The Fire Hose of Chaos: The Fed

Seal of the federal reserve on a 0 bill

Jerome Powell has been on the receiving end of Trump’s threats and the markets have reacted negatively to the undermining of the Fed’s credibility. Here’s the full picture.

The Fed is raising rates to combat inflation driven by Trump’s tariffs. Higher rates = more expensive borrowing = slower economic activity. A necessary evil to prevent an inflation spiral. Trump wants rates lowered to encourage economic growth, counter to the Fed’s mandate. There’s no legal ground for Trump to fire Powell unless he wants to alter the Fed’s charter through Congress. Which, to be frank, is a feasible route given a weakened Republican party unlikely to resist.

Stagflation is just the tip of this iceberg. A deep recession is lying just beneath the surface, and Trump’s undermining of the Fed’s independence would only surface more problems.

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Transcript

Peter Zeihan here. Coming from Canada….Coming to you from Colorado. Sorry. It’s been a long week. One of the big things that happened in the week ending April 25th. On a number of occasions, Donald Trump indicated that he planned to fire the Federal Reserve chairman, Jerome Powell. Eventually he backed out and said it was just a joke. 

And he never really considered it. But the damage has been done in the markets are kind of on fire in a bad way. So why does this matter? Well, the Federal Reserve is responsible for determining the monetary policy of the economy. And the tool that is generally gets the most publicity and is most directly relevant to most of us is interest rates. 

When the fed raises interest rates, everyone else in the economy that is involved on the credit side of things raises the cost of everything. Whether it’s your mortgage rate, your car rate, or your credit card rate. And so higher rates means that it costs you more to do whatever it is you want to do, and your mortgage will go up. 

Well, if you get a new mortgage, you’ll be more expensive. You get a new car, it’ll be more expensive if you do a purchase on layaway, it’ll get more expensive. And when you do that, you slow down economic activity. And that is the intent to slow down economic activity, because what they’re trying to do is suppress demand. 

Because if you suppress demand, enough inflation goes down. And courtesy of the Trump tariffs, we have a significant inflation problem that is only going to get more intense in the weeks to come, as the product that used to come in from China is no longer arriving. So we have product shortages. And the fed is anticipating that the Trump tariffs on China, in addition to all the other Trump tariffs, are simply going to generate shortages in supply, and they want to reduce demand to match it. 

So we don’t have an inflation spiral. Trump doesn’t like this. He wants economic activity to be robust. And so he’s pressuring Powell and the fed to drop interest rates in order to reduce those credit costs. 

So the consumption remains stable or even better, goes higher and generates faster economic growth. But if you do that, you get higher inflation. So three things come from this. 

First of all, the Federal Reserve is not going to bend the knee to Donald Trump because it legally cannot. The Federal Reserve Charter as established by Congress is very clear. The Federal Reserve is supposed to achieve a balance between inflation concerns and growth and employment concerns. 

But when the two sides clash, it always should go with inflation, because getting inflation under control can be very difficult and in some cases can take years and trigger massive recessions. But boosting growth is easy. You just make the credit easier and it can come back roaring in weeks to months. So Donald Trump is not going to get his wish here. 

So the threats against the Federal Reserve chair probably going to continue. Which brings us to the second thing the president can fire the Federal Reserve chair for cause. And for cause does not include doing your damn job. So if Donald Trump were to fire Jerome Powell, two things. I mean, number one, it would go through the courts over and over and over again. 

And the federal charter is pretty clear or so. It’s pretty obvious to me that the Trump administration would lose that fight and would be very public and would be very humiliated. And I think Donald Trump knows that. In addition, power would still be on the Federal Reserve Board for another two years. So it’s not like it’s going to generate some sort of activity that is all of a sudden going to be in Donald Trump’s favor. 

And I think he realizes that now. That’s one of the reasons why the threats have stopped a little bit. Which brings us to the third issue. If this is what Trump wants to do, if he really wants lower interest rates, if he really wants a looser monetary policy, he can get that without replacing the fed chair. 

He just has to change the Federal Reserve Charter. And that just requires an act of Congress. In that, considering that he’s basically ripped the backbone out of the Republican Party that is normally in favor of fed independence, it would be a much easier route. So as the economy starts to slow, as inflation starts to tick up to levels that are incredibly uncomfortable, expect a Trump to slam his head in the fed a few more times, and then just go to Congress, and we will find out at that point whether or not there’s anything left in the Republican Party that can stand up to Trump when he makes a very, very, very bad economic decision, because we’re already in an environment where stagflation is our best case scenario. And if the tariffs continue in their current form, much less get expanded as Trump says they’re going to be. We are looking at a very deep, dark recession, just a few weeks from now. 

And gutting the independence of the Federal Reserve will only make it deeper and darker. 

The Night the Lights Went Out in Geor- er, Spain

A candle in darkness

On Monday, April 28, a widespread power outage hit Spain and Portugal. Other than our marketing guy who was on vacation in Madrid at the time claiming he “had no signal” and “couldn’t work”, this outage highlights a broader issue with renewable energy infrastructure.

The root of the problem comes from the use of green energy sources like solar and wind, that lack the built-in stabilization that traditional energy sources like coal and natural gas have. This meant that there was no safety net to stabilize the grid once a fluctuation entered the system. Thus, the automatic shutdowns were triggered, resulting in a widespread outage.

Preventing future outages will require some changes. An expensive and multi-decade integration with a fast-discharge battery system. Keeping 15-20% of the grid powered by coal or gas. Or using microgrids, like a hippie compound. No solution is perfect, but outages will continue until something changes.

Oh, and don’t think this won’t happen anywhere else. Grids that are defined by isolation (think the United Kingdom, or Australia) will be next up.

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Transcript

Hey, Peter Zeihan here coming to you from Colorado. It’s kind of like Seattle today. Anyway, today we’re going to talk about the power outage in Spain and Portugal, what it means, how it happened and how you fix it, because it’s kind of relevant to a lot of other things that are going on in the world right now. 

Okay. Electrical engineers out here. I’m not going to give this in the purest form. I’m going to try to make this safe for laymen. So hate me if you want to, but hopefully I’ll get this right. The issue is something called alternating current, which is what we use for electricity distribution. And throughout pretty much all of modern life and alternating current, as it might suggest, is a wave. 

So there are peaks and troughs. It follows a very regular route. And in the European situation they use a 50Hz, oscillation. We use a 60 here in the United States. Just for a point of comparison. Not one is not better than the other, just is. Anyway, basically, there’s a wobble built into the power system, and that wobble has to stay stable. 

And if, for whatever reason, you introduce, a change in the wobble or a second wobble, all of a sudden all the gear that is operating at that wobble starts to have issues and it starts to shake, and oftentimes it catches on fire. Sometimes explosively. And it doesn’t take long for the disruption to manifest as a problem. 

So for example, when the wobble was changed in Spain, it only took about four seconds for things to go horribly wrong. And because the things that catch on fire are critical pieces of equipment like transformers, what you have into the system is a series of failsafe built into every node where they sever themselves from the grid. Should that wobble, shift, or second wobble get introduced and everything just goes dark. 

And the same happened at the interconnectors that connected the Iberian Peninsula to Morocco and France. They just shut themselves off from everything else. And we had a cascading failure, to kind of put it into layman’s terms. The normal wobble is very regular, and it’s kind of like at a junior high dance when everyone’s doing the Macarena. Da da da da da da da da da da da, and then all of a sudden somebody flips a switch and everyone attempts to do the lambada, and it’s chaos and everything is destroyed. 

