Hi, thanks for joining us today. My name is Michael, and I’m your director of analysis here at Zeihan on Geopolitics. It’s my pleasure to have a conversation with Peter Simon about some of the questions you’ve sent us about what’s going on in the world. Let’s start with the big one: What would it take to pull the U.S. directly back into a major conflict or war?

Oh, wow. Okay, so the United States has not been in a major, major conflict since World War II. In terms of the conflicts we’ve had since then, they were either in the context of supporting the global order—basically bleeding for our allies so they would stay our allies, like in Korea and Vietnam—or it was our attempt to forge a new world post-Cold War, like Desert Shield and Desert Storm.

For us to get involved in anything on that scale would require one of two things. Number one, a political leader in the United States who sees international issues as the crucible in which a new identity could be forged. There’s no sign of that happening on either side of the political spectrum at the moment. Or, someone doing something really, really, really breathtakingly stupid and provoking the United States.

This has happened before. You could argue that Pearl Harbor, the Cuban Missile Crisis, Sputnik, and the Kuwait invasion all fit this description. But when I look around the world at the powers in play, I don’t think the Chinese are anywhere near dumb enough to do that.

At least a few years ago, Chairman Xi and the Politburo realized that if there were a fight with the United States, it would be a fight on the water, and China depends on freedom of the seas to keep its people alive. The entire economic model, the food imports, the energy imports—they would just stop, and they know that would be suicide.

So, the only country right now where that might be an issue would be Russia, and that’s because of Russian incompetence. We’ve learned over the last three years that Russia doesn’t have a classic army in the sense most people think of. They basically have a mob they put guns in the hands of and throw at things.

It’s not that this strategy has never worked for the Russians. The Russians have won half of the wars they’ve been in. But if the fight reaches a point where it’s hitting U.S. interests, that’s where you get the direct clash. As long as the United States is at least passively interested in NATO, should Ukraine fall, then we could be in a more direct fight.

But we’re not there now. Even if the Russians continue making the gains they’ve been making in the last year for the next five years, we will still not be there. The dynamism of this conflict is difficult to get your mind around because so many things are shaping both sides. I’m not suggesting for a moment that Russia is about to break through the lines in Ukraine and win. I’m just suggesting that it has to be something on that scale for the United States to consider getting involved, barring some idiot somewhere doing a direct attack on the United States. Remember, the United States has rested and recouped from the war on terror. Its military isn’t doing much from a military point of view right now.

There are no occupations. There are no hot deployments. So, if somebody did pick that fight, God help them because no one else will. But you mentioned that the U.S. military isn’t doing much broadly, and most of the conflicts you described aren’t within North America. There’s nothing within North America that looks viable at the moment, something targeting a U.S. strategic interest to the point that would motivate the U.S. to enter conventional warfare.

Stepping back a little bit, are there regions within North America, perhaps, or concerns that American strategic leadership has within North America that the military could be used for, to bring some kind of resolution or achieve a strategic gain? Not at the moment. The only issue where that theoretically could arise would be dealing with Mexican drug cartels. Americans’ preoccupation with cocaine—their love of cocaine—has basically destroyed the capacity for rule of law to exist in large portions of Mexico. Add to that the general incompetence of the AMLO administration, and Mexico is in a much worse position now in terms of public safety, public health, and infrastructure than it was five years ago. There’s plenty of fault to spread around.

I will just underline that if anyone thinks the United States can impose a military solution on the cartel situation, you are batshit. Mexico is a huge place, and the cartel situation is far more complicated than anything we had to deal with in Pakistan or Afghanistan during the war on terror. If there is a military angle to be played there, it will have to be hand in glove with the Mexican administration, something like what we did with Colombia.

But at the moment, with the current administration in Mexico City, that is not even under a hair of consideration. If the U.S. were to try to impose a military solution without active participation from the Mexicans, you can kiss the trade relationship goodbye, and then the United States would fall into an economic depression as the single most important economic, human migration, and manufacturing and energy relationship in human history all break at the same time.

Don’t do that.

