Since I’m here in Ohio, why not talk about what makes this region so unique. Today, we’ll be discussing how shale in Ohio has propelled economic growth in an unfamiliar way.
For most of America, the shale sector looks fairly similar – traditional oil production produces natural gas as a byproduct, which is flared off until infrastructure is put in place to harness it. However, the Marcellus and Utica fields in Ohio primarily produce natural gas that is used for fuel across the central and eastern US. This is a bigger deal than it seems. If the tri-state area of Ohio, West Virginia and Pennsylvania were a country, it would produce more natural gas than any countries save Russia and the United States itself.
But what truly sets the region apart isn’t simply the abundance of natural gas, but of natural gas liquids such as ethane, propane and butane. The local prevalence of these materials has enabled Ohio to become a world leader in high-end plastics manufacturing. Thanks to this, Ohio has seen boosts in industrial activity and the establishment of chemical facilities throughout the state.
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.
Hey, everybody. Peter Zeihan here. Coming to you from just outside historic Harbor Village, just across the river from Marietta, Ohio. And that is the Ohio River behind me. Today, we’re going to be talking about something that is an exception from the exception. So the big exception is the American shale sector, because it has a different economic structure and uses different technologies for most oil production in the rest of the world and as a result has very low production costs and produces a lot of natural gas as a byproduct of oil production.
So when you’re in Texas, most notably, say, the Permian people are after the crude oil and then natural gas comes up as a byproduct and they have to flare that natural gas until the infrastructure can be built out to absorb it and bring it into, say, the chemical sector here in Ohio and moving into Pittsburgh, big area in Pennsylvania, you’ve got a different problem.
The natural gas field is the Marcellus and the Utica, and they are dry gas fields where people are after the natural gas rather than the liquids, because they’re using it for fuel in every place from Chicago to Boston to Washington, D.C. And so they need it for electricity. But there are still liquids here, especially in the western parts of the play, which move into, say, Ohio.
They’re you’re getting a fair percentage of something called natural gas liquids, which in layman’s terms means things like propane and butane. That means that in this part of the country, it’s not just that the natural gas is cheap because the production costs in the Marcellus are very low. But so many end girls come out of places like the Utica play that Ohio has become a world leader in things like high end plastics, because for them, it’s not the oil that’s the waste product, it’s the propane and such.
That is a primary feedstock into chemicals specifically for things like plastics. And so we’re seeing dozens of chemical facilities that do secondary processing popping up in the more populated parts of Ohio, taking advantage of what is basically below global cost inputs of things like ethylene, propane, butane and the rest. So here we are in the middle of the continent and we’re suddenly seeing an explosion in industrial activity for something that we normally associate with the Chinese coast, the Persian Gulf or the Texas coast.
Very different situation, very different geology, very different outcomes.
The Japanese have just announced an interest rate increase to a whopping 0.1% after seventeen years of zero to negative interest rates. So, is this a sign of a return to normality for Japan or is something else going on?
After years of demographic and economic challenges, Japan has struggled to stimulate consumption and combat deflation. Unfortunately, this recent interest rate adjustment isn’t a light at the end of the tunnel, instead it’s just supply chain inflation trickling down.
Japan has faced challenge after challenge and while there might not be a glimmer of hope for them, countries like Korea, Taiwan, and Germany might have a crystal ball moment by looking at the Japanese tribulations.
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.
Hey everybody. Peter Zeihan here coming to you from snowy Colorado. The news last week in the financial world is that for the first time in 17 years, Japan raised its interest rates above zero. They’re now point 1%. Very exciting stuff. Let me give you the backdrop. So I talk a lot about demographics. Japan is the original demographic basket case.
They started industrializing around the turn of the last century and were the first significant country after Germany to be majority urbanized. And like Germany, where you have suburbs, you basically just have inner city, followed by more inner city with everyone living in condos. So they’ve had the world’s lowest birthrate for quite some time until recently. And they’re definitely the world’s until recently, the world’s fastest aging society and or still the world’s oldest society.
They found a way to mitigate some of that, but it’s really just slowed the decline. Definitely not reversed it. Any who once people age are past roughly 50. It’s different for every culture, but roughly they’re they start consuming less and saving more. And in the case of Japan back in the 1980s, which was one of the most productive economies in the world, you’ve got this super saturation of the local market with high tech goods, and then everything had to be sold abroad.
