North American Fires Cause a Smoky Start to Summer in the US

Let’s just say that our old friend Smokey Bear wouldn’t be too happy with the Canadians this past week. And these fires are likely only the beginning of a very long summer of low air quality.

We’re getting hit with the trifecta right now. Wildfires (which are as essential a part of BC’s natural ecosystem management as they are to California’s chaparral) in Northern Alberta and Eastern BC, fires (which happen very rarely) in Quebec and the Maritime provinces, and agricultural fires (yearly slash and burns) in Mexico. These are all large enough to cover a vast swath of the US with smoke individually; adding insult to injury, the smoke from multiple fires is overlapping at different elevations.

So can any of this be attributed to climate change? I’m going to say yes…because it’s only June. Some of these fires started in MAY. Barring an unprecedented wet summer, we’ll be dealing with this for months to come.

It may be time to upgrade those filtration systems if you haven’t already.

Prefer to read the transcript of the video? Click here

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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.
 
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TRANSCIPT

Hey everybody. Peter Zeihan here coming to you from cloudy Colorado. Today we’re going to talk about this horrible smoke that is hitting most of the country. Basically, if you are east of the front range, you’ll experience it in some way with particularly dense clusters in places like the American Northeast. I hate to say it, folks, but this is just going to be the beginning of a very, very, very long summer of low air quality.

We’ve got three things happening at the same time that have never happened together before. The first, which is something that happens every few years, is we’ve got forest fires in northern Alberta and northeastern British Columbia, which is generating a significant amount of smoke that is currently hitting the Great Plains in the Midwest. Second, and this is something that happens very rarely. We’re getting extensive fires in both Quebec and in Canada’s maritime provinces, which is generating most of the smoke that is hitting the American northeast. And then third, something we get every year is we’re at that part of the season where the Mexicans are doing a slash and burn preparation for certain types of fields. So we’ve got more smoke coming up from the south, which is primarily hitting Texas right now.

Anyway, all three of these are big enough that they have the potential to have a huge swath of coverage for the continent. And in a lot of cases, we’re seeing overlapping layers. Now, smoke and fire should not automatically translate into poor air quality because it really matters what the elevation is oftentimes. A few days after the smoke leaves the source of the fire, it drifts up. And when it does that, it still makes your skies kind of crappy. But you’re not dealing with those PMI issues because we’ve got three different sources in three different geographies. We’re getting smoke at multiple elevations, which is making it more of a problem. So really, all we’re waiting now for is for the Californians to have smoke, but luckily they have had the wettest year on record so far. So the chances of me going backpacking in Yosemite this year are very low. There’s still 40 feet of snow on the ground at high elevation. And so they’re probably going to have a relatively wet and therefore not fire filled summer.

For those of you who are concerned about climate change, is that part of this? I’m going to have to say yes for the simple reason that it’s only June and the Albertan and the Quebec fires, you know, started in May. We’ve never had wildfires on this scale this early in the season, which means barring some really atypical summer precipitation in the Great White North, we’re going to be dealing with this smoke and these fires all through June and July and August and September until we get snow. We learned that over and over and over again with the California fires. You basically have to wait for Christmas for this stuff to get put out completely. So if you haven’t put a filtering system for your home back in your Amazon cart, now might be the time. If you’re living in an apartment or you don’t have a traditional HVAC system. There are a number of models of standalone air filters. You might want to consider investing in those because this is going to be kind of a crappy summer if you are east of the front range. I can see the smoke from my neighborhood, but luckily the mountains are providing enough of a bulwark that I’m okay here. Of course I am going to Canada here in a few hours and then all bets are off.

Alright. That’s it for me. You guys take care. Stay safe.

How Will Donald Trump’s New Indictment(s) Impact the Election?

If reading the headlines gave you some major déjà vu…welcome to the club. Trump is getting hit with a series of new indictments, but will it impact the election?

For those who love their red hats, Trump can do no wrong. If you try to tell them otherwise, it’s either a plot or a conspiracy theory. And regardless, you can run for president from the comfort of your prison cell…so he’ll be alright.

But none of this matters anyways. Biden will take the independent vote since Trump threatened to take away their voice, allowing Biden to run (or slowly and carefully walk) off with the election.

As long as these two spring chickens can keep clucking until the election, we’re looking at a 2020 rematch with the same results. So you get a double dose of déjà vu today.

Prefer to read the transcript of the video? Click here

If you want a refresher on my original 2024 election prediction, watch this video first.

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.

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TRANSCIPT

Hey everybody. Peter Zeihan here coming to you from the world’s best 4th of July fireworks overlook. That’s the Denver skyline there behind me. Today, we’re going to talk about all of the new indictments of Donald Trump. A lot of people have written in, asking what sort of impact this is going to have on the election. And the short answer is not a bit.

