Russia Targets the Ukraine Grain Deal

The changing situation with the Ukraine Grain Deal has given me plenty to ponder while tromping through Fjordland in New Zealand. Due to the war, Ukrainian agricultural exports were reduced to a fraction of their pre-war numbers. The grain deal brokered by the UN was a glimmer of hope that perhaps exports wouldn’t entirely fall off the map…

With winter on the way out and summer just around the corner, the Russians are revaluating their strategy. Targeting power infrastructure may have worked during the winter, but it doesn’t make much sense for the warmer months…it appears the new target will likely be Ukrainian agriculture.

We’ve already seen the Russians change the renegotiation period of the grain deal from 120 days to 60 days, and I wouldn’t be surprised if March is the last time the Russians resign. So Ukrainian exports might fall off very soon, but can the rest of the world’s (already struggling) agriculture industry pick up the slack?

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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TRANSCIPT

Hey everybody. Peter Zeihan coming to you from Ruby Baby in Fjordland in New Zealand. The big news that I’ve noticed is that the Russians are throwing a bit of a fit about the grain deal they have with the Ukrainians. Now Ukraine until very recently was one of the world’s five biggest agricultural exporters for wheat, number four in corn, number one in sunflower you know all important things that help prevent a lot of countries from starving to death. Well, the problem is that most of the stuff that comes out of Ukraine is shipped by water. It’s far easier to ship things by water than it is by land. In terms of rail versus water, about a 3 to 1 cost difference. And Ukraine is perfectly set up for that because they’ve got the Dnieper River that cuts right south to north through the middle of the country. And so everything just gets on a barge, goes out, eventually hits the sea cities Kherson and Odessa, then are put on the big altars and then taken out through the Black Sea, the Turkish Straits and the rest of the world. What has happened, however, is with the Russians first capturing Kherson and then putting Odessa under assault, this is all been disrupted. So the only way to move things out of Ukraine at present is by rail. And not only does Ukraine not have a well-developed rail system. It doesn’t use the same gauge as the European ports. So it’s been very, very difficult, to get much out. Really less than about one out of six vehicles that they used to ship, they can ship now.

Now, the Turks in league with the United Nations have convinced the Russians to sign on to a grain deal. And this grain deal allows ships to come into Odessa, get searched by the Russians on the way in to make sure they’re not carrying weapons and then load up with grain and they get searched on the way out to make sure that they’re not carrying anything that the Russians don’t want to get out. This has increased the volume to about 20 to 25% of the volume that the Ukrainians could do before the war. So still not great.

Now, if you’ve been following the war, you know that throughout the winter the Russians have been bombing the power grid with drones and missiles to try to kill as many Ukrainians as possible. They’ve been doing this in the winter, thinking that if you can freeze the country to death, many tens of thousands, if not hundreds of thousands of people will be injured or killed. And that might weaken the war effort. Once we get to summer that’s going to change. So what the Russians are facing here is the grain deal is normally renegotiated every 120 days they are  now insisting they only want a 60 day renewal. Well, if you fast forward from late March, 60 days, we’re getting into the beginning of summer. In the beginning of summer, the Russians won’t have a vested interest in destroying the power grid because no one’s going to freeze to death. So they’re going to go after the agricultural system, everything from fertilizer on the front end to the silos and the rail stations on the back end to try to kill as many people as possible that way.

So last year was probably the last year that Ukraine will be a significant agricultural exporter at all, and we should not expect to see the Green Deal renewed come late May. That’s just the situation we’re at. And if you throw in the problems with natural gas and nitrogen processing in Europe hitting the fertilizer market, the problems getting potash out of Belarus hitting the fertilizer market, the problems getting phosphate out of China, hitting the fertilizer market later this year is going to be really raw for a lot of places. Aright. That’s it for me. I’ll see you guys at the next spot. Take care.

The Jordan Harbinger Show

I recently had the opportunity to sit down with Jordan Harbinger on “The Jordan Harbinger Show” (for the loyal followers, you’ll know this is my second appearance).

We discussed how the globalized world came to be, the factors contributing to its instability, and how the process of deglobalization is well underway. The chaos the world is about to face is nearly impossible to consolidate into an hour long podcast, but this is a good start!

Links to the podcasts, YouTube videos, and more can all be found below.

Geopolitical Strategist on China’s Upcoming Collapse JHS Ep. 781

Confronting a Geopolitical Strategist on Putin’s Big Plan Peter Zeihan Ep. 640

*This video is from my first appearance on The Jordan Harbinger Show

Did you miss out on the Global Outlook Webinar
Click the link below to purchase it:

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

Agricultural Disruptions in Argentina and Ukraine

Despite some food scares coming out of the former Soviet space, Mother Nature helped 2022 crop production look pretty solid in most of the great agriculture basins of the world. However, this could be the world’s last food-secure year for quite a while.

