Bring On the Jet Fuel Shortages

Even if the Iran ceasefire holds, the world already has a months-long jet fuel shortage baked in. So, start saving for those summer vacation flights.

These shortages will hit harder in the Asia-Pacific regions, but everyone will feel the heat. The problem is that Middle Eastern crude from Kuwait, Iraq, and Saudi Arabia (now offline) is ideal for jet fuel…and there’s no real substitute for the product.

Flights well into the future are already being canceled in countries like China, Japan, India, and Australia.

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Transcript

Peter Zeihan, here. Coming to you from Savannah, Georgia, one of my favorite cities in the country. 

Anyway, today we’re talking about one of the after effects of the Iran war. Even if the ceasefire holds, which, we are looking at a months long shortage of jet fuel on a global basis, most heavily concentrated on the South Asian, Southeast Asian, Australasian and Northeast Asian zone. Problem is that jet fuel is very exacting, in terms of its production. Whereas diesel or gasoline have a broader band that you can produce them with in the distillation columns in a refinery. In addition, the type of crude which kind of a medium heavy sour, that is your preferred feedstock for most refineries that make jet fuel, is heavily concentrated. 

Its production in places like Kuwait and Iraq and Saudi Arabia and all that stuff is off line. That was all Gulf facing crude that couldn’t be redirected somewhere else. We’ve now had a half a billion barrels of oil not be produced and delivered. And the refiners have already taken the last delivery from pre-war shipments. 

We’re not going to see new shipments come out in the next 2 to 3 months, minimum. Probably considering that a lot of the stuff is Kuwaiti and Iraqi, for over a year. So that means that we’re already seeing airlines in China and Japan and Australia and New Zealand and the Philippines and Vietnam and India, all canceling flights, not just for like the next few weeks, but the next few months. 

There is no good substitute here, because if you say run low on gasoline, some vehicles can switch to diesel. Or more importantly, the cargo can switch to diesel. And if you run low in diesel, you can always put some of the cargo on trains or on ships. Jet fuel is for jets, and that’s it. So with a relative bottleneck on the feedstock and a relative bottleneck at the refineries and the lack of substitutions, we’re just out. 

And so we’re going to see this cling to the system for at least a year, assuming no new shooting. There will probably be more shooting.

The Death of the First-Time Home Buyer

A Caucasian couple staring and pointing at a home

Buying your first home is one of those major milestones that your parents and grandparents probably didn’t even think twice about. Now, that milestone is slipping further out of reach for the average American.

US housing prices have trapped those reaching home-buying age in the rent-cycle. Sure, demographic shifts could help, but that relief wouldn’t hit for quite a while. The quickest solution would be ramping up home building, but that hasn’t happened at scale. And demand hasn’t dropped since the boomers are aging in place. Oh, and lending costs are getting higher, too.

It’s the perfect storm to lock out first-time home buyers, and there’s no relief in sight…especially not within this decade.

The U.S. Dollar: Short vs. Long Term

Photo of US dollar

Before anybody asks, no, the following is NOT financial advice. The U.S. dollar is constantly in the spotlight, so where is it heading?

Over the long term, the U.S. dollar is well-positioned to rise. Four main factors are driving this: U.S. naval dominance to secure global trade, favorable demographics, abundant food and energy resources, and the need to expand manufacturing. Each of these suggests durable economic strength.

But in the short term, current policy is driving the dollar downward. Before the Iran war, things like immigration limits, tariffs, regulatory uncertainty, and eroding business confidence all weakened the dollar. The Iran war has brought a temporary lift, albeit a marginal one, as investors seek safety.

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Transcript

Hey all, Peter Zeihan here coming to you from Colorado. Today we’re going to talk about the US dollar and where it’s going to go short and long term. Again this is not not not investment advice. This is just where the geopolitics say that we’re going. First let’s talk long term because it’s a really simple story. As a rule, a country’s currency tracks its economic strength and its durability. 

And by that measure, the United States dollar really has nowhere to go but up for the next several decades. The big factor is, number one, the US military is the one that rules the seas. And even if everybody else were to put their militaries together, their navies together, and sail them against the United States, we’d probably only need two, maybe three aircraft carrier battle groups to take the whole thing down. 

Also, with very, very, very few exceptions, single digit exceptions, there are no ships, frigate navies, ships out there that have the capacity to even reach the United States. So the United States can go there, do whatever it wants, but nobody can come here. And that allows us to be the arbiter of really whatever it wants to be. Number two, demographics. 

As much as we are facing a demographic crunch at the moment, specifically is the baby boomers, which are the largest generation we’ve ever had, are now almost entirely retired. Our boomers had kids. We call them millennials, and they are now in the height of their consumption years. And then for the next 20 years, they’ll be at the height of their production years. 

And so we know we still have a relatively strong, stable and balanced economy moving forward that doesn’t exist in very many places elsewhere in the world. So whether you’re in Germany or China or Japan or Korea or Spain or Italy or Poland, we’re looking at a country where they basically already aged out. 