Anyway, the problem that was introduced here is that the Spanish and the Portuguese no longer have a failsafe to stabilize the wobble. What normally happens, and the reason why we don’t have this kind of blackout on a regular basis, on a global scale, is that most of the power generation of the world comes from coal or natural gas, which are thermal units. 

And when you burn the natural gas or burn the coal, you get a stream of energy that basically spins a turbine. And that turbine, in addition to generating electricity, also has a lot of pent up kinetic energy stored within it. So if something changes the wobble, something changes it away from that 50MHz that the Europeans have to have. 

You can either spin up or slow down, or otherwise tap the power of that spinning turbine to buy yourself a few seconds so that we mere humans can react and bring on or take off other capacity to stabilize the current in Spain and Portugal. At the time that this breakdown happened, about 80% of the electricity was being provided by solar and wind, which sounds great from an environmental point of view and from a national security point of view. 

However, all of the energy that comes out of solar and wind is direct current. And so every solar panel and every wind turbine has an inverter that turns the power from direct current to alternating current to match the wobble. And there aren’t a lot of moving parts, so there’s no kinetic energy that you can tap. 

And so there just wasn’t enough coal and natural gas, enough turbines spinning in order for them to stabilize the entire thing. And in four seconds, all went straight to hell. Now, if you want to fix this, you’ve got to options. Option number one is to continue down the net zero route and put in another type of battery. So right now you’ve got grid storage which is typically lithium ion or lithium phosphate or lithium cobalt. 

And these batteries do not charge or discharge very quickly. But that’s not what they’re there for. They’re there to provide supply to the grid so that everyone has power. Instead, you need a fast charge or a fast discharge battery that’s usually lithium. Titanium. Now, titanium sounds all impressive, but really the supply chains for titanium are more or less okay. 

The issue is one of manufacturing. These batteries are made in six different places. Only one of those places China. So it’s know South Korea, Japan, the United States, Switzerland I think are the big four outside of China. But they don’t make very many of them. They’re relatively new battery type. And so if all of the lithium titanium batteries that were capable of grid storage were provided to Spain and Portugal, it would take a year of global production just to fix the situation on the on the peninsula of Iberia. 

So we’re talking about needing to do a very significant industrial build out on a global basis if we want to solve this on a global basis. And of course, you have the other little minor problem that pretty much all of the world’s lithium is processed in China. And between China’s pending impending in-progress demographic collapse, including the trade war, that is absolutely smashing. 

Their, their home industries. We also need to relocate the entirety of the lithium processing industry away from China into more stable places. So solving this from a battery point of view is very problematic if you want to do it on anything less than a 15 to 20 year time scale. The other solution might not be as ideologically friendly. 

If you’re agreeing, but it’s a lot simpler. Just keep 15 to 20% of your grid constantly running on coal natural gas so that you have those term bits spinning all the time. The reason we’re seeing this in a place like Portugal and Spain first is because Portugal and Spain are on the Iberian Peninsula. They don’t have a lot of physical interconnections to other grids, so they can’t rely on the spinning turbines of the country next door. 

One of the reasons that the Germans have not experienced this problem is even though they have for a few days in the summer, basically go 100% green. All of their neighbors have coal, natural gas plants, and so when things start to spin out of control, they can rely upon the stabilization provided by all of their neighbors. So you’re going to see this first in places that try to go green, that are more isolated. 

So your islands and your peninsulas watch Australia because you’ve got a disconnected grid there. Watch New Zealand, it’s an island. Watch the United Kingdom. Holy crap, the United Kingdom is very lucky. This hasn’t happened to them already, because their green tech is not nearly as reliable as it is in Spain and Portugal. It’s not as windy. It’s not a sunny and so you have a lot more spots pouring in. 

But if you happen to get a windy, clear day, all of a sudden they go from being 100% green to 100% unstable. The only other solution I can think of is microgrids. That works for some people. They’re incredibly expensive. And you have no backup should something go wrong? The advantage is in a microgrid. If everything’s on direct current, you don’t have to worry about the wobble at all. 

But you have different problems anyway, one way or another, as green tech gets more integrated into systems, one of these three solutions has to happen. One of them requires a multi-decade build out. One of them requires a big step back from an environmental point of view, and one of them basically means becoming a rich hippie commune. 

None of these are great solutions, but that’s where we are.

The Fire Hose of Chaos: Recession Time

Photo of 0 bill being cut

What do you get when you mix overly aggressive trade measures and a poor economic plan? Trump’s idea of a great start. Or, as I like to call it, a policy-induced recession. Here’s what’s happening.

Cargo shipments from China have collapsed and shortages will begin in a month or so. Trump’s eager to dump $1 trillion into new deficit spending, raising capital costs. Those DOGE cuts failed to offset spending and have backfired. Customer confidence is at its lowest since the ’08 crisis. We’ve already chatted about the construction issues. New tariffs are killing growth across numerous sectors. Policy confusion has stalled investment. And the global demographic picture isn’t getting any prettier.

The recession that the US is facing is no longer avoidable. Political choices have led us here, not economic fundamentals. Even if we flipped the switch today, recovery would be months away.

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Transcript

Hey, all, Peter Zeihan here. Coming to you from New York. There’s the World Trade Center, and I couldn’t think of a better place to discuss the recession that’s about to hit us. This is the latest in our series on the fire hose of chaos. How the Trump administration’s domestic and international policies are affecting the US economy. 

If you were looking to avoid a recession, I’m afraid that that ship has sailed like it literally sailed out of China about three weeks ago. I’m recording this on the 29th of April and back on the first week, we had tariffs kicked into China that rapidly ratcheted up to 145%, and that basically turned into a trade embargo and ships just stopped sailing. 

And at first it was just a few. And by now more ships have been canceled by a factor of two than what happened in the darkest days of Covid. The last of the three tariff vessels will dock in Los Angeles on or about May 5th. About two weeks later, the last will hit Houston about a week after that here in New York. 

And at that point, the inventory that’s in the country is always got to work with, and we will see good shortages of almost every kind within a month. There’s also not much of a chance of changing policy to avoid this at this point, because even if the Trump administration were to climb down completely, and even if everyone in China were able to go back to work the next second, you still wouldn’t see loadings within a month, and then it’s another month for it to cross the ocean. 

We’d already be talking about sometime in September or October. And that’s just one piece of the equation. We also have weakness everywhere else. The Trump administration says it wants to increase deficit spending by $1 trillion. That’s going to raise capital costs that won’t be compensated by the DOJ’s cuts. Doge has steadily revised down how much they think they’re going to cut out of the federal government, from 2 trillion to 1 trillion to 150 billion. 

And the most recent data suggests that cutting that 150 billion actually cost 130 billion, because a lot of the jobs that were let go were people that were actually essential workers that Congress mandates. And so they’re being had to be rehired on a contract basis, which costs more. That’s before you consider what’s going on in the housing sector, where we’re seeing consumer confidence at its lowest since the financial crisis back in 2007. 

That’s before you consider that industrial construction spending has dropped to zero, something that never even happened during Covid and that kind of blip doesn’t exist is going back as far as the data is. The issue is we’ve had roughly 100 different tariff policies in two months, and no one knows what the rules of the game are. 