It was a combination social management, political and economic plan, all in one. That meant that Japan became the boogieman of the day for the Americans because they could sell high tech stuff for cheaper than the Americans could make it at home. But it also meant that back in Japan, the super saturation pushed prices down. And if you think prices are going to go down, you tend to defer your purchases for a little bit because they’ll go down more.
And that happened across every economic sector in Japan for decades. And they eventually got to the point that between trade tensions, which triggered problems with the United States, that forced Japan to offload some of their manufacturing to other countries, most notably the United States, in order to keep relations. Okay. You also had people aging and aging and aging and aging, eventually hitting mass retirement.
So the bulge in the population pyramid in Japan is past the age of retirement already, and people who are retired don’t consume much at all. So after 30 years of consumption being flat to negative, you’re now not simply dealing with a different population structure that can’t consume. You also have a smaller industrial base in Japan because so much of it has been offloaded, moved to other places for a mix of strategic, political and economic reasons.
Well, that means deflation has never really gone away, and that means that the Japanese have been really having problems stimulating consumption. Normally, normally interest rates are, to be perfectly blunt, a method of regulating demand. The idea is you make them lower so it’s easier to borrow when you want people to buy more. You raise them when you may a slowdown and fight inflation so that they’ll buy less.
That’s how it works. But once you get into deflation and you eventually drop your interest rates to zero, you can’t go any further. Well, I me guess the Japanese did. You went negative. So you actually get paid when you borrow money. But it wasn’t enough to change the fundamental mechanics of it. Now, in recent years, especially with the recovery from COVID, we’ve been seeing inflation throughout the manufacturing supply chain system.
Japan is no exception to that. And so prices have risen in Japan, triggering monetary policy changes like raising interest rates to a record high in recent years of Point one. But this is not a sign of a return to something that’s more normal. This has only occurred because of increase in prices for the inputs of raw materials and the outputs of intermediate and finished products.
This is a supply chain reason for inflation going up, not a demand reason. So while it’s a little bit more normal today in Japan, and banks can work a little bit more normally, which is, you know, a good, good thing. There hasn’t actually been a fundamental change in the core problem that plagues the country, and that’s that demand has been steadily dropping now for an entire generation and is unlikely to recover.
Why does this matter? Well, Japan used to be the world’s second largest country, and it has basically stalled for 35 years now. Second, in the meantime, a lot of other countries have caught up or even passed Japan in terms of the speed of aging. If you remember earlier, I said that Japan’s birth rate had risen a little bit.
And it’s aging. It’s slowed a little bit. Not not recovered, not reversed, but slowed. A lot other countries have screamed right by it. Countries that are now aging faster include Korea, Taiwan, Thailand, China, Germany, Italy, Spain and Poland. And now it’s kind of a race to see who gets to the bottom first, which means this sort of problem.
It’s not so much that it’s Japan’s old normal and still new normal. It’s about to become the new normal for a whole swath of countries that we have long associated with robust economic growth and high levels of industrial production. So Japan’s past is the future for a lot of these countries. And Japan’s present doesn’t look all that hot either.
Thanks to The Economic Roundtable, First Settlement Orthopaedics, and Marietta College, I’ll be speaking at the McDonough Auditorium on the campus of Marietta College.
We’re all quite familiar with the concept of inflation, but inflation’s dark and twisted sister -deflation- doesn’t come out of her shell all that often. So, for our next episode of ‘Things I Worry About’ we’re talking about deflation.
Deflation is when prices drop due to low demand, which causes a downward economic spiral. Some examples of this are the Great Depression in the US and Japan during the 90s. We’re now seeing mounting deflationary pressures in the Chinese economy that could have devastating consequences.
With some sectors exhibiting inflationary activity and others facing deflationary activity, there will be some complex challenges to overcome. When I find myself staring at the ceiling late at night, pondering the ‘flations, I often find that deflation is what really worries me…
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.
Hey everyone. Peter Zeihan here, I am coming to you from Monterey Bay in California, where I just spoke to the Naval Postgraduate School on threats and evolutions in the international system. Today, we’re going to take one of the questions I was asked there and turn it into a video for our ongoing open ended series on things that I do or do not worry about.