And there aren’t a lot of people under 50 relative to those over 50. So you know that the United States is really the only first world country of size, with the possible exception of New Zealand, where there really is a demographic story for normal economics going forward for the next several decades. Number three, resources. The United States is the only first world country with the exceptions of Australia and Norway and Canada, that are massive, not just producers, but exporters of food and energy products, which without those you can’t have a modern system. 

That doesn’t simply mean that cash is constantly flowing into the American network. It means that the United States never really has to worry about the building blocks of what it takes to make a modern economy functional. All right, what else? 

the last item is kind of, strength from weakness. Because of globalization, the United States is hollowed out a little bit when it comes to manufacturing. We still produce the most value out of manufacturing of any country in the world. But as the Chinese are facing demographic and geopolitical pressures and eventually will fade away, the United States needs to expand its manufacturing footprint massively, at least double it in order to prepare for that circumstance. 

That’s an inflationary story, but it’s also a massive growth story. So those four things together, the need to expand the manufacturing plant, the commodities position, the military position, the demographic position. This tells me that the US dollar has nowhere to go but up for decades. But that’s then, we all live in the now, and we have a lot of problems in the short term that are taking us absolutely the opposite direction. 

And all of those are caused by policy. So first up, the Trump administration’s decision to basically make immigration into the United States impossible. We have gone in the last 12 months from the first world country with the fastest growing population to something near the bottom. And for the first time in American history, 2025, we actually saw the US population drop. 

That is putting huge pressure on labor markets, especially when it comes to things like construction and health care that are slowing American growth, raising costs and pushing the dollar down. Second, the tariff policy, despite what it claims, it’s actually making manufacturing a lot more difficult in the United States. You see, there’s kind of two broad categories of manufacturing. 

Your relatively simple value add, like things like, say, furniture or making glue where there are only a half a dozen steps. And if you have a high flat tariff, you try to then move those steps into your country and consolidate. But then you have more complex manufacturing, like cars and computers and airplanes that have hundreds, if not thousands, if not tens of thousands of steps. 

And there is no country in the world where those are all under one roof. So if you put a high tariff in, then every intermediate good has to pay the tariff and it just makes more sense to move as many of those steps outside of the tariff umbrella as you possibly can, and then just import the finished product at the end, because then you only have to pay the tariff once. 

So what we’ve been seeing over the last year is industrial construction spending in the United States. Drop drop drop drop drop drop drop drop drop. And the only reason it hasn’t plunge is people are hoping, praying against all odds, that the Trump administration will eventually back down and these tariffs will go away. We’re now coming up on a year since they were put in place. 

We’ll hit that anniversary in the first week of April and we’ll probably see the drop off accelerate. So that boom, I was talking about where we needed to double our industrial plant. We’re actually going in the opposite direction right now, and that is forcing the United States to import to cover everything. And so we see the dollar going down. 

The third issue is how easy is it to do business in your country? The Republicans have traditionally been the pro-business, low regulation crowd, and the Trump administration has said that it’s not going to enforce the regulations that are on the book. It’s basically asking companies to lie on their tax forms and ignore the government’s policies as they currently stand. 

You see, there’s a big difference between Trump two and Trump one. In Trump one, they brought in people who knew about deregulation, and they had this idea that for every new regulation that came in, five had to be removed. And so we actually saw meaningful deregulation. But with this new administration, they haven’t brought in those people. 

They’re just not allowing new regulations to go in. So the old regulations from previous administrations are still there. And the people who would go through and winnow them out are not there. And we no longer have the capacity to implement new ones. So the regulatory structure is becoming slowly ever more divorced from the economic realities of the country. 

And there’s no one in place to fix that. So companies are being asked to just ignore the whole thing and saying that there won’t be any legal repercussions for that. At the same time as the, the legal structure becomes almost irrelevant to where we are now. On top of that, with the tariffs, we’ve now had over 5000 tariff changes since April 2nd of last year. 

The the game board is changing every day and companies literally don’t know what to do. And the collective decision is to try to do as little as possible. So while the rhetoric may say one thing, this is actually the most anti-business administration that the United States has had in my life. And business confidence and business activity and business expansion are all dropping instead of rising. All of those are bad for the dollar. 

And finally, there is a rule of law problem. The Republican Party is not what it once was. Donald Trump has exercised a number of factions national security securities, fiscal conservatives, business conservatives from the coalition and has actively campaigned against their champions in Congress. And what’s going on with Immigration and Customs Enforcement is a real big issue. 

Seeing Ice in places like Minneapolis has really jarred the business community, because they’ve always counted on the US government to enforce rule of law. We don’t have that anymore. In fact, Ice is operating in a way that every police chief has always told his or her officers to never do. You know, you’re never supposed to argue with the judge. 

You’re never supposed to argue with the prosecutors. You’re never supposed to recruit from gangs. You’re never supposed to wear a mask. You’re never supposed to draw a gun first. And no one really knows where federal law enforcement is going to be unless you’re looking at the FBI under a guy by the name of Cash Patel, who’s basically a conspiracy theorist. 