And we have had no effort by the Trump administration put in place an industrial policy. We actually encourage manufacturing construction. And so it’s just withered on the vine from lack of confidence. Also, we have significantly slower economic growth in places like Michigan and Indiana already from the car tariffs that are already in place. And if the Trump administration does what it says it’s planning on doing on May 2nd, those car tariffs expand to cover car parts, which will trigger a manufacturing recession in roughly 25 states. And that’s before you consider the consumer spending is going to hit by agricultural tariffs that are just around the corner. And that’s before you consider drug tariffs or semiconductor tariffs, which are being promised. Basically we’re looking at a secular slowdown in economic growth in almost every sector. At the same time, almost none of it has to do with economic fundamentals. 

It all has to do with policy. And even if we got a complete policy change today, we’re going to have several months before we recover from this, just by unwinding things. And perhaps the darkest point of this is that some version of this was probably going to happen anyway. Birth rates have been dropping for decades, and it was always going to be the period between 2025 and 2035 when a number of countries including but not limited to Germany, Italy, Japan and China, basically aged out of being productive systems. 

And when that happened, globalization was going to crash. But the tariffs are making it crash now harder. And in a way that is causing a lot of heartbreak for Americans. That wasn’t necessary. What is the other side of this look like? I don’t know, that has become a policy question.

The Fire Hose of Chaos: Housing Problems

Construction of a home

Does everyone remember that bedtime story about the Three Little Pigs and the Big Bad Wolf? Well, the Trump administration is doing its best wolf impression and trying to blow the entire housing industry down. (We’re running out of metaphors for this administration, so cut us some slack on this one)

There are a lot of things hurting the US housing industry. The labor shortage will only worsen as more undocumented workers are deported. Material costs are on the rise, thanks to tariffs. All the stuff that goes into a home, whether you’re furnishing it or renovating it, is now more expensive due to tariffs. Mortgage rates are at 20-year highs and available capital is shrinking. Insurance companies are taking a hit. Not a fun time…

The pressure is on for the housing market, and it’s only a matter of time before the foundation cracks. What was a relatively healthy market just months ago is now the problem child in the US. And if that doesn’t worry you, we’ll talk about the recession tomorrow.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from New York City, near Rockefeller Park. That’s like new Jersey or something over there. We’re gonna look over here, Trade Center and, Lady Liberty’s over there somewhere. Yeah, there. Anyway, today we’re going to continue our firehose series about how the Trump administration’s domestic and international policies are affecting the American economy. 

And today we’re going to tackle housing. Now, there’s a lot of inputs that go into a successful housing industry. But generally you’re looking at the big four. The first one is going to be labor based on where you are in the country, seasonality, all that good stuff, somewhere between 20 and 40% of the cost of a house is just from labor. 

And as a rule, somewhere between 25% and 35% of that labor is immigrant labor, with that number going to 40 to 50%. If you’re in California or Texas. So if you do what the Trump administration says it wants to do and deport 5 million illegal laborers, you can imagine what that’s going to do to housing costs, because there simply aren’t enough people in the country to fill those jobs. 

And that’s before you consider that immigrants play an outsized role in the trade. So carpenters, electricians, that sort of thing. Plumbers. So you can see that turning housing into a very expensive proposition just right off the bat, the next raw material inputs, which again, 20 to 40% were based on where you are, what kind of structure you’re building. 

And these fall into a bunch of different categories. First, most obviously is wood for framing. The second largest source comes from Canada that now has a 25% tariff. Next up are steel and aluminum, which are used for framing, flashings window frames, structural support, nails, that sort of thing. Right now, again, 25% tariff on both of those items. 

Next up is one that people don’t think about very much. And that’s copper. But you know, if you don’t have copper, you’re not going to have electricity. Now, most of the world’s copper, or at least mostly copper that comes to the United States, is either from Canada or the United States or Mexico or especially Chile. But that’s the raw copper. 

Once you turn it into wires and electrical outlets and all that other assorted stuff, most of that stuff is going to be coming from China. And now there is a 145% tariff, which basically means we stopped shipping stuff from China for this product category. About a month ago. And even if we were to flip the switch back on today, we wouldn’t get new shipments for another two months. 

It just takes that long for everything to spin up and cross the ocean. Then there’s things like tile and stone. Most of that comes from the Mediterranean. That’s another 20% tariff. So for all of the things that go into the physicality of the House, we’re looking at significantly higher rates of cost. Assuming you can get the stuff at, oh, the third category is what you put into the house. 

Once you buy the house, for anyone who’s a homeowner, you know, you’ve just started to spend your money. You then have to put things into it, whether it’s furniture or washer dryers, refrigerators, or you have to do an overhaul. As a rule, in the United States, for every 3 to $4 we spend on the primary purchase of housing, we spend another dollar or two on add on costs to fill it up with stuff, or to overhaul it, or put in new drywall doing additions, whatever it happens to be. 

All of that has gotten more expensive to and then forth finance between the baby boomers retiring and liquidating their savings, and the Trump administration planning to increase the federal budget deficit by $1 trillion a year, the availability of financing for the private sector has shrunk precipitously. And we’re only at the beginning. Now, in, the end of you see, you’ll probably see this May 1st. 

We’re only be beginning to see the increases of what that’s going to do. The financing costs. Right now, mortgages are at about a 20 year high. Expect that to get significantly higher. Now if you look back historically, like back to the 70s when mortgage rates were like 15% or more, we’re nowhere close to that yet. But we’re getting there pretty quick because of the problem and the discombobulation between supply and demand. 

And that’s before you consider Trump’s tariffs, which and Trump’s financial policies, which are only going to drive financing up more. And then finally, something that’s not technically a housing cost, but we all have to have if we’re gonna get a mortgage insurance, because as much as construction is going to become more expensive, it is nothing compared to what’s going to happen to re construction. 

Whenever there is a national disaster, a storm, a hurricane, a forced fire, and you need to rebuild, all of a sudden you need to rebuild lots and lots of things in exactly the same spot, which means that the cost for the repairs and the recovery are significantly higher than what happened before. Which means the insurance guys are getting hit on all sides. 

All of the input costs are going up. Insurance guys, basically take your premiums and invest them into the market in order to generate capital that they’re going to need to pay out claims while the markets are tanking because of Trump’s policies. In addition, you have a real problem with foreign access of capital because that money is going away. 

Maybe referenced the finance video we did a couple of days ago. I would not want to be the insurance. Right. Because between the level of populism and Trump government and the popularity of populism, the American political scene right now, the normal thing that the company would do would be to raise premiums and to reduce payouts. But populism isn’t going to allow that to happen. So we will have federal action to grind away the insurance companies in a way that is designed to benefit the consumer. 

And the only way that insurance companies can deal with that is by stopping to offer coverage. Boy, so this all adds up to a housing sector that all of a sudden, from being an actually pretty good space four months ago, is looking to be the sector that is potentially most damaged by the mid and long term trends that are coming together. 

And that’s really just the beginning, because we’re also about to have a recession. We’ll talk about that tomorrow.

The Fire Hose of Chaos: Steel and Aluminum

Photo of Steel pipes stacked

The Trump administration has given us a masterclass on how to set supply chains ablaze using tariffs. While some supply chains are smoldering, others are raging wildfires. So, let’s look at two that are in the thick of it: steel and aluminum.

Given the industrial growth and manufacturing buildout that the US has set its sights on, these two materials are essential; however, the US does not currently have the domestic capacity to produce the amount of steel and aluminum needed for what is coming.

That means the US will still have to import a good chunk of these materials…but it will cost 25% more than it would have previously. This throws yet another wrench into the US industrial buildout, especially for industries like construction and housing.

