Why Trump’s Stance on Ukraine Has Changed – Part 2

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

Let’s unpack Trump’s evolving stance on Ukraine a bit more today.

Trump came into his second term strapped with his loyalty vacuum, purging anyone who wouldn’t kiss the ring. This left Trump with a lackluster roster, many of whom had acquired a taste for Russian propaganda. All of that led to Trump giving Putin an extraordinarily long leash.

After six broken promises of peace, Melania talked some reality into Trump, and he is now pulling back on the lead. The question now is not whether to oppose Russia, but where to draw the line. US support for Ukraine has come cheaply so far, but nuclear retaliation from Russia is still looming on the horizon.

We still don’t know where Trump will take this, but his stance on both Russia and Ukraine is quickly changing.

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Transcript

Now, when Trump was out of power, he had a beef with the Republican Party because there were people who had studied policy in the world and the Republican Party who tried to steer his decision making in a way that reflected history and economics. And one of the weaknesses of Donald Trump, charisma. It’s his ego. And he feels he has to be the smartest person in the room at any given topic. 

So we all he was out of power. He restructured the Republican Party so that all of those folks were gone and basically turned it into an institution that was designed to glorify and reelect him. And it worked. He comes into power. He no longer has a cadre of several hundred people behind him to help him make policy. He just has a handful of people who, for their own personal reasons, have chosen to to hook up. 

And he has a cluster of Russian agents up to and including Tulsi Gabbard, who is currently the director of National Intelligence, who has been whispering in his ear and amending the national intelligence brief since day one with Russian propaganda. Well, as he comes in, he does the same thing to the federal bureaucracy that he did for the Republican Party and basically stripped it of expertise so that no one could ever tell him, you know, he was wrong. 

And what that meant is for the first six months, he was wrong a lot, especially as regards Vladimir Putin and the Ukraine war. We actually had some weird situations where Trump was blaming the Ukrainians for the Russian rape camps that had been set up, or the kidnaping of Ukrainian children, that the Russian government set up a cabinet level position to take care of, and the death camps and the mass murders and, you know, on and on and on. 

Using phosphorus to clear out village was, phosphorus is kind of like napalm. Anyway, turning point for Trump was in May and June. He engaged in personal diplomacy, with Vladimir Putin. He decided that, Steve Wyckoff, who had been his frontman, really didn’t know what he’s doing. And that was because Steve Wyckoff really didn’t know what he’s doing. 

And so Trump took it over directly. He couldn’t hand it off to the State Department because that is handled by, Rubio, who’s a guy he doesn’t particularly like. And actually, I’m a little surprised he hasn’t fired Rubio yet. He’s basically just sidelined the entire national, security and foreign service institutions. Put him under Rubio, then sent them off to the side and told them to do nothing. 

Anyway, he takes over the negotiations himself. So that puts Putin in a position where he’s lying to Trump’s face repeatedly and according to Trump’s own words, on six different occasions. We had a deal to end the war. And then less than 24 hours later, the Russians would bomb a civilian target. When I say bomb, I mean sending several dozen, several hundred drones and missiles and bombs into major cities. 

The first five times this happened. Trump seemed annoyed but willing to give Putin the benefit of the doubt. But the sixth time, the sixth time Melania Trump called Donald Trump out on it, and that apparently changed the minds. Keep in mind that Melania Trump was not born in the United States. She was born on the other side of the Iron Curtain in the former Yugoslavian republic of Slovenia. 

So she, among Trump’s inner circle now is the most aware of international relations of all, because she’s the only one who can’t be fired. How useful that will come to be in the days and weeks and months to come. I have no idea. But what she has done very successfully is convince Donald Trump that he was being played, that he was being lied to, and that he was being made to look quite unintelligent. 

And so a few weeks ago, the two weeks ago, Trump gave Vladimir Putin a 50 day deadline to change policy. And in the last 48 hours, Trump has said, I’m not going to give him 50 days because nothing’s changing and nothing will change. And that’s part of the problem with this conflict. Putin accurately sees the Ukraine war as the beginning of Russia’s last best chance to survive this century. 

From the Russian point of view, and I think the correct, if they cannot conquer all of these countries, not just Ukraine, the other 15 as well, Russia will vanish from the Earth before 2100 based on how the war goes, potentially a lot faster. So there can be no peace treaty that the Russians can agree to that they will enforce. 

That leaves any of these countries independent. This is a country that is fighting for its existence. Unfortunately for the Russians, in order to continue to exist, they have to conquer a number of people who collectively are of a greater number than there are Russian ethnics on this planet. So from the American and the European point of view, the question wasn’t will we or won’t we stand against the Russians? 

It’s where would we draw the line? Where is the point where we say no further? And for those of you who think that we can just wash our hands of this completely. A couple things to keep in mind. Number one, the Russians have more nukes than we do. And since they’re on their way out, the incentive to use them is a lot higher because from their point of view, in the long term, they have nothing to lose. 

Number two, if the line that we decide to defend is in Ukraine, well, then all of the Europeans and all of the Ukrainians are between the Russians and us. And the war to this point, the United States really hasn’t bled. We haven’t really provided much cash, and we haven’t provided much in terms of military equipment that we actually use. 

What the Ukrainians are using against the Russians, or at least until recently, has been American equipment that has been decommissioned since 1995. They are basically going through our hand-me-downs and holding the Russians off. And the cost to us is minimal. The alternative is, of course, to leave the Russians and the Ukrainians to it, break the alliance, go home, and just hope that in everything that happens with the conflict in the time to come, the Russians just forget that we have been the target of all of their nukes and all of their propaganda since 1935, and hope that should they ever be stopped by someone else, that on their way out the door of history, they 

choose not to send a few hundred nukes our way because they really do hate us massively. Anyway, for those of you who have bought the Russian propaganda, you’re going to have some uncomfortable times in the days ahead. Donald Trump’s ego has been bruised and he is now starting to direct policy against the Putin government. There are a thousand ways that this can go. 

I can’t predict the specifics. People like Tulsi Gabbard are still in place, who are still beating the drum on behalf of the Russians inside the white House. This can go a lot of strange directions, but hopefully this little brief gives you an idea of why things are happening the way that they are. And maybe, just maybe, it’ll make you reconsider a few things.