As Argentina transitions from summer to the harvest season, we’re getting our first glimpse at the yields…and it’s not looking promising. Between floods, droughts, pestilence, and a dash of government incompetence, it’s shaping up to be the worst year on record for Argentinian corn, soy, and wheat.

We’re not off to an auspicious start, but Argentina’s shortages were weather-induced…we haven’t even seen the impacts of fertilizer shortages yet. Additionally, the Ukrainians face a completely different set of disruptions to their agricultural industry.

As Ukraine transitions out of winter, the Russians will likely shift their strategy from targeting power infrastructure to the agricultural system. I expect Ukrainian corn, soy, wheat, and seed oil exports to drop significantly in the coming year. With the agriculture disruptions in Argentina and Ukraine, this is only the beginning of worldwide food insecurity.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey everybody. Still Peter, still Colorado, still snowy, still foggy. Yesterday we talked about the African swine fever problem in China and how it’s turning into an issue for fertilizer. I want to talk now about the weather. We’ve got a number of major agricultural basins in the world. And last year, for most of them, greater Midwest, the Brazil and Argentina systems. South Africa. Australia. New Zealand. The Eurasian Wheat Belt and Northern Europe. We had a pretty good year, pretty much everywhere and even in secondary markets that aren’t export oriented, like India and China, things were pretty good. That helped us a great deal, despite the fact that we were having a lot of scares and supplies coming out of the former Soviet space. But there’s two issues that we have already seen are going to be boiling up. The first one involves Argentina. 

Now, as a southern hemispheric country,they’re exiting summer and going into harvest right now. And between floods and droughts and pestilence and basically all the horsemen playing a role here and a general dollop of government incompetence. It’s shaping up to be one of the worst records for corn, soy and wheat that we have seen in years with on average, about a 30% reduction in the foodstuffs. Now 30%, that is a weather induced reduction, not a fertilizer induced reduction. So it could have been a lot worse. But we’re already seen at the beginning of the 2023 harvest season that we’re getting off to a really bad start. Australia so far looks (mehhhh) and then of course India is harvesting things all the time. Now in the northern hemisphere we don’t get our first crops in for a couple more months and harvest will continue throughout the late spring for things like winter wheat and going into the summer and into the fall. So we have a lot of potential crops ahead of us, but to kind of kick off with Argentina, which is traditionally in the big six for wheat exports and typically in the big three for soy exports, this is not a particularly auspicious start.

The next major disruption I expect to see will be in Ukraine. Now, we’ve all been seen through the winter that the Ukrainians have been suffering missile and drone attacks from the Russians who are trying to take out the power system, working from the theory that if you can knock out the electricity across Ukraine in the winter, you’re going to kill as many Ukrainians as possible and damage the morale of the war effort in general. Because if you find out that your wife and kids back in Kyiv don’t have power, it’s really hard to stay on the front. You feel like you should go and do something. Well, as we get into May and especially June, when it becomes apparent that knocking out the power doesn’t make anyone freeze to death anymore, the Russians are going to switch targets to go after the agricultural system, especially fertilizer plants, grain silos, grain transshipment locations and rail centers, ports and the rest. Already we’re seeing the Russians backing away from a United Nations brokered deal that allows grain and corn and wheat and sunflower to get out of the system. Basically, ships can come in, the Russians will search them on the way to make sure that they’re not carrying weapons. The Ukrainians will load them up with whatever foodstuffs they can export and then they’ll be inspected by the Russians again on the way out. It used to be that this deal was being renegotiated every 120, 250 days, and the Russians want to shrink it down to 60 days, meaning that if this is renegotiated in March, it’s probably the last time it’s going to be renegotiated, because the Russian goal here is to wipe out as many of Ukrainians as possible to make sure that they can’t fight. And that means taking the war to the civilian population. Electricity doesn’t work in the summer. So you go after the food supplies, which means that calendar year 2022 was probably the final year that Ukraine will be a significant agricultural exporter. Pre-War, roughly 85 in some cases, 90% of their ag products were shipped out by water, with the rest going by rail. The problem is that the rail system in Ukraine doesn’t interface well with the rail system in Europe because they use different gauges and you can only replace that an upgrade it over the course of years and it’s really hard to do when bombs are raining down. So we’re going to get little trickles that go out of western Ukraine that can take advantage of the rail. And that’s about it. And that’s, of course, assuming that the Russians don’t achieve a breakthrough once they throw an extra 400,000 men into the fight come June.