Just to give you a quick review of how I see things going. Donald Trump is so solid with his base that he’s going to get the nomination. There’s no way around that. And Joe Biden has been the – what’s the best way to put this – Independents have thrown in for the Democrats. The independents think that the Democratic positions in the administration are really hurting them economically, but they’re so opposed to what the MAGA Republicans want to do with the general election because it would gut their ability to have any influence on the country at all. So their hearts are definitely against the Democrats, but they’re voting for them in number. And in that sort of situation, you’ve got 10% of the population who are the swing voters who all of a sudden are not. And that means we might even see Biden win places like Texas that only lost by a few percentage points last time around. It’s going to be wiped out anyway. This isn’t going to change that.

The indictments are not going to change that. First of all, there’s many coming. We’ve got the espionage one’s related to the documents. The issue that is different here between what Trump did and what everybody else who seems to be leaking these documents did is, number one, most of these are top tier security, national security issues.

Number two, they were unsecured. Number three, Trump was actually sharing with them with people. So, you know, I’m no national security lawyer, but that strikes me as a fairly open and shut case, which is why we’re seeing so many counts and it’s moving so quickly. Second, Eastman, what’s up? What was his first name? Can’t remember. Anyway, he was one of Trump’s lawyers back during the January six stuff, and he’s the guy who came up with the legal theories that have been proven wildly inaccurate in order to overturn the election. He is now in the process of getting disbarred. And if you look at the list of people who are testifying as part of that, there are people who were all close to the administration who haven’t spoken yet. So there’s probably some interesting bombshells, especially from Eastman himself, that are going to throw some more indictments, Trump’s way. But that doesn’t really matter. You can run for president from prison. There’s an open question about if you win, what happens? Let’s just say that the security issues would be complicated, but that doesn’t matter for Trump’s base. MAGA Republicans assume that anything that reflects badly on Trump is a plot or maybe even something to boast about. And Trump is now at the point where he’s so ensconced as a leader of a cult of personality that he could live stream the abortion of his trans lover and he would still get the nomination. Remember, in the Republican system, first past the post wins. You need one more vote than the other guy. And as soon as we had four people in the race with him, that meant that he couldn’t lose. And now we’ve got like eight or nine. In fact, Pence declaring for president the deal because it means that if you’re an evangelical and you want to take a moral stance, you know, you’ll vote for Pence. And that’s only going to be a few single digit of percentages, which means that the MAGA vote is going to be that much more potent for Trump. We’re in a position now where he if he gets 20% of the votes, he’s automatically the nomination. He’s probably gonna get twice that. So that doesn’t change at all.

And then on the other end, it doesn’t change at all. Because if you have a somebody or indictment or God forbid, a convicted felon running for president, that is going to sour for all moderates in the country, not to mention everyone who normally would try to stay on the sidelines. So we were already looking at a pretty big washout of Trump versus Biden. Round two. This just makes it that much more extreme.

Now, of course, this is all dependent upon two things. Number one, Joe Biden has to live until the election, not a non risk. And number two, Donald Trump has to live until the election. People like to point out that if Biden wins, he’ll be the oldest president we’ve ever had. And that is true. But if Trump wins, he will be the oldest elected president we’ve ever had. So, you know, we’re not exactly choosing between some spring chickens here.

Alright. That’s it for me. You guys take care.

Taiwan and the US Reach a Trade Deal

In mid-May, the US Trade Representative established a trade initiative with Taiwan. While this isn’t a full-blown trade deal, it represents the shift in US policy towards recognizing Taiwan as an independent country.

Taiwan is already an important trade partner for the US, so the economic rationale is there. You can also throw a check next to strategic reasoning, as keeping Taiwan out of Beijing’s grasp means access to critical military positioning for the US.

You can probably guess how the mainland feels about all this…but does that mean an invasion will happen? Unfortunately, I could see this going either way. It would be hard to imagine a world where Xi considers an attack a good idea, but who knows what will happen if everyone keeps drinking the CCP-Propaganda-Kool-Aid?

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.

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Australia Strikes a Greentech Deal with the US

There’s one massive hole we’ll need to fill if the green movement will ever work in the US…mineral resources. Thankfully we just struck a deal with our Aussie allies, who happen to have many of the key minerals and resources we need.

This deal will enable the Australians to contribute mineral resources to the American greentech industry in a way that will allow them to benefit from the incentives and subsidies in the Inflation Reduction Act (IRA).

While Australia is a significant producer of many necessary Greentech resources, it’s not a one-stop shop for everything. They’re also great at producing the raw ore, but the value add component isn’t their thing. Thanks to subsidies from the IRA, there will be an opportunity to bring value-add capabilities to the Outback.

But what about all the other US allies? Will they be able to tap into this deal? We must remember that there is an inner circle and an outer circle of allies…for now, only the inner circle gets to play.

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.

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TRANSCIPT

Hey Peter Zeihan here coming to you from chilly Phoenix, where it’s a balmy 102 at ten in the morning. I don’t know how people do it. It’s only May. Anyway, back on May 20th or 21st, you’re gonna see this a few days later. The Americans strike a deal with the Australians that will allow the Australians to contribute their mineral resources to the American greentech industry in a way that they will benefit from the incentives and the subsidies that are part of the Inflation Reduction Act.