Why Trump’s Stance on Ukraine Has Changed – Part 1

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

It seems that the Trump administration might be listening to some classic rock lately, because his recent stance on Russia and Putin is awfully reminiscent of The Who’s 1971 classic “Won’t Get Fooled Again.” Or maybe Melania just yelled at him.

The issue with the Trump and Putin dynamic is that they’ve been operating on two different playing fields. Trump thought he was just caught up in your standard playground pissing contest (the kind of conflict that he loves). Putin was playing along, but Trump is finally realizing that Putin’s war on Ukraine is existential. The Russians MUST take Ukraine. They MUST expand their borders. Otherwise, it’s the end of Russia as we know it.

This is the geographic playbook that Russia has always followed. Now that their demographic crisis has reached critical mass, there is only one path forward. So, Trump’s stance on Ukraine is starting to shift, but this is only the beginning.

Prefer to read the transcript? Click here

Transcript

Hey, all Peter Zeihan here coming to you from Colorado. Today we’re doing an educational video for folks who are of the MAGA crowd who, are discovering that the Trump administration is changing policy pretty dramatically on them in the case of Ukraine. 

When Trump was running for president, the third time to get a second term, he started repeating a lot of Russian propaganda about how the war was Ukraine’s fault. And Zelensky needs to go. Then he came in and discovered, that things perhaps were not, as he realized. So the point of this video is to explain to you what Trump has discovered over the last six months and why it’s leading to his policy change. This war was always going to happen. It didn’t happen because of who the American president was, or the German chancellor or the Ukrainian president. 

It happened because of how the Russians view their world. The Russian territories are pretty flat and open, and there’s no real good spot to hunker behind to shield yourself the armies of your foes. And so, Russian strategy going back to the time of the early czars, you know, centuries ago, has been to expand. 

Conquer the people next to you, subjugate them, turn them into cannon fodder, and then use them as a vanguard to attack the next group of people. And repeat and repeat and repeat until eventually you reach a geographic border that tanks can’t go through. And so Muscovite expanded into Tatarstan, expanded into Ukraine, expanded into the Baltics. And they keep going until they hit those geographic barriers. 

And the key ones are the Baltic Sea, the Carpathian Mountains, the deserts of Central Asia, and the tension mountains of Central Asia and the Caucasus. If the Russians, from their point of view, can do this, then they will have achieved a degree of physical security that they could not get from remaining at home. And the Russian leader, who ultimately proved most successful at doing this in the modern age is Joseph Stalin. 

And the borders that the Soviet Union held during the Cold War were the most secure that the Russians have ever been. You just have to keep in mind a few things here. Russia is not a nation state like Germany or the United States or Australia. It’s a multi-ethnic empire where the non Russian ethnics exist solely to serve as a ballast. 

And it’s cannon fodder in wars, which means that in times of prolonged economic or political decay, like, say, the 1980s, the empire breaks apart and all of the various nationalities that used to be used as cannon fodder all of a sudden are the on the other side of an international border. So Russia has only about, 60%, 65% of the territory of the Soviet Union. 

But all of those other zones are largely populated, and they’re populated with ethnicities that are not simply hostile to Moscow, but have been subjugated to Moscow in the past. Now, modern day, the Russian population is dying out. There are two big things that shape demographics, and the first is the degree of urbanization. And the second is economic, where for all and health. 

So first, urbanization starting under Stalin, but really getting serious under Brezhnev, the Soviets started a massive urbanization campaign, basically taking people off the farm and cramming them into small housing units. And in doing so, birthrates dropped by 80% in two generations. At the same time, this agrarian population was not really schooled up to deal with the realities of the industrial age. 

And you had a lot of people who became functionally dispossessed. One of the results among many, was insane levels of alcoholism. Then when the Soviet system collapsed in 1989, heroin became a big problem along with multidrug resistant tuberculosis and HIV. And so, arguably, the Russian population of the 2020 tens and today is the least healthy in the world. 

And one of the ones that has faced so low of birth rates for so long that the actual ethnicity of Russians is vanishing. These two trends come together in the Ukraine war. 

First, the Putin government has tried to expand on the cheap through the 2000, sponsoring coups and assassinating people throughout the what they call their near abroad. Throughout the 2020 tens, trying to shape the political space of these countries that they used to control in order to force them to do what Moscow wants. 

And they were always able to find collaborators among these countries who could be bought off, or maybe even wished for the return of Russian troops. But they could never convince the majority of the population that existing to serve Russian goals was in their best interests. And so the result among many, were things like color revolutions, where the peoples of these countries, it would basically rose up and throw off the pro Russian puppets. 

And then the second problem demographics is that the Russian birthrate has been so low for so long, the Russians are losing the capacity to field an army of their own, and they don’t control enough subject peoples anymore to generate a large conscript army full of cannon fodder. So the late 2020s, where we are now, was always going to be the last period where there were enough ethnic Russian men in their 20s where making a go of a military solution could happen. 

These two things come together. And the Ukraine war with the Putin government basically going all in. It was always going to happen. It was always going to happen about now. The only question is, how does the rest of the world in general and the United States specifically react to it? Because remember, the Russians will keep going until they reach a geographic barrier that can stop tanks. 

Ukraine’s only part of that. Ukraine is the ninth post-Soviet war that the Russians have participated in. And it will not be the last. We will also, if Ukraine falls, have conflicts in Moldova, Estonia, Latvia, Lithuania, Poland and Romania, Kazakhstan, Georgia, Azerbaijan and probably Uzbekistan as well. This is just the next phase of Putin’s plan of the Russian plan, that if anything was written 500 years ago.

China vs. Mother Nature: Can the Dikes Hold the Rain?

Person with umbrella standing on Xinghai Bay Bridge

Flooding has already claimed lives and destroyed infrastructure in Hebei, Beijing, and Tianjin. Over five feet has already fallen—more than an average year’s total rainfall and there is more on the way. There is more to this than just another bad weather forecast.

