forces driving this collapse. It has been baked into the system since the world urbanized and industrialized nearly a century ago. Now, Trump’s tariffs have brought this crisis forward by destroying what little fabric holds these systems together.

There was a world in which America’s exposure could have been mitigated through strategic partnerships and building out domestic capacity. However, these policies continue to isolate the US, stifle North American industry, and make it harder for the US to weather this storm.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. Today we’re taking a question from the Patreon crowd specifically. Do I think Donald Trump’s tariff policies are going to trigger a global depression? Or is there another potential path out of this? Right question. Wrong time frame. Here’s the issue. There are two big things that are shaping what’s going on in the world right now. 

And Trump is not one of them. The first one is the demographic inversion that has been working towards us for a century at this point. Short version is that when you industrialize and urbanize and move from the farm and into the city, you have fewer kids. As a rule, most countries we’re looking at 6 to 8 children per woman back in the turn of the to the 1900s. 

And now in most of the world, we are well below replacement levels. In some places like China or Germany and Japan. We’ve been looking at levels below replacement levels for a couple of generations now, and we were always going to hit a demographic tipping point between 2025 and 2035. 

This was always the decade that the model was going to break. We were going to run out of consumers. We were going to run out of producers. We were going to run out of people who could provide capital and be left with a lot of old people who can’t work and absorb capital and don’t consume very much. So the economic model was always going to shift. 

That’s the big one. The second one is globalization. We were always going to hit a point where the United States couldn’t sustain the network anymore. And if you remember back to the world before World War two, we didn’t trade goods. We shot at each other, and we fought over access to consumer markets and raw materials, and we fought over maritime trade routes and all the rest. 

When the Americans rejiggered the world of Bretton Woods at the end of World War Two, we told everyone that we would guarantee security for everyone’s commerce. If you allowed us to write your security policies for you. Basically, us got control of the world by indirectly subsidizing everybody, and that included keeping our market open. I have always said that the decade from 2025 to 2035 was the decade where that was all going to break down. 

Number one, the rest of the world has gotten too rich for the US to continue to inadvertently subsidize it anymore. And number two, we’ve now reached a point where there are so many secondary naval powers the United States can’t guarantees freedom of the seas any longer. So this ten year period, starting this year was always going to be when it all broke down. 

We were always going to have a global dislocation. We were always going to have globalization. We were always going to have a Great Depression on a global scale. It was going to happen anyway. What Trump is doing is speeding things up. He’s breaking down the economic case for having industrial plants outside of the United States without simultaneously building up the industrial plant to replace that loss within the United States. 

And this is forward positioning. The global breakdown to the front part of that decade. So am I a big fan of Trump’s policies? Of course not. Do I think they’re causing a global catastrophe? It’s more like it’s accelerating something that was already well past the point of no return. Now there is plenty of room at the presidential level for policies that would ease the transition, especially for the United States. 

And the first step of that would be building out industrial plants to replace what we’re not going to have access to for much longer. But so far in this administration, we haven’t seen this. We’re actually have policies that are penalizing trade within the region of NAFTA, which is actually encouraging places like China to build more industrial plant in order to take advantage of it, because right now you want to build a car in North America. 

The parts go back and forth across the borders among the United States, Canada and Mexico. That means you have to have tariffs on more than one step in the cars production worth of cars produced exclusively in, say, Europe or East Asia. You only have to pay those tariffs once. And so we’ve had a stalling of industrial construction in the United States at a time where we really need to triple down on what we’ve been doing for the last few years. 

So is this all Trump’s fault? Of course not. It’s Trump taking steps to make it happen sooner. Absolutely. And his current presidential policy in the United States, making it worse for the United States. And it needs to be, unfortunately so.

Kessler Syndrome and the Future of Space

An Artist Rendering of a Satellite in Space

Space debris recently struck China’s Tiangong space station. Given the congested nature of the ~350km altitude band, this collision is a warning of what might come to low Earth orbit (LEO).

We’ve got Cold War junk floating around, thousands of Starlink satellites, and plenty of debris zooming around at this altitude. Sure, there are ways to track incoming debris, but it’s imperfect (I mean, you try avoiding something going Mach 25). Kessler Syndrome is the main concern here; just ask Sandra Bullock how she feels about it following her role in Gravity.

Like everything else in the world right now, space is in flux. A hostile Russia, uncooperative China, and prickly US are all adding to the tension.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. And today we’re going to talk about space. Now, you may have noticed in the last couple of weeks there’s been a little bit of drama around the Chinese space station. It’s called the Tiangong. Short version. It got hit by a piece of space debris. Now, the Tiangong is in low Earth orbit at about 350km of elevation. 

And it’s a very, very, very busy shell around the world. Back during the Cold War, when we didn’t have particularly powerful rockets, this is where almost all the satellites were. So there’s a lot of old Cold War debris, especially Russian debris that hasn’t been maintained or even really kept track of on the Russian side for a few decades now. 

And it’s just obstacles. In addition, this is where Starlink does most of their operations, and there’s about 6000 Starlink, satellites there, more than everything else put together. Starlink plans to do another 3 or 4000 over the next few years. And other entities, whether they’re European or Chinese, that are talking about building their own satellite network for broadband, are talking about using the same band. 