So the idea that there’s this stable structure undergirding everything that the federal government does is now gone, and businesses just don’t know how to react at all. You add in record deficit spending and the implications for the dollar are down, down, down, down, down. So we kind of have this perfect storm in the short run that is pushing the U.S. dollar down, even against the overarching long term trends that are pushing the dollar up. 

So I have no doubt that over decades, the dollar will rise and continue to. But I also have no doubt that over months the dollar will drop because the federal government is now actively, loudly declaring that that is their express goal. Now, the idea behind what the Trump administration is saying about dollar policy is their idea is that if the dollar gets weaker, then U.S. exports will increase. 

And ultimately, that’s one of the metrics that Donald Trump is obsessed with. But that also means for a country that imports manufactured products, it also means that we are looking at significantly higher inflation as a result of that policy in the short run. So short run, if you’re a dollar bull, it’s going to be a really rough ride if you’re a consumer. 

Things look a little rough because we’re seeing fewer products produced in the United States, and we’re seeing a hollowing out of the high end employment base that does the high end manufacturing that we’ve always excelled at. That might make good for exporters a little bit, but in the long run, we’re looking at a very different economic structure. And of course, as with everything, the challenge of getting from here to there is where we all live. 

And now an update. We’ve recorded this video before the Iran war started, and if you want to talk about something that threw a shock into the system to underline that there really wasn’t an option out there for financial investment. Outside the United States, this is what did it. And so we’ve seen the United States dollar rise over the last couple of weeks versus every major currency except for, I think, one, I think Canada is holding in there because it’s basically integrated with the U.S. system. 

However, I will underline that, markets are behaving grudgingly in this regard. They really don’t want to put their money in the U.S. dollar because of some of the policies that we have out of the Trump administration right now. So while, yes, the US dollar is rising versus pretty much everybody, only at a moderate pace, in most countries it’s 2% or less over two weeks of war. 

And now the Persian Gulf being shut for the entire time, it should be double digits. But there’s really only three markets where you’re seeing more than this 2% change. You’ve got Korea, which is uniquely exposed, South Africa, whose economy has always been really, wild and, erratic. And Indonesia, where the markets are relatively illiquid for a market of its size. 

So, yes, we are definitely looking at the long term effect here of the US dollar having nowhere to go but up. But also we’re seeing the damaging effects of the short term of no one really trusting to put their money in the United States system and showing that it has nowhere to go but down. The result is, at the moment, in a moment of global crisis, surprisingly small gains for the US dollar. 

I would love to say that the surprises me. It does not.

No Immigrants & Negative Growth = Canada’s Economic Tipping Point

Man holding a small canadian flag against a misty background

Canada sharply restricted immigration and scored itself a 0.2% population decline. This flips the script on a long-running strategy of lax immigration to offset low birth rates and prevent pension/workforce collapse.

Slamming the door shut quickly has triggered demographic decline; should the door remain shut for too long, they risk restarting a long-term economic hollowing-out. However, the severe housing shortages, affordability crises, social backlash, and rise of nationalist politics make a good case for curbing inflows.

Canada is facing a rough economic outlook in the coming decades, unless it can figure out the people problem or negotiate more favorable trade integration with the US.

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Transcript

Hey, all Peterson here coming to you from not Canada, but Colorado. But we’re gonna talk about Canada anyway because, you know, it’s snowing. Okay, so the big news in Canada is that they have had population drop this year, 8.2%, their first drop in cheese quite sometime. So a few decades at least. What does this mean for them? 

Why did it happen? Where is it going to take them? So if you dial back to 15 to 20 years ago. Canada was in a population bomb situation that is very similar to what’s going on in Germany and Italy. They basically the birth rate had dropped, for decades, and they hadn’t had, rising birth rates since really almost World War two. 

And it was really starting to cause some problems for them. They knew that in the next ten years, which would bring us to, you know, five years ago, that they would be facing pension collapses, more people in their 70s and 60s and 50s and 40s and 30s and so on. And there was really no hope. 

Very little hope, anyway, that they would ever have a domestic regeneration of their population structure because there just weren’t enough people under 30 to have kids in the first place. So under the previous, previous, previous, Prime Minister Stephen Harper, who was a conservative from the province of Alberta, which is basically the Texas of Canada, started opening the doors to immigration. 

Now, Canada had always had a relatively egalitarian view towards immigration compared to everybody else in the world. But it was always, an issue of a race. The problem is, is when the migrants come to the United States back in the pioneer days, they could go out and become small, hold farmers and be exporting grain to the wider world in a matter of months. 

And the wealth came really easy in Canada. Not so much. The prairie provinces did have that option, but they were drier and they were colder and they were less reliable. And if you start going into interior, say, Quebec and, Ontario, you’re on a chunk of geography called the Canadian Shield, which is a bunch of uplift that had been scraped, cleared by the, glaciers. 

And so there just wasn’t much soil to work with. And the soil was very poor. And of course, it gets a little cold for most of the year. So they never had the pioneer experience that the United States had. And that took Canada in a different direction, and means that most of the population isn’t just massed on the southern border for warmth, but clustered into cities for warmth. 