There’s a real hullabaloo of late about which countries can get access and which can’t, and Australia is a tight ally. It’s part of the inner circle and most importantly it has a preexisting free trade agreement with the United States. And so they are the source of roughly half of the world’s lithium. And they are a significant producer of rare earths and zinc and copper as well. So this definitely scratches a lot of it, just not all of them. They don’t do molybdenum, they don’t do silver or they don’t do a huge amount of bauxite, although they have some. No chromium. So, you know, it’s not like this is a one stop shop for everything The United States needs, but it’s a real big step in the right direction.

Kind of two follow on thoughts from here.Number one, while the Australians are great at producing the raw ore. They do very little value add themselves and one of the things that the IRA is attempting to do is to build up a parallel supply chain that’s independent from China for processing of these raw materials into metals and then on into intermediate products. Australia is a logical place for a lot of that. I mean, yes, Labor costs are high relative to other places in the world, but since the minerals are right there and the energy is cheap, especially if you want to do stuff with solar in the freaking outback, there’s a lot of upward potential. They just need the investment and a decision that they want to move up the value added chain and the IRA will probably help with that, now you’ll have some American Australian fusion projects that are located on both sides of the Pacific. The second thing are the countries that may be able to join the Australians in kind of this inner circle. The United States has a handful of free trade agreements. Obviously the most famous one is NAFTA, and obviously they already qualify for these incentives. But the U.S. also has trade deals with the Koreans and the Japanese and in the world to come. These are countries that are involved in manufacturing. They’re going to do one more and more processing in the value add for things like battery chassis themselves. And so it still needs to be negotiated, but it’s starting from a very strong position and we should expect those to join.

Who’s not going to join is the European Union. Getting a free trade deal with the European Union has always been something that on both sides of the Atlantic has been flirted with, but it’s never really gone anywhere. A lot of the European countries, most notably the French, are highly protectionist, and the idea of exposing themselves to the American market at all is just not something they are even willing to consider. But more importantly, Europe is in demographic collapse and they’ve simply run out of people who are under age 40, the folks who normally do the consumption. So the United States no longer has any sort of economic rationale for an economic partnership over the long term with Europe, because it would just mean that Europe would be product dumping on the Americans. Similar situation for Korea and Japan, but there’s a big strategic argument that these are allies that have to be kept close as part of maintaining a presence in the Asian theater. In the case of Europe, in many cases, it’s a little bit more of a problem than it’s worth. And while there are independent European powers like the Brits or maybe the Swedes or in the Poles, that may be worth it. If it’s all part of a network of the EU, then the cost is simply too high. So there’s definitely an inner circle and an outer circle among the allies. And when it comes to greentech, only the inner circle can play. Alright, that’s it. Everyone take care.

Is Saudi Arabia Ditching the US Dollar?

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.

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TRANSCIPT

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.

The Truth About De-dollarization and What You Need to Know

The topic of de-dollarization is like the weird cousin no one wants to talk to at parties. They only come around once every year or two, and most of what they say is complete bulls***. But when the day comes that you need to take that weird cousin (aka de-dollarization) seriously, here are the three factors to look out for.

#1 Size – To be a currency of exchange, trade, and reserve, a currency must exist in a massive volume. Only four currencies meet the size requirement: Dollar, Euro, Yen and Yuan.

#2 Access – You need to be able to get ahold of a (nearly) unlimited supply of said currency at the drop of a hat. The Dollar comes out on top in this category, with the Yen and Yuan unable to provide the necessary level of access.

#3 Trust – You must feel secure that the chosen currency is a safe store of value and that the government will not intervene. This makes the currency a subset of trade, and if the country in charge wants to micromanage the value on a daily basis, it won’t work.

Several countries have been shouting from the mountaintops that they want to move away from the Dollar. I don’t take most of these too seriously, but one country is seriously considering de-dollarization, and we’ll talk about that tomorrow…

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.

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TRANSCIPT

Hey everybody. Peter Zeihan here coming to you from Colorado where the weather can’t decide what it wants to do. Today it’s sunny, so, you know, we’re going to work with it. A lot of you have written in asking me about all this hullabaloo about de-dollarization that comes up every year or two. And so I have to explain it again. Fundamentally, nothing has really changed this time, but let me give you the three things to look for if you do want to take de-dollarization seriously in the future, this is not the time.

Number one size. For a currency to be a currency of exchange, a currency of trade, and especially a currency of reserve. It has to exist in huge volume because that’s a lubricate trillions of dollars of financial transactions and physical transactions every single day, and something in excess of $25 – 30 trillion of annual merchandise trade. That’s a lot. And there are really only four countries in the world, four currencies in the world can even theoretically do that. The U.S. dollar, the European euro, the Japanese yen and the Chinese yuan. Number one.