So it’s a very, very, very busy area. And that’s before you consider the thing young, which was the satellite that the Chinese had, that they shut down their own about ten, ten, 15 years ago now. Yeah, 15 years ago now, without understanding orbital orbital mechanics. And so it generated 15,000 pieces of debris, of which 2000 are still up there, and they regularly intersect this elevation at 350, kilometers. 

Now, why would the Chinese put their station there? Short version is they didn’t have a choice. One of the things that people forget when they compare, American technology and Chinese technology is the Chinese are in almost all sectors, more than one generation behind. And when it comes to things like aerospace or space travel or ships that means all of their vessels are a lot heavier. 

And so the sheer throw weight that they need to get to get into orbit, requires a lot more powerful rockets, which they don’t have. And so they can’t go as high. They just don’t have as much of a massive budget as, say, the International Space Station. And it sponsors do. The Russians intelligently have chosen to not share rocket technology with the Chinese because they know they would be a target of it anyway. 

So the Chinese are a generation, maybe two generations behind, and that leaves them stuck down here. So what happened was this piece of space junk hit them? And it’s a couple things to keep in mind here. Number one, in addition to being very, very busy, there is a lot of tracking up there, but it’s clearly not perfect. 

And just because you see something coming doesn’t mean you can get out of the way of it. So, luckily, nobody was killed. Luckily, they had a replacement, vessel that they could send up. Luckily, they could bring everybody down safely. 

There’s no reason to expect that. That’s going to be the new norm, though. Oh, by the way, the ISS over about 400km. So we’ve got a little bit more wiggle room in the international system there. Okay. Why am I bringing this up? Couple things. Number one, my broadband out here in the mountains sucks. I have a Starlink, corporate account, which is supposed to give me 25 to 30 And PBS. 

Every second, and instead I get closer to ten. So this video I’m recording right now will probably take me over four hours to upload for you. The reason is very simple. Starlink has sold a lot of subscriptions to support the satellites that are up there. And what they’re discovering is that the profit curve is not what they had hoped it would be. 

Because the more people who sign up, the lower the bandwidth is for everybody else, which means the more satellites they need to send up. But to send up the satellites, they need more subscriptions. Whether or not this is a long term model that is viable remains to be seen. But it is certainly not the cure all that a lot of us thought it was going to be a couple of years ago. 

And the only solution is more and more and more and more and more and more, more satellites in that same band. Because if you put the satellites higher, number one, it takes a lot more energy to get them up there. And number two, if something does go wrong with a satellite in a higher altitude, it’s a lot harder to deorbit it. 

And instead of staying up there for 2 to 10 years, it stays up for 15 to 20. And the reason that gets really important for everyone real quick is something called the Kessler syndrome. If you’ve seen the movie gravity with Sandra Bullock, you have some idea what I’m talking about. Basically, a satellite blows up for whatever reason, sends all kinds of debris out, and then that debris hits other things and causes more debris and more and more and more. 

And eventually all of low-Earth orbit becomes nonfunctional for purposes of space exploration or satellites of really any type, because slow moving pieces, in low Earth orbit move it about mock 25, and a paperclip at that speed is more than enough to ruin the day of any satellite and generate a lot more paperclips. So we’re in this interesting catch 22, and that the only way to deepen and improve space technology is to put more stuff up there, which puts us at the risk of ending everything that is up there. 

And now we’ve got the Russians, who are one of the best space powers, suddenly being hostile to everybody else, the Chinese refusing to cooperate in international fora, and the United States to put it mildly, is becoming a little persnickety know about a great many things. it adds up for an incredibly dangerous and, crisis prone, environment and low Earth orbit. 

About the only bright side I can tell you is that if we do get a Kessler and low Earth orbit, everything will probably de-orbit in under a decade, and then we can try again. So perhaps, just like with everything else in the world right now, as the globalization kicks in, we’re going to be taking about ten years off from everything.

South Korea and the US Make a Nuclear Deal

Midshipman looking out the cockpit of a submarine

The US and South Korea have struck a deal for the US to help build nuclear-powered submarines for the Koreans. The US has kept this technology close to the chest for a long time, with the access list now a whopping two countries long: Australia and South Korea.

So, what does this mean for Seoul? Well, nuclear subs don’t exactly make sense for a conventional showdown with their neighbors to the North; however, the South Koreans have maintained the ability to quickly ramp up their nuclear industry. And the strategic implication of submarine-launched nukes accessible within a year really spices up the conversation.

Should the South Koreans be the first to topple the nuclear domino in Northeast Asia, you can bet your ass that everyone else will follow. How that plays out, nobody knows…but we probably won’t have to wait long to find out.

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Transcript

Hey, all, Peter Zeihan here. Coming to you from Colorado. And today we’re talking about something that happened last week. We have a new agreement between the South Koreans and the Americans for the Americans to build and help build nuclear powered submarines for the South Korean Navy. And this is, really interesting. Now, the United States generally keeps a very tight lid on this technology was first developed in the 1950s, and it is the core for all of our ballistic and attack submarine fleets. 

The big difference between a conventional sub and a nuclear sub is a conventional sub has basically service for every once in a while, and has a limited range and a limited duration of mission because it always has to come back and get more fuel. Whereas a nuke sub can basically stay under indefinitely and regularly, runs at least six month missions. 

It’s really more an issue of the crew going completely batshit crazy because they’ve been underwater for so long, rather than a technical restriction. And of course, food stores, things like that. 