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Transcript

Hey all, Peter Zeihan here coming to you from Denver International. Today, we’re going to do the most recent in our host of chaos series about how the domestic and international policies of the Trump administration are affecting the American economy. And today, we’re going to dive into those two base materials on which everything runs. And that’s steel and aluminum. 

There are similarities within the markets, but I think it’s best to just kind of break down what you do with these things and how you get those things, and then we’ll go into the broader impact. So let’s start with steel. Roughly 75% of the steel that the United States uses is actually recycled. Steel is one of those wonderful materials that you can recycle at once, or a thousand times, and it’ll still work. 

But that doesn’t mean that all steel is equal. Recycled steel tends to be kind of ugly. And so you use it in places where you need strength, car frames, I-beams for construction, that internal skeleton you see in high rises, ships, that sort of thing. But if you’re going to do something where it needs to be pretty or where it needs to regulate electricity, you need something different. 

Basically, there’s two kinds of steel you’ve got hot rolled, which is the ugly stuff that is usually recycled, and you’ve got coal, which is virgin steel made from iron ore and coke. And cold rolled steel can be used in more advanced applications, specifically in manufacturing and in the world that we’re in now, where most manufactured steel products aren’t about strength, they’re about regulating electricity. 

You have to have something called grain oriented or non grain oriented steel. Different types of those things regulate electricity flows at different speeds and different insulation levels, and that really needs to come from virgin steel. The complication is something called a roller—when you pull the steel out of the molten mix and you’re really hot bars? 

You then push that through a roller because the way the steel cools determines the crystalline structure, which determines how well electricity does or does not conduct through it. Now you can take recycled steel and put it through a roller, but rollers are big and expensive, and you only usually put that on a very large foundry. And only the very large foundries are making virgin steel, recycled steel, hot rolled steel typically is made locally because you basically you take down a building in your state and then you’ve got a local facility that can turn it into hot rolled steel. 

If you wanted to get it to a roller, you’d have to get a completely different facility that operates on a different scale. Well, the United States needs to roughly double the size of its industrial plant. That means a lot of industrial construction. That means a lot of that ugly, high rolled steel. And while the United States is the world’s greatest steel recycler, there just isn’t enough to double the size of the industrial plant on anything less than a two century time scale, which means we just need more and more, more and more. 

And if you’re to get more and more, more and more and more, you’re probably going to be important. And if you want to go into manufacturing, you need a lot more cold rolled steel. And if we’re going to triple the amount of steel products that we put in the manufacturing, we need more and more, more and more and more. 

If you want to do this with foundries, you’re talking about a ten year buildup. If you want to do with imported steel, you could do it now. And what the Trump administration has done is put a 25% tariff on anything that is imported, which has brought construction and manufacturing costs up while decreasing the flow through of the input that we need to make any of this work at the base level. 

So everything is now moving more slowly, at a higher expense at a time. We just need more. The second metal, of course, is aluminum. There is somewhat similar policy, about 45% of what we use. We produce ourselves. And almost all of that is recycled. But just as with steel, if you want to manufacture something that is pretty, that has the combination of corrosion resistance and light weight and strength and flexibility, then it’s probably going to have to be from virgin materials. 

And the United States just doesn’t have the raw material here. The raw materials, bauxite, you basically mined that you dissolve in sodium hydroxide. You get a white powder called alumina, and then you electrocute the crap out of it to turn it into aluminum metal. And just as with steel, you can use recycled steel for construction things like window frames, for example. 

But if you’re going to do high end work like, say, I don’t know, airplanes, you’re going to want the Virgin stuff in the US just doesn’t smelt much of the Virgin stuff itself. And again, just as with steel, we need to use 2 or 3 times as much as we have yet to get the smelters on line. And so this is an ongoing problem with all of the Trump administration’s policies. 

The CART has been put several steps before the horse. We’ve raised the cost of imported steel and aluminum, but we have not. First built out the capacity of the US economy to smelt or foundry more of the stuff itself, so we get lower supplies at a higher cost when we need huge increases in the volumes that we use to in order to build out the industry, as the Trump administration says it wants to. 

And so everything’s just slowed down and got more expensive. But there’s no sector where this is more true, where it’s more of a problem than construction and especially residential real estate. And that’s what we’ll turn to tomorrow.

The Fire Hose of Chaos: Finance

Money being burned

The US has known that a capital crunch was inbound for decades now. With the Baby Boomers retiring and Trump’s trade policies hitting at the same time, these financial woes might sting a bit more than we thought.

The retirement of the Boomers was always going to cause a capital supply crunch; it’s just what happens when people retire and begin shifting their investments to safer things. So, the cost of capital was already on the rise. Now mix in Trump’s rapid-fire tariffs and aggressive foreign policies…and you magically begin losing capital inflows into the US, exacerbating the US capital problem.

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Transcript

Hey all. Peter Zeihan here coming to you from Colorado. We are continuing our Firehose of Chaos series today about how various Trump administration policies are causing negative effects for the American economy. And today we are going to tackle finance. Now there’s a lot that’s going on in finance. On any given day, the bond market, the stock market, corporate bonds, municipals, blah, blah, blah, blah blah. 

But the bottom line is that it’s ultimately an issue about the supply of capital. The more supply you have, the cheaper that capital is, the faster the economic growth is. And we even before Donald Trump got into office, we’re already facing an adjustment period. And the issue is retirement. When you retire you liquidate your savings. You go from stocks and bonds into T-bills and cash, because if there’s a market crash or a currency adjustment, you have lost out, you haven’t locked in your savings and you no longer have an income to recover. 

So, for example, for those of us who are not retired, we’ve seen the markets drop by somewhere between 10 and 20% over the course of the last three weeks, and we are all feeling that, but we’re all young enough to continue to do contribute to our portfolio. So there’s hope that will emerge on the other side in a better position. 

If you’re over 65, there is no hope because there is no income. So if you had not liquidated, you would be looking at a permanent loss in your portfolio. Even as you continue to draw income out of your savings, which would put you in destitution a few years down line. So if you’re a baby boomer and you hadn’t liquidated your savings already, you’re in trouble and you did everything you weren’t supposed to do. 

Anyway, the issue for the economy writ large is the balance between the number of people who are turning 65 every year and the rest of us. So in the case of this current situation, the issue is the baby boomers, because the baby boomers, the largest generation we have ever had, are already two thirds moved into retirement and the remaining third are going to retire over the next 4 or 5 years. 

As a rule, 70% of total global private capital originates with people who are doing this saving for retirement, people who are over age 55 but have not yet turned 65. Well now the number of people who are over age 65 is rapidly expanding, while the number of people age 55 to 65 is rapidly shrinking. 

And that split has caused most of the movements in the credit market in the last few years. So I would argue that we’ve seen roughly a quadrupling of costs of credit writ large. I’m not talking about any specific credit product, but writ large over the last four years. And while there is a little bit of fed in there, there is a little bit of trump. 

There is a little bit of Biden. It’s mostly just the baby boomers doing what you do when you retire. We expected this. We’ve anticipated this coming for 30 years. And really, no one got ready for it. Certainly not in government financing. But now we’re here and we’re living through it and we’re having to deal with it. So that’s that’s piece one that has nothing to do with the change of administration at all. 

But the second piece does, we have now had 97 official tariff policies in the last 55 days, which is, you know, two orders of magnitude more than we normally get in that sort of time frame. And no one knows what the rules are. In addition, Donald Trump keeps changing his tune every day. It’s either we’re not going to be even going to have a memorandum of understanding with countries that we’re negotiating within six months, or we’re gonna have a finished trade deal in four weeks, both of which are kind of silly. 

