Boomers At the End of the World

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.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

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Money for Nothing at the End of the World

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.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

Inflation and Global Food Prices

Americans are currently struggling with inflation and certain categories, like fuel prices, get an outsized amount of attention. It makes sense. There are few products people buy as frequently that have as volatile a pricing scheme. It’s also universal. In a car-driven society, the pain at the pump is a metric most people are aware of.

But inflation certainly doesn’t stop there. Everything gets more expensive. But for many items, like cars and kitchen cabinets, purchases are typically few and far between. In terms of social and political stability globally, food prices are something that I find much more concerning.

The United Nation’s Food and Agriculture Organization does amazing work tracking global food prices and agricultural trends. They do work on par with the USDA, and I consider both to be preeminent sources of information in their field on the topic of American/global agriculture. And they publish their information for free. 

The FAO publishes monthly updates to global food prices. The picture is…not good. We’ve seen global food inflation drop a couple ticks in April and May of 2022 due to some softening in global oilseed markets (Indonesia has relaxed their palm oil export ban a bit, and we’ve seen some declining demand for oil seeds due to price) but the overall picture is still one of a stark increase in food costs. It’s a product of both an overall global inflationary environment, and a series of shortages due to conflict and poor weather (like the challenges facing Ukraine’s grain exports).

Let’s look at a couple of charts pulled from the latest FAO report (seen here):

2021, shown as the orange line, saw a pretty steady and straightforward increase in food prices between January and December, well over 2020 (in pink). 2022 is the aggressive, near-vertical line in red. The flattening out we see is again in large part due to some relaxation in food oil prices, but the news is certainly not good for global consumers. (And all of us in that bucket!)

If you want to break costs down into primary commodity groups, the FAO has you covered there as well. Peek at the second chart. Vegetable oils, the top line in green, is showing the greatest year-on-year increase. But prices have risen steadily across all globally traded commodity groups like cereals (including wheat) and dairy. We’ll have to see how the sugar harvest plays out in Brazil this year, but meat prices are also slowly but steadily inching upwards–as much a product of rising feed import costs as it is growing demand for poultry and fears over a widening avian flu epidemic.

If you prefer numbers, we can see that we’re already at or near historic high prices for almost all major commodity groups going back close to 20 years:

All of which represent a more expensive global food price environment. Large importers of food like Egypt are already scrambling and, according to some, purchasing Russian cargoes of stolen Ukrainian wheat. This is an issue that the US is starting to take seriously. And for countries dependent on food aid, like Syria and Yemen? Challenges abound, to say the least. While this is only one part of the global inflation story, it is one that most people globally will feel most acutely.

We invite those of you who are interested to join us today, June 8th, for our webinar, Inflation: Navigating the New Normal. More information at the sign up link below. Unable to attend the webinar live? No problem. All paid registrants and attendees will be able to access a recording of the presentation as well as a PDF of presentation materials.

Can’t register for the live event? Not to worry. We’ll be sharing how you can still buy access to the recording and presentation materials in the future.

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

A Mea Culpa, and a Correction

Nobody’s perfect. 

And in this industry, I feel strongly that it’s as important to own up to your mistakes as to highlight your successful forecasts and analyses. In a previous mail out this week, we included a graphic that included a significant bungling of numbers. (The corrected text is highlighted below.)

I would like to thank the readers and followers kind enough to point out the error. The how and why of it aren’t that important, but if you’re curious: as some of you pointed out–and as it stated on the original graphic–the data we used was annualized, and in a rush to publication we misplaced a decimal. Approximately $1.3 trillion/year became $13 trillion. Perhaps this is too much pressure to place upon the narrow shoulders of a humble decimal point. Perhaps I should have better understood the risks in letting an English major do the math while my primary researcher was in Ireland. But here we are, and due to your close readership we’ve been able to amend the graphic. 

Jokes aside, a strong sense of honesty and integrity is vital to our work. We strive to deliver our clients and readers as honest, direct and non-partisan a viewpoint as possible. I am thankful for the continued trust, and the attention you all pay to help keep us honest and accurate.

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

Inflation: the Savings Angle

Between the Ukraine war, supply chain shortages, energy shocks, and government policy that probably spent too much money for too long a period of time, Americans are feeling the pinch of ever-higher inflation on an ever-broadening array of goods. The question is whether Americans can’t afford it.
 
The chart below shows what percentage of their income Americans are socking away – that all-important “savings rate”. During COVID it hit record highs. But now? It has already plunged to pre-COVID lows.

It looks a bit spooky, right? Maybe even a little recessionary? After all, if Americans don’t have a savings buffer, any curveballs – and we seem to be living in world of nothing but curveballs – could cause immense damage.
 
But the chart needs context.
 