To date, there’s only a half a dozen countries that have nuclear power subs. Most, obvious one is the United States, of course, and the only country recently that we have promised to assist with this technology, or the Australians and the Australians being basically a continent and being a long way away from anything that might be a security threat, it does make some security sense for them to have nuke subs, but for South Korea, South Korea, no. 

South Korea is the size of Indiana, and its primary security threat is North Korea, which is right next door across the demilitarized zone. There is no, no, no military rationale for the South Koreans to develop a nuke sub to basically loiter nearby unless you see, nuke subs are good because you can do two things. Number one, you can strike from silence, but North Korea doesn’t have a functional navy, so who cares? 

Or you can store a weapons platform offshore for months at a time. Now in a conventional fight with conventional missiles, an offshore sub is a very limited use. I mean, the United States, every once in a while launches some Tomahawks, but that’s like a once a year event, if that. And it’s not the sort of thing that would really change the math. 

In a Korean conflict, but something to consider about the South Koreans is every few years they accidentally enrich some uranium up to near weapons grade levels. And then the IAEA, that’s the International Atomic Energy Commission, which is supposed to regulate nuclear technology, comes in, slaps the South Koreans on wrist, and they’re like, oh, sorry, that was accidental. 

We’re never going to do that again. Then happens again a few years. Basically what the South Koreans have been doing for the last 40 years is making sure that if they ever need to, they can make a nuclear weapon on a relatively short time frame measured in weeks. And now, if they’re going to have nuclear powered subs, that means in a relatively short time, probably under a year, they could have nuke missiles on those subs. 

What the South Koreans have now achieved is American sponsorship of what, in a few years, will now be a South Korean nuclear program. Whether this is good or bad really depends upon your point of view. The idea that the South Koreans need a deterrent versus North Korea. I mean, that makes a lot of sense. The idea that the South Koreans would like a way to go up to the Chinese and punch above their weight, that makes a lot of sense. 

But there is no way that one country in Northeast Asia adds nukes to their arsenal, and the other countries don’t do the same thing. So I have always been concerned that when push comes to shove, it will be Japan that moves first, or Taiwan because of the threat of invasion. Now it looks like it might be the South Koreans, but as soon as one of them get them, the other two are going to have to have them. 

So this decision might, from a certain monochromatic point of view, increase South Korean security, but it’s going to come at the cost of introducing an arms race to the broader region at the same time that the United States are stepping back, whether that is genius or pure idiocy is something that history will tell us. And maybe just within the next few years.

Trump’s 28-Point Peace Plan to End the Ukraine War

Ukraine solider on a armored vehicle with a split screen of Donald Trump

Both the Ukrainians and the Russians will hate this plan. For Ukraine, the plan bans NATO membership, cuts the military in half, establishes weapons restrictions, and cedes key regions like Crimea, Donetsk, and Luhansk. For Russia, the plan accepts Ukrainian independence, freezes military ambitions in Europe, affirms the post-Cold War security order, and directs frozen assets towards Ukraine and the US.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Colorado. And today I’m going to pick up on something that the Patreon crowd has been pestering me for for over a week, and that’s to comment on Donald Trump’s 28 point peace plan that he’s trying to impose upon the Russians and the Ukrainians. And the reason that I have held out until now is because it hadn’t been published. 

And so we were only seeing things that were leaked out of Ukraine or Russia about how unacceptable it was. And rather than just repeat what other people were saying about something that hadn’t seen, I figured that wasn’t fair to anyone. So anyway, the full thing is now released. We’re going to go ahead and publish that as an attachment to this video so you can read it yourself. I think Donald Trump is getting a little bit of crap from all quarters on this one for good reason. Not because I think that the document is overly pro Russia or pro Ukraine, just because there’s a lot in it that’s going to piss off a lot of people. It’s probably unworkable. But let me break it down. 

So the core concept behind this fight is that Ukraine knows that its demographics are turning terminal, and it knows it’s going to lose the ability to field a large army to defend themselves against external aggressors, or at least as they define it, external aggressors. And in the post-Soviet settlements going back to 1992, Russia’s borders actually got longer than they were into the Soviet period and were drawn back from a series of geographic barriers that they had counted on for defense during the Soviet time. 

So if you look at the map of the Soviet Union versus Russia, they were anchored in the Baltic Sea, in the Polish plains, and in the Arabian Gap, which is where Moldova is roughly, as well as down in the arid lands of Central Asia. And they pushed right up to things that are hard to invade through the Baltic, the Carpathians, the Caucasus Mountains, the tension and so on. 

So in the post-Soviet settlement, Russia contracted back into open zones on the other side of those borders. And now basically its entire frontier is open. And, the Russians fear that not necessarily going to be invaded tomorrow, but at some point down their line and with their demographics terminal, it’ll be a bloodbath. And that’ll be in the Russia. 

I don’t necessarily agree with that, but it’s a reasonable position for a country like Russia that’s been invaded so many times in its history, and it is the foundation of their foreign and strategic policy. Ukraine is a big, wide open area on the wrong side of those borders. So no matter what version of an independent Ukraine there is, there are parts of Ukraine that are less than 300 miles from Moscow, and there are no real geographic barriers in between. 