This is one that I do worry about. Specifically, it’s about deflation. Now, before we get into deflation, for those of you who are not economists, we need to define what that is. And I think the best way to do that is to put in the context that everyone would recognize readily. So we’ve all heard about in inflation and inflation has been a well foe for most countries in most of modern history.
And it pretty much happens whenever there’s a disconnect between supply and demand. Either supply of a product is insufficient or demand for that product is too high. Now, I don’t mean to belittle the inflation pain that people have been feeling on and off for the last few years. It’s very real. It’s no fun at all. But one of the beautiful things about inflation and combating it is it’s relatively self-regulating.
So if inflation is too high, one of two things can very easily happen. Number one, the producers of a product are now incentivized to produce more of it because they can charge more, in which case you generally bring the supply demand back into balance. Or second, people can get tired of paying so much and so they can buy less.
And so either supply can go up or demand can come down. And those will happen naturally without any action from government. I don’t mean to suggest government doesn’t put their finger on the scale here. Of course they do. But the self-regulating nature of inflation means it’s a more manageable problem in comparison. Deflation is like the the hideously ugly, bitchy little sister of inflation because it’s not self-regulating when you have a break between supply and demand.
In an era where demand falls below supply. Prices start to drop, but eventually it builds expectations among consumers that they’re going to continue to drop. And so people put off their orders. Well, if that happens, then all of a sudden companies that are making these products tend to produce less of them because they can’t make any money. And then people start to be unemployed.
And when people are unemployed, their demand goes down because they don’t have the money. And so while as inflation tends to self limit, deflation tends to self reinforce and build below, this policy set that can get you out of deflation is an order of magnitude more difficult. So we’ve all heard inflation, this inflation that on and off for the last few years and honestly for the last 75.
But deflation, when it gets its claws into the economy, can be really, really terrifying. It can take decades to fix. And oftentimes on its way out, it does a lot of damage. So, for example, the last time we had meaningful deflation in the United States was during the Great Depression, and we got in a wage spiral that went up, but a product spiral that went up more in the Roaring Twenties.
And what that eventually did was supply exceeded demand and then led to a plunge in everything that ultimately culminated to the Great Depression. And if it hadn’t been for the stimulus that we saw moving into World War Two from the government for the military buildup, we may have never recovered. A more recent example is in Japan. We’re in the 1990s, they were boom, boom, boom, boom, boom.
But eventually their product production got so high that they overwhelmed the domestic market. Starting off a three decade period of deflation that they’ve only very recently recovered from. And as a result of the American experience in the Great Depression, GDP dropped by a third. And in the Japanese situation, we had basically 0% economic growth for 30 years. And the Japanese economy of 2024 is almost the same size as the Japanese economy of 1995.
Now, where is this an issue? Well, any country that has a significant export portfolio for finished goods but has run out of young people to consume them is in some degree in danger. The two economic systems in the world where that is most true are the gemalto centric systems of Central Europe and then, of course, the Chinese system.
Of the two, I am much, much, much more worried about the Chinese system in the case of Germany. There has been a recognition that a lot of the model needs to change. Most of the energy use to come from the Russian system and a lot of the end product used to go to China. And since there is a recognition that neither of those are long term solutions for the Germans, there’s already a significant amount of industrial restructuring.
And as a rule, when you have restructuring, you’re going to have an inflationary impulse because things are moving around. That doesn’t mean that the risk is zero, but it does mean at least some of the normal economic processes are taking effect and inflation tends to self-correct. China is a much bigger problem. Every couple of months we get even worse demographic information about the Chinese system.
We now know that they’re not just running out of teenagers and twentysomethings, but 30 somethings and 40 somethings. So the age group that would normally do the the consumption is getting smaller and smaller and smaller and smaller. At the same time, China’s dependance on exports gets higher and higher and higher and higher. All it would take is a significant policy change and not even a very large one from a major economy.
The United States and Western Europe are the two biggest chunks that would restrict Chinese exports and all of a sudden all of that product gets locked up in the Chinese system itself. We also know that 70% of private citizens in China is locked up in real estate in an industry where there are more spare apartment units than anywhere else in the world.