Number two, access. You have to be able to get a hold of nearly unlimited volumes of that currency whenever you want to. Obviously, the dollar scratches that itch. The Japanese yen, not so much. The Japanese tried to go global back in the 1980s. It turns out their financial system couldn’t handle it and it contributed. It was one of the many factors as to why they have had on average 0% growth since 1993, 94 or something like that. And so they have kind of closed up shop. The currency is available. You can add it to the side, but it’s never going to be a mainline exchange currency. Let’s see, China is eliminated from that category as well. The number one concern that the Chinese have is for control. Absolute, domineering, dictatorial control over their own internal financial sector. That means they don’t want to see large cross-border flows, especially from China to the rest of the world. So every once in a while, the Chinese will do what they’re doing now and talk up the yuan and talk up internationalization. Then as soon as that starts to happen, a flood of currency from the Chinese goes elsewhere because the Chinese are the people who are the least confident in their own economic system. And then the Chinese government slams it shut and we don’t hear about it for a couple years again…like we are now.

Okay. What’s the other big one? Trust. You have to trust that the currency is going to be worth something. You have to trust that the government is not going to intervene. And that means this is kind of a subset of trade. Now, with trade, if you are a major trading country and a large percentage of your GDP is gotten from exports and imports, then you have a vested interest in what the value of your currency is every single day. The U.S. is perfect for that because the U.S. trade to GDP ratio is only about 15%, and about half of that is either energy or NAFTA. And everything else falls into that other like six, 7%. So the United States really doesn’t care what happens to the value of occurrence every day. The Chinese don’t have a freely traded system, so they can micromanage what the value is every single day. There’s also the issue of whether your money’s going to be there the next day. Now, the United States maybe is taking a hit on this with the Russia sanctions and that it’s weaponized the U.S. dollar in a few ways. But compare that to, say, what goes on with monetization. Now, I know I know a lot of you folks out there who are like gold bugs are like, oh, the U.S. monetizes like mad. And, you know, there’s something to be said for that. We do have a large money supply. It’s probably bigger than it needs to be. But a couple of things to keep in mind. It’s been shrinking for the last year as all the stimulus efforts from the last 15 years because of COVID and financial crisis and everything else have finally wound down. It’s going in the right direction. And second, I compare it to everyone else the Japanese, the Europeans, and especially the Chinese print currency in far greater volumes in the U.S. does. So the U.S. currency is the primary finance currency. It’s a primary currency. And everyone’s foreign reserves, the primary trade currency is the primary store of value. The Chinese yuan is none of those things. In fact, 99% of the issued currency of the Chinese yuan is held within the Chinese system. But their money supply is bigger than the United States because they print currency so ridiculously. So if you want to use that as a reason and talk down the dollar, that’s fine. Just make sure you apply the same criteria to everyone else. Because the yen and the U.S., even though the Japanese economy is less than a third of the size of the U.S., it’s about the same currency exchange. And the euro is bigger, too. So the U.S. runs the least bad ship, if that’s the right way to look at it. And then finally, of course, there’s the euro. The Europeans for a long time have been looting the U.S. dollar as a coequal currency, if you will. The European euro should be right there with them, but they confiscated insured bank deposits back when they had the financial crisis in the late 2000, early 20 tens. And as a result, anyone who could move their money out of Europe did. So. It’s a regional currency that’s not nothing, but it’s no longer a serious contender for any sort of broad, dominant international role.

There are a couple of other countries that have started to kind of join the shouting on this topic, but I don’t take those seriously either. One of them is Bangladesh. Bangladesh has recently publicly pledged that the nuclear power plant that they’re planning on buying from the Russians will be paid for with rubles. Yeah, that means nothing because the Bangladeshis don’t have the money to buy a nuclear power plant. So to pledge for something that’s never going to happen in a currency that they don’t have yet, whatever. And then there’s Argentina who says it’s gung ho to join any sort of not-dollar system. The Argentines are trailblazers in many financial matters, but currency adoption is not one of them. They’re basically looking for a currency that can be printed without causing inflation for them and without them having to pay back and foreign currency later. So, you know, I wouldn’t take that too seriously either.

Now, all that said, there is one country out there that is seriously considering and maybe even implementing a degree of de-dollarization because it doesn’t care about these factors. It has something else that is driving its decision making. And we’ll talk about that tomorrow.

The Debt Ceiling Issue: Will the US Gov Default?

We’re talking US politics today, and for those who don’t eat, sleep, and breathe politics (aka having a life), it’s about the debt ceiling. Spoiler Alert: It will probably end the same way it always does…

Anytime the White House and at least one house of Congress are in different hands, that house of Congress will use it as a chance to squeeze in some concessions. This is all just political theater, but it has gone a bit further than usual.

It can be attributed to the state of flux many of the leading political factions have found themselves in. Between the unions, fiscals, and business conservatives all transitioning, there’s no one around to knock some sense into these other groups more willing to push the limits.

So how will all of this end? I would expect a last-minute compromise because no one in the government wants to actually face a default.

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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.

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TRANSCIPT

Hey, everybody. Peter Zeihan coming to you from a windy Fort Lauderdale. Sorry about the background noise. It’s unavoidable on this one. But that’s okay because I’m talking about U.S. politics today, specifically the debt ceiling issues.