So we know we’ve already had a bad Argentina harvest and we know that the Ukrainians are probably going to fall off the map in terms of food supply. And honestly, that’s just the beginning. More on this in later issues.

Famine: The Ultimate Country Killer

If you’ve read my latest book, The End of the World Is Just the Beginning, you know what question keeps me up at night: how long will we be able to feed the world’s population? With threats to food security increasing daily, China is a scary example of how quickly this situation could go from critical to catastrophic.

Four years ago, China faced the worst case of African Swine Fever (ASF) ever recorded. It spread through their pig population like wildfire, resulting in the killing of massive amounts of livestock. Since then, the CCP has limited reporting of outbreaks and testing for ASF. Some brave CCP reps are now reporting the actual numbers and I wouldn’t be suprised if this outbreak becomes worse than the last. So what does that mean for China’s food security?

The only other relevant foodstuff that China produces is rice. Unfortunately for them, the phosphate fertilizer that rice needs to grow is already facing massive shortages. China was once the largest exporter of phosphate, but they’ve started hoarding the stuff as the potential for food shortages increases.

Thanks to stockpiles of fertilizers (and some help from mother nature), the world was able to wiggle by last year. With increasing disruptions to the nutrients used in fertilizers and food security overall, the world is going to face severe problems in the years to come.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey Everyone. Peter Zeihan here coming to you from foggy, snowy Colorado. It is the 16th of March on Thursday, and it’s time to start talking about food shortages. We’re going to start with this part on China.

So the Chinese, as you may have heard me discuss in the past, have a cult of personality, which means things like test for animal diseases that the government finds inconvenient tend to not just happen because the CCP reps get in the way. So there’s something called African Swine Fever, which is something that the poor community is terrified of because it’s basically Ebola for pigs. Highly communicable always ends in the death of the pig. And if one hog in your herd gets, you basically have to cull the entire thing. Now, about four years ago, China suffered through the biggest ASF epidemic in history and over the course of about 6 to 8 months killed more of its own hogs commercially than the rest of the world has commercial hogs. And that triggered a lot of paranoia within the CCP about food security for obvious reasons. This is maybe happening again.

Now the way it works in a normal place, if you’re a pig rancher or farmer and you want to find out if your hog has a disease, you get a test kit, you take certain swabs and samples, and then you send that test kit with the swabs and samples into a lab. And when the lab gets the results, they call you. That’s not how it works in China. In China, there’s an intermediate step where the lab calls the local CCP rep and then the CCP rep calls you to let you know if you’ve got a case or not. And since it’s a cult of personality and no one has been given an approval to trigger a food crisis, they just kind of let it go on in the background. Well, in the last few weeks there have been some very brave CCP reps who have decided to report the truth. And as of the news of this week, we now have more cases of ASF being reported in China in just the month to date than the entirety of the previous year. You see, ASF is not something you just get rid of. It’s not once in done. It gets into the wild boar and wild pig population and then it takes decades to get rid of. According to the Chinese, they got rid of it in six months and they haven’t had a case until recently. But all of a sudden now it’s boiling up again. There are different strains. Some are more lethal and more dangerous and more communicable than others. And officially it’s some of those less dangerous ones that are out there. But the fact that you’ve got brave officials choosing to go against the party line to report them at all, suggests that we have a much, much, much, much larger problem in store. And we should expect some significant issues throughout the food supply chain for pork throughout the Chinese system. Will it be as bad as it was four years ago? Kind of believe it will, if not worse, because they’ve been allowing this to burn in the background in order to achieve political placidity.

Now, how does that matter to you? Well, if the Chinese can’t guarantee pork supply, then the only other culturally significant food that they can produce in mass is rice. Now, rice is the most phosphate fertilizer hungry crop that humans are capable of growing. And because of that, China has historically been the world’s largest producer and exporter of phosphate, until four years ago. Starting with that epidemic, the Chinese started hoarding phosphate because they were concerned about food security and they knew they needed rice because it’s the only other socially and politically important crop that the Chinese have.

Well, since then, in the last four years, phosphate exports have been down 20 to 80% based on the season, very erratic, based on where the Chinese level fear is now that we actually have official cases of African Swine Fever, again, we should expect phosphate exports to more or less go to zero, meaning that the single largest source of one of the three main fertilizer nutrients is suddenly in dire condition. And that is going to have implications throughout the entire agricultural system of the world.