About 85% of the population of Canada lives in the major cities. It’s a very different dynamic economically and socially than what we have in the United States. Socially. It makes it really easy to bring in other groups because it’s already a polyglot. Economically it means and unless you keep that cycle of people coming in, you start to age out really quickly. 

And that’s what happened back in the 1990s. So Harper opens the doors, immigration doubles, triples, quadruples, and they bring in enough people who are in the age bloc of roughly 30 to 45 that they can pay into the system enough in taxes, before they retire, that it doesn’t break the bank. The downside of that plan is that once you start that policy, you can never stop, because if you bring in someone who’s 40, ten years later, they’re 50, ten years later, they’re 60, and all of a sudden they’re, retiring. 

So where is the United States? People can walk here from the South. And so we tend to get migrants that are under 25 in Canada, they typically have to fly there. And so they tend to get migrants that are over 40. So once you open the door, you have to leave it open and you bring in hundreds of thousands of people every single year. 

You do that for 20 years, and you start to change the political and the ethnic makeup of the country. Now, in large parts of Canada, that’s not a problem. I mean, if you’re in Toronto, it’s a polyglot. If you’re in Montreal, as long as the people are coming in are French, it’s fine. And, you know, a lot of French ethnics from France came to Montreal in the aftermath of the European financial crisis and never left. 

But they were close enough ethnic mix that it wasn’t too much of an integration. I mean, people from Montreal eventually discovered that the French can be kind of pricks. But, you know, that’s a French inter French problem for the rest of Canada. 

It was a much more diverse crowd, a lot of South Asians, but really people from everywhere and eventually it reached the point that Canadians who had been born in Canada, regardless of their ethnic affiliation, were starting to lose connection with the place that they were consider themselves to be from. So there’s a cultural issue, but the bigger one was much more economic. 

Everybody has to have a place to live and so when you bring in a half a million or more people a year into a country that only has about 30 million people, you start changing the dynamics of the housing market very, very, very quickly. And many cities in Canada, most notably Vancouver and Toronto and Montréal, but also the secondary cities like Regina, and Saskatoon, suddenly became unaffordable for people who had lived there all their lives. 

And I’m not talking like the bottom 10% on the socio dynamics. I’m talking like 80% of the population. It hit a break point two years ago in calendar year 2023. Back then, Justin Trudeau was still premier, and he realized that it was shifting the entire country, not necessarily on the left or right spectrum economically, but on the left right spectrum socially and the far right. If we were in the United States, we would call them MAGA. 

Started to rise up and agitate and became very politically potent. And so he realized that unless his great centrist liberal experience was going to be threatened, that he needed to dial it back. And in the course of about 12 months, the TRO government basically shut almost all possibilities for illegal migration to Canada. And since the borders between Canada and the rest of the world, aren’t really the walkable type. 

That pretty much it was it. And so this last calendar year calendar 2025, we actually had a population decline. Now, under normal circumstances, that wouldn’t have been enough. And under normal circumstances, Justin Trudeau’s Liberals would have lost horribly in the general election that they had last year. But enter Donald Trump, who started agitating against all things Canadian, started calling Canadians nasty. 

And we got this big nationalist upwelling for whatever candidate it looked like Trump was not supporting. And so the liberals were able to eke by with a new government once Trudeau resigned. 

Where does that leave us now? Well, Canada has now closed the door, and with that door closed, the demographic time bomb starts ticking again. And if they leave it closed for any more than five years, we’re going to be looking at a hollowing out of the entire economic fabric of what’s left of the country. 

What I wrote 15 years ago when this was just starting up was that without a massive change in demographic structures, we were within just ten years of the country going to a position where Alberta was basically paying for everything, because that’s where the oil is. We’re back in that situation again. The difference this time is that globalization has failed, and is now basically going through the process of dying and Canada, luckily, was never really globalized. 

They basically traded with the United States and very few other places, over 80% of their trade. If I remember correctly. Gum South, that hasn’t changed. What has changed is that today there is an impulse in North America for a massive re industrialization program to build up the manufacturing plant that we need here to replace what we used to depend on from the Eastern Hemisphere. 

There is definitely a role for Canada play in that. Now they have aging infrastructure, they have an aging workforce. They’re heavy regulators. nowhere near going to benefit as much as Mexico has and will. But via the existing connections between Auto Alley and Detroit and the province of Ontario. They’re far more integrated into American automotive manufacturing, the really other part of the world, except for the possibility of Mexico versus Texas. So there’s plenty to work from. 

There’s plenty to work with. And since we’re only talking about a country here of 35 million people, of whom like a third are already retired, you don’t have to have a lot of breakthroughs for Canada to really benefit on the aggregate, but it does require a very different approach to policymaking, not just in Ottawa, but also in Washington. 