For those of you who don’t obsess about the ins and outs of what’s going on in Washington, I understand if you don’t understand what’s going on, that’s totally fine. The very short version is, since the United States runs a significant budget deficit that requires approval from Congress to raise the funds that are necessary to run the government. And so every couple of years, whenever the White House and Congress are in different hands, whoever is in Congress tries to use this issue as leverage to get political concessions in one way or the other. Rarely happens at all when the same party controls both houses. But since were in a divided government right now, the Republicans are trying to wring some concessions out of the Biden administration. 

Now, if the United States were to not increase the debt ceiling, that would mean that the United States would no longer be able to raise capital in order to fund government activities. And that would hit everything, whether it’s Social Security and Medicare or Medicaid or the military or the food stamp programs. Basically, the government would have to triage and decide what not to spend money on and actually live within its means. Now, there is no one that I know who has two brain cells to rub together in Washington, who thinks that a default on U.S. debt or a collapse of the US government functioning would be a good idea. So usually this is just used for political theater. And in order to generate a pretext for getting some concessions and both parties have played that game.

The reason that this has gotten a lot closer to the wire with us now within a month of the United States actually defaulting or entering into budgetary crunch is because our political system has shifted significantly. Now, for those of you who’ve been following me for a while, you know that I’m of the belief that we’re going through a political transition that we go through every once in every generation or two. And when that happens, the factions that make up the parties move around or they jump ship. Maybe they become swing voters, maybe they switch sides. And while that’s going on, everything is remarkably fluid and very angry. And social media certainly hasn’t helped. The stage that we’re at at the moment is that Donald Trump succeeded in excising the fiscal and the business community’s from the Republican coalition, but he’s also succeeded in bringing the unions in to the Republican Party from the Democratic coalition and Joe Biden, now that he’s president, has been partially successful at breaking up the unions and the Republicans and trying to get the unions back. And what this means is that the unions, the fiscals and the business conservatives are all in flux and all are basically swing voters. Now, those are the three factions that know how to do math for which economics is the core part of why they’re involved in politics. And so when you’ve got the three factions that know the most about things like math and finances and budgeting, no longer part of the political core. Everyone else who’s willing to use the debt ceiling as a political wedge can go a lot farther because there’s no longer a group of sane people in the background saying, No, we’re not going to do that. We’re going to try something else.

We’re seeing something similar with the Greens because we don’t have unions, fiscals, or business voters represented in Washington or really any level. The Greens are able to impress their view of economics on a lot of policies and so we’re getting a few things that maybe that don’t hold up to normal fiscal rules.

I still don’t think we’re going to be facing a default. I think I still think we’re going to have a last minute compromise. Joe Biden has canceled part of his Asia trip in order to come back and hammer out a last minute deal. But this is probably going to go down to the wire and that’s simply because our political system is too much in flux.

So hopefully that brings a little bit of context, a little bit of detail and what has become an unnecessarily problematic development. And I hope, hope, hope, cooler heads will prevail in the long run. 

Alright. That’s it for me. You guys take care.

The United States Dominates Signal Intelligence

We’ve poked holes in the US system and talked about Russian intelligence declining, so today, let’s look at what the US dominates: signal intelligence (SIGINT).

Next time you find yourself in the Netherlands, ask the local shopkeep how many languages he can speak…I bet it’s more than a few! On the flip side, if you head to the US, the answer is likely one…or two if you’re really lucky. That dichotomy summarizes America’s human intelligence (HUMINT) problem; a small recruiting pool requires lots of expensive training.

However, the US does excel on the SIGINT side of things. This is the monitoring, deciphering, and sifting of mass amounts of data (texts, emails, etc.) and tracing it back to the source. Then the human side of things identifies and extracts the most important stuff.

Since the US is such a significant world player, it’s become extremely good at this. But do they do it alone? No! The Americans partner with many allies, but four stand out: The UK, Australia, New Zealand, and Canada. With the US, they form The Five Eyes Alliance  – a monitoring and sharing agreement that has given the US a good grasp on global signal intelligence.

Encryption has made this process a bit harder, but processing power and AI have helped the US lead the way in focused signal intelligence. This doesn’t mean that the Americans have abandoned HUMINT altogether; instead, SIGINT enhances and guides the strategy for the boots on the ground.

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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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TRANSCIPT

Everybody. Peter Zine here coming to you from just above Denver. It’s almost May, which means it’s almost hiking season almost now yet. Anyway, I am going to talk a little bit about the other side of the intelligence question. So we poked a few holes in the American system. We’ve talked about the leaks. We’ve talked about how the Russians do theirs and why they’re good at and whether maybe not as good as they used to be.

But I want to talk about how the United States does things. Now, the United States is a country that, while it is firmly bilingual, all the population as a whole is not particularly multilingual. So, you know, you go to the Netherlands and you’re a random shopkeeper who’s going to speak like six languages fluently and then, you know, be able to command a half a dozen more.

Most Americans are luckily like me, if they can spell in English. And the truly fortunate among us are bilingual with Spanish. And that’s about it. And that makes a very small pool of people to draw from if you want to do large scale intelligence operations that have a human element to it. And so all of our intelligence programs include some very, very, very intensive language training because not just not a lot of people come into the space with that, especially when you consider that one of the big pools for intelligence personnel are former military personnel.