We were very fortunate in calendar year 2022 and that despite disruptions from China, from Russia and from the energy space, we had enough reserve built up in the system for all the types of fertilizers in order to kind of wiggle by. And we also had excellent weather for most of the world’s farmers. The chances of that happening twice in a row, especially when you have disruptions like ASF in China right now are almost nonexistent, which means that the next one tomorrow we’re going to talk about the weather and where in the world we are seeing, already, disruptions to the food supply system. Alright. That’s it. See you guys tomorrow.

Will Automation Save the World?

A world caught in deep demographic decline, faced with the loss of consumption and the complications that come with all that…can automation help pull us out of this nose dive?

Here’s the quick and dirty on how we got here….back in the industrial era, birth rates started to decline, then got even worse when globalization came around, and then went to the sh***er once the countries that were a bit behind joined the industrial world.

Now onto how automation fits in. Spoiler alert: automation is not the holy grail it’s been made out to be. Sure, it can be part of the solution in systems that aren’t on their last leg, but we must remember that these are still machines. They take time to build, require lots of upfront capital, and don’t get me started on the consumption piece of this puzzle.

Automation isn’t going to magically reverse the effects of demographic collapse, but for countries with the time and money, it’s not a bad place to start.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

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Cartels Part 3: The North American Drug War

Photo of man in gloves opening cocaine package

There are a few reasons the cartels love their cocaine, mainly because it’s easy to smuggle and cheap to make. But what happens when you sell it? You’re left with a boatload of “dirty cash” you can’t do anything with.

The solution is what has enabled the cartels to put down roots in the Mexican and American economies. And yes, we’re talking about everyone’s favorite pastime: money laundering!

So the cartels get involved with high cash flow businesses, think agriculture, real estate, bars, legalized weed, etc. And now we’re not just talking about a disorganized group of dudes carrying backpacks full of blow; we’re talking about multi-million dollar businesses with deep pockets and lots of connections.

Unfortunately, I can’t offer any quick fixes to this problem…other than STOP DOING COCAINE.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

The Financial Crisis of 2023?

No, we’re not headed for another financial crisis…although, to those with more than 250k in one of the three failing banks, it may seem like we are. Silicon Valley Bank is the largest of the three, but it’s still only the 16th largest in the nation.

The problem for Silicon Valley Bank and the smaller Silvergate and Signature Bank is that they all took on a questionable amount of exposure to illiquid assets. For SVB, it was a variety of long-term bonds and securities with long durations. Then interest rates started to go up–way up. And SVB was not left with many tools to manage interest rate risk it had not hedged for. When its primary customers–the tech industry–found out, they sounded the alarm. Being the tech world, they’re all relatively well-connected and active on social media, triggering a stampede of customers wanting to pull their cash out more or less simultaneously, or what we’d call a good old-fashioned bank run.

The real thread connecting all of these banking mishaps, however, is one that’s not going to go away anytime soon. Rising capital costs. Many of these banks and their customers have been operating in a world where money has been as close to free as it has ever been in human history. Over the past year, we’ve seen interest rates rise–sharply–and there’s little reason to believe that we’re anywhere near done yet. The fundamental operating paradigm for banks and the financial paradigm of the past decade and a half is shifting, and we’re going to see which financial institutions are able to deal with the change and which ones won’t be able to keep up.

The Biden administration has now stated that the FDIC will make all depositors whole. That’s great for ending any potential bank runs, but those CFOs who thought it was a good idea to put all of their company’s capital into one bank won’t be learning their lesson this time around.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey, everybody. Peter Zeihan here, coming to you from Bloomington, Illinois. Sorry, I forgot where I was there for a second. It is the 14th of March. Tuesday. And for those of you that have been following the news, you, of course, know that the United States is facing a little bit of a banking hiccup right now. Over the course of the last few days, three banks of note Silvergate Signature and Silicon Valley have either been closed by regulators or just simply collapsed. And this is something that honestly, I don’t think anyone should really overly worry about. The biggest of them, Silicon Valley, is like number 16 in the country. So this is nothing like the financial crisis of 2007 when all of our Big Ten banks were in trouble all at the same time. Now, normally when you have a financial crisis, it’s because of a problem with loans. Whenever the business cycle turns, the cost of capital goes up and loans that may have made sense in the past don’t anymore. So in the 2007, the issue was subprime. We had, based on how you measure the math, somewhere between a half trillion and two and a half trillion dollars of questionable loans in the real estate market. And that meant that touched almost every single bank within the entire system. So when the real estate market turned and we realized that a lot of these people were baristas who had no incomes and had qualified for 100% mortgages on million dollar homes, and those loans went bad. We had problems across the entire space. Nothing like that is going on this time. We’ve had a very strong expansion and certainly capital has probably been overly cheap and there is some rot in the system that does need to be worked out. And what basically what’s going on is the financial system is going through the process of taking out the trash right now. You would expect some banks to go down. That’s not necessarily a signal of a broader contagion, systemic risk sort of thing.

