There’s finally a deal on the table between the US and Iran that everyone can live with…it even looks like Israel has given it the green light. So what does this deal actually look like?
On the surface, this deal looks like the US is getting back those American prisoners who were unjustly detained and releasing $6 billion of frozen Iranian funds. However, this isn’t just about a few people who got caught with dime bags; it’s about the broader relationship at hand.
We’re talking about Iran discontinuing funds being sent out to their militias, spinning down some of their enriched uranium, coming back under IAEA inspections, and in exchange, the US will enable them to sell crude abroad.
In no way is this a done deal, but some factors are helping to push this along. The big one is the Russian sanctions’ impact on Iranian crude exports and the overall financial situation, which makes the $6 billion offer sound pretty appealing.
We could be looking at the most productive stage of American-Iranian relations since the 70s; all it cost the US was $6 billion of someone else’s money. Sounds like a win to me.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Before I answer the question about what news sources I use, we must understand how the hell our society became so damn uninformed…
Propaganda only works when you have an uninformed society, and if you haven’t looked up in a while, we can’t even agree on what color the sky is anymore. So yeah, propaganda is doing just fine here in the States. But how did we get here?
It all started with the fax machine, which began eliminating the staff that once served as ‘fact-checkers’ for stories before publication. Then email came along and only exacerbated this issue, doing away with any auxiliary staff. It isn’t so much that biases went unchecked (although that happened in spades), but instead that there were fewer eyes and brains to ensure the story was actually correct. The opportunity for the less scrupulous among us to make their version of the world known crept in. (The technical term is “lying”.) And…a lot of people like that. Cue the entrance of charismatic individuals who woo people with deliberate deception.
So if you believe the sky is neon green (or if you’re tired of hearing that it is), maybe check out one of the following news sources: Al Jazeera, France 24, the Wall Street Journal, Bloomberg, Straight Arrow News, or local stations. I’m not saying these are perfect, but they’ll get you going on a better path.
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.
We appreciate the interest and engagement from our followers, but with Peter’s travel schedule and sheer volume of requests, we are unable to answer non-business-related questions via e-mail. If you’d like to join in on the conversation, head over to the community tab on our YouTube Channel
Our next video in the ‘Ask Peter’ series comes to you from just above Loveland Pass at about 13,000 ft. As the Biden administration piles on more drilling restrictions on public land, will America’s energy independence be jeopardized?
Quick backstory on America’s energy journey. The US was a net energy exporter until 1973. Once we used up all the “easy-access” oil, we became the world’s largest oil importer, peaking in the mid-2000s. Then the Shale Revolution changed everything.
Fracking gave the US access to a boatload of new oil (this technology has been around for a while but wasn’t popularized until the early 2000s). Fast forward to today, and the US is once again energy independent (minus a little COVID hiccup).
So will the Biden administration’s new restrictions on public land drilling set us back again? Oil from public lands accounts for such a marginal amount of the total US output that any of these regulations aren’t going to move the needle much. As long as there’s an incentive for these private landowners to be successful, this shouldn’t be a problem…
Offshore drilling is a little different. The quick and dirty is that short-term market moves aren’t the primary motivator in this space, so longer approval periods and stricter regulations aren’t of too much concern.
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.
Yesterday we covered the key players in the US and Saudi relations. Today we’ll look at the strategic implications of this relationship over the past 40 years and what it looks like moving forward.
Saudi Arabia matters to the US more than many other US allies. Not only are the Saudis massive oil exporters, but they also have strong ties to the world’s Muslim population.
Over the past few decades, the US and the Saudis have partnered up to tackle a handful of critical situations; from stalling the Soviets to the war in Afghanistan to spurring economic growth in Europe and Japan, this relationship has proven vital.
The bottom line is with major players like Russia and China already in motion, the US and Saudis won’t allow ugly politics to get in the way of geopolitical relations. Saudi Arabia is a power center and doesn’t need to be under the American wing, but there’s still a mutually beneficial relationship on the table.
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.
We’re talking US – Saudi relations. This will be a two-parter, but today we’re focusing on the key players.
