Over the past few years, every aspect of life has been trapped in a constant state of flux…thanks COVID. Unfortunately, the economy’s lack of stability forced inflation to skyrocket to 9%. The effect was devastating.
Supply chains catching up, a decrease in energy demands, and higher agricultural yields have ushered in a reduction in inflation rates. I suspect this trend will continue over the next few months, but it won’t last forever.
All this change and disruption (I’m talking electric infrastructure build-out, Ukraine War impacts, energy struggles in Germany and don’t even get me started on China) will gravely affect inflation rates.
Executive orders aren’t going to fix anything. We need sharp policy change. Without that, the low inflationary times of 22-23 will likely be the best we’ll see for a long time.
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.
Before we dive into today’s newsletter, I wanted to remind everyone that we are only 1 WEEK AWAY from the Webinar – Global Outlook: 1 Year Into the Ukraine War. So if you haven’t already signed up, click the link below for more info.
Now back to the eggs…
It’s time we get to the bottom of the question on everyone’s mind…why are my eggs so damn expensive?
Inflation takes no prisoners, but we may have another source to thank for this…avian influenza, aka bird flu. This resulted in a massive loss of chickens and the culling of herds to prevent further infection. And can you guess how you get more chickens?
You have to hold back some of your eggs, and then you have to wait…and then raise the chickens (for 2-6 months) to the point where they can start producing eggs. Unfortunately for us, this is how almost everything works in agriculture. You can’t just build a facility and start producing wheat overnight, you have to account for an entire production cycle.
Now take this framework and apply it to the Ukraine War. What happens when the fifth-largest exporter of wheat, the fourth-largest exporter of corn and the largest exporter of seed oils goes offline? The world’s going to have bigger problems than egg prices…
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.
Still in San Diego, just had breakfast. And it occurred to me that, well, we’ve all been struggling with inflation for the last several months. But if you’ve noticed, eggs are by far the highest priced thing out there right now, based on where you are in the country, a dozen is now between $5 and $9.
The reason is not because there’s been a failure of the supply chain. The reason is not because there’s a shortage of imports. The reason, quite simply, is flu. The problem with maintaining chicken populations is that chickens are birds, and birds can fly…not the chickens that we raise for eating or for raising eggs, but other birds. And since birds are mobile, they carry their bugs with them and they crap. And the crap falls out of the sky. And sometimes it hits a domesticated bird.
Anyway, we had an outbreak of avian flu about a year ago, and as it roared through the Midwest and took out a lot of chickens, a lot of chicken farmers had to go through and cull their herds to prevent it from infecting anymore.
Now, from the point that you decide you want more chickens, you have to do two things. Number one, you have to hold some of the eggs back. So you’re talking about a reduction in output between a quarter and a half. Based on how fast you’re trying to recalculate. And then you got to wait because you got to raise these things. And it takes about I mean, it really varies greatly on the species, but somewhere between two and six months to raise an adult chicken to the point that it can be laying its eggs itself.
So this process started about three or four months ago. I mean, we have another 2 to 3 months to go before we really get that first huge additional generation assisting, and then we can start dealing with the backlog. So we are still looking at high egg prices for another 3 to 4 months.
Now, this sort of thing is pretty common in agriculture. People forget that, you know, when we have a shortage in something like a car because we can’t get a spark plug or a semiconductor, once you get the new facility on line, all of the other parts can be in place. And then you just go through the semi-finished cars. You plug in this last piece and you’re good to go. Well, that doesn’t work with food. If you have a food shortage, doesn’t matter what it is. You’ve got to wait for an entire production cycle to go through. And if you’re talking about plant based agriculture, sometimes that’s another year. Everything has to be in place. The pesticide at the right time, the seeds at the right time, the irrigation at the right time, the fertilizers at the right time, the harvest at the right time. And if you miss any one of those pieces, if you have a yield at all, it’s going to be paltry compared to what you’re used to. And you simply have to wait for the next growing season for things to begin.
One of the things that we’re seeing in Ukraine more right now is that the Ukrainians have been favoring corn and seed oils in this food evacuation program that they basically have with the United Nations. Ships can come in and dock at Ukrainian ports. The Russians have promised not to bomb them. And so the Ukrainians have to choose what goes in. And as a rule, corn and oilseeds generate more income for them, then wheat. So that’s what they’ve been favoring. Wheat output from Ukraine has basically stopped whereas corn is more or less where it was before the war, maybe a touch higher replacing it that requires some other producer someplace else. Crop switching to wheat in order to plug the gap or bringing new land on line. Regardless, it takes a year. And remember, we haven’t yet seen the real disruptions to the Ukraine war because the Russians haven’t specifically targeted the ports in mass enough to disrupt large scale exports or really in totality. But we’re probably going to see that really soon.