In addition, the United States has something called the FDIC, the Federal Deposit Insurance Corporation, which is a system by where all banks pay a monthly fee into the system in order to get insurance for their depositors. So as long as your deposit is under a quarter of $1,000,000, you are federally guaranteed to get your money back without the federal government having to do anything. That system has kicked in and depositors will be made whole. It makes sense that these three banks are the ones that went under first. They won’t be the last, probably. Although that doesn’t mean I’m concerned about something like eating through the entire system like a cancer. It’s just that they’re all related to tech and tech tends to be a capital intensive industry, and especially when you’re talking about newer firms and startup firms and research firms, which are what these banks cater to. You’re talking about institutions and companies that don’t make money today. They’re hoping to make money next year or the year after, the year after that, or invest in the next big thing. So they tend to be more perspective. They don’t have to have any income. And so when capital costs go up, they face problems. And so these banks are the ones that are facing the issues. So there’s nothing about this that is any more than a run of the mill bank failure, that matches most of our understandings about macroeconomic trends. I don’t want to say it’s nothing to worry about, but I’m really not concerned about an overall national bank contagion or broad bank run. And I think what the stock markets have done in discounting all things financial is a gross overreaction. So there’s that.

Now, there are three reasons why this time it is a little bit different. First of all, tech has been on a tear for the last several years and not just because capital has been cheap, but because of COVID. When we all found ourselves living and working at home, we needed better cameras, we needed ring lights, we needed computers. We need to update our phones. And so in the year 2020 and 2021, and to a lesser degree in 2022, we were all buying all kinds of tech related products, generating a bit of a boom. Well, once you buy the newest and greatest computer and phone, you probably are going to wait before you get the next one. And so we were always going to have a little bit of a tech bust independent of what was happening with the overall economy. So that’s one. Number two, this is a little atypical for a bank run or a bank crash because normally the problem is on the loan side. It really isn’t this time. It’s not that there hasn’t been a capital crunch, but in the tech start up space, these companies usually don’t go to like the Small Business Administration to get a business loan. They get their capital directly from a venture capitalist. And it’s the venture capitalists who are finding themselves with less capital to throw at situations. So they’re not as able as they have been to throw money at these small startups. And so the startups have been drawing down on their cash, which means the problem from the bank point of view hasn’t been with the money that they’ve lent out. They don’t lend out very much. It’s been with the money that they thought they had. So as deposits have been drawn down, they haven’t had enough operating capital to continue normal operations.

Now, this is mostly good news because it means the overall exposure to the financial sector, which is normally what happens when you sell loans among banks, just isn’t there. But it is a very big problem for the tech sector.

And then we get to our third problem, which is how the Biden administration has chosen to deal with it. Now, if you are dealing with a deposit that’s under a quarter of $1,000,000, the federal government doesn’t have to lift a finger because the FDIC will take care of it. But a lot of these small startups, they put all of their money into individual banks, most notably Silicon Valley Bank. So it was a lot more than a quarter of a million now more than a quarter million is not insured. So what the federal government has done under the Biden administration is step in and say that all depositors will be made whole by the FDIC.

What will happen is banks will have to pay a little bit higher. All banks. Into the FDIC system in order to ultimately make up for this so that taxpayers don’t have to pay for the actual bailout. Now, this does put a hard stop on any risk of a bank run. So it’s definitely the right tool for the job there. But what it does is, is it encourages companies that have done stupid things like this to continue doing them, because now all of us have to pay through lower bank interest or more difficult loan conditions for a handful of startup companies who had CFOs who were just too dumb to realize that there is a limited limit to the deposit insurance system. And so this has injected a permanent level of stupidity into the financial system that was really not necessary. And by backing all depositors, the federal government, the Biden administration specifically has chosen to introduce what we call moral hazard into the system at the base level, which in my opinion, was really not a great idea, although it definitely does put a bit of a backstop on the financial maybe kind of sort of itty bitty crisis.

Okay. I’d like to give a little shout out here to Marci Rossell, who is an economist that I actually just saw on stage, who is fantastic. So if you ever have a chance to see her in person, she is definitely an entertaining show and will constantly give you new things to challenge your assumptions and think in new directions. Alright. That’s it for me. See you guys next time.

Danger Close with Jack Carr

Last week I had the opportunity to sit down (virtually) with Jack Carr on his show Danger Close. We chatted about the troubling outlook for China, the ins and outs of the war in Ukraine, and much more!