And if you are working for four or eight, you know, two or three whatever tours. Language competency in a foreign language isn’t necessarily all that common. Or maybe you have one. And since American foreign policy changes every few years based on who the rivalry of the moment happens to be, you know, we’re always having to recreate that language, that language competency, which means that when it comes to humans, we’re not that great.

In addition, the United States is a very rich country and convincing someone to go abroad and basically work in a danger zone for danger pay is a bit of a stretch, whereas if you’re in a poorer country or a country that has a lot more geopolitical strife, less written in its immediate environment. It’s an easier sell to the population.

So small pool, expensive pool. And that pool still requires extensive training. So the United States just doesn’t excel at human intelligence HUMINT. What we do excel, however, SIGINT or signals intelligence. And that’s the idea that you intercept electronic signals, whether it’s in the form of a phone call or an email or text message or a tweet. And you trace it back to its source and you monitor it, hopefully without the other side realizing that you’re doing and you just kind of get the raw feed coming in.

This is then processed with computers, which eliminates, you know, 99.9% of everything is noise. And then that last point, 1% approximately goes through a human filter where it’s sorted out two levels of importance, because the United States is the largest first world country and the largest economy in human history. And because electronic communications are now omnipresent. The U.S. has gotten really good at this.

There was a program that the Europeans hated. A few years ago, they called it Echelon, where basically the United States use that signals intelligence dragnet to cover all global communications. And while it was never as far reaching as the Europeans thought, it was still pretty cool because all you need is a radio tower to collect the information. And if you throw in global cell towers plus global satellites, that is a lot of collection potential.

Now, do we do it alone? The answer to that is a hard no. We cooperate with any number of allies, but there are four that are far more important than the others put together. The United Kingdom, Australia, New Zealand and Canada. And collectively, these form what are called the Five Eyes. They cooperate on the gathering of intelligence, the analysis of what comes in, and then they share the findings among themselves.

And that makes these four countries the tightest allies we have. Yes, we fight. That’s what family does. But it does mean that the United States has a grip, a really good grip on signals intelligence the world over. Now, there have been some issues that have come and gone through the years that have made this more or less effective.

The general obsession with the corruption that started a few years ago certainly has made it more problematic. But a I in processing power has almost kept track with that. So the United States is able to, once it identifies a person of interest, apply a lot of supercomputer time in order to crack whatever the encryption happens to be. That means that the dragnet of covering all of humanity is pretty much nonexistent anymore.

But focused signals intelligence is wildly effective, and it remains the United States number one source of intelligence information. That doesn’t mean we don’t do HUMINT. It doesn’t mean that human intelligence is not important to the United States. It’s critical, especially for any ongoing military operation. So when it comes to locating suspects, but signals intelligence tells us where to look in the first place.

And then those fewer, though, those more rare human intelligence assets are deployed once we have a general idea of what sort of neighborhood we’re looking at. Okay. That’s it for me. Until next time.

Top Secret Pentagon Documents Leaked by a 21-Year-Old

What happens when you give a 21-year-old access to TOP SECRET documents? They end up leaking those documents on a gaming chat platform…shocking.

Most of the information that was leaked pertains to the Ukraine War and how the U.S. has low confidence in the reports coming out of Ukraine. Nothing too far-fetched, but that doesn’t mean we should take everything in the public domain at face value. Let’s remember who is blasting this info around and how easy it is to tamper with.

Russia once boasted the largest human intelligence arm, but we haven’t seen much Russian interference since Snowden. This means they’ve gotten really good, or that capability has lapsed, and I lean toward the latter.

As the US faces another leak, the real question that must be asked is whether people like Snowden, Manning, and Teixeira should even have access to this stuff.

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.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

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TRANSCIPT

Hey everyone. Peter Zeihan here coming to you from Colorado where spring has sprung and the frogs are chirping, which means, of course, later today we’re supposed to get a foot of snow. Anyway, I thought it would be worth me commenting on the recent intelligence leaks by airmen Teixeira. Let’s deal with the contents of what was leaked and then we can talk about espionage and leaks in general.

So most of the documents that were leaked relate to the war in Ukraine in some way and involve internal U.S. assessments of how the war is going and how the Ukrainians are doing. And they’re broadly less than fully complementary. Basic indication from the leak is that the Ukrainians have been suffering higher casualties than are reported and more importantly, that the confidence in the numbers provided by the Ukrainians is very low. So the U.S. really doesn’t have a good view. In addition, there’s concern that by engaging in a static defense in places like Bakhmut, the Ukrainians are losing their combat firepower, which is going to make it more difficult for them to launch future offensives. There’s nothing about either of those assessments that is particularly controversial. But before you say that everything that is now out there in the public domain is true, keep in mind that it has been the Russians now that have publicized this stuff far and wide, and they have undoubtedly changed a lot of the details in order to make their propaganda machine a little bit stronger than it otherwise would be.