The North China Plain is flat and prone to droughts and floods. But the Chinese have learned to manage the Yellow River through a series of channels. Each year, the riverbed rises due to the silt, and the surrounding land now sits will below the top of the river. Which means that the dikes are the only thing preventing a catastrophe. We’re not just talking some rural farmland being flooded, we’d be looking at a mass casualty event in the heart of the country’s capital.

We’re not in panic territory quite yet. However, all it takes is a few more inches of rain and one of the dikes to give way, and hundreds of thousands of people will be at the mercy of Mother Nature.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here come to you from Colorado. And today we’re going to talk about weather in China. There are areas of Hubei province, Beijing, the capital, and Tianjin province, which is the super port, the artificial port that has a lot of the capacity that serves northern China, that have all gotten just huge amounts of rain. Some areas have gotten in excess of five feet of rain, which is more than they normally get in an entire year, and more rain is forecast. 

Normally I wouldn’t comment on something like a weather report unless it was a hurricane about to hit the, say, the Persian Gulf or something. This is an exception. The issue is to just flat out human geography, cultural geography, and, economic geography. 

The North China plane, which is where Beijing is and where roughly two thirds of the Chinese population lives, is a very large flat zone that is normally fairly arid. 

And if you look at a map of northern China, you’ll notice that the yellow River, the primary river, does a lot of curves and everything because it’s not particularly steep area. So this is a region that is always dealing with either drought or flood. And when it floods, things get crazy because the river basin, the actual channel, isn’t very low compared to everybody else. 

In fact, most public works by Chinese government is going back a couple of millennia have been built about wrestling the yellow River into some sort of submission so you can break the flood cycle. What that has meant is that they’ve channelized the river over most of its lower length. So that when you do have the river coming through, especially in drought season, it drops a lot of silt, which builds up the riverbed. 

And so they have to build the dikes higher. So in most of the places where the yellow flows through populated China, the riverbed now is actually at a higher elevation than the surrounding floodplain. 

As long as the dikes hold, this is not a problem. So, yes, we have had evacuations that affect people. Thousands moving into the tens of thousands right now. Yes. We’re expecting more rain, but as long as the dikes hold, this is a water management issue. The concern would be is if in a populated zone, one of the dikes gives away. Because if that happens and it starts to erode, then you have a different sort of problem. 

Then you have the river pouring out of the basin and down into where everybody is living. In the past, when this has happened, you have literally had hundreds of thousands of deaths. The last time it went down in the early 2000s, the Chinese mobilized several million people to fill up sandbags until the river could be wrested back under control. 

Industrialized China has done a great job with their water waterworks. I’m not saying I expect everything to go wrong. I’m saying this is the sort of thing that breaks confidence in governments very, very quickly. There’s nothing like having tens of thousands of people drowning in your capital to shatter political coherence. Now, Chairman XI is far more aware of social disruptions in China now than he has been in a while. 

He decided to cancel the recent EU China summit. So the Europeans decided to relocate it to China so that he would attend. He is there. He is obviously aware, and I’m not suggesting we’re about to have a catastrophe. What I’m saying is I can’t predict the weather. All I can tell you is they’re expecting to have at least another six inches of rain throughout the entire zone, which could turn this from an isolated point as the water is moving down the river to a broader system where all the tributaries start to flood, too. 

So it’s something to watch. It’s not yet something to panic about. And if it does become something to panic about, you’re not going to have to hear it from me, because it will be everywhere. Because China will be underwater…

Inflation Ticks Up Under Trump-2

a vacuum sucking up dollar bills

We spoke about monetary policy last week, but let’s lift the hood. Today, we’ll be discussing the inflation outlook under Trump’s second term, focusing on tariffs, immigration, and supply chain disruptions.

We’re seeing inflation climb. The consumption-led recession has begun, and as Trump’s tariffs continue to roll out, things will only worsen. Labor shortages, driven by immigration enforcement, are pushing labor costs up. And the impacts to global supply chains are hitting housing, food, and transport.

With a dysfunctional Congress, an understaffed administration, and a Republican party with no real plan…prices will continue to tick up and instability will deepen.

Prefer to read the transcript? Click here

Transcript

Peter Zeihan here. Coming to you from a humid Colorado morning. We’re not used to getting this kind of rain this time of year. Anyway, today we’re going to talk about inflation and what you can expect in the weeks and months ahead. Now, if you remember back, I have been saying since roughly April that, the United States was looking at a consumption led recession in July, and we are in July now. 

And the reason is good shortages. The tariffs that Trump put in on April 2nd basically triggered an end to all exports from China, the United States. And China is our number one source of consumer goods. And that ban functionally ban was in place for several weeks. And so nothing left. Everyone’s been living on inventories in July is when I expected starting on the West coast and then moving its way east us to basically start running out of stuff. 

And that’ll manifest in inflation numbers. Consumption numbers. The data is very loosey goosey because Trump, like he always does, set a very harsh penalty in early April. And then by the time we got to late May had basically rescinded all of it pending further negotiations, which, by the way, are not happening and not going anywhere. We’re now in a second phase of that where Trump is saying that after his grace period expires, tariffs are going to come back in. 

And for most countries, the numbers that he has floated are significant, higher than what he threatened to back in April, suggesting that on the worst case scenario. These tariffs happen as he’s talking about. And we just have a crushing of economic activity and consumer basis around the country. Best case scenario is that he keeps doing this on and off, on and off tariffs where we only have a problem with business uncertainty, which eventually hits industrial development and employment. 

But that’s a longer term problem for right now. Let’s talk about inflation. 

The US CPI, which for many reasons isn’t the best measure, but it’s really the best that we have that we can assess regularly. Is the consumer price index. And it generally puts out a statement once a month about where inflation is going. The newest numbers that came out of June are 2.7%, which is significantly higher than what we’ve had in the next few months before because the tariffs are starting to kick in. 

But you shouldn’t expect the CPI to skyrocket just because of tariffs. Your spending falls into a lot of different buckets, and most of them aren’t goods. In fact, about 60% of total spending is on services. And for services to have significant increases in prices, you have to have a feed through effect that affects goods first and also hits the labor market. 