Moving forward, I’ll share my appearances from different podcasts and shows. Most of these are longer than my usual YouTube videos, so for those looking for more of my insights…this is for you!

This is my second time on Danger Close, so if you need even more listening material, check out my original episode from March 2022.

MOST RECENT INTERVIEW – MARCH 8TH 2023

OLD INTERVIEW – MARCH 16TH 2022

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

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Trusting the Numbers in a Deglobalized World

To my fellow nerds reading along…this is your trigger warning…today we’re talking about BAD DATA. Sorry for the dramatics, but I’m sure many of you share my frustration when you can’t find the correct numbers for that forecast you’re working on or, even worse, the data you used in your model is falsified.

Unfortunately for us, this problem is only going to get worse. We know that the numbers coming out of Russia and China haven’t been “trustworthy” for years, but at least we could check most of it. At least now we don’t have to worry about data manipulation because both countries decided they wouldn’t collect or report it…

The increasing struggles of data reporting aren’t isolated to autocracies either. As the global trading system breaks down, most of the world will be hit with paralyzing inflation and trying to track it would be a fool’s errand. Until the gaping vulnerabilities left in the global trade system are patched, this will continue raging on.

Some countries will fare better than others, but no one is getting off scot-free. The modern world’s economic model is crumbling, and someone will have to figure out what we all do next.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey everybody. Peter Zeihan here coming to you from breezy, chilly California. And today we’re going to talk about statistics. Yes, yes, yes, I know, but it’s a lot better than it sounds. So I can’t do anything that I can do with analysis, much less forecast without decent data. And in some countries, that’s just more difficult to do than others. I’m not talking here about like bureaucratic interfaces or anything. I’m talking about just outright lies. So the two countries that have always been a bit of a black hole when it comes to the data are China and Russia.

In the case of China, the lies are primarily of choice. So you’ve got individual local leaders who are pumping up their own numbers to get more money from the federal government or in order to curry favor. So if the government says we want 6% growth, they’ll get six and a half. But some of it is just outright greed. The point where the Chinese system admits that you’re a person and starts to count you is when you enroll for kindergarten. Basically. So local governments have bumped up the number of people who have enrolled in order to get more cash. You play that forward for 40 years. The Chinese are now admitting that they’ve overcounted their population by in excess of 100 million people. And this is a big part of why China today is now in terminal economic decline. They just don’t have the people anymore. And they didn’t see it coming because the numbers told them otherwise.

In the case of Russia, it’s more a classic one-upmanship. There’s a general belief among Russian bureaucrats that they have to be better than the United States, even if they have to completely fabricate everything. So my personal favorite statistic out of Russia is that the Russians see that roughly one fifth of American agricultural land is irrigated. So in Russia, 25% is irrigated because 25% is more than 20%. That makes us better than you, which is, of course, you know, dumb, because if you’re irrigating land, that means you have to pay for it. And it’s usually not as efficient anyway. This has always been a challenge. We normally deal with this by evaluating counterparty. So if the Chinese say export some product, what’s called electronics to other countries, then you look at the import data for those other countries and you use that to back up to estimate how much came out of China. Same with the Russians.

What we’re seeing now with the Ukraine war and the onset of sanctions at volume is that the Russians are no longer lying about their data. They’re just not reporting it at all. And in the case of China, they’re not just lying about the data. They’re in many cases not collecting it. So a good example of that very, very recent just the last few weeks is with COVID. Now, Chinese data on COVID has always been nudge, wink, questionable, but they just stopped collecting it all after their opening. And you can kind of see why. I mean, let’s assume for the moment that the anti-vaxxers and the conspiracy theorists among us in the United States have actually been right all along. And COVID is no more dangerous to you than the common cold. Well, if that is true, China still lost a million people in the last several weeks as COVID spread through the population for the first time. It’s probably almost certainly sickness, acutely worse. And if the Chinese don’t collect the data and you have an information closed society, then no one knows. But I don’t want to just pick on the autocracies out there because the whole world is going to have a problem with data moving forward.

A couple of things. First, if you’re talking about a breakdown of the global trading system, we are going to have spasms in inflation as some products get produced in some zones but can’t get to others for assembly or raw commodities can be produced somewhere but can’t get shipped everywhere. Every part of the world is going to have different inflationary, deflationary and disinflationary trends, different from not just product to product, but component to component. And keeping track of that, much less putting it into an index is going to be a fool’s errand. We’re just going to feel the term of product shortages across the entire system. And until you can home shore or nearshore or friend shore, in that order, the component production themselves, the material processing itself, it’s not going to go away because it’s going to be vulnerable to security interruptions.