And in fact, if you lose so many spare units now that are representative of people’s wealth, then you could house more people in China in those spare units than the rest of the world has spare housing units by us of five. None of this works, and it’s a recipe for a deep deflationary system. And if you want to make it just a little bit more complex and a little bit more problematic, it is perfectly capable.
A system is perfectly capable of having deep deflation and inflation at the same time. So again, the Chinese system, this is a country that imports 80% of its energy. This is a country that imports more food than any other country in the world. And this is a country that imports most of the inputs that allows them to grow their own.
You can have inflation in energy and food at the same time you have deflation and overall consumer demand and manufactured goods and that mix we have never seen before. And I can guarantee you it would be ugly. So, yes, the inflation is an issue that I do have concerns about in specific parts of the world. Next topic.
I was scanning the financial news this morning and realized Germany was in recession. In my morning brief I was informed Japan was in recession as well. On a call with a client someone brought up that the United Kingdom had joined the downers club. A quick convo with the staff revealed the same was true for Hungary and Ireland. And Greece and Lithuania and Estonia and Finland. Israel probably as well, while Australia, New Zealand, France, Spain and Italy are only a rounding error away. China’s data, such that it is, suggests that the Middle Kingdom is by most definitions at best recession-adjacent.
We’ve known for awhile that between China’s stumbles and global demographic aging that consumption-led growth on a global scale has become nearly impossible. The problem is we have lacked the data to confirm what theory dictates. GDP growth data always comes out with a lag of months. Often multiple quarters for many places. And COVID (~&@#^*-ing COVID) scrambled everyone’s data for nearly three years. Well, we’re starting to get a good deep look at reality again, and it appears we may already be past the point where the sort of economic activity we’ve all thought of as “normal” for so long is simply…over.
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.
I recently had the opportunity to sit down with J.P. Morgan Payments’ Global Head of Trade and Working Capital, James Fraser, for episode 2 of “Talks of the Trade.”
In this episode, we discussed how global markets and cross-border trade flows are vulnerable to geopolitical risks; these factors can have oversized impacts on costs, access to capital, and overall economic stability. We do a deep dive on a handful of these factors, including deglobalization, international tensions and crises, world financial markets, urbanization, manufacturing, and supply chain risks.
Click the link below to watch other episodes or to learn more about Trade and Working Capital at J.P. Morgan Payments…
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.
There’s been a series of explosions along one of the main lines of the Trans-Siberian rail network. To fully understand the significance of these attacks, we must look at Russian exports, alternative options, and what maintenance looks like.
These explosions could cause disruptions to Russian exports, specifically those bound for China, but the lack of alternative routes and limited maintenance capabilities could be the nail in the coffin.
Ukrainian officials have claimed responsibility for these attacks – unofficially, of course. Regardless, Russia’s economy could be facing a severe blow if these explosions continue.
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.
Hey everyone. Peter Zeihan here coming to you from chilly Colorado. The news is that last week, on Tuesday the 20th, I believe, a series of explosions hit a couple of pieces of Russian infrastructure in the Far East in southeastern Siberia. Specifically the Sarah Mosque tunnel, which is part of the Trans Siberian network, specifically the Buckle Aylmer main line were hit.
And then a few hours a day later, details are a little fuzzy. A similar line in the vicinity of the tunnel was also hit, which is serves as the backup for the tunnel, a place that they call the Devil’s Bridge. Some anonymous Ukrainian security officials have claimed responsibility for the attack. I can’t tell you if that is true or not.
What I can say is that we’ve got three things going on here. Exports, options and maintenance. So first, exports. Since the Ukraine war began, the Russians have only found it more and more difficult to get their product to market. The Europeans were the natural market. They were the closest for most oil and gas, even a lot of the minerals.
And so when they decided, for whatever reason to stop buying it, a lot of this stuff ended up in China. And for that, the Koreans Siberian rail system is critical. It provides probably 80% of the cargo capacity for land based stuff. And more stuff is going on lands than ever before. Also, all of these lines of which there are basically five, you’ve got one that’s the least important that kind of goes down into Kazakhstan before going over into emersion, Zhejiang.