And we’re probably not going to get that in the next three years. Now, NAFTA negotiations renegotiations happen in calendar year 2026. How those talks go will determine what is possible for Canada for the next 15 to 20 years. And if they’re not going to allow large scale immigration, that is really the only game in town. So it’s going to be very interesting to see how the Canadians come to terms with higher nationalism versus the Trump administration, versus the need to just suck it down and put up with the Trump administration in order to get what they need on trade, because they can only do one of the two. 

Whoops. I said that backwards. They have to do one of the two.

The US Economy Is (Kind of, Sort of) Growing

Zoomed in image of a 0 bill

Recent data out of Washington shows the US economy is growing faster than expected, but let’s lift the hood on these numbers.

This growth is fragile and uneven. Industrial construction spend is declining, with much of the spend allocated towards AI and data centers. This might boost short-term growth, but it signals that a bubble is forming. We also have to account for construction costs increasing, making growth appear stronger when we’re just spending more for the same stuff. Consumer growth is steady, but only because the top 10% of earners are keeping the ship afloat. The bottom two-thirds of Americans are cutting back as everything grows more expensive.

Growth hasn’t cracked yet, but it’s going to hit harder than necessary when it eventually does.

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Transcript

Hey all. Peter Zeihan here. Coming to you from a Colorado that’s rapidly melting. Today we’re talking about economic growth in the United States. Specifically, in the last couple of weeks, we’ve gotten new data about how fast the U.S. economy is growing. And it’s at a surprisingly robust clip, something that the white House has taken a bit of a victory lap on. 

How does this light up against all of the forecasts, including from myself, that the tariff policy and the industrial policy of the Trump administration is actually going to lead to slower growth of the long term? We’re at that moment where everyone can have their cake and eat it, too. There’s two big things going on, according to a dissection of the data. 

First, industrial construction spending was still the single most important metric that I follow these days, because it shows what we’re actually building, what we put money into the ground for, as opposed to plans, continues to steadily dip down. We need that number to at least go up by 50%. If we’re ever going to build out the industrial plant that we need to prepare for the end of the Chinese system. 

Instead, the tariff policies has generated so much chaos in the industrial space that that number is continuing down. But that does also generate a certain type of growth, specifically with AI and data centers. Somewhere between 30 and 40% of industrial construction spending is going into data centers right now. And that does generate some high octane growth from the jobs and the construction. 

Also keep in mind that when everything that you used to build something steel, wood, copper is more expensive and were high tariffs on all of those items. Just because it costs more doesn’t mean it doesn’t count as growth. So we should be able to use those inputs to build twice as many data centers as we are. 

But since you have to spend the money on that anyway, it generates the same amount of growth in terms of the consumption of those products. So it makes it look better than it really is. That’s number one. Oh. Yeah. And any time any specific subsector is that huge of a percentage of any major statistic, you know, it’s a bubble. 

Number two, just as important, maybe even more so consumption, consumption has held steady despite the tariffs and the chaos of no one knowing what everything is going to cost the next day. But you have to dig down into the numbers a little bit to, get the full picture. Consumption for the bottom. Roughly two thirds of the population is actually dropping as people cut back as grocery bills and cost of electronics continue to go up. 

The only segment that is increasing their consumption is the top 10% of the population in socioeconomic terms. But here’s the thing. The bottom two thirds of America’s population is only responsible for about one third of consumption, whereas the top 10% is responsible for roughly half of the total. So you can have a small sliver of the population at the top that has not adjusted their consumption, maybe is even spending more now because they don’t care about the tariff increases. 

They’ve got the money to burn. But most of the population is tightening their belts, which is generating lower consumption for them. But because the top 10% consumes so much relative to everyone else, it comes across overall as a steady number. So everyone is right and everyone is wrong, myself included. Growth at this point is still holding up, but it’s becoming much more lopsided, much more dependent on some very, very specific factors that are very clearly already in bubble territory. 

So it suggests that when this does crack, it’s probably going to hurt a little bit more than it needs to. When will that happen? I can’t tell you. If Donald Trump were to stop issuing new tariffs and stop changing the tariffs are in play, I might have a better forecast for you. But we’re now at something like 650 tariff policies for the year to date. 

And everything is just changing too much that there is no confidence that really anyone in the industrial space has an economy right now. And that is very clearly bleeding into the consumer space as well.

Help Wanted – The US Needs More Workers

Sign reading "Help Wanted" in a window

US labor data shows a slowdown in job growth, but given the recent changes to the Department of Labor, who knows if we can trust it. Regardless, labor patterns are definitely looking off…

Demographics are reshaping the labor market. Swaths of Boomers are leaving the workforce, and Gen Z doesn’t have enough people to keep up. Fewer workers means higher inflation. AI might help offset some of the labor shortages, but that will be expensive and time-consuming. Throw in an anti-immigration administration, and you’ve got years of inflationary pressure baked into the US economy.

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Transcript

Hey everybody. Peter Zeihan here coming from Colorado. And today we’re talking about the U.S. economy specifically looking at the situation of the American labor market. Now, we’ve recently had new data coming out of the Department of Labor. And normally we generate the United States generates about 300,000 new jobs, per month. According to the last chunks of data, in October, we actually lost 100,000. 