By the time we get to spring, it’s going to be a different kind of war. The Russians are going to be very clearly going for the throat instead of targeting civilian electrical infrastructure, they’re likely to go after food production and transport. And if they do achieve a breakthrough in the southern front, they’re absolutely coming for Odesa because that’s where most of the commerce in and out of Ukraine transits.
We’re about to lose the world’s fifth largest exporter of wheat, fourth largest exporter of corn and top oilseeds exporter. And there’s no one in the world who has the scale or the spare capacity to replace that. And even if they did, you’re talking a year out. This is going to get a lot worse before it gets better, even if the Ukrainians actually win the spring offensive to come.
I’m always asked what I expect to happen over the next decade. Well, the globalization we’ve all come to love…you know, the one where everyone got everything they wanted…yeah, that’s changing.
The world has been globalizing since 1945 and even sped up after the Cold War. This caused the world map to shift. Colonies became countries; people started living in towns (aka cities), having fewer kids, and so on. The growth story since the Cold War can be surmised by one word – crazy.
But, we’ve hit a point of mass retirement across the globe. Consumption is falling. This is the point where history starts to turn. Welcome to the world of LESS.
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.
Is it a bird? A plane? Nope, just interest rates rising again.
At this point, most of us know the drill with the Federal Reserve raising and lowering interest rates to play puppet master with demand. However, not all of us have adult-experience with a period of high interest rates…I’m talking about millennials. And guess who is responsible for the majority of the demand across the world…millennials.
While the US has enough millennial-backed demand to get them through this recession, the rest of the world will quickly show how important it is to have a full quiver of monetary regulation tools at their disposal.
As this economic crisis unfolds across the globe, expect plenty of whining from your favorite crypto-bros, millennials and Germans.
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.
As long as I’m slaying sacred cows, let’s make sure I don’t miss anything: the border wall has been the biggest boon of the last 50 years to illegal migrants, COVID has made large-scale immigration an economic necessity, and Trump/Biden policies towards immigration are one of the three largest sources of inflation today.
Yeah, that should piss some people off.
We have never and will never charge for our newsletters or videos, but we do have an ask. If you enjoy our products, we ask you consider supporting MedShare by clicking one of the links below. MedShare is an established non-profit organization that helps respond to medical need globally, including to the ongoing crisis in Ukraine.
The latest jobs report–published August 5–showed that the United States added over half a million new jobs in the month of July. Unemployment is at or a near a 50-year low. Both points add credence to a growing number of economists who are pushing back against the claim that the US economy is official in a recession, despite recording negative economic growth two quarters in a row (the textbook definition of a recession).
Confused?
You’re not the only one. The economy is contracting, albeit not by much, but consumer spending is near an all-time high. Unemployment is an all-time low. Manufacturing employment is up. The finance sector, less so. And yet inflation remains a persistent bugbear. What is clear, however, is that the old rules about how our economy works no longer apply.
And finally, a small programming note: I’m spending the next month hiking and backpacking throughout the portions of the American West. We’ll pick up with more content and more regular dispatches the first week of September.
Inflation in the United States has reached a four-decade high, according to data released by the U.S. Labor Department July 13th. Gasoline costs are leading the pack of consumer goods facing rising prices, but it’s a good mix of everything. Which makes sense, given how many supply chain dislocations across the globe.
Fuels, fertilizers, foods, industrial inputs–most of these were still in a state of flux even before one factors in China’s Zero Covid lockdowns. And the Russian invasion of Ukraine. And mass Boomer retirement. In fact, as we’ve been telling clients for months now, inflation has few places to go but up. Furthermore, the traditional tools at central banks’ disposal to tackle inflation are unlikely to have the same impact that they might once have had.
So what does that mean for the future? Well, for one: inflation is anything but transitory. And any relief is not going to come in weeks or months for much of the world, but in years. At least the parts of the world that will see any relief. And then there’s the United States. We’re in a tough spot to be sure, but thankfully the fundamentals of the American economic system remain sound. Which is not to diminish the increased costs at the pump or the grocery store, but as Americans have shown for the last several months these are costs that the consumer can keep up with–demand remains strong, especially for non-essentials: flights, restaurants, and screenings of the new Minions movie are all apparently quite full.
The nature of the economic system so many governments are attempting to grapple with right now is unprecedented in modern history. For much of the span of human history since industrialization, governments could reasonably promise their subjects some kind of more. The promise of more held that the economy–no matter the political system in charge of it–could be expected to grow, largely through population growth and rising demand.
Enter the End of More. A central theme of my equally cheery-titled new book, The End of the World is Just the Beginning, the pie for many countries is as big as its going to get. This is especially true for countries staring down terminal demographies: Germany, Italy, China, Japan. With population growth firmly in the rear view mirror, these countries can’t rely on a baby boom to spur consumption-led growth.