We’re not going to get any new manufacturers out of the plants for the first two years. Or maybe it’s going to be ten years. We’re going to have new tariffs on agriculture. Or maybe we’re not. We’re on drugs, or maybe we’re not, or in shipping or yes, we did, but then we didn’t. But then we decided to do port fees. 

The point is that no one knows what the rules of the game are. So no one is doing anything to prepare for whatever the future is, because we don’t know what the future is going to look like in terms of industrial construction, to build the industrial plant that we’re going to need to live in a high tariff world that actually has gone to zero under Donald Trump, because no one knows what is going on. 

On top of that, Trump keeps threatening other countries and not just with tariffs. He’s threatened to invade Canada, make it the 51st state. He’s threatened to invade Greenland, which is a NATO ally. He’s threatened to pull everything back from Ukraine, which is encouraging the Ukrainians, the Romanians, the poles, the Swedes, the Finns and the Germans to all get nuclear arsenals. 

The bottom line is he’s shattering everything that worked and has yet to provide a vision or preparation for whatever might be next. And in that sort of environment, no one really trust the United States. Now the US dollar is the global currency. I don’t mean to suggest that that is in danger. And the US Federal Reserve stands ready to step in to save the government bond market, to prevent a run on the bonds, to prevent a financial catastrophe in this country, because that’s part of its job. 

I don’t worry about those kind of headline disasters, but there’s a lot on the margin that is measured in trillions of dollars. In any given year. We have about $2 trillion of capital flight from the rest of the world to the United States. Now, that comes for its own reasons. And Europe, it’s because the countries of the eurozone are aging out, and you just can’t get a good return in Europe. 

In China, it’s because you have an over financial situation system where capital is considered a political good and you can’t get a good return on it, and the government restricts where you can put your money. So people try to get their money out of these systems and into other systems. And while Canada looks great, it’s not enough. There is only one country that has the liquidity and the depth of capital markets to absorb this sort of capital flows, and that is only the United States. 

And so this is where most of that cash goes, $2 trillion a year, and as we move into circumstances that are more problematic, Europe getting closer to its demographic cliff, China facing a trade war with the United States. Those flows can often increase. So, for example, at the height of the subprime crisis, after an initial shock, we were probably seeing three, $3.5 trillion of capital flight into the United States. 

Now, this helps out the United States in any number of ways. It puts more strength into the real estate market. It keeps borrowing costs down for everybody, especially the federal government. But when you have the United States as the source of the geopolitical uncertainty, and when you have the white House is the single largest source of regulatory uncertainty in the United States, all of a sudden, putting things into US financial assets doesn’t look nearly as attractive. 

And so what we’re seeing is some of that money is no longer coming and some it’s being reversed. So let’s go around the world real quick and see what that looks like. First of all, the Middle East, the Middle East has been desperate to build some sort of alternative financial system that doesn’t work on interest based functionality like the Western system does. 

And that requires basically applying a degree of Sharia law to their financial sector and having their own financial systems to, at a minimum, serve as a bulwark and an intermediary between the Middle Eastern savers and the United States. They’ve been somewhat successful at that. And that has made places like Dubai to be pretty robust financial centers. But what we’re seeing now is the limits of that approach. 

People are realizing that if you put your money into a middle eastern financial center that doesn’t allow interest, you don’t earn interest, and it’s starting to lose some of its shine. And so people are looking for other alternatives. On top of that, most of the oil Emirates in the Middle East, up to and including Saudi Arabia, have vastly overspent their income and simply don’t have money to send abroad at all. 

So, for example, Donald Trump is trying to get Riyadh to invest a few hundred billion dollars in the U.S. and they don’t have the money to do it. They’ve wasted a lot of things on their own white elephant projects. They’re spending a lot more on social programs at home. There’s no money to send to the United States. So what used to be a relatively robust partner is going somewhere else or is shrinking in on itself.  

And, you know, that’s several hundred billion dollars a year. Second is East Asia. Japan has been a big source of capital for the US for decades. China more recently, largely because both of these systems treat capital as a political good. I actually don’t think that this is going to change because the Japanese, the Chinese have known for a very long time that if you keep the money at home, it just can’t do very much. 

The only reason we should expect countries like China and Japan to send less money to the United States is if they figure out that they can build industrial plant for their export industry somewhere else, and there aren’t a lot of good options. What? There are some options in Southeast Asia, but those are under U.S. tariffs as well. So we might see a little bit of weakening, but nothing compared to say what we’re going to have in the Middle East. 

The big movement though is out of Europe. The Europeans have basically started to treat the United States like a security threat, because that’s exactly what the US under Donald Trump has evolved into. They realize they’re going to have to take their militaries in a completely different direction. They realize they’re going to fight on their own. For many of them, that means they have to have nuclear weapons. 

And that means why, why, why, why would you ever send capital to the United States? So what? Until recently, and by recently, I mean January. It was about $1 trillion of capital flight from the eurozone to the United States. Every year has probably gone very close to zero, and in fact, is probably going in reverse as people liquidate their holdings. 

Yeah, that all up. And we’re looking at capital flight into the US financial markets probably dropping by a little bit more than half. And if you put that on top of what’s happening with the baby boomers, it means capital costs are going up as well. And that’s before you consider that the US currency has dropped by about 10 to 15% in the time since. 

All that adds up for significantly more expensive financing, regardless of who you are. If you’re the federal government and you’re issuing T-bills, you now have to pay more money. If you’re looking to buy a car, your car loan is now more expensive. If you want to refinance your mortgage, that goes up as well. 

And it all adds up to slow economic growth across the entire American economic space.

The Fire Hose of Chaos: Port Fees

Photo of port of savannah, GA

Today we’re discussing the Trump administration’s 96th tariff policy which imposes port fees on Chinese ships.

Chinese ships that enter a US port will be slapped with the higher of a $50/ton (rising to $140/ton overtime) fee or $150/container fee. This policy was initially set to be more extreme, but public comments helped scale the fees back as to avoid crippling US port logistics.

The issue with this tariff is that it increases costs for everyone but fails to offer any solutions. Since the US has no capacity to build cargo ships (as military shipbuilding is the priority right now), shipyards are already overwhelmed and dysfunctional. So, the intention is to reduce reliance on China, but there’s no path to doing it…

Prefer to read the transcript? Click here

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

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

Learn about medshare here

Transcript

Hey all. Peter Zeihan coming to you from Atlantic City and today we’re talking about something that actually happened a little bit back on April 17th. That’s when the U.S. Trade Representative Office announced the 96th tariff policy of the Trump administration in less than two months. Oh my God. And this one is on port fees. Specifically, any Chinese registered Chinese built Chinese operated vessel will now have a $50 charge per ton, ramping up by $30 a year until it hits under $140 a ton.Or, $150 per container, again ramping up over a few years. Whichever one is higher. 

This one is unique in that it was actually put out for a degree of public comment. And so people pointed out to the administration that there are no American ships. So, some of the more ridiculous versions of this, were rooted out originally was supposed to be like a million, a million and a half, maybe even 3 million per ship per visit. 

Which would have basically taken everything and concentrated it. So, well, China is the source of most of our manufactured goods. It’s not where they’re necessarily manufacturers, where they’re assembled. It, the manufacturer requires basically everyone in East Asia and China is the low man on the totem pole, but the largest one. So it’s where everything’s put together. 