It’s one thing for Americans to no longer be saving, it’s quite another when you consider just how much they have already saved. Take a look at this second graphic (below) which stretches back to before the 2007-2009 financial crisis. Whereas the first graphic showed the savings rate (the percentage of income saved), this second one shows savings volume (the actual amount of cash).

Between the Trump and Biden Covid stimulus checks, Americans amassed an extra $13 trillion in savings.
 
So are Americans burning through their savings purchasing goods whose prices keep going up and up and up? Absolutely.
 
But $13 trillion is roughly how much all consumers in the United States spend in ten months. Even in an inflated environment, it will take most Americans two years to burn through the surplus.
 
It doesn’t quite make Americans price insensitive, but it certainly suggests that the current levels of consumption – and by extension current levels of demand-driven inflation – can be with us a lot longer than the headline “savings rate” would suggest.
 
How long? Well, that’s part of what we’ll be going through in our next seminar. We invite those of you who are interested to join us for our upcoming webinar, Inflation: Navigating the New Normal, on June 8th. More information at this link. Unable to attend the webinar live? No problem. All paid registrants and attendees will be able to access a recording of the presentation as well as a PDF of presentation materials.

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

The Bond Market and Inflation

The U.S. Federal Reserve is in the midst of raising interest rates. By raising the cost of borrowing and making debt (money) more expensive, you control spending thereby controlling inflation. 

The United States is currently experiencing the worst inflation crisis in some 40 years. The Federal Reserve’s interest rate hikes are the traditional tool in combatting such a problem. 

The challenge of inflation is not America’s alone. Across Europe and Asia, global currencies are seeing inflation drive up the cost of food, fuel, consumer goods, and housing. Unlike the United States, however, most countries’ central banks do not have as direct a course to combat inflation as the Federal Reserve.

A combination of demographic and Russian sanction-related inflationary pressures limit most European nations’ abilities to aggressively raise rates. A population as old and quickly aging as Germany or Italy’s is unlikely to see a bounce back in consumer spending once rates return to zero–where they have been for over a decade. This is a move the Europeans copied out of Japan’s playbook, whose nearly 20 years of near-or-at-zero interest rates are likely to be their foreseeable future.

So what does this mean for bond markets? The U.S. has the demographic strength and economic resilience to keep raising its interest rates, while the rest of the world will be forced to continue issuing bonds at or near zero. Which means their bonds, and ability to borrow, will soon become strongly uncompetitive vis-a-vis the United States.

What does this mean for inflation and the US economy writ large? We invite those of you interested to join us on a webinar that will cover these topics and more in depth on June 8th. More information at the sign up link below. Unable to attend the webinar live? No problem. All paid registrants and attendees will be able to access a recording of the presentation as well as a PDF of presentation materials.

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

Last Chance: Join Us for The Face of Inflation

Join Peter Zeihan today, December 1, for the third in a three-part series on the here, now, and soon-to-be of the American and global economies. In Part III: The Face of Inflation we’ll be diving into not simply the inflation of the now, but also bringing together the wildly disparate inflationary trends that will entangle the American and global economies for the next four years. Everything from manufactured products to industrial commodities to energy to money itself.

Scheduling conflicts? Not to worry. Everyone who registers for The Face of Inflation will be provided with a recording of today’s webinar to watch at their leisure.

REGISTER FOR THE FACE OF INFLATION

Digital copies of the series’ previous installments can be purchased here:
Part I: Wither the Workforce

PURCHASE ACCESS TO WITHER THE WORKFORCE

Part II: Supply Chains No More

PURCHASE ACCESS TO SUPPLY CHAINS NO MORE

‘Tis the Season… for Inflation?

A lot of people are talking about how we’re currently facing the highest inflation levels in decades. Few are talking about how inflation–a bugbear that stalked the US economy for decades until the 90s–has been kept so low for so long. 

As with so much else in the era of globalization, most have mistaken the growth and development and stability of The Order as humanity’s default. Few things could be further from the truth.

Interested in more? This Wednesday we are hosting the final installment of our exploration of economic trends inInterested in more? We are hosting the final installment of our exploration of economic trends in an era of globalization tomorrow, Wednesday 12/1: Part III: The Face of Inflation. We’ll be diving into not simply the inflation of the now, but also bringing together the wildly disparate inflationary trends that will entangle the American and global economies for the next four years. Everything from manufactured products to industrial commodities to energy to money itself.

REGISTER FOR THE FACE OF INFLATION

Digital copies of the series’ previous installments can be purchased here:
Part I: Wither the Workforce

PURCHASE ACCESS TO WITHER THE WORKFORCE

Part II: Supply Chains No More

PURCHASE ACCESS TO SUPPLY CHAINS NO MORE

Please Join Us for Part III: The Face of Inflation

Gasoline costs. Housing costs. Food costs. Consumer goods costs. They are all going up. The inflation is real and it is only “transitory” if by “transitory” you are measuring time in years.
 