That’s the least used and the most Frankenstein, the other for all parts of the Trans Siberian system that does cross over the mountains on the passes into China at different places. But all of them collectively are the only way to get things to China. And they’ve all been running at more than 100% capacity, which, you know, we’ve been kind of waiting for a safety situation to boil up, to knock things off line.
And now it’s been done, at least in part by an attack. And when a blight is being used at more than 2% capacity, that means you can’t just ship it to alternatives, even if you’re willing to turn your train around for off people, can you back up the trains you depot? Anyway, point is that one of the four lines, at least for the moment, is off line completely.
Second options. You’ve got these four lines, one that crosses through Mongolia, two that go into northeastern China and one that goes all the way over to the Russian Far East, where things can be kind of repackaged and put on ships. No one lives in Siberia because they want to. I mean, there’s a reason why this is where all the prison colonies were.
Some of the more stable lines, like the bomb line that was hit, are on permafrost, which is not particularly stable. Something happens to the permafrost. The whole thing just kind of sinks in. And it looks like, at least on one of these attacks, a rail car that was full of fuel was hit. So we’ve seen in other parts of the conflict in Ukraine how that can go bad really, really quickly.
Because of this. There are not a lot of population centers along this entire route. In fact, less than 10% of Russia’s population lives along this line. Everybody else is on the western Russia where it’s, you know, warm. And because of that finding, repair crews in the first place might be really difficult. You’re dealing with a lot of tunnels, a lot of bridges, a lot of canyons, a lot of permafrost, a lot of territory where if there is damage, you don’t just slap down some fresh line and start up.
And a road takes years. When this line was built back in the seventies and eighties, the Russians wouldn’t even allow any foreign observers to see it because it was so shoddily put together and it could only operate reliably over about a third of its length. And this was when the Soviets actually had engineers. post-Soviet Russia really doesn’t. And as we’ve seen with the Kerch Bridge, which connects the Russian mainland to Crimea, you know, that was hit over a year ago now, and it’s still not running at full capacity.
So doing repairs in this area is no minor issue. Of course, getting information out of this area is no minor issue as well. Anyway, third maintenance. The Russian educational system collapsed 35 years ago and so there aren’t a lot of people who are, I would consider to be fully capable of claiming the term engineer. In fact, the younger of them turn mid-sixties this year.
Also, everyone that the Russians have who can repair physical infrastructure is in the Ukraine theater right now because the Ukrainians have been blowing up rail depots and rail lines in bridges and roads and everything for a year and a half now. So there just isn’t a lot left that the Russians can use if all of a sudden they’re getting hit on a very, very exposed, vulnerable place 4000 miles east of Moscow.
If this was the Ukrainians or really if this was anyone who really means the Russians ill will, this is an excellent strategy because the Russians barely have the military capacity to patrol their own lands in western Russia abutting Ukraine, much less 4000 miles. The other direction, 5000 miles, the other direction. This is something that can really hit to the heart of their economic plans in a postwar scenario, because if they can’t get the stuff to the Chinese, the Chinese aren’t going to pay for it.
And there’s really only three other lines now that this stuff could be shipped. And so if this is real, we’re going to find out about it really, really fast because there’s just so many points of exposure and so many failure points throughout this part of the Russian system. It would be an easy way to take down the Russian economy far more effectively than anything we’ve seen with sanctions so far.
Today’s video comes to you from Needle’s Eye Tunnel on the Rollins Pass Railroad.
My walk along the railroad tracks inspired some pondering on why rail gets such a bad rap. Yeah, I know it’s not as fast as planes OR as versatile as vehicles OR as cheap as water…but that doesn’t mean there’s no place for it.
The rail conversation comes down to is where and how it is used – i.e., don’t send trains up and over huge mountain passes like the one I’m on. However, most rail lines aren’t really built for “economic” reasons; instead, they are used to project political power over large swaths of land. The US did this with the transcontinental railroad, and the CCP is still doing it today.
While rail might be the redheaded stepchild of the transport industry, it is still very much an integral part of the family.
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.
Apparently, the wind on the saddle between Mt James and Mt. Bancroft is pretty bad, so apologies for the audio today.