And then it sails in finished form from Shanghai or Tianjin to, Los Angeles or Houston or New York or Savannah. If the old system have gone through, all of our secondary ports would have basically been starved and we would’ve just had endless traffic jams at the biggest one. So they decided to go with a weight slash volume version rather than just a flat fee, which make it a little less onerous. 

From a logistical point of view, anyway, there’s still some problems here because, it’s starting to interface with other problems the Trump administration experiencing. And that has to do with Defense Secretary Pete Hegseth, who is rapidly showing himself to be up there with RFK Jr to be the most unqualified, and, incompetent cabinet secretary in American political history. 

In the last two weeks, he’s basically fired everybody he brought in with him. And so in his office now, it’s just him. It’s wife, his brother, his lawyer, and that’s about it. And then, of course, Trump fired all of the deputy undersecretary, assistant secretaries and everybody and basically hasn’t replace him with anyone who knows what they’re doing. 

And so Pete says big breakthrough in the last few days has been to build a studio and an editing platform, within his office. So he can share videos of himself working out in the morning. Because that’s what we need to prepare for military readiness. Yeah. Anyway, bottom line is that one of the things the Trump administration says it wants to do, which I broadly agrees to build more military ships. 

Okay. Well, I take shipyards. And so basically, we’ve got an incompetent defense secretary managing a underfunded and unplanned shipbuilding program, which basically takes up every berth drydock that is available at every, shipyard the United States has of it’s being managed just completely incompetently. And so if you want to build a civilian cargo vessel, there’s no room and there won’t be for years. 

So step one, if you want to start mucking around with the ports, is to build more ships so that you have options. And just as with steel and aluminum construction and all the other tariffs, the Trump administration has failed to do that. So we if we want stuff at all, we have to now pay more for the stuff because of the tariffs and then pay more at the ports because of these new port fees. 

And there is no alternative for building an American equivalent, because the building blocks of what you need to industrialize still haven’t been done. And everything is just going to cost more for everyone. Yep. That’s it.

Will New Zealand Dive or Thrive?

Flag of New Zealand waving in the wind

In the past, we’ve chatted through the domestic issues facing New Zealand, so let’s discuss the economic future of the ~5 million Kiwis in the context of the shifting global landscape.

New Zealand has one of the world’s most efficient agricultural systems, specializing in dairy, sheep, and wine. Since these industries are some of the most protected, deglobalization will limit export access. How will they cope?

Well, New Zealand is no stranger to hard work, so let’s breakdown their options. They could lean into the NAFTA system and forge stronger ties with the US. Or they could shift production toward things like wheat and soy, which will be in high-demand. Both options would necessitate giving up something important to Kiwis. A third option, which could prove to be a strategic advantage, would be partnering with industrializing nations in Southeast Asia.

Regardless of that need to adapt, New Zealand is resilient and well-positioned to navigate these broader shifts. And they better figure it out, because where else am I supposed to vacation every year…

Prefer to read the transcript? Click here

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

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

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here. Coming to you from, Francis Glacier and Avalanche Peak. That is Middle Peak over there. And East Peak, because they ran out of names. Any who. Since I’m traveling around in New Zealand, naturally, folks here in New Zealand have been asking me about the future of their country. 

So, here we go. What is New Zealand need to do to thrive? As globalization kicks in, it’s like, okay, so this is a tough one. New Zealand country of 5 million people, probably the most productive agricultural system in the world in terms of the the value of the outputs versus the cost of the inputs. 

And in doing so, they have decided to specialize where they can hit hardest. And that is, dairy sheep and wine. Unfortunately, these are three of the most protected sectors in the world. So, I mean, they outcompete everybody on costs and pretty much everybody on quality. But as any one of the United States knows, trying to import the good wine from a place like France or Italy or Canada or Mexico or New Zealand, is next to impossible because of protection of systems and because we fractured our regulatory system. 

So this is definitely a situation where the Kiwis need the Americans more than the other way around. Dairy is, if anything, even worse. That is arguably the most protected sector in the world, largely because you can’t really export liquid milk, because by the time it gets to wherever it needs to go, it’s gone off. So you have to turn it into value added cheese. 

And I would argue the Kiwis, rival the French for the quality of their cheese. I mean, give me some key. Cranky. But getting it out of the country is next to impossible. You can only get it in, like, Singapore and Fiji. Cheap. It’s a little bit easier, but, you know, anyone with spare land can raise sheep. 

So if you can make it for a little bit cheaper, who really cares? The bottom line is, if the Kiwis produce things at volume that they can’t possibly consume themselves. So they have to sell them abroad. And that requires an open market on a global basis. They got that with globalized fashion, but with globalization going away, that goes away. 

And the only way to keep globalization going is to give the Americans enough things that they want, that they think it’s okay to carry the weight that’s necessary to make it all work. But the Americans don’t feel that way, and the Americans certainly don’t have a shortage of wine or sheep or cows. So there’s really not a lot that the Kiwis can bring to the table except security cooperation. 

But this is the first of the allies during the Cold War that said that the US Navy had to stop coming because they might be carrying nuclear weapons. New Zealand’s been clean and green for a long time, and it’s now caught up in their political definition of themselves. So for New Zealand to do well in the future, it’s going to have to do one of two things. 

Number one, it’s going to have to find some way to get included into the NAFTA system. That’s not as hard as it sounds. Australia has basically done it through a free trade agreement with the United States. But Australia has been arguably America’s most loyal ally going back 50 years. And so when the Bush administration, Bush administration, signed the trade deal with the Australians, it was seen as kind of a reward. 

The Kiwis would have a lot of work ahead of them if they wanted to do something similar. Because while they have been an ally, this is a country of 5 million people. There’s only so much they can do, and they certainly don’t want to change their position on things like nukes. The second thing that they can do is change what they produce. 

Volcanic soils. A lot of water rains almost every day in most of the country. Not today, thank God. Producing things that are going to be in shortage. The problem here is that the Kiwis will be pissing away a lot of their competitive advantage. You can grow anything here. You can grow anything well, here. But you can’t grow everything well, everywhere in the world. 

And if you look at the products agriculturally that are likely to be in shortage on a global basis, at the very, very top of the list is wheat. Wheat is basically a weed. It will grow or nothing else. Does. And so in the world, as we’ve globalized and gotten access to better inputs and tractors and fuels and fertilizers and pesticides, all that wheat has been steadily pushed to the margin so that in most countries, the only places where wheat is now grown are places where only wheat can be grown. 

And so if you disrupt globalization, if you disrupt the flow of those inputs a lot of the wheat that is produced in the world goes away. Well, for New Zealand, it’s no problem. But to go from raising dairy cattle and planting vineyards to produce wine, to producing the lowest cost, highest bulk crop that humans have wheat, it would be quite a drop. 

So regardless of what happens, the Kiwis need to be prepared for changing agricultural markets. And while I I’ve kind of laid out the the broad spectrum or the broad sketch of how things are going to go, it’s a big world. It’s not I’m going to all going to globalize at the same time. And we will absolutely lose some commodities before others. 

So, for example, if Brazil is part of the first tranche of countries to fall apart, we’re gonna have a global soy shortage. The Kiwis could grow that too. 

The Kiwis are gonna have to show a degree of adaptability that most agricultural sectors can’t handle, that this is a country that 40 years ago hardly had any dairy cattle anyway, so they’ve done it before. They can do it again. The question is whether they’re doing it alone or with the United States. 

We’re going to finish this one up from the tan. Our water waterfront. I have high confidence that the New Zealanders are going to come through this, with flying colors. A couple of reasons. Number one, they’ve done some version of this before. I mean, this isn’t the first economic transformation the country has gone have to go through because of changing geopolitical circumstances. 