Now, if we’re getting that on the labor market, it’s an immigration issue with the Trump administration now saying they’re not just going to go after people who with criminal records are not just going to be going after people who are actually working, but keeping the nose clean, but happen to be here illegally. They’re also going to go after people with legal protected status and canceling it on shipping them all out. And now that the big beautiful bill is passed, there is funding available to expand the Department of Homeland Security and Immigration and Customs Enforcement. So we should see significant expansions, in labor costs moving forward in an environment where we already have record low unemployment. So this will just feed straight through into inflation. So that’s going to be a problem throughout the services sector for goods. 

More specifically there’s three categories to watch. The first and by far the most important. And how is housing. It’s roughly one third of the entire index. You want to build a house, you need four things aluminum, steel, copper and labor. And between the tariffs and the immigration crackdown, the Trump administration has severely constricted the availability of all four of those things, which is grossly retarded New builds. 

We’ve seen about a 10% drop in new housing starts since Trump became president. And this is before most of these tariffs even kick in and before the anti-immigration pulse gets really, really strong. So we’re going to be seeing some significant increases in housing prices over the remainder of the year and into the next. 

Keep in mind that once you fix these input problems, it generally takes a couple of years before you see meaningful increases in housing builds, because you have to wait for companies to reform. It took us a good six years to recover from the financial crisis and the subprime boom. It won’t take us this long based on how bad the policies get, but this is not something where you just turn a key and all of a sudden you’re back in business. 

Next up is food. We still don’t have food tariffs. Trump keeps promising and he says they’re right around the corner. They’re going to be 40%. But they haven’t happened yet. And until they do. The biggest problem with food prices is immigration. Again, because most of the harvesting of things like fruits and vegetables and most of the processing of meats is done by immigrant labor and the Trump administration has started directing Immigration and Customs Enforcement to raid the sites where people would show up for work and sometimes even raid meatpacking plants themselves. 

And we’ve already had a number of facilities shut down because of that, because they can’t find Americans to do the job. Number one, Americans don’t want to do the job. Number two, there aren’t any Americans to do the job. Remember, record low unemployment. We have a labor crunch. Third, let’s see. We did the housing. We did food, transport. 

Food and transport are both about 13% of the index. And transport really comes down to cars and trucks. And here’s something where we’re all going to be feeling it really soon. The new tariffs that Trump has threatened against Canada and Mexico were over 30%. And most vehicles that are made in North America are made as a team effort with, say, carburetors coming from the United States, engine blocks from Mexico, spark plugs from Canada. 

Things go back and forth and back and forth and back and forth and back and forth. And in a tariff environment, that model dies almost overnight. There have been numerous extensions to everything. So I’m not saying convincingly that this is what’s going to happen. Because Trump keeps changing his mind. But if these tariffs go in, there will be no more American made cars functionally, because it’ll be cheaper to make cars abroad and then ship them in and just pay the tariff once instead of having to pay it on every part, more or less. 

You’re basically looking at American cars becoming the most expensive vehicles in the American market and out of the reach of most lower and middle income people. One more, drugs. About 5% of the CPI is medications of some form. Trump has announced, without a implication date, a 200% tariff on all imported medications. 

Now, this is both indirectly smart and directly dumb. First of directly dumb. There are a lot of high end medications that come from Europe that simply will be unaffordable. And under things like Medicaid and any sort of insurance that you can get, they simply will be ignored completely because no one will be able to fund them. On the lower end, though, your maintenance medications, your lisinopril and things like that. 

There’s an argument to be made there that terrorists might be part of a tool kit that would improve drug availability. Right now, all of these easy to make pills that are less than a nickel a pop, are typically made in China and in India. And this has been the case for roughly a decade. And so reshoring that to the United States makes a lot of sense from a medical security and a national security point of view. 

And while the cost will undoubtedly go up probably more than double, it’s from such a low base that I don’t think a lot of people are going to really feel it too much. The reason I’m a little bit hesitant this is even in Donald Trump’s mind, is the last time that this was a top of mind issue. 

It was during Covid when the situation was the same, and there was a moment early in Covid when the Democrats, the Republicans and the Trump administration were all on the same page on what needed to be done, and Trump couldn’t be bothered to provide the leadership to make it happen. Now we have a broken Congress. We have a broken Republican Party. 

We have a scattered Democratic Party and a Trump administration that hasn’t staffed up yet. So the idea that there’s a phase two to the plan beyond big tariffs, I find really dubious because it’s now been five months since Trump became president and we haven’t seen that anywhere.

What It Means to Be a State

Man waving the Palestinian flag over Gaza

News recently broke that France has decided to officially recognize Palestinian statehood—a move welcomed by some and ignored by others. The fact of the matter is that there are certain entry-level requirements needed for a group of people to operate as a modern country, and Palestine fails to meet them. Most glaringly, Palestine in its present form consists of several different political entities controlling pockets of territory separated by Israeli-held land. Add to that the almost 100% important dependence for food and energy and we are looking at a state that could only survive by receiving continuous outside support.

And if you are one of those people advocating for a Palestine from the river to the sea, that will not solve anything. As much as people dislike the reality, the only way to begin to solve this decades-long problem is for the two parties to swallow their pride and make uncomfortable concessions.

Prefer to read the transcript? Click here

Transcript

Hey all. Peter Zeihan here. Coming to you from Oregon. Today we’re to talk about, the French recent recognition of the Palestinians as an independent country. The question is whether this moves anything in Gaza and the region at all. And the answer is really no. To be a a country. There’s a few things you have to have. 

You have to have a a permanent, contiguous population. You have to have clearly defined borders. You have to have a government that can project power throughout that zone. And ideally, an economy that can support the population. And really, Palestine does not qualify. The single biggest problem, of course, is this is not one chunk of territory. It’s two. 

If you’re being charitable, that’d be the Gaza Strip. And then you have the West Bank. But even within that, that’s not true. Even if you ignore the fact that there’s a war going on in Israel, has basically balkanized the Gaza Strip into a bunch of pieces. That happened a long time ago in the West Bank. And it’s not one piece. 

It’s dozens. So the Palestinians, by any definition, can’t control their own territory and have been broken up into a few dozen different bits that in many cases are not on the same side. That’s problem two. There’s no single government here for TAA, which is the group that cut the peace deal with the Israelis all those years ago, controls the West Bank enclaves. 