So you can have an independent, secure Ukraine or an independent, secure Russia, but you can’t have both. And so Russia’s position is as long as Ukraine exists in any form, it is a threat to the very existence of the Russian Federation, and the Ukrainians feel pretty much the converse. 

So the plan, let’s start with what has been making the rounds more the Ukrainian view of things and why the Ukrainians think the plan is unworkable. It forces them to never apply for NATO membership and enshrine that refusal into their Constitution. It forces them to cut the size of their army by half and restrict the type of weapons that they can develop, and it forces them to permanently give up three provinces the Crimea, Luhansk and Donetsk, Luhansk and Donetsk are the core of the Ukrainian industrial zone. 

And right now the Line of Control goes roughly right down the middle of it. So this would take two territories that the Russians haven’t even conquered completely, give them completely to the Russians, and then freeze the conflict along the line of control everywhere else and make a demilitarized belt in between. 

On the west side, the Ukrainian side of that line of control. There’s no geographic barriers whatsoever. And so it’d be very easy in the future for the Russians simply to amass troops and march on Kiev. It would not be a difficult war, especially if Ukraine was denuded of weapons. So from the Ukrainian point of view, this feels like a guarantee of a follow on war that they have no hope of winning. 

And so the Ukrainians are trying not to reject it out of hand because they don’t want to piss off the United States, specifically Donald Trump. But there’s very little reason to expect for them to like this doesn’t mean it’s better for the Russians. The Russians are expected to treat this as the end of all wars and all military action in the European sphere. 

They are to now say that this is a settled issue and that all existing deals, all security developments in the post-Cold War environment are fine, and they are to codify that under Russian law. They furthermore have to accept that European forces can and will be stationed on rump Ukrainian territory, something that they’ve always been diametrically opposed to and they have to put into their constitution that Ukraine is an independent country. 

In essence, if this deal goes through, the Russians are codifying that. They’re done. They’re codifying that. They have no chance of ever getting back to the Carpathians or the Baltic Sea or the caucuses or any of the rest, and they basically just die slowly sort of dying quickly in a war, completely a nonstarter. But my favorite part of this document is what the United States would do with the frozen Russian assets, which are about $300 billion. 

Some of them would go to help rebuild Ukraine, but a big chunk, over 100 billion of them would go into a fund that the United States gets to direct however it wants. Basically, Donald Trump is hardwired into the agreement. The Russians paying the Americans a bribe of $100 billion. So. Let me tell you what I really like about this plan.  

It actually goes through and puts its finger on all of the issues of contention, which is something that the Trump administration has largely ignored to this point. So the idea that this is a document that was made by the Russians is incorrect, because there’s plenty of things in here to make them furious as well. It’s kind of like a, Ukraine Russia primer, maybe like a 201 course for understanding what the real issues of the, conflict are. 

It is assumes that by giving everyone nothing that they want, that everyone will agree to it. And I think that’s a bit of a stretch. I don’t think this is workable at all, but it does at least acknowledge what the real issues are. And for this administration, that is a catastrophic improvement in circumstance. 

But giving yourself $100 billion bribe for the honor of brokering the deal, that was that was just really rich. So will this go anywhere? Almost certainly not, in its current form. It’ll be rejected by the Ukrainians and the Russians almost reflexively. And if you address the issues that either side is concerned with, it only makes it even less palatable to the other side. 

But the fact that there’s actually an understanding here is a big step forward. The problem is that from everyone who has talked with anyone in the white House in the last week, is that Donald Trump is just done with this. He’s like, this is just too complicated. I just want it to be over. So let’s make it over. that was possible, this war would have never happened in the first place. So we’re nearing the point where Trump, through a exhaustion of commitment of time, is peeling away from this. And that could go just like it has on any number of occasions the last six months, any possible direction. But the only type of guidance I can give you as to specifics is that General Kellogg, who has, his history, of course, in the U.S. military, who has been one of the mediators, is now leaving the administration, meaning that the only person left who has the Ukraine portfolio is kind of a top tier issue is Steve Wyckoff. 

And see if Wyckoff really is fully in the Russian camp and absorbs the propaganda like a sponge. So that’s not great. But beyond that, clearly someone who has some idea of what’s going on Ukraine actually was involved in this. I consider that a win.

The Reality of Electricity in America

Electrical powerlines on a sunset

Doubling the US industrial capacity requires 50% more electricity…already a high barrier to entry. If we want to throw in some new data centers, add another 25-50% on top of that. No small feat.

Should the US want to accomplish this industrial buildout, then heavily investing in long-distance lines is essential. The data centers are going to require 24/7 baseload, which means nuclear or coal (and natural gas for surges). So, you’ll have to swallow that pill too.

Power needs to be able to flow from where it’s created to where it’s needed. Transmission is the name of the game. Without that, none of this works. And if someone tries to paint a different picture for you, maybe don’t drink their Kool-Aid.

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Transcript

Hello from Hazy Colorado. Today we’re taking a question from the Patreon page. Specifically, it’s about electricity and data centers and what is it going to look like if we’re going to do all these data centers, much less consider doubling the size of America’s industrial plant? 

How much power do we need in what is going to look like on the other side? How do we get there? A lot, a lot wrapped up in there. Let’s start by saying that we need 50% more electricity if we don’t do data centers, if all we’re going to do is double the industrial plant, data centers are on top of that, and that’s another 25 to 50% based on which model for the future of data centers that you want. 