New Zealand used to be part of the British Empire, and its economy was sculpted to serve the needs of the empire. The Brits needed wool for their troops, and they needed a economic base in the region. And so the New Zealanders grew or raised sheep in the tens of millions. Basically, at one point we had more sheep here than we had in any other particular part of the world. 

And when the, empire fell apart and the Commonwealth ceased to meet all that much, the Kiwis moved on and got into things like dairy and wine and the rest. And by the point of getting to like roughly the 2000, it was a fundamentally different place. And it’s a fundamentally different place now because they’ve chosen to specialize in the things that they can export to China in volume. 

They can do it again. Second, there is a third option, besides going it alone or, buddying up with the United States, there is a middle ground and it involves southeast Asia. If you look at the countries of Indonesia and Vietnam and Myanmar, you know, you got three major countries there with young populations that are rapidly industrializing, that are partnered with countries like Malaysia and Thailand that are already further along the process with an older demographic. 

And Singapore, which is a world leader in technology and finance, the Asean group in the southeast Asian grouping is going to be one of the major nodes of growth in the world. But there as this region, industrialized and urbanized, as it has absolutely no hope in its tropical territories of growing all the food they could possibly need for themselves, they’re going to have to import. 

And the United States agricultural community is going to be part of that. But so is the New Zealand, because it’s just so much closer. And to be perfectly blunt, the Kiwis don’t have nearly the degree of state support outside of dairy that American farmers enjoy. And so they have to be much more aware of market trends, especially when they’re closer to home. 

So New Zealand is one of the handful of countries that, for a mix of regions, I think is going to do great. It doesn’t mean things don’t need to change, but the Kiwis have shown time and time again that change is something that they can handle.

A Concerning Update to the Russian Reach Series

Flags of USA and Russia merging

Well, the Russian Reach series needed an update, and it’s not a pretty one. The infiltration of the US government by Russian interests is growing and I don’t see an end in sight.

We have figures like Tulsi Gabbard with a foot in the White House and the Kremlin. The very institutions which were created to protect the US from these threats are being dismantled under the Trump administration. Don’t even get me started on ‘SignalGate’. Grenell is spewing pro-Russian narratives to whoever will listen. Navarro is echoing Russian propaganda as it relates to economic policy. Trump is still repeating disinformation. Russia is finding more ways to align itself with MAGA through its influencers. Russia wants in on the invasion of Greenland. And to round it out, we have Tucker Carlson as the only media source Trump’s admin is talking to (the guy that features guests like Russian fascist ideologue and genocidal proponent, Alexander Dugin).

I’ll let you sit with that one for a bit…oh, and have a good weekend!

Prefer to read the transcript? Click here

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

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

Learn about medshare here

Transcript

Hey, all. Peter Zeihan here, coming to you from Atlantic City. Today we’re going to update a series that we did last month called The Russian Reached what looked at the logic and the actions of the Russian government and how they were attempting and probably successfully attempting to penetrate deep into the American government right up to and including the white House. So the purpose of this is to give you an idea of how much is involved in just the last 3 or 4 weeks, and it’s unfortunately a very long list. 

First off, keep in mind that the Director of National Intelligence, Tulsi Gabbard, is somebody who most of the intelligence community who is has thought of as a Russian agent for quite a few years and one of the first actions that she… well, let me let me put it this way. If she’s not a Russian agent, she’s probably a traitor because the Venn diagram of her worldview and Vladimir Putin’s are pretty much identical. I mean, there might be a little bit of not overlap like a half of 1%, but that’s largely just hairstyles because, you know, Putin is bald and got rich hair is fabulous. 

Anyway, she’s pretty much completed gutting the counterintelligence arms of our various intelligence agencies. So most of those staff aren’t even doing the jobs that they once did, allowing the Russians to really plow into American society however they want. Also, the Trump administration has largely dismembered the parts of the intelligence community and the State Department that, were there to protect our election integrity from Russian intervention. Same thing for web hacking. And, the Department of Justice has largely stopped investigating white collar crimes, most notably fraud and cryptography. Cryptography. Wrong word like Bitcoin scams. 

Which are another way that the Russians really, really enjoy getting their claws into American society. In the American government. We basically just stopped enforcing those laws. The same goes for white collar crimes in general, which, of course, for a country like Russia that is corrupt and uses US intelligence systems to undermine societal stability all around the world, is something that has made their job a lot easier. 

The next big issue is, of course, signal gate. Now, signal gate, happened back in March, mid-March, when the United States was preparing military assaults against the Houthis, which are the militant group in Yemen. And basically the entire top tier of the American national security team, including defense and intelligence. And Gabbard, of course, basically participated in a chat on the signal chat program. Signal is a platform that supposedly secure, but the week that this all went down, the Defense Department’s internal Intel, indicated that the Russians had probably hacked the encryption protocols. 

So, basically, the American national security apparatus were all using what had become an unsecured platform to communicate, basically operational intelligence. Tulsi Gabbard, again, testified, about halfway through the revelations to Congress that this really wasn’t a big deal. And no one should be overly concerned about it, because, of course, it’s not. 

All right. Let’s see what’s next. Rick Grinnell. He is an on again off again semi diplomat who is, working for the Trump administration. He worked for Trump one, did a really bad job, basically just went around talking to German neo-Nazis the whole time so the Germans wouldn’t deal with him at all. Anyway, he’s back in the administration now, and he’s one of those people that is so unlikable that even Donald Trump doesn’t like to have him around in person. 

So he kind of hovers outside of the West Wing and is basically spewing anti Ukrainian Russian propaganda in the ears of Trump Jr because he can’t get the ear of Trump himself. Specifically, he likes talking about the Budapest Agreement, which was something that dates back to the immediate post-Cold War years, when, the Ukrainians gave up their nuclear weapons. Basically, Grenell is a spouting the Russian equivalent of that deal. Their interpretation of it 15 years on, and basically trying to get the Trump administration to disenfranchise Ukraine as a state and suggesting that they’ve never had a claim to anything in the first place, which is, of course, exactly what the Russians would love the Trump administration to believe. 

Let’s see. Next up, we’ve got Peter Navarro. Who is the manufacturing advisor to the president. Very protective guy. He started using Russian propaganda that has been recently designed and released into the ecosystem. That’s specifically targeting Canada. So Navarro has always been an anti-free trader. Don’t really have a huge problem with that. But it’s interesting to see Russian propaganda popping up in his statements on TV now that are very, very specifically tailored to a very specific issue that really wasn’t an issue in, the Russian propaganda sphere until just a few weeks ago. 

Then we have Donald Trump reporting Russian propaganda on everything from broad strategic issues, to very tactical issues. So, for example, near the end of March, Trump started talking about how Ukrainian troops in Kursk had been encircled by Russian forces. And, you know, this or that should happen. I mean, that never happened. 

The Ukrainians were able to withdraw from the Russian province of Kursk fairly, I don’t want to say easily, but without a lot of casualties. And in fact, that withdrawal had been completed more than 48 hours before. Trump is supposedly asking the Russians to modify their operations in Kursk. So this is something that actually came from internal Russian Federation propaganda that was designed to shape attitudes within Russia itself. But somehow it got on Trump’s desk. If I was a guessing man, I would say that that probably happened via gab or directly. 