And in November, we only generated about 60, 65,000, reasons why we should take that data with a grain of salt. First of all, we had to shut down during this period, and so a lot of the surveys that were done, weren’t done or the ones that were done were done in an incomplete manner. So I don’t know if we can trust that data. 

Second. The Trump administration has gutted the Department of Labor, so it’s incapable of doing its job in the way that used to, because it said that the, data was being fudged to make Trump look bad. Well, with the new staff in place, the Trump administration looks bad. So you take that for what it is. 

Third, we’ve got I think, going on here where employers are trying to see if they can use early stage AI to replace workers. And while that is very much up for debate, and it’s very much in its early years, something I found really interesting is that the surge hiring that normally happens in October, in November to prepare for the holidays hasn’t happened this year. And normally when you think of AI, in the way that large language models do it, you’re talking about things that substitute for white collar labor. And usually the people who are being hired for Christmas are doing inventory in his blue collar labor. So we’re having some weird, weird crosscurrents that we just don’t know about yet. So that’s number three. 

Number four. More importantly, we might have to adjust our expectations, for demographic reasons. So the baby boomers, the largest generation we’ve ever had, at one point, there were over 75 million of them. And now three quarters of them have already retired. So the largest chunk of the labor force has left. And then the new generation coming in. The Zoomers are the smallest generation we’ve ever had. Well, if you exit the largest group and enter the smallest group, you’re going to have a quantitatively smaller labor force. In fact, we’re probably losing about a half a million to three quarters of a million of a people out of the labor force this year. And that number will keep going up in the next ten years as the Zoomers continue to enter the workforce, because they just get smaller and smaller. 

So that 300,000 kind of stake in the ground that we’ve become used to these last 60 years is probably not correct anymore. And it all adds up to an economy where we just have less labor to work with overall. And so if AI is able to increase productivity, this is actually great, because we’re certainly not going to have enough bodies to put in those positions. 

This is probably going to be a strongly inflationary environment for the next several years, regardless of what happens with policy. And at the moment, what is happening in policy is also strongly inflationary because of the anti-immigration sentiment that we have in the United States and most strongly in the white House itself. So if we have a shrinking labor pool and the Trump administration is also shrinking the labor pool further because of immigration, then our only option is to increase productivity. 

And the only way you can increase productivity is by adding new technology. But that takes capital, which is also in short supply because of what’s going on with the baby boomers taking their savings and moving into retirement. Bottom line inflation, inflation, inflation that’s cooked into the system regardless of whatever else goes right or goes wrong. First, and most notably in the labor market. 

Global Depression Is Coming Sooner Than Expected

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

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

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

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Transcript

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

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

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

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

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

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

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

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

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

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

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

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

Markets Drop After Fed Rate Cut

Stock market chart declining

The Fed just cut interest rates by 0.25%. Instead of the desired boost to a slowing US economy, we ended up with a market drop.

The economy is losing steam, and there’s no one at the helm to correct course. Job market stress is on the rise, manufacturing is shrinking, constant tariff changes have stalled investments, and there’s no relief in sight. With capital from the baby boomers leaving the system, foreign capital is the next place to turn; however, strained trade relations make this risky.

Unless the Fed wants to go full Venezuela and start printing money, we’re going to be heading into uncharted economic territory. And with the current administration, who knows what that could mean.

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Transcript

Hey, everybody. Peter Zeihan here coming to you from Colorado. And the news is the Federal Reserve has just dropped interest rates by one quarter of 1%. 

That means it’s a little bit cheaper now to borrow money. And the idea is it’s supposed to, like, boost the economy. But instead the markets have dropped, because the, well, we’re in shutdown, so most government statistics are offline. 

The Federal Reserve has its own system that is self-funded. Totally different topic there. And they seem concerned enough that they’ve decided to do a what’s, historically speaking, a relatively large cut. So what’s going on? What is it the fed sees? How is it going to impact all that good stuff? So number one, the economy is absolutely slowing. 

We’ve got a lot of stress in the job market. And most importantly, manufacturing has been dropping. One of the many impacts of the Trump’s tariffs is kind of generated, this, background of ambient chaos. We’ve had over 540 policy changes on tariffs since January 20th, and they keep stacking up. And so businesses don’t know what the rules are going to be tomorrow, much less a year from now. 

And that tends to discourage investment decisions. And we’ve certainly seen that in the data until the point that the, the shut down, shut off the data. We also have an administration in the Congress that really seems in no hurry to get things back on line. And so we’re going to have to wait until we have something very bad that happens, whether that is for example, many, many, many people stranded, during the Thanksgiving holidays or a general problem with, health care, because we have, announcements on the 1st of November as to what everyone’s premiums are going to be. 

Lots of things are going to get worse before there’s any chance of them getting better. And that is now reflecting in the general ambient chaos that is policymaking out of Washington and specifically out of this administration. So that’s kind of baked in. The bigger problem, much bigger than that, is what’s going on with capital supplies. You see, as a rule, most private capital is generated by people who are in their 50s and early 60s, when their kids have moved out and they’re preparing for retirement or the height of their earnings, but their expenses have gone down and that surplus is put into the retirement accounts. 