And Hamas, which is at war with Israel, controls the Gaza Strip. So this isn’t one government. This is several governments. Or if you’re being charitable to so it doesn’t qualify. Third, the borders. I mean, yeah, technically on a map to there. But again, Israel controls all of the territory between all of the and that’s before you consider the war in Gaza. 

And then finally, there’s the economics of it. This is a chunk of land that imports well over 95% of its energy, and well over 95% of its food. And so there’s no way it could function as an independent state unless somebody pays for it to exist. And if you’re one of those horrible people who says that the solution is just to kill all the Jews and allow all of this territory to be Palestinian? 

I’m sorry, that doesn’t help. And you’re also a monster because Israel imports over 90% of its energy. And based on who’s numbers you’re using, somewhere between 50% and 80% of its food before you consider the Palestinian territories. So there’s no version of this where it works. Unless it is done hand in glove with the Israeli government. So if you’re looking for a solution to the Palestinian problem, and it is a problem, it starts with talks with the Israeli government, which of course means that the Israeli government is the one who has a functional veto power. 

And yes, yes, yes, that can get ugly and messy, but unfortunately it is the only way forward. Having somebody on the outside saying that the Palestinians are a thing achieves nothing.

Keep an Eye on Industrial Construction Spending

View above an industrial construction site

We’ve got another economic metric for y’all to keep an eye on. Today, we’re looking at total construction spending for US manufacturing capacity.

This metric helps us understand how quickly the US is preparing to rebuild its industrial base. Which, as we’ve discussed extensively, is going to be essential as the US faces deglobalization…and China going bye-bye.

But things are stalling. Trump has created a construction purgatory, and businesses are holding investments until they know the rules of the game. And as we prepare for the next chapter of the global order, a drop in construction spending could spell serious problems.

Link: https://fred.stlouisfed.org/series/TLMFGCONS

Prefer to read the transcript? Click here

Transcript

Hey, all. Good morning. From the Front Range foothills above Denver. Today I’m going to talk about one of these other economic statistics that I’m following very closely in the current environment. And it is something that is collected by the Federal Reserve. It is called total construction spending for manufacturing capacity. Basically, it tracks how the United States is spending to expand its industrial plant. 

Now, if you’ve been following me for any time whatsoever, you know that I am concerned that we are not getting ready for the Chinese collapse fast enough and that we only have a certain number of years left, probably no more than eight. And that’s before you consider the trade war and some of the policies of the Trump administration, which are greatly accelerating China’s fall. 

So basically, if we still want manufactured goods stuff, we’re gonna have to make a lot more of it here locally. And that means a lot more factories. This statistic tracks exactly what we’ve been doing for the last several years. And if you start at the beginning in 2019, 2020, it’s Trump one. You’ll see that it was really low. 

And honestly, that’s pretty historically normal. But that number makes it Trump look worse than he is by far. And part of it is simply Covid. We didn’t know what the rules of the game, where we didn’t know how long it was going to last. We didn’t know if was gonna be a lockdown. We didn’t know how many people were going to kill, because if you remember back to the early days, something like 3 to 4% of the people who were getting infected were dying. 

And none of the treatments we had, especially in that early outbreak in New York, were working. It was it was awful. And nobody knew what to invest for. Then we have the Biden years where we had a lot of government spending to boost industrial production. And this makes Biden look better than he is, because while things like the Chips act and the IRA did put money into the system and did build industrial plants, only about 20% of that rise can be attributed to government spending. 

Most of that was actually American corporations realizing that something was happening with globalization that was not just a one off. It was a trend, and they needed to build more capacity here. And so we saw a steady increase for those four years. More lately, you’ll notice that it has flatlined again. And this you can blame on Trump. This is the tariff policy. 

At the time of this recording, we’re now at our 149th tariff policy since the 20th of January. And the rules of the game are changing every day, sometimes every hour. And so while everyone is completing the greenfield projects that they started, very, very few new projects have actually began. Any sort of construction and all of the deals that Trump likes to brag about. 

None of them have moved at all. So this is the number that matters from my point of view. Here’s a QR code so that you can watch it yourself with live releases. Whenever the fed updates its data. This number goes up. You know we’re moving in the right direction. We’re getting ready for a future that is inevitable, 

And if it goes down, then we are well and truly screwed.

The Future of US Monetary Policy + The Live Q&A Starts Soon!

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When a country’s monetary policy begins to resemble the likes of Venezuela and Turkey, it might be a good time to pump the brakes.

Trump and his Treasury Secretary have called for reform in the Federal Reserve, claiming the Fed has failed. The conversation is a good one to have, but the monetary policies suggested by Trump are just foolish. He has called for the firing of the Fed Chair and wants to force interest rates down to 1%…all for the sake of political gain. If we wanted inflation, asset erosion, and to damage our economy in the long-term, that would be a good way to get there.

The US has long prioritized keeping inflation low, even if that meant slower growth, because it would protect economic stability in the long run. But the global economy is shifting. Deglobalization and the demographic crunch are going to wreck traditional economic models. So, a conversation around what’s coming and how to handle it is worth being had. We just need people who are chasing meaningful change, instead of cheap credit for political gain.

Prefer to read the transcript? Click here

Transcript

Hey, all Peter Zeihan here, coming to you from Colorado on a bright, sunny, hot morning. Going to hit 80 today. Weird. Anyway, today we’re going to talk about the newest thing out of the American Treasury secretary guy by the name of percent. And he says that it is time to reevaluate the Federal Reserve as an institution, specifically noting that it has failed in many of its mandates. 

And he doesn’t know what they’re doing over there. A lot of this is just normal Trumpian exaggeration and putting the fault on other people when there is a lack of policy in the white House. There’s two sides to this one that is really, really dumb, and one of them that actually merits evaluation. So let’s start with the one that’s dumb, because that’s what everybody is talking about already. 

The Federal Reserve is the monetary authority for the United States. It determines the cost of capital within the American system at the government level, determining what interest rates are going to be in. And the market takes its cues from that. Folding its own stuff into the situation. Donald Trump is now on record multiple times saying that he wants to dismiss the Federal Reserve chair and put somebody who’s more pliable for his policy preferences in place. 