On Greenland, the Russians are trying to convince, the MAGA spear that a joint invasion, Russians in the North and Americans in the South would be a keen idea, something that would obviously shatter NATO overnight and end America’s defense alignments with, the Scandinavian countries that, in my opinion, are going to be the future of the American alliance network in Europe, which, of course, is something that the Russians would love to see destroyed. 

You may have heard of Tim Poole. He is a far right influencer that’s very tight in the MAGA space. He has a number of podcast and, video vlogs. Kind of like, you know me a little bit. He’s been basically indicted, I think is the technical term for taking somewhere between $400,000 and $10 million from, the Russian state. 

Basically, they’re shoving money into his platform to help spread disinformation throughout the American MAGA sphere. He claims he didn’t realize that it was going on. That’s his official stance on the investigation is impending. But, you know, he has on any given day, somewhere between a number of followers similar to me and twice as many. And I can guarantee you that if $100,000 per video least that I did suddenly showed with my my bank account, I would not need the FBI to tell me to investigate the shit out of that. 

So let’s just say I don’t take it very seriously. 

But the most important part of this is that Tim Pool is now part of the white House press pool. The Trump administration has brought him into the inside while kicking out, you know, those liberal rags like AP and successful farming. 

And then finally, a name that, you may have started to hear bouncing around Alexander Dugan. He is basically a run of the mill Russian fascist who has been advising Vladimir Putin for over a decade now, basically making up the ideology to justify genocide against anyone they feel is necessary. And until a year ago, most of his vitriol was ultimately, reserved for the United States. 

So preemptive nuking, death camps, that sort of thing. He’s a real peach. Anyway, he has started making the rounds of MAGA, publications, in the United States recently. And of course, the first one in that role, the first of the big ones that he did was none other than Tucker Carlson. Now, you guys may remember, Tucker Carlson used to be a Fox News host. 

Tucker has been fired from every media job he has ever had for lying on air about things on purpose. And since he left Fox, he has now basically migrated directly into the orbit of Russian propaganda. And most of his shows deal with Russian propaganda from it. You know, sharing it with the world point of view. Perhaps the most concerning thing I have in the information space as regards the Trump administration is not this Tim Paul thing, although that’s, you know, not minor. 

But this is the American administration throughout history that has had the least contact with the media of any form. It’s not just that they’re not talking to more liberal groups like, say, the New York Times. They’re not really talking to Forbes or Bloomberg or the Wall Street Journal. They basically shut out everybody. But many members of the Trump cabinet have done extensive one on ones with Tucker Carlson. 

So we basically have a gutting of the normal means by which an administration would normally interact with the country and focused on a very, very few, avenues, of which the bigger ones are already in the Russians pocket. Anyway, I don’t have a lot of great news on that front, and I will leave everyone to their own recognizance as to what’s going to happen next. 

The Fire Hose of Chaos: The Green Transition Is Over

Photo of a plant growing in a lightbulb

The green transition in the US has made great progress in recent years, but the wheels are falling off. This is largely due to economic pressures, lack of financing, and the new tariffs instituted by Trump.

Wind and solar projects require heavy upfront investment, which isn’t a great combo with capital costs skyrocketing and available capital draining from the system (blame the retiring Boomers). The government support for the green transition has also dried up; the Biden admin had the Inflation Reduction Act and other Greentech subsidies, but the Trump admin has pulled support and funding for these programs and projects. And you can’t forget the new tariffs hitting key components for the green transition, which have made solar prohibitively expensive and wind an uncertain gamble at best.

So, it looks like the green transition in the US will effectively be on pause until the US can build out its own manufacturing base. And that’s at least a decade-long process…

Prefer to read the transcript? Click here

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Transcript

Hey, all. Peter Zeihan here. Coming to you from my parents backyard in Iowa. I’m visiting because I’m a good boy. Anyway, today we’re going to talk about the end of the Green Revolution in its current form, at least in the United States. There are three things that have come together to basically completely destroy the economics of the green transition. 

And then a couple of things on the side that are making it more difficult anyway. The first has to do with the baby boomers. Two thirds of them have retired, which means that all of the money that they were saving for retirement has been liquidated. And it’s gone into less exciting financial instruments such as T-bills and cash. 

And that means there’s less capital available for everything. So we’ve roughly seen the cost of capital in the United States increased by a factor of four in the last five years, has nothing to do or very little to do with government policy. It’s just that there’s less money available in the system overall. So mortgage rates go up, car loan rates go up, anything it needs to be financed goes up. 

And that’s a real problem for green tech. When you’re looking at, say, a conventional thermal power plant, coal, natural gas, that sort of thing, you only have to pay for about one fifth of the cost of the life of the plant at the front end. That’s the upfront construction. And then about two thirds of the expense over the full life of that power plant is the fuel, the coal or natural gas. 

And you buy that as you go. That’s not how it works with wind and solar. With wind and solar, about two thirds of the cost has to be paid upfront. And that means it has to be financed. Well, you increase the cost of financing by a factor of four, and all of a sudden you’re talking about a financial commitment. 

That’s just huge compared to what it would have been just five years ago. And that is now happening across the entire space. So that alone would have probably ended 70% of the power plants that are in solar and wind. Just just off the top. The second problem, of course, is that you have to finance everything upfront in the first place. 

Anyone who wanted to do the green transition really needed a helping hand from government, typically at the federal level. And the Biden administration, through things like the IRA Inflation Reduction Act, was very big in providing that financing. Well, that’s basically gone to zero under the Trump administration. So your financing costs have gone up by a factor of four, and you don’t have any outside help. 

But the real killer, especially for solar, has now been the tariffs. Almost all of the photo voltaic cells that are used in solar systems are produced in China, oftentimes with slave labor. And while the green transition folks were willing to overlook the fact that, most of the stuff was ha, I still have a sticker on there. 

Well, most of the folks in the green transition were willing to overlook the slave labor thing, in order to get the panels that they needed. You can’t really overlook 145% tariff. So if the PV cells cost you two and a half times as much and your financing cost has quadrupled, that’s just not going to fly. 

Now, it’s not quite as bad for wind because there are some non-Chinese providers of wind turbines. Most notably in northern Europe. But those were where we have a tariff of at the moment, 10%. It was 20% a week ago, that just introduces a lot of uncertainty into the system. So both of those things are gone. 

Wind a little on the edges. Maybe. Solar’s absolutely out of the question for most people now. The only other remaining piece is batteries. When last year, the Biden administration slapped a lot of tariffs early in the year on Chinese electric vehicle bills to keep them out of the U.S. market. What happened is the Chinese repackaged all of the EV batteries into, container units to be sold as grid storage. 

And so in calendar year 2024, adding battery storage, which is actually the cheapest form of power that you could add to your system. So the Texans in particular, you know, just boned up on that hugely. Because if you can have a battery grid system, it’s actually better economics and say having a natural gas peaker plant because they normally speakers or is would only run a few days of the year. 

The batteries can take that load, but since you now have them. And since Texas is the number one green energy state, they would use their solar system to generate power during the day, store the extra in the batteries, and then use that during peak demand and evening hours when the sun’s going down. 

It worked really well. She was like 48% off of power costs, but now we have 145% tariff on all of those batteries as well. So I don’t want to say that that’s going to stop cold, but the pace of the application is going to slow considerably because the Chinese dominate that space. And we haven’t built the industrial plant here yet. 

That isn’t necessarily to fill the gap for ourselves. So for the moment, minimum two years, probably until we have a better battery chemistry, probably until we have better PVS, certainly until we have more diversified manufacturing base, which is a ten year process. We’re looking at the green transition taking a bit.