But three things to come from this. First of all. Teixeira, the guy who did the leak – the U.S. airman – from all appearances, was not recruited by the Russians. And that’s something that’s kind of had me curious for a while now. Not since Edward Snowden in 2013 have we had any of our leakers have a very firm and obvious Russian connection. Snowden apologists, of course, are going to reject that out of hand. But, you know, screw them. The Russians used to maintain the world’s best human intelligence arm. And in the last decade, either they’ve gotten so good that no one has detected them functionally working really anywhere, or that capacity has languished along with everything else that we’ve seen in the Russian state services of late, whether it’s the military or their cyber capabilities or anything else. That’s probably really good news. Second, Teixeira himself and why people do things like this, it’s really an issue of foreign recruitment. Even if they’re not a foreigner involved. People are often motivated by the same factors, with the big three being ego, ideology and sex. And in the case of Teixeira, it looks like it was probably a combination of all three. He was on a gamer’s forum. He had these documents. He had access to these documents. He brought them home. He photocopied them. He took PDF photos of them, and then he published them on the gamers platform, Discord, like the whiny bitch he is.

In the case of a couple of previous big leaks, I’m thinking here of Chelsea Manning and Edward Snowden. Ideology was certainly part of it for Manning in terms of Edward Snowden clearly was paid by the Russians, clearly fled to Russia, clearly married a trophy bride as soon as he got there. So, you know, I’m sure it’s for love, but let’s be a little bit more honest here. And then ideology, of course, intertwines with Snowden as well. I think the criticism here, if there is one, is we’ve now had three leaks of significance in the last 13 years that get into the files that are top secret and above. And if you look at the three specific cases of Snowden, Manning and Teixeira, they all have something in common. They probably should have never had access to these documents in the first place. Snowden was a part time contractor, and yes, he was definitely a spy. And yes, he definitely hacked into the system. But somebody at his level should have never been near a terminal, and given access in the first place. Manning was a private at the time and definitely should have not had access to the high end stuff. And Teixeira was a 21 year old airman. Now I am not the sort of person who’s going to go in and pick apart American security policy when it comes to information. But there is a pattern here and probably something that should be addressed in the not too distant future. But the biggest bit of encouragement I had is how fast Teixeira was caught. I mean, it really only took a few days for the FBI to find them. At the same time, a bunch of independent journalists found him and then publicized his information. So at least on time, on target, we are getting better from the law enforcement side of this. But maybe we should work a little bit more in information security on the personnel side.

Okay. I think that’s it for me. Take care.

The Water Crisis in the American Southwest

The American Southwest is primed to be one of the largest beneficiaries of the changes caused by deglobalization – mainly the reshoring of manufacturing. They owe this to years of in-migration bolstering their demographics. They also account for a significant portion of the nation’s foodstuffs. However, everything in the American Southwest depends upon one thing…WATER.

To put it lightly, the water situation in the Southwest is fickle; rivers can go from rushing to bone dry in a matter of a year. Up to this point, the Colorado River Compact has been the saving grace for the Southwest: a treaty outlining how much water from the Colorado River will be allocated to each state in the region.

The issue with the compact is that it operates on a priority system. So states that were urbanized when the treaty was signed have priority over states that developed later on. Fast forward to today, and we have an archaic system that benefits places like California over places like Arizona.

So what happens if the states upstream decide to walk away from the compact and start using the water as they see fit? It would be an ugly few years of political and legal chaos, but if the Southwest wants to be the beneficiary it’s poised to be…they better figure it out quickly.

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.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey everybody. Peter Zeihan here coming to you from Vegas. And today we are going to talk about water and drought and all the things that come from that. Specifically here in the American southwest, we have a water problem. Now, for those of you who know your paleontological history. That’s a mouthful. You will know that the Southwest has a history of mass extinction and civilizational breakdown events that have on time descended into cannibalism. The issue is the terrain. It’s an arid area with a lot of elevation, and that means that most of its water comes from orographic precipitation, which is a fancy term that says that when you get moisture moving across a landscape, if it hits an elevation center or a mountain, it will rise. And if the temperature at the higher elevations is cold enough, the water will condense into vapor form clouds and then rain. And most of the rainfall that hits the American southwest has that sort of origin. The problem with orographic precipitation, though, is it’s fickle. And oftentimes you will not get enough cold temperatures at elevation or not sufficiently humid air currents in order to generate the moisture in the first place. So rivers literally come and go and that is caused the collapse of civilisational systems as you get mega droughts from time to time to time. We are in one of those periods now. So that’s probably one.