Now, everyone broadly agrees on the problem here. Now, one of the big weaknesses in the United States grid is it’s not very well interconnected. We don’t have a lot of cross state, large scale electricity transmission lines. And what that means is that regardless of where you need electricity, you’re kind of stuck with local resources in order to get what you need. 

And that means you’re going to be overbuilding capacity in order to guarantee what you need, which means you’re going to have more facilities than the nameplate would suggest, and they’re going to be running that lower capacity. And that’s particularly true if you want to do something, say, with green tech. So, for example, if you put a big solar farm in, say, Arizona, you’re going to generate three times as much electricity as if you do it outside of New York City. 

And so the whole idea of a long range transmission line is you can take the power from where it can be generated efficiently or cheaply, and move it to the places that can’t. And in that way you get a much more efficient system, even if it might cost a little bit more. So roughly, if you expand the grid by half, you need about $1 trillion in new plant, new generation facilities, and then about half $1 trillion in distribution systems that assumes you’re doing everything within state boundaries. 

You’re paying more for more nameplate than you probably could use, because you’re gonna have lower efficiencies, but also means higher manufacturing costs, higher installation costs. Or you can spend about maybe 20% more, if that 20% more is almost exclusively on long range transmission. And if you do that, you build less generation that is more effective at what it does. 

And you wire in the power. Here’s the issue. The United States really doesn’t have any of those long range high voltage lines. In fact, if you’re looking at above 70 kilovolts, which is kind of the standard for like the big stuff, we only have one cluster in the country, and that is an area roughly a triangle between Pittsburgh, Pennsylvania, Chicago and Saint Louis, because in the middle of that triangle is coal country. 

And back during the 60s, 70s, and 80s, a succession of American governments came to the conclusion that it was cheaper to wire electricity than it was to rail coal. So you generated the electricity within this triangle and then had these massive lines to send that power somewhere else. 

If the goal is to have a lot more electricity, regardless of why that version of the model needs to be replicated more or less nationwide, and that is easily a $300 billion program, probably more now. 

Data centers specifically, something that everyone seems to forget, is that data centers churn all the time, 24 hours a day, which means any sort of power generation that cannot generate electricity 24 hours a day is something that a data center will not consider. So solar out because it’s dark every night, wind largely out because most places don’t have reliable wind currents. 

Although in some places, if you go high enough, that’s a possibility, which merely means you only have two options. Number one is you can build a new fleet of nuclear power plants because while they can be spun up and down, the Nuclear Regulatory Commission really doesn’t like to see those numbers change because it looks a little bit like a meltdown. 

And we try to avoid those. So you build a nuclear power plant either specifically for it or nearby, or you refurbish an old one, whatever happens to be baseload power, that’s what you’re after. Baseload power. The only other option is coal. Yes, you can build a natural gas plant, but natural gas is better for spinning up and down. 

You want it for surge capacity as opposed to more generally for baseload capacity. So either you’re getting nukes or you’re getting coal. And if you want data and you don’t like those two things, then you might as well does not try to do either. Data centers at all. And just kind of forget the next 30 years of human technological advance. 

This is what you need. Lots of long range transmission, lots of nukes, lots of coal, and then natural gas, solar and wind for everything else. Anyone who cannot lay it out like that to you, it’s been blinded by a degree of ideology or personal interests. This is what you need is a digital future or a more industrialized future is what you’re after.

Navigating Reindustrialization in a Deglobalized World

American reindustrialization image

The world we’ve known and loved is going away, which means the US will have to pull itself up by its bootstraps and get to work…because there is a massive defense buildout and reindustrialization looming on the horizon.

The first order of business is figuring out the energy situation. Tariffs and policy decisions are limiting solutions, so localities that want to benefit from reshoring need to solve their own power generation and grid issues. Then we have the people problem; there are simply not enough skilled tradespeople to carry out the reindustrialization effort. And lastly, we have the defense buildout. While this sparked an economic boom and pushed the limits of innovation in the past, this time around…we won’t be so lucky.

Can Anyone Replicate the US Shale Revolution?

An oil rig on the sunset

The US shale revolution has altered the trajectory of the US energy sector, but can that success story be replicated anywhere else? Let’s head down under and examine Australia’s shale potential.

The Aussies have some promising geology, but lack practically every other metric that contributed to the success of the US shale revolution: abundant water, proximity to cities and infrastructure, deep labor pool, fast-moving regulators, and favorable mineral rights for landowners. That last one is the big one, because without that monetary incentive for landowners…what’s motivating anyone?

There are some other countries that have a better shot at replicating the US shale boom. Argentina already holds the second-largest shale industry. Mexico and Canada have the shale resources, but their industries are so tied to American infrastructure and markets that the US would have to help.

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Transcript

Hey everybody, Peter Zeihan here. Coming to you from Colorado. Today we’re taking a question from our Patreon page, specifically from one of our friends down in Australia, wondering if it would be possible for Australia to recreate the sort of energy complex that the United States has, courtesy of the shale revolution. The United States is now just a gross over producer of both oil and natural gas. 

It’s driven down energy costs in the country, especially electricity costs, which are now among the lowest in the world. And it’s generated a robust processing and manufacturing system with downstream work and a significant export industry, Australia having a smaller population, but almost as much land could they do it? I don’t want to say no, but there’s some things you have to keep in mind. 