The real nut of the issue, however, is that few of the current price pressures have anything to do with government policy. Higher energy costs are the result of years of financial mismanagement. Higher housing costs are an outcome of large-scale internal migration decisions. Food costs largely boil down to transport issues. Consumer goods costs are an outcome of COVID-related demand whiplashes.
 
This might sound odd, but I don’t worry so much about these short-term inflationary pressures we’re currently experiencing. They are the outcomes of our current economic evolutions. That makes them uncomfortable, but ultimately, heh, transitory.
 
I’m far more concerned with the waves of inflationary pressures occurring just past the horizon:
 
The American economy is in the midst of the greatest rewiring in the history of the Republic, while the global system faces systemic breakdown. Those pressures are not simply inflationary, they will have a far greater impact upon prices than anything we’ve seen so far in 2021.
 
Here’s a more homegrown inflation source that will be — at least in part — an outcome of internal political and government decision-making.
 
Over the course of the past sixty years, we’ve become somewhat accustomed to the geopolitics of oil. Interrupt oil flows from the former Soviet or Persian Gulf regions, and we see energy inflation wash over us all. It forced us to pay attention to the ins-and-outs of politics in as calm, measured places as Gaza and Tehran and Riyadh and Caracas and Moscow and Kiev.
 
One of the (many) benefits of the American shale revolution is that America just doesn’t care very much about any of these places any longer. It’s a big piece of why energy prices are chronically lower in North America compared to the rest of the world, and why U.S. troop deployments abroad are now at their lowest levels in 120 years.
 
But the path to deglobalization isn’t a smooth one, wrapped up as it is in a variety of technological evolutions, some of which may force the United States to become more involved in managing the world. For as difficult as the geopolitics of oil has proven to be, it is nothing compared to the geopolitics of green energy. Yes, green electricity is generated at home, but the supply chain for constructing wind and solar facilities makes getting oil out of the Middle East look like a game of checkers.
 
For oil we needed to interface with Saudi Arabia and Iran and Venezuela and Russia, but greentech requires us to interface with Chile and Argentina and Bolivia and China and Australia and Congo and Gabon and Brazil and South Africa and Peru and Mexico and Kazakhstan and Turkey and India and Mozambique and oh yeah still Russia.
 
If the Green dream of 100% non-carbon energy is to take form, we will need to replace our one energy input supply chain with over a dozen more.

Interested in more? This Wednesday we are hosting the final installment of our exploration of economic trends in an era of globalization: Part III: The Face of Inflation. We’ll be diving into not simply the inflation of the now, but also bringing together the wildly disparate inflationary trends that will entangle the American and global economies for the next four years. Everything from manufactured products to industrial commodities to energy to money itself.

REGISTER FOR THE FACE OF INFLATION

Digital copies of the series’ previous installments can be purchased here:
Part I: Wither the Workforce

PURCHASE ACCESS TO WITHER THE WORKFORCE

Part II: Supply Chains No More

PURCHASE ACCESS TO SUPPLY CHAINS NO MORE

The Face of Inflation: An Energy…Mistake

On November 18 news leaked out of Taiwan, Japan, South Korea, China and India that the Americans have approached pretty much every country that matters about a joint, simultaneous release of oil from each country that maintains emergency reserves. The goal being to tamp down rising oil prices. The subtext is that the Biden administration’s efforts to get OPEC and its oil-exporting partners to produce more crude have proven unsuccessful.

Normally, I’d just dismiss this as media banter and rumor mongering. Stuff like this drops out of the ether every time oil prices rise. This time is probably different; Simultaneous indications from multiple countries that lack a track record of energy-related drama suggests the news is for real.

I guess the primary reason I would have normally dismissed the idea of oil releases is because…it is a really, really stupid idea.

First off, oil demand is inelastic. When prices go up or down by 10%, 20%, 50% it is rare for demand to budge at all. Only when prices go up (or down) by an extreme amount and stay there for months do we get fundamental shifts to demand. Which means any short-term price drop won’t impact the underlying market fundamentals one whit.

Second, even if every country on the planet with oil sitting in tanks or salt caverns agreed to follow Biden’s lead, they could not maintain the effort for nearly long enough to shift the demand picture. Most countries don’t have more than two months of import cover. Turns out that most find storing something like crude oil — a material that’s corrosive and toxic — to be difficult and expensive.

Third, what makes oil prices go down isn’t so much increases in flow but increases in production and above all storage. It is having extra oil on hand that weakens prices. Releasing crude from storage isn’t production. Releasing crude from storage reduces storage. It actually makes the market tighter.