After today’s video, all the leprechauns out there might be mad because we’re talking about GOLD. And unfortunately, there’s no treasure at the end of the rainbow this time…
At the start of the Ukraine War, many of the world’s advanced central banks placed sanctions and embargos on Russian financial assets. As Putin tries to repatriate gold reserves from these hubs worldwide, what does this mean for the leprechauns who think we should switch to an asset-backed currency?
If you know your history, the answer is obvious. Every time we’ve used an asset-backed currency, it’s resulted in collapse. There’s just no asset, especially not gold, that can keep up with economic growth and expansion around the world. And when the currency becomes a brake on economic activity, you end up with a sharp crack in the system; which leads to depression and often state collapse.
You can argue that fiat currencies aren’t perfect, but don’t say an asset-backed currency would be better. This isn’t financial advice, but if gold continues to be pulled from these hubs, its use case will only get smaller and smaller.
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.
Hey everybody. Peter Zeihan here. Coming to you from the saddle between Mount James and Mount Bancroft. That’s Lake Oman just below me. I’m about 12,500 feet here. Today, we’re going to talk about other high minded issues such as golddd.
Now, one of the things that we saw last year with the beginning of the Ukraine war is that most of the world’s more advanced central banks started putting massive sanctions on. That included the embargo of Russian financial assets held abroad, whether it was foreign currency or gold reserves themselves. Now, the way the currency markets normally work is there are a number of nodes, places like Tokyo and London and New York, where trillions of dollars of currency are exchanged every single day. And by locating these things in these hubs, everything becomes a lot more efficient, especially when you’re talking about gold. It’s traditionally traded electronically, and the stuff is just kind of held in a big vault. There are pluses and minuses to that. The pluses, it means it can go anywhere at any time and interact with any one kind of like digital currency in general, or your ability to move money around via your bank account without actually going in and getting physical cash to hand someone. The downside, of course, is that, well, it’s in New York or London or Tokyo, and if New York or London or Tokyo decide that you’re a bad, bad person, then all of a sudden they can say, You know what? This isn’t moving anywhere. Not today, not ever. We’re just going to close the vault and your stuff is stuck. Because of that, a lot of central banks in the world, not among the countries that are doing the sanctions, but everybody else have been trying to physically repatriate their gold from those hubs back home. Now, there’s nothing to stop them from doing this. The question is whether or not there’s any utility in it, because if their gold is physically at home, the digital aspect of duty and transfer is much weaker unless you can find another hub. And at the moment, the only theoretical, and emphasis on the word theoretical, large scale place for that would maybe be the United Arab Emirates. The UAE just doesn’t have the experience right now or the credibility to be that sort of hub. And remember, any sort of secondary hub is not going to be using gold from the United States or Japan, Canada or Italy or anyone in the European Union, any of the First World. So you’re talking about something like 80% of global currency exchange, all of a sudden there’s not going to be using this new hub at all. Makes it very hard to get it going in the first place. Anyway, for other people, non-central banks, people who are using gold or other currencies as a matter of course, I wouldn’t get too excited about the idea of gold coming back as countries are looking for options that don’t use the hubs and don’t use the U.S. dollar and don’t use the euro or the yen or the pound. You’ve got to think about why we have a currency system the way we do. Now, back in the bad old days before 1970, we did use gold back asset backed currencies. And every time, every single time we ever had one, it ended in collapse. Because one of the things that you generate whenever you have trade, whenever you have economic activity, is you have to have some means of exchanging it that preferably is not barter. And usually, historically speaking, we have used asset backed currencies for that. But as growth picks up, as economic activity picks up, you need more and more and more and more and more of the currency until eventually you gobble up everything that is available. And when that happens, the currency itself starts to become a source of massive inflation, independent of the normal issues of supply and demand and logistics of labor and capital. When the currency itself becomes a brake on economic activity. You get a sharp crack in the system, usually a depression and oftentimes state collapse. This has happened with every single asset backed currency throughout human history. Now you can make the argument that the fiat age, where countries like the United States government just say, you know, this is what the dollar is worth and we’ll maintain it. And you can see that that is a flawed system that is fine, but it is by far better than all the other systems because the U.S. Federal Reserve, our monetary authority, has the