It’s about 70% of total private capital. And for the American baby boomer cadre, that’s about trillion, a lot of cash. Well, when you retire, you go into a more conservative portfolio with more cash and more property and more T-bills and less stocks and bonds. 

There’s a thousand ways that’s wrong. But all collectively, they’re like very, very small. 

That’s just the general trend. This is what people do as they get older and retire. 80% of America’s baby boomers have now retired, so about 80% of those finances have been turned into more conservative investments. And we’re moving into an environment where things like goosing interest rates down in order to increase lending doesn’t work because the money just isn’t available. 

And the only other sources of money that are available are, number one, foreign money. Where other countries have been dealing with this faster than the United States has. So it’s seeking someplace it’s more productive. You can only take that so far, especially in a high tariff environment where your economy is actively discouraging the mobilization of capital. And the second issue is if the Federal Reserve just massively expands the money supply, which is massively inflationary. 

So the concern in the mid-term is we might get the worst of all worlds, you might get lower interest rates, you might get a little bit more consumption from that. But in an environment where supply is being constrained because of a lack of business investment, very inflationary, which would force the fed to go the other direction. Now, I don’t mean that as a specific forecast, because we’re entering in kind of the unknown here. 

We’ve never had a demographic transformation like we’re seeing on a global basis or an American basis in modern history, certainly not in the digital age. And so we’re going to be living through this in real time for the first time. But what we understand of macroeconomic laws is that seems to be where we’re headed right now. And barring a significant change in capital availability or government policy, that’s kind of hard wired in at this moment. 

So the fed is in a bit of a box. The white House is part of the problem, and the baby boomers are no longer part of the solution. And that leaves the rest of us in an environment where investment is difficult, where consumption is expensive, and where inflation is rising.

And You Thought the Jones Act Was Dumb…

A mack truck on the highway

If you tasked me with creating a list of the greatest threats to America, I’m not sure cabinets, name-brand drugs, and semi-trucks would be on there…but the President disagrees.

So, get ready for a massive economic bulldozer to hit the US due to these new tariffs. With 90% of all US cargo moving by truck, these higher costs will create a ripple effect through every sector. This all started back with the Jones Act, which made domestic shipping prohibitively expensive, causing a shift in freight from ships to rail to (almost entirely) trucks.

Since those trucks are made across an integrated North American supply chain, dipping into Canada, the US, and Mexico, tariffs are hitting hard. That means everything Americans consume, from your food to your clothes, will cost a whole lot more.

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Transcript

Hey all, Peter Zeihan here coming to you from Colorado today. We’re talking about the newest hit to the American economy. We now have tariffs on cabinetry, semi-trucks. And what was the third one? Name brand drugs, all of which have been classified as national security threats. Cabinetry. That’s an interesting one. Anyway, we could pick apart this all day, but I’m going to focus on the trucks because that’s the one we’re all going to feel soon. 

And most deeply, right now about 90% of all cargo, all ten miles of cargo that are transported to the United States are transported on the roads by semi-trucks. Now, it didn’t used to be this way. If you go back to, the depression, we had something called the Jones Act, the Interstate Commerce Act, which said that any to any cargo transported between any two American ports, regardless of where they were, had to be on a ship that was American built, American captain, American crude and American owned. 

As a result, we saw the cost of transport on the waterways increase in terms of, cost per ten mile by a factor of five. And we went from transporting most of our goods and especially most of our intermediate manufactured goods, especially in places like, the Great Lakes in the upper Midwest. We went from that being the dominant mode of transport to basically at whittling away to today in terms of ton miles, we only use our waterways for about 1% of our total cargo. 

It has been, in my opinion, the stupidest law that the United States has ever adopted. And it’s now been in place for a century. As a result, things went places where those restrictions were not in place. first with train and now with truck. Now with the Trump administration policy, there’s 100% tax on those trucks, of which about 80% of the imports come from Mexico. 

Another 10% from Canada. And As with anything that involves NAFTA, nothing that just made in one of the three countries. It’s an integrated supply chain that uses all three. So basically what we’re doing with this new tariff is saying this multi-step supply chain that we have, where parts of the trucks go back and forth among the three countries, if the finished product is actually done in Mexico, which is the relatively low cost work we will then tariff the cost of the entire truck when it comes back. 

So, in essence, retrofitting American workers and American companies who are making American products, who just happen to have the bumper stamped on in Mexico, and since 90% of our cargo is transported by heavy truck, you’re going to feel this in every sector. It doesn’t matter if you’re a hog farmer in Iowa sending your hogs to market, or if you are just ordering something on Amazon, it’s getting shipped across the country. 

The only people who will not feel this are the people who are in a physical position where supply chains for imported goods do not use the trucks, and that means you would have to be in one of the major port cities that has a mega port. So those are New York, new Jersey, Miami, Houston, Savannah, to Colma and LA Long Beach. 