Which means, fourth, as soon any releases end, demand fundamentals will not simply take prices right back to where they were, they will take prices higher because there is now less storage as a buffer.

And so, reserves are not tapped lightly. Historically speaking, the United States has only released oil from its reserves to impact pricing when there has been an actual production disruption. For example, in 1991 when Iraq invaded Kuwait, or in 2005 when Iraq descended into civil war and Venezuela got serious about its journey to self-destruction. Nothing like that is happening currently.

These aren’t particularly sophisticated economic talking points. “Oil 201” if you will. And that is what has me concerned. Transport Secretary Pete Buttigieg knows this. Energy Secretary Jennifer Granholm knows this. Commerce Secretary Gina Raimondo knows this. National Security Advisor Jake Sullivan knows this. The chances of this quartet of the smartest people on TeamBiden not advising the president of such a basic economic function are zero.

Which tells me that one of two things has happened.

Option1: There’s some sort of massive misunderstanding going on here and the information that’s leaking out of Asia is in some way wrong. If so, this’ll blow over very quickly and we’ll all go back to our lives.

Option2: Biden’s instinctive populism has overwhelmed his willingness to listen to basic facts, and he is pursuing a populist, Trumpesque economic policy in the belief that his diktats can direct the markets.

If it is Option2 then, well, crap. If the goal is to decrease oil prices, there’s an easier, faster, diplomatically cheaper, more economically viable and more environmentally friendly way to do it: The United States is the world’s largest oil producer because of the shale revolution. Using a mix of new production techniques developed in the past two decades, U.S. oil producers can bring new production to market in just six weeks. Even Saudi Arabia’s reserve capacity takes a minimum of three months to bring on-line. Shale output has far lower carbon output as part of its production than the global average, and because U.S. shale is produced in the United States rather than a different hemisphere, the shipping footprint is similarly lower. (Also, production taxes!) Politically, it would indeed be awkward for green-friendly Biden to approach the U.S. oil sector about producing more oil, but IMO not nearly as awkward as it has been for him to approach de facto Saudi Arabian leader Muhammad “Hacksaw” bin Salman…which he has already done. (Only to be turned down flat.)

I have been nursing some concerns about the Biden administration’s economic policies for some time. I’ve reserved judgement because most of his plans require Congressional action, and until Congress actually passes something of substance it is all just political theater. The oil-release action is in a different category because it can be done by executive order.

As a rule, I like to give presidents plenty of time before I declare them lost causes, and therefore part of the problem rather than part of the solution. With Obama it took until year five, with the specific straw being when Obama started barring people who brought him news he ideologically disagreed with from even entering the Oval Office. That action turned the entire Executive Branch into a tone-deaf echo chamber. With Trump it happened in year three when he decided he was “done” with coronavirus. That action is largely responsible for the death of a half million Americans. After seeing the quality of the people in Biden’s cabinet, it never occurred to me that it might happen before year two.

But here we may be. Arguing that Option2 is what is truly in play, is another energy-related action from Biden administration this week: an order that the Federal Trade Commission investigate American oil producers, refiners and gasoline distributors for price fixing. Fixing in the wildly unconcentrated American oil complex is functionally impossible. Leaving aside the hundreds of differently motivated oil producers and hundreds of regionalized gasoline distributors and tens of thousands of gasoline retailers, there are 135 operating oil refineries in the United States, and they tend towards cutthroat competition. Collusion among them would be hilariously unwieldy and only one tattletale hold-out would result in billions in fines for the other 134. Biden should know this too. Buttigieg and Granholm and Raimondo and Sullivan certainly do. This isn’t policymaking. This is populist blamestorming in the Trumpian style, using the tools of the state to target your political opponents.

But I digress.

What’s happening with the oil markets, what is driving prices higher, what is apparently prompting Biden to push for a mass release, are symptoms of an issue far larger and more substantive than mere presidential mismanagement. What’s happening is financial mismanagement on a global scale. Its effects are magnifying with time and will be with us long after Biden is gone. What we are seeing now, with oil prices well on their way to $90 a barrel, is just the tip of the iceberg.

But it will not be felt everywhere.

Interested in more? Energy inflation — deep, chronic, and above all varied — is a big piece of the broader, long-term inflation picture that we’ll be exploring in our final seminar on the evolutions in the American and global economies in the age of deglobalization. Join us December 1 for Part III: The Face of Inflation.

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Scheduling conflicts? Not to worry. Everyone who registers will be provided with a recording of the webinar to watch at their leisure. 

We hope you will also join us today the Supply Chains No More webinar and Q&A session. Registration information and more at the link below.

Part II: Supply Chains No More
Today, November 19, 1p Eastern

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Those who missed out on Part I: Wither the Workforce can purchase access to the recorded webinar and presentation materials at the link below.

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