Second, most of our economic laws and rules and understanding are rooted in the idea that the economy gets a little bit bigger every year, not necessarily from technological advancement or economic growth classically, but simply from populations expanding. If you have more people every year, you have a little bit more consumption every year. You have a little bit bigger economic pie every year. Only that’s no longer true. In the aftermath of World War Two, the whole world started to industrialize, which is another way of saying the entire world started to urbanize. And as you move from the farm and into town, you have fewer kids until you get to modern day, say, China, where in the cities you’re averaging now less than one person per woman for her lifetime.

After 75 years of this process, we are now well past the point that the advanced countries are repopulating. China is on that list and over the course of the next 10 to 20 years, a lot of the advanced industrial world places like Korea are going to follow suit, which means that the pie is not getting bigger, which means that the tools we’ve developed, the theories we’ve developed, the monetary policy that we’ve developed is no longer appropriate for the world that we’re in. It is going to take us years, if not decades, to come up with a replacement system and replacement rules and replacement understandings and theories and especially policy tools to adapt to this. North America gets a bit of a pass. First of all, the Mexicans have the healthiest demography, not just in the rich world, but in their own peer class, better than India, better than Brazil, better than Turkey and the United States. We have one of the highest birth rates in the world among the rich countries and now higher than many advanced developing countries as well. And at current rates of aging, we will actually be younger than the Brazilians in the mid-twenty forties and younger than the Indonesians around 2050. So we’ve got time. Canada doesn’t have that kind of time, but Canada has gotten clever and has a cheat code and basically has embraced immigration as a national identity issue and so they’ve been able to import a huge number of people in their twenties and their early thirties, in a way that they haven’t done before. And that’s bought them time by importing an entire generation. That means North America is at least partially resistant to these trends, and the countries of North America are not going to have to be the ones to pioneer a fundamentally different economic model simply to preserve their societies. We can wait, we can watch, we can learn.

Anyway, that’s it for me. I’ll see you guys next time.

Cartels Part 2: Origins of the Drug Trade

Flashback to the 80s with me for a moment…we can leave out the big hair and leg warmers…but let’s talk drugs. Most of the cartel activity came from one place, Colombia. If you’ve ever seen Miami Vice, you get the idea. But once the US caught onto the cartels’ “distribution strategy,” new ways of getting “product” into the US had to be created.

Money started flowing through Mexico, and the drug trafficking business was the place to be; it wasn’t long before the cartels we know today began to form. It’s important to note that not all of these cartels operated the same.

To most cartels, violence was a necessary aspect of the drug trade. The Sinaloa Cartel worked a bit differently; they treated this like a business, and El Chapo was the “CEO.” They partnered with the community, bribed law enforcement, and crime stayed relatively low while they were around.

Once El Chapo was captured and the Sinaloa Cartel started to fall off, groups like Jalisco New Generation surged back onto the scene. Unfortunately, this new wave of cartels brought back the violence and crime levels we see today.

For the US, carrying out military strikes on these cartels across the border just doesn’t make sense…it would be like shooting a fly with a handgun. However, beefing up border security to prevent these cartels from crossing into the states is probably a good idea.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know 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. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides 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. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey Peter Zeihan here, still in Vegas, still talking about cartels. The thing to remember is if you go back to the 1980s, most cartel activity was not Mexican, it was Colombian because that’s where the cocaine came from. And it would flow up into the Caribbean. It would avoid Cuba like the plague, because the Cubans would just kill everybody who was associated with the drug trade at that time and would flow into Miami almost exclusively. And this is literally the setting for the show. Miami Vice, all the drug wars, continental in scope, going into a single place. But by the time we got to the 1990s, the United States started to shoot down small planes that were flying ten feet over the water at night with no lights on because those were not scuba divers and the cartels were forced to change the way they shipped. And so they started sending shorter hops not to the United States directly, but into Central America, where they go on land and then go up through Mexico to the U.S. border where there’s a 2000 mile border. And before you say, building a wall will help with drugs. No, no, no, no, no, no. You can put a half a million dollars of product in your backpack. A wall is not going to impede you, especially since a wall requires 50 construction roads going down to the border to build the road in the first place. Which means you have no obviated half of the physical border of a Sonora in the Chihuahuan Desert. So if anything, the road has made it a lot easier for illegal migrants and drugs to get into the country. So remember Donald Trump, most pro narcotic, most pro illegal migration president the United States has ever had. Now, where was I? All right. Okay.