Problem Two, when the American Southwest realized that they had limited amounts of water. The states back in the 1920s, 1922, I think, set up a legal structure called the Colorado River Compact, in which they agreed to share the water. The problem was that the year that they used to evaluate how much water they had to share was one of the wettest years on record. So we’ve known for decades that in time the volumes that were written out in the treaty just weren’t going to be there. In addition, this is all heavily litigated and legalized, all written down in law. And at the federal level, it’s an issue of senior water rights. So the urban centers that existed at the time of the treaty in 1922 have priority. And anyone who has built infrastructure since then to tap into the waterway network is at a lower priority. So if you were an urban center in 1922, you have senior water rights and everyone else who has added is lower and lower and lower and lower. And so if you were at the very bottom in, say, the seventies when your system was built, you’re at the very, very bottom. The first state mentioned in the compact is the one that had the highest population then and now, and that’s California. But Los Angeles has 15 million people. The entire Southwest only had that many people in 1922. So you can see as part of the problem, the last state to build out its infrastructure to tap the waterway network was Arizona. It only finished the the Central Arizona project in the late sixties and into the seventies. So they’re at the very bottom. And when there was a dispute over water a few years ago, Arizona and California ended up in court. And the Supreme Court ruled very, very clearly that California has severe water rights and Arizona is at the bottom of the stack of junior water rights, which means that Arizona water demand can go to zero before California has to cut at all. And with that ruling in California’s back pocket, California has simply refused to engage in negotiations with the other states of the Colorado River basin. So we even had a deal last year where all of the other states got together and agreed to slash their demand. If, in exchange, California were to make a moderate decline. And California refused. The California position officially is you all go to zero and die and we will just keep having our golf courses.

So the debate now among the other states, especially the upstream states, is about just walking away from the compact completely. Now, this would lead to California suing them in a court case that they would probably lose, but that would take years because it would get tied up in court. And in the meantime, California would go completely dry. And Southern California gets roughly a third of their water from the Colorado River. So massive economic dislocation. Now, aside from the whole human tragedy of this, why does this matter? Well, let me give you three reasons. Number one, the world is deglobalizing and the United States is discovering if it still wants stuff, it needs to build out its own industrial plant. So there is a competition among the states right now about where that stuff will go. Texas is probably going to be the single biggest winner of the American South. Looks really good. But there’s parts of the Southwest that are very, very high value added. And getting semiconductor fabrication facilities in places like Phoenix are a great idea. But it requires water. In addition, we need to reshore especially the electronic supply chain system. And the Southwest is probably the best part of the country for that for labor reasons. In order to do manufacturing of electronics, you need a differentiated workforce with a lot of different price points. That means the person who does the lens for the camera is not the person who does the memory board, is not the person who does the plastic molding, is not the person who does assembly. These are all different skill sets. They all have different price points for the labor. And so you need multiple skill sets, multiple price points, multiple labor forces in relatively close proximity. This is one of the reasons that East Asia has done so well in this space for decades, because you have your technocracy in Korea and Japan and Taiwan, you have your mass assembly in places like Vietnam and China, and then you have your mid-range in places like Malaysia and Thailand. The only place in North America we have that sort of variation is in the US-Mexico border. And for the Southwest that’s a really good selling point if you can keep the water flowing. And another big reason is agriculture. Now, one of the big problems, one of the reasons why the Southwest is in this problem is that they are growing a lot of food in the desert. And, you know, if you look at that on its surface, you’ve got to wonder if that was a very good idea in the first place. And the answer is no, it was not a very good idea in the first place, but it is now part of our food security system. And so places like Yuma, Arizona, which are about as far south in the country as you can get, get all of their water from these water courses that are governed by the compact and of Colorado just walks away. Then in the winter, we’re talking about losing a quarter to a third of most of her fresh vegetables because it’s got the perfect climate for it if you got the water. Now, unlike, say, interior Washington, where you’ve got the Columbia River, which is the continent’s biggest water flow by volume, and you take water from that for, say, the Yakima and the Walla Walla, the Benson systems. You know, it’s not a big deal, but you can’t do that at scale over time in a watershed like we have in the Southwest. And so we’re talking about losing a significant amount of food production that is important, not just locally and regionally, but across the national system.

Now, California don’t get too smug. The Central Valley is facing this exact same problem, and you can’t blame that one on any one upstate. That is your homegrown ecological and agricultural crisis. That’s a problem for another day. And then third, taxes. One of the things that we’ve seen in the last few years is Americans are moving in a way that they haven’t in quite some time. The baby boomers want to move someplace where it’s warmer. The millennials want to move to someplace that has more elbow room where it’s cheaper to expand the cities and therefore they can afford yards. And not a lot of people want to be dependent on mass transport because they’re afraid of diseases. Well, the American Southwest scratches all of those itches. And it has been the fastest growing part of the country from in-migration in the country now for roughly 50 years. And all else being equal, there’s not a lot of reason to expect that to change unless there’s a persistent water crisis.

Now, the good news is there are a lot of things that America can do in order to get by a lot better. You remove a lot of the water intensive agriculture from the region. You make things like golf courses go away. You don’t have fountains in Phoenix, for example, and you just manage your water resources with the best technologies of the 13th century, we can probably have a population increase of 50% without a problem.

But above all, the Colorado Compact has to be renegotiated for a more realistic environment. And since California will not choose to do that willingly, they are going to have to be forced, which means either we do have a crisis first triggered by the upstream states or Congress steps in and abrogates the pact and imposes a replacement. This is going to be an ugly, ugly political issue for the next few years. That is absolutely unavoidable, but is absolutely critical if the United States in general, this region in specific, is going to take advantage of the demographic and geopolitical shifts that are wracking our world right now. This region should be one of the biggest beneficiaries of the changes going on, but they have to be able to get the water situation right.

Alright. That’s it for me. See you guys next time.