Which brings us to our current problem with inflation. Central banks’ primary tool in battling inflation is through raising interest rates. Making borrowing more expensive usually dampens demand, thereby pressuring prices to fall. The trick is not dampening demand too much, and risking recession. For the world’s oldest populations, this is going to be an near-impossible balancing act.
And now for a bit of good news–The End of the World is now officially a New York Times best seller! On behalf of myself and my entire team: thank you, thank you, thank you.
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 Boomers are the largest generation the world has ever seen. And they’re getting ready to enter retirement en masse. This is going to have incredible impacts on global labor, capital and development. If you enjoy this video, I cover the topic of demographics and the future of, well, everything in depth in my new book The End of the World is Just the Beginning, available everywhere–including your local bookstore.
First things first: labor. As the largest–and longest lasting–component of the American and global labor force in history, the Boomers have had an outsized impact on everything. On wages. On hiring. On how subsequent generations–Gen X and the Millennials–fit into the labor market. Or don’t.
And now they’re retiring. While this leaves members of Gen X as the most skilled labor cadre in the United States, our numbers can’t replace the Boomers. And the Millennials lack the decades of skill to replace Boomer workers.
There’s also the stark reality of capital. Boomers have been earning and investing those earnings for decades. Boomer savings and their general high apetite for risk have seen a flood of capital spread into industries and environments across the world as the price of capital plummeted and its availability increased.
Not anymore. Boomers, like all retirees, favor safe, stable, long-term investments. As they switch from adding to their savings and investment accounts and instead transition to drawing from them in retirement, the Boomers are going to cause as big of a splash leaving the labor market as they did when they jumped in in the 80s..
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 Japanese yen is at its weakest point in two decades. A year ago, the dollar was worth 110 yen. Now it is worth 135. Japan’s central bank is increasingly hearing calls to hike up interest rates à la the Federal Reserve, despite its historically accommodative monetary stance. To help explain the backstory, here is an excerpt from the Finance section of The End of the World is Just the Beginning:
Long before the world wars, even long before America’s Admiral Perry forced Japan open to the world, the Japanese had a unique view of debt. In Japan capital exists not to serve economic needs, but instead to serve political needs. To that end, debt was allowed, even encouraged . . . so long as it didn’t become inconvenient to the sovereign. Dating back to the seventh century, if widespread debt got in the way of the emperor or shogun’s goals, it was simply dissolved under the debt forgiveness doctrine of tokusei. Drought? Tokusei! Floods? Tokusei! Famine? Tokusei! Government in the red? Tokusei . . . with a 10 percent processing fee!
As such, debt tended to boom, especially when debt was already widespread. After all, the worse the overall financial situation, the better the chance the emperor would emerge onto his balcony, wave his fabulous scepter, and declare this or that class of debts null and void. It happened so often that bankers went to extraordinary lengths to protect their economic and physical well-being: they had a tendency to write tokusei riders into their loans so borrowers couldn’t count on the debt simply evaporating, and they similarly needed to live in walled compounds so when a tokusei was declared, mobs could not storm their homes, beat them to death, and burn the loan documentation to prevent such riders from being executed. Fun times.
Anyhow, the point here is that while economics and politics have always been intertwined, Japan was the trendsetter in making finance a tool of the state. Once that particular seal was broken, it became pretty common for the Japanese government to shove embarrassingly large amounts of cash at whatever project needed doing. In most cases such “cash” took the form of loans because—you guessed it—sometimes the government found it handy to simply dissolve its own debts and start from financial scratch. Tokusei always left someone holding the bag, but in rough-and-tumble pre–World War II Japan, it was typically some faction of society that happened to be on the outs with the central government, so . . .whatever.
The end of World War II triggered another debt reset, albeit less because of imperial decree and more because everything had been leveled. Considering the absolute devastation and humiliation the gaijin had visited upon the Japanese, it was paramount that postwar Japan move in cultural lockstep. That no one be left behind.
The solution was to apply the peculiar Japanese attitude to debt toward broad-scale rebuilding efforts, with massive volumes of capital poured into any possible development project. The specific focus was less on the repair and expansion of physical infrastructure and industrial plant than on maximizing market share and throughput as a means of achieving mass employment. Purchasing the loyalty and happiness of the population—who rightly felt betrayed by their wartime leadership—was more important than generating profits or building stuff. That a loyal and happy population was pretty good at building stuff didn’t hurt.
From a Western economic point of view, such decision making would be called “poor capital allocation,” the idea being that there were few prospects that the debt would ever be paid back in full. But that wasn’t the point. The Japanese financial model wasn’t about achieving economic stability, but instead about securing political stability.
That focus came at a cost. When the goals are market share and employment, cost management and profitability quietly fade into the background. In a debt-driven system that doesn’t care about profitability, any shortfall could simply be covered with more debt. Debt to hire staff and purchase raw materials. Debt to develop new products. Debt to market those products to new customers. Debt to help the new customers finance those new purchases.
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.