Number one, geology is just the first step. So in order to have a shale industry, you have to have a lot of sedimentary layers that are petroleum bearing that just the right age to generate oil, natural gas. And the United States has that because in the past, the North American continent, especially our part of it, has had a series of shallow seas. 

And then geology would change, and then you’d get another shallow sea and you basically got these stacked layers so you can drill down and hit multiple petroleum producing zones. In fact, in some places in West Texas, you can have upwards of 20 layers that you can all access from one vertical. Now with shale technology, you go down it until you hit that layer and then you go horizontally. 

And that brings us to the second thing. You need water. The way shale works is you make this suspension of water and sand, and that is pumped into the lateral through a series of holes that basically crack the, rock open and release the petroleum. And then back pressure pushes all the liquid out and eventually oil and natural gas comes to the surface. 

Don’t have to pump the stuff, but you have to have the water to do it. And part of that folds into the third issue, which is proximity. You have to have relative proximity for your oil and natural gas production. Two population centers are places that can take the stuff for processing. And in this this the United States is pretty good. 

We have shale zones in Texas, which of course can get pumped to corpus Christi in Houston. And the rest we’ve got some in Colorado which benefit the Denver area. We’ve got some in Ohio which can be pumped into the Northeast and Pennsylvania. Same thing. Australia’s problem is that most of the geology that looks promising is in the outback. 

So not only is it a long ways away from any potential population centers, you’re in the middle of a literal desert, so the water access is more difficult. You can access groundwater that’s done in the United States, too. But all of these things incrementally raise the cost of development. Let’s see what else. Regulatory structure. This is one where a lot of countries, trip up shale wells, as a rule, generate somewhere from the hundreds of barrels to thousands of barrels a day, which sounds great, but it’s not like the mega wells you’re going to get a place like, say, Saudi Arabia. 

So you’re going to have more of them and they’re more involved from a technical point of view for production. So you have to have a more advanced educational system to generate that sort of workforce. And the United States really does stand out among the world when it comes to petroleum engineers, because we’ve been doing it for so long. 

The shale revolution at this point is about 20 years old. In the United States. Our first oil deposits were back in the mid 1800s. So this is something that we’ve been going and going and going. It’s not that the Australians don’t have that, but most of what the Australians have been doing for energy production in the last 30 years has been offshore, where they tap foreign labor almost as much as local labor. 

So there’s there’s a labor crunch there. In addition, if you live in Houston, you can work in West Texas. If you live in Sydney or Brisbane, you’re probably not going to be working on the northwest shelf. It’s just too far. So linking these together, and then on the regulatory side, you have to be able to do things on the fly very, very quickly and have a regulatory structure. 

That’s okay with that. So in Texas, the Texas Railroad Commission, which is the one that regulates the space issues, permits 24 hours a day, 365 days a year. They drill on Sundays, they drill on Christmas. And if you don’t have an institution set up to handle that, everything else gets pushed back. This is one of the reasons why the shale attempt in Poland just didn’t work out, because the poles tried to work European hours and it just didn’t fly. 

The geology wasn’t as good either. But the most important thing, the single most important thing is landowners have to have an interest in the industry. So in the United States, unless you have signed it away, you own the mineral rights on your land. So if a petroleum company comes and wants to drill in your land, you get a chunk of the proceeds. 

We’re the only country in the world that does it that way. So when the United Kingdom tried to kick in the shale that ten years ago, they discovered huge amounts of local opposition because the companies would take all of the money, and that would be that the locals had to deal with the noise and the traffic and all the rest, and they saw absolutely no benefit. 

Australia is kind of in that camp. So if, if, if this is going to happen, it’s going to take a lot more money and put a lot of pressure on the labor force and require a regulatory and maybe even a legal overhaul of property rights in Australia in order to generate the sort of outcome that you might want to see. 

There are three countries, however, that are worth keeping an eye on when it comes to shale that are closer than Australia to achieving something like the United States. The first, ironically, is Argentina. They already have preexisting infrastructure in a place called vacuum worth a dead cow fields which are very close to populated Argentina, including Buenos Aires. The socialist governments of the past set a price floor. 

So anyone going to invest knows how much they’re going to get out. So even though the property law structures are weird and it’s Argentina. So if they’re very weird, if you know the rules of the game on the day that you start, you can get some projects going. And so Argentina already has the second most successful shale industry in the world. 

The other two to watch are Mexico and Canada. both have a shale fields that in many ways are extensions of the American geography, especially northern Mexico. The weird thing about Canada in Mexico, though, is their closest population centers for most considerations around the American side of the border. So if we’re going to ever see a successful shale industry in those two countries, it will be because they’re accessing American infrastructure, population structure, processing infrastructure and basically linking into a greater North American energy grid. 

Doesn’t mean it can’t happen, but if you’re in Ottawa or Mexico City developing a local energy sector to serve another country, let’s just call that a bit of a political complication.

Child Care for All? In New Mexico?

Welcome sign for New Mexico

Despite New Mexico’s hot air balloon festival and dramatic landscapes, there’s not much else going for the state. They rank low on economic and social indicators, they have an arid climate, they’re navigating complex racial and tribal dynamics…needless to say, they could use a win.