ability to regulate the supply of the currency on a second by second basis. So if there’s strong economic growth, if from the 1990s until now, the U.S. economy expands by a factor of three, than there’s no problem for the Federal Reserve to triple the volume of the currency that is available for use. You can’t do that with gold. There’s another problem, of course, the daily currency daily global currency exchange is about four or 5 trillion U.S. equivalent. The U.S. economy is now $20 trillion. Global merchandise trade is over $25 trillion. All of the gold that the human race has mined in total, in the last 6000 years of history, it’s only about 10 trillion and only a few single digit of percentages of that is available for use in the day to day. Because most of the world’s gold is in things like wedding bands and museum exhibits and semiconductors. So not only theoretically is there not enough there, even if it was all pooled somehow, if we did go back to some sort of gold based system, you would have a crushing impact on economic growth because you would have hyperinflation triggered by the currency itself. And this is one of those things that most of those people who think that we should move on to something beyond the dollar tend to dismiss or think that we need to go back to a asset backed system, tend to miss. The human race in its current position with over 8 billion people at a combined global GDP pushing $100 trillion. Cannot function without fiat currency. Oh yeah, as I was climbing I thought of one more thing. And that’s Icebound Lake behind me. I know a lot of you are going to ask, or you’re going to translate it into financial advice anyway…I don’t give financial advice. Let me start by saying that. But number two, I’m not necessarily saying that you shouldn’t invest in gold. I mean, you do it for your own reasons. I would just point out that with many of the world’s secondary central banks physically repatriating their gold, it is being removed from currency exchanges, becoming a non-factor. No movement up, no movement down. They are basically repudiating the open exchange system that underpins most financially liquid markets. Now, does that mean that gold has no use? Of course not. In addition to its industrial uses and its jewelry uses, it can still be used as a method of exchange. But by removing gold from the digital system, it means you have to do so physically. So one of the ways that the Russians, for example, are getting around the sanctions regime is to physically load gold up into a plane and fly it to a country that they’re buying stuff from. That is neither bullish or bearish for gold because it never sees the light of day. It never gets exchanged in a traditional sense that can push the market up or down. So does that make the case for gold more or less viable? I’d say neither. It just makes it smaller.
Metawealth Professional Training has contracted with Zeihan on Geopolitics for some geopolitical and demographic work. They have chosen to share this piece of that work with all takers. So thanks much to the folks at Metawealth, and enjoy the listen while you sharpen those pitchforks!
It’s been a scary year. The Fed seems determined to crash the economy. The reality for some is going to be far worse than a “mere” four banks collapsing. Not only have four banks collapsed, another 185 banks are hanging on by a thin thread. Plus, the war in Russia and geopolitical tensions are escalating with no end in sight, and we’re starting to witness vast economic and political consequences.
If you’re like most people, you’re worried about what it all means… and unsure about what to do to best protect yourself from what’s unfolding.
That’s why I’ll be speaking on a special livestream, where I’ll share what my latest research unveils about the future and a startling new set of predictions…
Join me on Wednesday, June 7th at 8pm EST
I believe the era of prosperity we’ve enjoyed since World War II is ending and Russia’s invasion of Ukraine has speeded up the process. The world is entering a new phase of “de-globalization.” The 2020s will see a collapse of consumption, production, investment, and trade…almost everywhere. Instead of a cheaper, better and faster world, it will be pricier, worse and slower.
There is a global disorder coming, in which countries will have to make their own goods, grow their own food, secure their own energy, and do it all with dwindling and aging populations.
In short, we will remember the last 75 years since the end of World War II as a golden age and no economic system can work in the future we’re about to face.
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.
The Saudis have relied upon the US for military protections for years, but as the US reduces its naval presence in the Persian Gulf, Saudi Arabia will have to find those protections elsewhere.
As the world’s largest oil exporter, Saudi Arabia has learned a few tricks to curry favor from different countries. Their most recent endeavor is accepting the Chinese Yuan as payment for a few hundred million barrels of oil…and that’s not an insignificant amount.
This move isn’t happening because the Saudis are worried about de-dollarization; it’s solely a move to win the Chinese over and establish a new external military guarantee. Still, this remains the only meaningful shift away from the USD, even though it’s from one country, for one commodity, and for one reason.
I’ve said it before, and I’ll say it again…the US Dollar ain’t going nowhere.