And he says he wants interest rates to go down to 1%. This is a very Turkish Argentine in Venezuelan, Zimbabwe, an approach to monetary policy. The idea that the government wants to spike growth in the short term in order to generate more political support, and to hell with the long term, because that’s somebody else’s problem. Every country that has ever done anything like this will get growth. 

And then you will artificially spike inflation, and you will lead to a decade or more of Mali’s and either high inflation, low growth, or both. And considering the stage of the United States in this part of the cycle, it would probably be both. But by the time we get to the other side of that, Trump is no longer president. 

And that is literally somebody else’s problem. One of the reasons why the United States is the global superpower is going back to the formation of the Federal Reserve back in 1913, is we’ve treated inflation as something that is a bigger threat than a lack of growth. And so as the Federal Reserve Charter is established by Congress, as built, it basically says that you try to keep inflation low. 

And if that means growth is lower, that’s fine. But that way you don’t inflate away the value of everyone’s assets, because if you have a long period of inflation, not only does that kill purchasing power, it erodes the value of all of your assets, whether they’re financial, physical or otherwise, and generates a lot more long term problems that are a lot more difficult to solve. 

So most of what the world Bank and International Monetary Fund have done over the last 50 years is try to convince the countries that they’re helping out, that you have to keep the cost of capital relatively high. So it’s treated as an economic good, because if you keep it low and treat it as a political good, people will splash it onto everything. 

It throws everything out of whack. And this, at its core, is one of the like 17 reasons why China is going to collapse in the next few years. They’ve treated capital as something that can be politically dictated instead of driven by supply and demand mechanics. So overall, really bad idea why I think we should talk about it anyway. 

The world is changing, the model shifting. We’re moving into a globalized world where the globalized world of, say, manufacturers are energy or agriculture are breaking down. And we’re moving into a world where it’s more regional, even more national, and in that sort of environment, we need to build a lot of things physical infrastructure, industrial plant processing capacity. Those are the big three power grid, if you want a fourth one. 

All of this costs money. And if we follow a normal model that is responsible, it is not clear to me we will be able to get there. That’s problem one. Problem two is demographic. for the first time in human history, in the advanced world, and I’m actually lumping in a lot of the advanced industrialized world like China. And with us, we now have more people in their 60s, in their 50s and their 40s and their 30s in the 20s, in their teens and children. And that is changing the balance of what is possible financially. 

Most financial strength, most private capital comes from people as they’re approaching retirement. Their expenses have gone down because their house has been paid for, and their kids have moved out, and they’re preparing for retirement, and they’re at the height of their earning experience. So high incomes, low expenses tends to generate a lot of fiscal wherewithal. And that one decade of your life is when you generate the most capital. 

Well, in the period from 2025 to 2035, it was always, always we’ve known this for decade. It’s going to be the period where the bulk of the people who were in that last ten year group go into mass retirement, and birth rates have been so low for so long. The replacement generation has come in at that ten year block is insufficient. 

So we’ve always known that this was about the window when the rules of the game are going to change and we enter a period of prolonged capital shortage. What we’ve seen with capital cost in the United States, roughly the quadrupling to quintuple in since 2000. It’s not because of things that the Federal Reserve has done. It’s not been because of the spendthrift policies of the Trump administration or the Biden administration. 

It’s simply America’s boomers, our largest generation ever, aging out of that 55 to 65 year block and into mass retirement, already two thirds are retired. And when you retire, you tend to shift your holdings into more conservative assets. So your stock and your bond markets tend to get liquidated. And you go into things like T-bills and cash and property that’s now happening on a global basis, which means that the balance among supply and demand and capital and labor is in the process of going through the greatest shift since at least the Columbus expeditions. 

And the idea that the economic models that we know and understand capitalism, fascism, European style socialism, the idea that those are still going to work on the other side when the balance of inputs has all changed, it’s kind of silly. So we need to try something new. And that means that the mandate for our monetary authorities, such as the Federal Reserve, are going to have to evolve. 

So having this conversation before we hit a crunch point, I think is a great idea. But the people who seem to want to lead that conversation are only interested in cheap credit for political reasons. And that’s a really bad starting place for all of this down, right? Chavista from Venezuela. 

So the question is, is whether or not there are enough people left in Congress, which is where this change would have to be adapted to lead a conversation. That is more talking about the future and the mechanics of how the world is going to be, rather than just worried about the two year election cycle. Color me dubious.

The Live Q&A Is Tomorrow + China’s Stance on Iran

The flags of China and Iran
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Iran was once a breeding ground of strategic importance. Well, they at least had the right stuff in the right place…or there was enough chaos to convince people to watch them. But times are changing, and the Chinese are no longer interested in Iran.

Iran has had no shortage of setbacks in recent times: battles with Israel, US hitting nuclear sites, and a diminishing influence over Hezbollah, the Houthis, and Iraq. And the amount of oil coming out of Iran pales in comparison to that of Saudi Arabia (and others). The Iranians are also losing their “control” over the Strait of Hormuz.

Iran is losing everything that has defined the country for decades, and the Chinese are taking notice.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. And today we’re gonna talk about how the Chinese view the Persian Gulf, specifically Iran. 

In the last month, the Israelis have launched an air war that’s basically destroyed Iran’s capacity for air defense. And the United States then went in and dropped a few bunker busting bombs on their nuclear program. 

Too soon to know if that actually worked. But, you know, the point is, Iran is not having a great time of it. They’ve lost control of Hezbollah functionally in Lebanon, the Houthis aren’t doing the best. They’ve lost control of Iraq. It’s been a really bad few years for them, and it’s the type of thing that’s going to take decades to kind of fix. 

So a lot of folks have assumed that for the last 20 years that the Chinese have considered Iran a strategic pull of any of their multipolar policy. And that’s that’s just not true. It’s not that the Chinese don’t see things that they can cooperate with Iranians on. Far from it. But Iran’s just not that important. A couple things to keep in mind at their peak. 

Back in the 1970s, before the Shah fell, before the clerics took over and it became the Islamic Republic of Iran, that has been hostile to really everyone. Iran was a major oil producer, about 4 million barrels per day, of which about 3 million barrels per day would be exported. But at their height, three more 3 million barrels per day exported. 