Hey everybody, Peter Zeihan here coming to you from Monarch Bay in Southern California. today we’re going to do kind of a big picture economic take of the United States. because, you know, a lot has gone down in the last 25 years. I think it’s good for me to kind of put my stamp on the ground and where we are. 

we might be getting back to some version of normal. It is a bunch of light here. Let me kind of spell that out from the back side. If you remember back to the transition from the Trump administration to the Biden administration, there was a contest among the two of them about who Americans would like more because they had been paid to, like. 

the incoming Biden administration had made it very clear that the first thing he was going to do was $1 trillion stimulus that would put money in people’s hands, to get over Covid. And as soon as Trump heard about this, he’s like, well, I want to do that too. So I want to be like an administration to leave on a high point. 

things, but work out that way. But he did put, I think it was $900 billion into the system in his final few weeks. and if you remember back, Covid was pretty much over by then. So we had $2 trillion dumped in and a quarter, into a system that was already experiencing rapid economic growth as one of the many reasons why we had an inflation pulse in the early Biden administration. 

Anyway, you combine that with all the stimulus that was still rolling around in the system from the Covid crisis, and Americans conservatively entered the Biden administration with over $2 trillion in savings that they hadn’t had before, according to the San Francisco Fed. They didn’t finish burning through that extra capital until the first quarter of 2024. which means we’re only now finding the ability to like, oh, look at that. 

A third of the economy with a more normal supply and demand dynamic. And at the moment, things look pretty good. yes. Loan delinquencies are rising, but we are pretty close to record lows still, nor nowhere near the average, or certainly nowhere near the numbers that we had back in the last technical recession in 2007. interest rates are higher, but delinquency rates are far lower than they were at the period before we entered any other recession. 

So I’m not saying that this is like we’re going to grow forever or anything like that, but at the moment the mechanicals look pretty positive, and I wouldn’t expect the United States to enter into recession. This calendar year. And some things would have to get a lot worse for us to consider a recession in next calendar year. At the current moment. 

if there is a concern, it’s more the structural because, it has to do with the balance between private credit and government spending. Now, normally, private credit rises and falls based on the job conditions. And if it rises too fast, you get a bubble, which leads to a correction. the last, of course, big instance. And we had that was the subprime building from 2000 to 2007, where we roughly doubled total private credit in seven and a half years. 

And as a result, we had the Great Recession, which was no fun for anyone. nothing like that is in the books this time. private credit has been growing for the last 15 years. It’s something much more along the lines of the century average. normally, private credit only drops or goes negative in times of recession because banks and stock holders generally restrict their play of capital on the system at a time when everything is over leveraged. 

we’re not seeing that today. Instead, what we’re seeing is more government activity. Normally, the balance between these two factors is private credit is in the driver’s seat, except in times of recession, which is when the government steps in. And if you add the two together, you get actually a pretty even. Why? What has changed in calendar year 2023 is that relationship broker. 

And for the first time in modern American history, total new government spending, not just the deficit, but the increase in the deficit year on year, that number surpassed the total increase in private spending for the first time in American history outside of a recession. Now, this is only one data point. I don’t want to overplay this, but for the first time in American history, the government has become the primary driver of economic growth in the country. 

This is not a healthy position to be in. This is a very Zimbabwe, South African, Venezuelan sort of approach to economic management. Now there’s still trillions of dollars of private investment. There’s still tens of trillions of dollars of private economic activity. this is not something I’m overly stressing about right now. But if the numbers from last year repeated this year and based on the Biden administration spending, it looks like they will be. 

And then next year, which Biden has indicated they probably will be, or if Trump wins. Absolutely. And if they do these plans to expand the government, then we’re in a different era of it. And if you remove the private sector as the primary driver of American economic growth, yes, you might get a little bit more populous support for the government or a particular candidate, but it comes at the cost of long term dynamism and size of the American economy, which has served the United States very well these last 200 years. 

Now, the degree of populism was always going to be in the cards, not just because of the politics, but because of our demographics. The baby boomers, the largest generation ever. There pass halfway through retirement. They’re going to be sucking at the government teat for Medicare and Medicaid and Social Security until the day they die. So government outlays have to go up, which means deficit spending has to go up. 