Anyone else? This is going to hit everything that you consume. So I have long said that the Jones act is the dumbest law we’ve ever had, but it’s got some competition.

Say Goodbye to the World’s Trade Routes

Cargo ship with containers

It’s always lovely when everything you’ve talked about throughout your career decides to happen all at once. At this critical decade, how will the globes trade routes fare? And which routes will fracture first?

There are three major trade routes that come to mind. Southeast Asia is made up of many regional states that rely upon each other, so none of them want this to shut down. While this should hold, there are some other players (China, Japan, and India) that could add some tension. The Persian Gulf and Strait of Hormuz are easy to disrupt and will likely be the first to go; this will have an outsized impact on places like Japan, Korea, Taiwan, and China, that rely on oil coming through here. And the last route to keep an eye on is the Baltic Sea; the Ukraine War’s outcome will likely determine what happens here.

Bottom line…get your s*** while you still can.

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Transcript

Hey all, Peter Zeihan here. Coming to you from the Lost Creek Wilderness. I have moved out of the jump on him into the narrows. So I like a one sided canyon sort of thing. Anyway, trail goes. 

Back in there somewhere. Anyway, taking a question from the Patreon crowd, specifically, as globalization breaks down and as military alliances fracture, which trade route will fracture first become unusable? 

We’re at the point in history where there’s a lot of things going wrong at the same time. Most of my work has been saying that all of these factors, whether it’s demographics, globalization, American isolationism, European fractures, the Chinese fall, whatever happens to be, they all come together in about the same ten year period. 

And we have now entered that ten year period. So the partial cop out to answering this question is, I really don’t know, because everything is going wrong. And all of these, routes are going to be in some degree of danger. But let me give you the two that I think. Well, let me do the three that I think are most concerning. 

First, the one that I think actually will hold together and that’s the Southeast Asian route through, Indonesia, Malaysia, Singapore, Strait of Malacca, the Luna Strait, that area basically connecting Northeast Asia with the rest of the Eurasian continent. This is an area with 15 countries, all of which have their own ideas of what should happen, and none of them have the ability to project naval power, far enough for the entire zone. 

The reason that I think it’s still going to work out for this area, though, is that most of those countries in Asean and then link in to, say, Australia, see the world through similar lenses. I don’t anticipate them launching wars of aggression against their neighbors. They know that they occupy different parts of the manufacturing supply chain. 

They know they need inter-regional trade and agriculture and energy and intermediate manufactured parts. So they have a vested interest in finding a way to make it work. The problem would be countries from out of region India, China, Japan who might see things differently. But even here, I think it’s pretty safe to say, that it’s going to hold. 

Japan might try to raid Chinese shipping, but they have no intention of shutting down shipping through the region as a whole. With Australia, you have the Americans of all to a degree. And India is really not a trading power. And China, of course, if it’s going to survive in any form, has to have access to this trade route. 

So that one’s probably okay. The second one, the ones absolutely hosted so opposite is coming out of the Persian Gulf here. You’ve got a number of countries with limited global reach, but missiles and jets and drones would have no problem closing the Strait of Hormuz. And even if you get past the Strait of Hormuz, you then have India and Pakistan, who in a globalized world would love to see the other one lose access to things like energy. 

And so I can see any number of scenarios where Iran or Pakistan or India or Saudi Arabia or even the United Arab Emirates find it in their interests, at least for periods of time, to close that entire route down. And that’s 20 million barrels a day of crude that could no longer make it to market. It would have catastrophic impacts for everyone further east, most notably Japan, Korea, Taiwan, and especially China, which uses more than the other three put together. 

And then the third route, depends on what happens in the Ukraine war. The Baltic Sea has always been a zone of commerce, but it’s always been a zone of conflict. And in times past, the countries that are either adjacent to the sea or just one step removed. So we’re talking here, all of the Scandinavian countries Finland, Sweden, Norway, Denmark, also Poland, also Germany, also the United Kingdom, also the Baltic, also Russia, have all at various times in their history tried to militarize their part of the sea, to shut it down for the people. 

At the moment, everyone is on the same side except for the Russians. And the Russians are using the Baltic Sea because we’re still in globalization, barely to ship 1 million to 1 million, a half barrels of crude out to the wider world around sanctions. Sooner or later, that’s not going to work anymore. Either. The Western countries are going to interfere with the oil shipments, which I’m a little surprised hasn’t happened already. 

Or the Russians are going to say screw it and basically Mess up, corporate shipping on the Baltic Sea. One way or another, this is likely to happen. The question is, how long will it last? If Russia does well in Ukraine, it can last a long time because you don’t need to be able to poke out. 

All that much pressure collapses in Ukraine that this is no longer concern. And the issue is how Europe evolves or devolves in the future, whiskey or any number of directions. So Middle East shipments, most notably through Hormuz, look really bad. Red sea is not much better. Baltic something to keep an eye on. But there’s reason for hope. And then Southeast Asia. That’ll only break if things go really horribly bad.