They were only exporting half of what Saudi Arabia exported at their absolute lowest. Saudi traditionally, produces something like 9 to 12 million barrels per day, with like 80 to 90% of that being exported. Iran has a much larger population, much more domestic demand, and can’t produce nearly as much. So if you are going to care about the Persian Gulf, Saudi Arabia is far more important than Iran, and Kuwait and the UAE together are more important than Iran. 

And the Chinese know they can do math. So that’s problem one with a theory that Iran’s really important. Number two, reason that Iran would be important is because it shares a long border with Iraq. And if you care about Iraq for whatever reason, then the Iranians can cause no end of problems there. Well, under the Biden administration, we withdrew from Iraq completely. 

And all of a sudden the strategic interest just isn’t there. So Iran can no longer use Iraq as a launching point into other parts of the Persian Gulf unless it wants to invade it first. And that would be, you know, noticed, the third issue was the Strait of Hormuz. The idea is that Iran will use jets and missiles and speedboats to basically block the Strait of Hormuz and prevent oil from getting in and out. 

Two problems here. Number one, the U.S. doesn’t care for the United States purposes because we are now a significant net exporter of crude, and we just don’t take a lot of crude from the Persian Gulf at all. Our interest in the Persian Gulf has always been to keep oil flowing to the Bretton Woods allies, so that they would be on our side versus the Soviets. 

But the Soviet Union is long gone. And now the long largest consumer of Persian Gulf crude is China. So the idea that the United States will get involved in a war with Iran to protect oil flows to China, that’s some very bad strategic math. And the Iranians know that and the Chinese know that. So what’s left? Well, shit. 

That’s everything. So bottom line is that Iran is not nearly as important to the Chinese or the Americans as it used to be. Strategically. It’s only falling off the map, especially now that doesn’t have production ability. And economically, ever since the American shale revolution really kicked up around 2012, that’s when we got into oil shale in a big way, with the United States really doesn’t care economically. 

And that’s before you consider the recent changes in the administration, with the Trump administration being broadly hostile to all of the old allies, whether it’s France and Germany or Korea and Japan, countries that use Persian Gulf crude. So we need to start thinking about this in a different way. The country that is likely to close the Persian Gulf isn’t Iran anymore. 

It’s probably Saudi Arabia and maybe even the United States, because those are the countries that would have strategic alternatives. Saudi Arabia can ship a huge amount of crude out of its western coast, and just avoid Iran and the Gulf completely. And if you shut down the Persian Gulf, the countries that suffer, the one that really goes down the most is China. 

And so from the Chinese point of view, Iran is no longer a potential strategic asset. It’s a vulnerability. And it’s sooner or later the Americans are going to realize that.

Key Economic Indicators to Watch: Retail Sales

Photo of a economic chart trending downward

The last time we discussed numbers to watch, we talked about first-time unemployment claims as a recession indicator. This time, we’re talking about retail sales as a key economic indicator.

Consumer activity accounts for some 65-70% of the US economy, so it is probably worth paying attention to. Retail sales give us a slice of the pie, covering purchases of goods and services. Sure, it doesn’t include housing, healthcare, and B2B transactions and it comes with a 6-week delay, but hey, beggars can’t be choosers.

Below is a link to the website where you can look at retail sales in the US.

Link: https://www.census.gov/retail/sales.html

Prefer to read the transcript? Click here

Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Colorado. And today we’re going to take another question from the Patreon crowd. Specifically, how do I do what I do? And we’re going to talk about one of the economic statistics that I use to figure out where the world is going and what’s going on in the country at the moment. 

And that statistic is retail sales roughly 65 to 70% of the American economy is based on consumer activity. So anything that gives me some insight into that is something I’m all about. Retail sales is arguably the single largest chunk of that, but it’s nowhere near all of it. Retail sales is everything that you purchase, whether a goods or a service, up to and including vehicles. 

But it does not include things like health care and most importantly, housing, which for most people is their single largest expense. What it does is it gives us a relatively accurate picture in a sectoral breakdown on what Americans are spending their money on over a long period of time. So from a positive point of view, retail sales tells us what is up and how people are operating. 

But there are a couple really big drawbacks on the statistic. That means that you have to look at as one of a constellation of factors, rather than just the one thing that you look at. The first problem, in addition to, of course, the fact that it doesn’t include all spending like housing is it doesn’t include any sort of business activity. 

If it’s a business selling a service or good to another business that’s not in retail sales, it only covers business activities that go to consumers. So if you’re like me and you’re very concerned about an industrial and a manufacturing slowdown because of the Trump administration’s tariff policies, it’s not going to get you anything in retail sales. For that, you have to look for industrial construction spending. 

Second issue. It’s not a hard number. It’s an estimate based on surveys of thousands of companies. Which means that not only are you not getting a hard data point like you would with, say, first time unemployment benefits, which is another video we’ve done recently. 

It also means that it takes time to put it all together, because you have to wait for the month to complete, and then you do your surveys and your survey data back, and then you compile that into the overall number of retail sales. And so from the point that you start the process at the end of the month to the point that you have your final data point, it’s about six, almost seven weeks. 

So in just this last week, we got data finally about what went down in June and the June data was pretty good. It was a pretty strong expansion of retail activity, and after two months of negative growth, it was kind of a relief to see some activity with that probably meant is that we were on the backside of Trump’s just kidding. 

Tariffs where he originally had US high tariffs in April, which suppressed activity that continued into May, which suppressed activity. And then in May, he said, you know what, we’re going to give everybody a couple months to adapt to this, and we will revisit this in August. And so in June, the tariffs came off, people started spending again, and we got back to some version of normal, although I’m not sure what that word even means anymore. 

Anyway, June numbers came in looking pretty good, but we didn’t find that out until halfway through July. And again, it’s an estimate. So by the time we get to the other side of Trump’s tariff break in August, it’s not going to be until September that we have some idea of what’s going on. So it’s a great data point. 

It’s an estimate, it’s somewhat backward looking and it doesn’t give you the whole picture, but it’s better than nothing. So I watch it. And now with this QR code you can watch it to.