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.
Alright. So the country that matters here, the only country that, in my opinion, is doing anything meaningful when it comes to moving from the dollar to something else. Is Saudi Arabia. Now Saudi is the world’s largest oil exporter, and they have started to accept payment from a number of Chinese government entities in yuan. And we’re talking here about, you know, a few hundred million dollars of cargo. So it’s hardly an insignificant issue. There’s no sign that they’re changing the reserves. And I wouldn’t expect that to happen because there’s a specific rationale here.
Now, the Saudis military on paper is great. They’ve got a lot of top notch equipment, but they have demonstrated over and over and over in recent decades that the Saudi military is incapable of operating its own equipment at scale, much less in any sort of coordinated manner. I mean, they can fly their planes and bomb things, and that’s about it. They have always, since their independence, relied on an external security guarantor in order to keep them alive. At first that was the Brits. And for the last several decades, especially under globalization, it has been the Americans. Now, the Saudis think a little bit differently. They basically have modeled themselves off of a medieval fiefdom. And so they think that bribes work really well in order to get what you want. This is one of the reasons why they got along so well with former American President Donald Trump. They saw the world through basically the same lens when it came to operating procedures.
So what they’ve done with the United States is they’ve bought a number of refineries on the U.S. Gulf Coast and shipped crude from Saudi Arabia to the U.S. Gulf Coast. And if there’s a time when the Americans look like they might be facing high energy prices or some pressure in the market, they sail additional cargoes and just let them park off coast until they’re called for. Now, it’s not like the United States, you know, thinks this is bad thing, but the United States gets the vast, vast, vast majority of its oil always has from the Western Hemisphere, with traditionally Canada and Mexico being our largest suppliers. Now, of course, with the shale revolution of the last 15 years, the United States is a net exporter. So the Saudi angle here is very, very small from an American point of view. But for the Saudis, this was never about the economics. It was about currying favor with the guy who’s supposed to defend you. Wellll, in the last few years, the United States has moved more and more of its forces out of the Persian Gulf, and we no longer even have a carrier group that’s there on a regular basis. So the Saudis are a little scared. They are concerned that without the Americans guaranteeing their security, that they’re screwed. And, you know, that’s a reasonable position. So they’ve been looking about for a replacement and they’re discovering that there isn’t a really good, clean one.
The French and the Brits could theoretically project power into the Persian Gulf, but definitely not as reliably as the United States. Turkey certainly could, but they would have to conquer Iraq first. And, you know, the Saudis have a lot of opinions on a lot of things going on in Iraq, but they’d really rather not have a regional superpower right on their border. India is probably in the long run the most likely outcome, but they’re not Muslim. So the Indians tendency to meddle in political events in places where they have military forces, especially in like Afghanistan, has really soured the Saudis. Japan’s a possibility, but Iran has other options as well. Most notably, it has gotten in bed with the United States and can access the energy of the Western Hemisphere. That just leaves China. Now, the Saudis aren’t all that hot on China. The Chinese navy really can’t project power, and the Chinese have no experience projecting power and military terms beyond their own neighborhood, much less going the 5000 miles it would take to get to the Persian Gulf. There’s also low confidence in Saudi Arabia that if a fight broke out that the Chinese would side with the Saudis against their primary regional rival, Iran. But if there’s one thing the Saudis have, it’s money to spare. So they have gone into China and bought up a few refineries, entered joint ventures with Chinese state energy firms, and are shipping crude to China like they used to ship it to the United States. Now, from the Saudi point of view, this might actually work better in terms of currying favor than it ever did with the Americans, because the Chinese actually need the crude they import three quarters of their total, of which roughly three quarters comes from Africa and the Persian Gulf. And so they’re paying for that in Yuan and in order specifically in their mindset to bribe the Chinese to come to their aid when the rubber hits the road. This is not an economic decision. This is a political decision being made not because they don’t like the dollar, but because they think the dollar doesn’t give them the military guarantees that they thought it once did. So this is Saudi making the decision because of military strategy as shaped by their own culture, not because they think the U.S. dollar is going anywhere.
But still, this is the only example I’ve seen out there of a meaningful shift away from the dollar. And it’s only for trade with one country for one commodity. Alright. That’s it for me.