That win may be coming in the form of a state-funded child care program. Funded through the state-level oil fund, an estimated $600 million per year will go into this groundbreaking program. If you’ve listened to me for any time at all, you’ll know the demographic crisis we’re facing. Programs like this are one of the few proven ways to effectively address this issue.

Sure, there are plenty of details to iron out, but let’s take the good news and say happy holidays.

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Transcript

Hey, everybody. Peter Zeihan here coming to you from Colorado. And today we’re going to talk about something that just went down in New Mexico, of all places. Now, for those of you who are not from the United States, New Mexico is a gorgeous state, but it comes in near the bottom of basically all the rankings that you, don’t want to come into the bottom at. 

So, you know, crime, labor force participation, income levels, educational levels, infrastructure industry. It’s had a lot of problems. It’s a it’s a pretty arid area. There are very few places get reliable rainfall. You’ve got two major cities in Santa Fe, which is an old historical town that is now the administrative center in Albuquerque, which is the major population center. 

But infrastructure is difficult because you get the Rio Grande Canyon that basically cuts right through the middle of the state, and you have a lot of desert and a lot of semi-arid. That’s before you consider, racial issues or the fact that this is one of the densest concentrations of Native Americans. And there’s an issue with reservations. 

But anyway, there’s a lot that hasn’t worked out great for them. But the reason I wanted to talk about them is that they just came up with a new policy where everyone now qualifies for state covered child care. One of the problems the advanced world has is that raising a child is a real effort. 

Back in the olden days, when we were all agriculturalists and lived on the farm, kids were free labor. So parents would have as many of them as they could because they helped on the farm. When you moved to town, that economic benefit goes away and you just have the expense without any of the monetary benefits. So over time, we’ve had fewer and fewer and fewer children. 

One of the things Europeans tried when they tried to reverse this is it really matters what type of social program you put into place. So, for example, if you just say that if a woman is pregnant that she gets a extended maternity leave, what that means is that no one will hire a woman. And so women in their 20s are just simply unemployable. 

The places that have pulled this off, getting their numbers back up, it all comes down to child care. Because if you force a woman to choose between being a mother or being a worker, she will then choose one of the two. And that means that some of them won’t have kids or some of them won’t work. 

And you had got a problem with the workforce and with your demographics. But if the state can provide a degree of child care, then parents don’t need to make that choice. And the numbers go the other direction. Now, there are undoubtedly a thousand details that matter in the New Mexico situation. So this is not in me endorsing what they’re doing except in principle. 

It matters how you pay for it matters how you regulate it. The New Mexicans are planning on using income from the oil fund. They basically have a sovereign fund at the state level. And they expect that it’s going to cost them about $600 million a year. We will see if that is feasible. Will you? We’ll see if that is realistic. 

But for the first time in the United States, we actually have somebody at the state level that is thinking about what the future of the demographic profile looks like and what the future of the workforce looks like and is actually putting a fair amount of money behind what might actually work. I call that good news.

Ukraine’s Energy Scandal

Hand offering stacks of Ukrainian money

Some officials over in Ukraine have been stuffing their pockets with $100 million stolen from the energy sector. Before you get worried that someone has been dipping into the US or EU aid…this dates back long before all that started flowing in.

Before the war in Ukraine, Russian natural gas transited the country in massive volumes. Guided by the morals of the Soviet system, Ukrainian officials took their cut off the top of the profits. Once the war hit and the gas stopped flowing and the bombs started falling, Ukraine rushed to modernize its process. Updates were made and efficiency became the focus, but those who benefited more from the old system clashed with the new models.

These reports are now surfacing, and many key figures implicated in the corruption have already fled Ukraine. So, what should we expect? We were seeing a major overhaul of the energy structure anyway, now it will just coincide with some political and economic house cleaning…and mounting pressure from the war.

Prefer to read the transcript? Click here

Transcript

Hey all. Peter Zeihan here coming from Colorado. Today we’re gonna talk about a scandal that’s breaking in Ukraine. President Zelensky is in a bit of hot water because some of his former allies, not current, have basically been charged, accused of stealing upwards of a $100 million from the system, mostly from the energy sector. What? This is what this is not. 

Let’s start with what is not. This isn’t people stealing the aid that has come from the European Union or the United States to help with the budget or military equipment or anything of that. In fact, the Ukrainians have a really digitally ironclad system where they film every part of the weapons transfer system right up until its usage. 

So there’s a digital record showing that it didn’t end up in a black market. So people who say that that’s just conspiracy theory bullshit, mostly generated by, the Russian bot farm. What it is, though, is real corruption. The Ukrainian energy system is kind of a mess. And not just because of the war. It used to be completely state controlled, and you basically had a government enterprise who controlled the natural gas transit system that crossed the country from the Russian space into the European space. 

The Ukrainians charge transit fees for that, and then took a bit of the natural gas as payment in-kind in order to fuel their entire economy. And because the energy was coming from the former Soviet system, the people who were in charge of it had a very bureaucratic Soviet mindset and part of the bureaucratic Soviet mindset is I get 2%. 

So what happened? Was Ukraine unique among the former Soviet republics? Really unique within the Eurasian landmass, thought of itself as having free energy provided for by the Russians from 1992, when formal independence happened, until very, very recently, certainly until the war started in 2022. And so there was never any effort by the Ukrainian state to become more efficient. 