So when the cartels were going on land, that meant that the Colombian cartels had to either find middlemen and or bribe the locals in order to help with transit that generated the money flows that ultimately led to the rise of drug trafficking groups within the Mexican system itself. Now, if you fast forward to about 2012 to 2015, one of these cartels took a fundamentally different view of drugs from the rest. The other saw it as a means to power, and they were basically gangs at scale. But the Sinaloa cartel rose up and thought differently. It saw drugs as a business, and anything that interfered with the core business was something to be ruthlessly rooted out from within the organization. So you don’t steal ladies purses, you don’t shoot up the cops, you buy them off, you make them your friends. Because as long as you can bring drugs through a community, you are making money. And that is your primary reason to be. And that sort of attitude allowed them to put roots deep into Mexican society and expand north of the border fairly easily, where they interfaced with the American gang infrastructure.

If it was a Hispanic gang, you had the choice of joining them or dying. Most died. And if you were a black gang, you were probably just killed. One of the reasons that the murder rate in the United States dropped so precipitously in the 2000s is that the Sinaloa in the United States killed the people who were doing the killing. So use that to inform our general assessment of how much progress we’ve made. Now in the United States this allowed Sinaloa to not just become the largest cartel in Mexico, but in the United States and the largest organized crime group in the world. So the Obama administration worked with the Mexican government to capture the leader of that cartel, El Chapo. And then he got out and we got him again. And this started the disintegration of the Sinaloa cartel. El Chapo’s former accountant has tried to take over a chunk of it. Some of his lieutenants have tried to take a chunk of it. Some of his sons have tried to take a chunk of it. One of his sons is on the process of being extradited to the United States right now, but they all lead their own factions. And so this umbrella organization that was Sinaloa really doesn’t exist anymore in the way that it used to. And whenever you’ve got factions in a system, you’ve got violence. And it’s going to sound weird. But when El Chapo was in charge and when Sinaloa was a top down organization, Mexico was reasonably peaceful because there wasn’t infighting within his own organization and Sinaloa was able to cut a series of deals with the Mexican government to go after the other cartels.

Now, on the other side of the equation, the cartel that suffered the most from that alliance with the Gulf or the Zetas cartel. Two different groups that have kind of interwoven history. One group was the enforcers to the other. But once the government and the Sinaloa both turned on them, they basically shattered. And if you go to the eastern third of Mexico, you’re in a situation which is gang on gang violence, nominally under the name of Gulf and Zetas. And the Americans who disappeared and were kidnaped and killed this past week were people who fell in with the Gulf and the Zetas. So if you want to go with this idea of wanting military strikes south of the border against the Gulf, that’ll do nothing, because that’s basically going after the Crips or the Bloods with military hardware. It will do nothing to change the environment because there is no hierarchical organizational structure to disrupt in the first place. You’d literally be going after street thugs, and that’s just not the right tool for the job. And this group, it’s breakdown. That is the primary reason why Mexican murder rates are so high, because you just have gang on gang action, not just at the regional level or the city level, but the block by block level. And they’re fighting over the income that comes from the drug trade.

Now, in the middle, you have another group that used to be at least partially affiliated with Sinaloa that calls itself a Jalisco New Generation. They were led by a dude named El Mencho. Now, El Mencho does not have the same view of El Chapo. So El Chapo, you could basically sum up his position as don’t shit where you sleep. Well for El Mencho the violence is the point.

We’re a gang that gets money from drug trafficking, not we’re drug traffickers who happen to be a gang. So the first thing he tells his people to do when they move into a town is go shoot up the mayor’s office, the police office and any gang headquarters that you can find. Make it very clear to everyone who’s in charge and who has the guns and what the penalty for noncooperation happens to be. And that has made Jalisco New Generation very hierarchical, very violent, and has contributed massively to the violence south of the border. Now they are in the process of attempting to go north of the border to challenge Sinaloa in basically what is the the great fields of income generation opportunities in the United States. They haven’t succeeded yet and if there is a fight to be had in the United States, it is at the plazas and the border cities to make sure all this go. New generation does not cross in because if they do, wow, we think our murder rate went up because of COVID. Holy crap, Jalisco would go into Phoenix and Dallas and El Paso and Houston and Austin and San Diego and just start killing people to prove to everyone that they can. And if you want a 1930 Chicago level of violence in the United States and every city within 500 miles of the border, that’s exactly what will happen if Jalisco New Generation punches forward.

So military strikes south of the border. This isn’t going to fix anything, but perhaps an increased security presence in the city specifically to prevent Jalisco from crossing north that might be a pretty good idea.

Alright. Next time, we’ll talk about some of the economics of drugs and those things have changed.