The Revolution in Military Affairs: Wars Without People

Image of a drone firing missiles

Unless we figure out how to make wights from Game of Thrones or find the Dead Men of Hunharrow from The Lord of the Rings, we’re going to have to figure out how to fight wars without (living) people.

As populations shrink and demographic structures grow top-heavy, military strategies will have to shift. We’re seeing drone tech control the battlefields in the Ukraine War, but defensive tools are limited to jamming or hoping someone makes a lucky shot on the damn things.

This has created huge swaths of uninhabitable marches; areas too dangerous to live in, but too contested to control. As drone tech proliferates and new wars breakout, these marches will likely become the new standard. Wars will be less about holding ground and more about denying function. That is, until the tech evolves again.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here. Coming to you from an aspen glade in Colorado where it’s definitely hiking season. So I’m out and about. Today we are taking a question from the Patreon crowd that’s also going to apply to our drone series, A Future of Warfare series. The question is, in an age of terminal demographics, how does that shape military strategies and tactics? 

That goes perfect with the military? Revolution? We’re experienced with drone technology as new technologies, information transfer, energy transfer and digitization and material science combined to enter a completely new world of warfare. But before we talk about where we’re going, let’s talk about where we’ve been, because it’s really instructive. So if you dial back the clock like, really dial back the clock to the late dark ages, early Middle Ages, when the Mongols were starting to boil out of the eastern Eurasian steppe and sweep across the world, the new technology of the day massed cavalry charges and cavalry, information transport and cavalry driven trade, gave the Mongols a degree of speed, lethality that no one had experience in the human condition to that point. And over the course of a few decades, they just absolutely rampaged across, China and eastern Russia and eventually knocked off the Russian government in Moscow itself, as well as all of the areas in the step to the south. The issue was pretty simple. A bunch of dudes on horse, if they know what they’re doing, can go fast and free over the plains, come in, raid, kill a bunch of people and take what they want, and then gallop away and be over the horizon before any sort of interpretive infantry or archer force can ever do anything. 

So they do this over and over again, through over government, after government, after government, and eventually discovered that they could pack a little water with them and actually cross short periods of desert and attack from directions that no one had seen before. And there just weren’t any good defensive technologies to counter them. Well, eventually, after they killed enough people and destroyed enough governments, including what was the Russian government of the day, people started to develop counters, by hook or by crook? 

By accident. The first one was developed by the Russians, and that was basically just going to hide in the forest, because if you’re in a forest, it’s really hard to get a good straight line for a cavalry charge. The people would have to dismount. And since there were never more than a few tens of thousands of Mongols in the entire space of the former Mongol Empire, any time they did dismount to pursue people into the woods, they were always wildly outnumbered and wildly hated. 

And they didn’t last. So we got this zone where the Russians had retreated. Some of the Russians, the true Russians, if you want to use that term, had retreated north of Moscow into the Tay guy, where they were basically living off of lichen for three generations, and the Mongols, who controlled the open flats by the time the Mongols got to Europe proper, a different strategy, had been developed. And that was to be perfectly blunt. Fortifications. Doesn’t matter how fast your horses, doesn’t matter how good you are with a boar or a lance, if someone is behind a stone wall, you’re kind of out of luck and they’re just raining arrows down on you. So Europe entered their fortification era initially in Poland because of the Mongols or other reasons to have fortifications. 

But in this sort of system, you basically developed feudalism where everyone would run into the fortification when the Mongols or some dudes on horseback or bandits would show up, you’d wait them out, and then you’d go out, back out to your house and tend to the fields. And so everyone tried to store about a year of grain within the fortification so they could wait out a siege. 

That was the technology, the offensive versus defensive development of the day enter a world of demographic decline. And we are literally running out of people aged 50 and under who can say, pick up a rifle or a base plate in a mortar and march out into the field and do things. One of the problems when it comes to military technology is what happens the next day after the battle. 

And if you have a long, grinding conflict like most conflicts are, you have to be able to hold the ground and protect the civilian infrastructure that is necessary for the civilian population to exist. Otherwise, there’s no point in having a military in the first place. So back in the day, people would live in the forests. Not a great option, but the Russians have lower standards. 

Or you would run into the fortifications. In today’s world, the new horses of the plains are drones which can, on a tether, go ten kilometers out from launch point or without a tether can go maybe a thousand, even 1500. Those numbers will only go up. And if you have an opposing force that is in range of you, that has a lot of drones, they can basically make your terrain completely unlivable. 

So we’re probably going to see a resurrection of an old term that dates back to Roman terms, the march, areas that are on the edge of your terrain that you cannot reliably protect. But the opposing force coming in cannot reliably occupy. They’ll become a no man’s zone. 

We already have extensive territories like this in eastern and northeastern Ukraine, where the Russians have basically made it impossible for people to live or farm or maintain basic civic services. 

And the Ukrainians lack the manpower that’s necessary to reoccupy these lands to provide a buffer for the civilians. And so we’re getting an ever widening band that is becoming unlivable. Some version of that is in our future, unless and until we develop a better defensive technologies. Now, at the moment, if you want to take down a drone, your only option is a really good rifle shot, good luck or jamming, which generally only has a range of a few hundred meters if that. 

So we are very early into this transition, and the combination of less manpower to establish that buffer, combined with an insufficient defensive envelope to provide passive cover for that buffer, means that more and more territory across the planet is simply going to be unlivable because of conflict. You think that’s not going to come to a town near you? 

I hope you’re right. But keep in mind, we’re already seeing the echoes of the Ukraine war technology percolating throughout the European militaries across Africa. And really, the laggards here are everyone in the Western Hemisphere, where we haven’t had a meaningful war in well over a century. And honestly, we’re a little out of practice when it comes to actually protecting terrain. 

All of the conflicts that the United States has been involved in since World War One have been on a different continent, and that means we have prepared for different sorts of things. We have been the functional Mongols. We have been the ones that been writing fast but not really bothering to protect very much, with the exception of nuclear cover during the Cold War, which is a very important exception. 

But what it does suggest is that the state, the power of the state, is going to become significantly more potent as the ability to man an army becomes less capable. It’s going to be more about denying the other side the ability to function. Then it’s going to be about protecting your own until the technologies change again.