And there is no, appetite on either side of the American political aisle to do anything about that, because it’s not a vote winner. and if this sticks, we will have a problem down the line. This is a much bigger problem than the federal deficit, because this changes the complexion of the American economy and how we can adapt to shifts in the future, because the government just isn’t nearly as efficient. 

It can be quick, but it’s not efficient. And ultimately, the efficient use of capital is half of the American story. So you’re looking for something to worry about? I’d worry about that. But in the meantime, government spending is stimulatory. And that suggests that for this calendar year and next, we’re not looking at a recession. So, you know, take your good news where you can. 

Hey everyone Peter Zeihan here. I am, on my way to Milan to fly home, and you guys just couldn’t wait for me to get home and get sucked me back into politics. Okay, so when I woke up this morning about the. Donald Trump has been convicted in New York for eight of 34 counts of laundry and financial fraud. 

for hiding a, a theater, attempting to hide an affair that he had with the porn star Stormy Daniels. the way it works is …., 34 felonies, felony. Because if you engage in fraud and attempt to hide a crime, it automatically elevated class and felony. so let’s do a quick Q&A. what are the state things here? 

And then talk about where this leads. does this mean that Donald Trump no longer run for president? no, it does not. there’s nothing in the Constitution that says but, there are who can run for president. although, funny thing, you can’t vote. but you can still run for president. number two, what’s next? 

on July 11th, we get our sentencing hearing, and it is unlikely that Trump will go to jail. This was a nonviolent crime, and he’s a first time felon. Feels weird to say that. so we’re looking at probably some form of probation. Now, probation comes with restrictions. And as we’ve seen in the trial, with all of the charges of contempt of court and, gag order, is the chances of Trump following those restrictions are going to be interesting, especially in terms of campaign setting. 

number three, what about appeals? Appeals will happen. Absolutely. But it’s unlikely that we will see the appeals process completed. But before we have the presidential election, the big difference this time we’re worried about his scheduling, because when he hasn’t been convicted of anything yet, the court was believed to create in the degree of deference when it came to scheduling, now that he’s been convicted of 34 felonies. 

So there’s going to be very different. So, you know, things like the debates, things like rallies, those could actually be impacted pretty severely by whatever the appeals schedule is. A Trump will, of course, have a vested interest in dragging that to other possible. But even if he didn’t do that, certainly, I could be resolved before we get to the first week of November and have the general election. 

And then finally, there’s the question of whether or not this is a fair ruling or not. okay, so I’m in Italy right now, and a lot of these conversations have come up. And, you know, the Italians have some experience with politicians who dabble in corruption, politicians who dabble in ideals, and politicians who combine the two. And the general ditch here, which was really funny, is like, if you’re going to do things like this, you have to have an accountant to hide everything well and a fixer to make sure that the news doesn’t get out.   

In the case of Donald Trump, those two things were the same person. So like, oh, that’s not very smart. And then second, they’re like, and you get to keep these two people as close to you as possible because they’re the ones who know where the bodies are. They’re the people who have the receipts. And the reason why this court case was sewed up so quickly, and why did the jury only need a couple of days to debate? 

34 different counts, and why they came back with a unanimous verdict so quickly? Is that the fixer in the accountant and all of their documentation flipped and were testifying for the prosecution. So the only other outstanding bit of information to make this an easy case was the court star herself, who also could show for the play. Yeah, the that’s into her bank account matched with the debits from Trump’s account. 

So it really was from the accounting point of view, a very open and shut case, of the hospital you can think about for this matter. It’s big impact will have on the election. And, this is just amusing from my point of view, because as soon as the verdict came in in Trump campaign headquarters, cheers erupted. I feel like we can totally fundraise off of this. 

And then Biden election headquarters cheers erupted. Totally fund both of us. everyone seems to have forgotten the abuse of the 10% of the electorate, were independents, were just kind of nauseated by the whole thing. And the independents have decided every presidential election since the early 1960s. And they are not going to vote for somebody who now has 34 felonies under his belt. 

So as far as I’m concerned, this verdict has decided the election or other reasons to think that Trump was already in trouble. But this is really makes it impossible for him to win. 

assuming, of course, that Biden doesn’t die, I’d have never.