And in terms of the calories burned or the energy consumed per dollar of GDP, Ukraine usually figured in the very, very bottom of countries in the world, certainly on the continent. 

So the people who were in charge of this system made money on the throughput, and so volume was all that they cared about because they got a percentage cut of everything. 

Enter the war. With the war, the energy system has been under attack, and the state bureaucratic model is not very good at responding to that, because it’s never been about efficiency. So bit by bit by bit, the Ukrainian system has become more efficient because if it hadn’t, the power plants would have never been rebuilt, the transformer stations would have never been repaired, and the country would be living in the dark. 

You put this against that old statist model, and eventually we were going to get a crunch because Zelensky, like every president before him, had to keep the lights on. And so the people who were the corrupt ones had to work with the new ones who came in, operate on more of what we would call a market basis here in the United States. 

And they were getting more and more and more of the system, because every time something was damaged, it moved out of full state control into some more of a hybrid system. Well, so much has now been destroyed, especially this last winter, that finally, these two almost diametrically opposed approaches, vast volumes and corruption versus more efficiency, came to a clash. 

And now we’ve got the exposure. Is it something that can bring the government down? Who knows? He definitely involved himself with the people because he was the president and it was the country, and that’s what he inherited. And he had to, Does that mean it could have been cleaned up sooner? Sure. But I’m not the one that’s fighting a war right now, so I have a hard time making that value. 

Judgment. All we know for certain now is that the chief people responsible have fled the country. And so they’re definitely no longer getting their cut. And that means we’re probably going to see a significant overhaul of what’s left of the statist energy system in just the next few weeks, against the backdrop of the Russians being much more effective at targeting energy assets across the country. 

So it’s not just that we had a corruption scandal and now the personalities are changing. We also have had so much physical destruction of the assets that it’s a question of whether the old system will persist at all. Keep in mind that the Europeans have now cut completely their use of oil and natural gas that comes through Ukraine from Russia. 

Those pipelines are basically shut down now with a couple of minor exceptions. So we were always going to see a house clean of this from an economic point of view. Now we’re getting a house clean from a political point of view as well.

China’s New Ship: Enter the Sichuan

LHD Sichuan Class Aircraft Carrier | Photo by Wikimedia Commons: https://en.wikipedia.org/wiki/Type_076_landing_helicopter_dock#/media/File:LHD_Sichuan.jpg

Let’s talk about the Sichuan. And no, we’re not ordering take-out. We’re talking about China’s newest Type 076 amphibious assault ship, similar to the US Wasp-class.

Through the lens of global power projection, this falls short; it doesn’t have the range or speed necessary. However, this ship isn’t meant to cover too much ground. It’s designed for near-coast, amphibious assaults within 1500 miles of China. You know what lies within that range? The first island chain.

If all China wants to do is bully its smaller neighbors, the Sichuan will do the job fine. Should it find itself caught in any real naval combat…I hope they have enough lifejackets.

Prefer to read the transcript? Click here

Transcript

Hey all Peter Zeihan here coming to you from Colorado. Today, we are going to talk about the newest vessel in the Chinese navy, the Sichuan. It is a 40,000 45,000 ton carrier. And it’s roughly analogous to the US wasp class, which are the core of our expeditionary units. And so, of course, the core questions is, is this something from a military point of view, the United States should worry about, big problem that the Chinese have always had with all of their vessels is while they have teeth and they’ve got decent missiles, and those missiles have reasonable ranges. 

The ships themselves don’t have long legs, and the Sichuan is no exception, that it’s probably maximum emergency speed is less than 25 knots, probably closer to 20, which means that even three days in full sprint, it’s just not going to go that far. From the point of view of global power projection. It does have a wet deck. 

It is designed to help with amphibious landings. But it just doesn’t have the range or the speed to compete with anything that the United States has put in the water, really since the 1960s. It does that mean that it’s a pointless platform? Not what I’m saying. What I’m saying is it’s no good for power projection at distance. 

It can’t operate in the Central Pacific, much less the Indian Ocean or anywhere else. But that is not the strategic environment that the Chinese would like to contest with it. They’re concerned primarily about the first island chain, which are at the line of archipelago, starting with from Japan in the north to Taiwan to Philippines, to Indonesia and Singapore. 

That is the line of islands that basically block in the Chinese and mean that the Chinese are ever, ever, ever going to be a, naval superpower. They need to have a navy that’s at least five times as powerful as the US Navy, because they have to get through all these potential interdiction points or conquer them first before they can even pretend to be a global naval power. 

And the situation in that context is a step in that direction. Basically, if you’re within 1000 1500 miles of the coast, the system can operate, and it’s designed for insidious assaults. So you use those against islands in particular, most notably Taiwan and the Philippines. And for that specific task, this is probably the right ship for their needs. But if it comes up against any capable naval power and I’m talking here, Australia, Japan and the United States, of course, in this theater, want to look elsewhere. 

You’re looking at the United Kingdom or France or Turkey. This ship will go down fast. It’s not quick. It doesn’t have long legs. It requires a massive logistical train, which is something that the Chinese aren’t very good at at all. So in a hot war against a country that actually has a meaningful navy, this thing is almost useless. 

The Chinese aren’t planning on using it against somebody who has a navy. They’re planning on using it to intimidate the weaker powers immediately in the periphery. For that, it’s okay for anything else. It’s a reef.