US National Security Advisor Jake Sullivan went to Saudi Arabia to lay down the framework for a new set of relations. As of late, relations have been less than ideal.
The National Security Advisor is really the manager of American foreign policy – even though the State Department gets all the credit. So seeing the hyper-competent Jake Sullivan leading the charge here is indicative of just how critical this is.
Biden’s push to Greentech has caused riffs in the relationship, but the other side has played a role too. MBS, the crown prince, is – for lack of a better term – an ass. And as anyone who’s dealt with someone like that knows, you have to put up with a lot of crap.
However, with Russia and China making moves against the US, Biden is starting to realize that Saudi Arabia is a very useful partner to have.
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.
California has been one of the most successful states in the US, primarily because of things outside its control. Large-scale inward international immigration has enabled California to continue its population growth. The millennial desire for an urban coastal experience has brought a constant influx of people in their 20s and 30s, which has helped with taxes and a steady labor force. Now combine all these people with a rich capital environment and boom…Silicon Valley.
Ideas flow from the tech startups in the valley to factories in China, Japan, Taiwan, etc., making California the gateway to East Asia. And when those products get imported back to the States, their first stop is the Long Beach Port along CA’s coast. This is just another external element contributing to California’s solid economic model.
But now, all of the factors that have propped up California are flipping. Immigration is stalling. The capital situation is upside down. The cost of living is through the roof, so the labor force is moving to places like Texas. Rising tensions with Asia are causing reshoring and nearshoring. The only thing California can do now is reinvent itself.
Whether they can do it or not is a discussion for another video…
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey Everybody. Peter Zeihan here coming to you from my home in Colorado. I’m in the process of packing up for an extended backpacking trip, so I am going to be mostly out of pocket for the remainder of the summer. We’ve recorded a couple dozen videos already and I’ll still be recording things while I’m out, but I’m probably not going to be able to comment on events of the moment because I will be out of reach and able to access news indefinitely, unable to upload a video on a regular basis.
We still aim to man the newsletter to at least the tune of three or four per week, however, so plenty of content you may have noticed. The world’s a mess right now. Plenty of things to talk about, even if they’re not about events that have boiled up in the last 24 hours. And so I want to give you a kind of an idea of what some of those videos might look like.
And so this one is on California. Now, California has been one of the most successful economic cases in the United States for the last four decades, for a mix of reasons that are largely beyond the control of California. So the first one is immigration. Natural population growth, even among migrants in California has been negative for some time, and it has only been with large scale, inward international migration that Camilla, for you, has continued to grow in terms of population, want to the millennials.
One of the things that we saw when the millennials came of age in the 2000 and the 20 tens is they wanted an urban coastal experience. And California, L.A., San Francisco were some of the big beneficiaries of that. So you’ve got millennials going from the middle of the country to the coasts. And L.A. thrived in that sort of environment.
It was still not enough to overcome an internal population decline. But having this constant influx of people in their twenties and then later in their thirties really helped with tax rates, really helped with the labor force. You put these two things together and then you apply the third factor, which is capital availability, and you get a very different economic model.
One of the things to remember about capital availability is it’s determined by the number of mature workers you may have used to be the rest of the population. Basically, when you’re your twenties and your thirties, you’re borrowing a lot to fund consumption for college, for raising kids, for buying homes and whatnot. That capital comes from people who are in their late forties to early sixties where the kids have gone away and they’re at the height of their earning experience, but their expenses have gone down.
So that has been the baby boomers since roughly 1990. And it’s generated a capital environment that’s been wonderful. This has been great for economic development, for a lot of regions, a lot of states, a lot of countries. But in California, when it came together with those millennials that were influencing, we got the tech sector because what is technology except imagining things that don’t yet exist?
And in order to make the future happen, you need two things. Number one, you need a huge number of people in their twenties, in their thirties, to do the imagining and to do the design, to make the prototype, to figure out how to operationalize it. But that entire process from idea to operationalization, that generates no income. And so you have to have a lot of cheap capital to pay those people and to pay for the work.
Well, that has been the environment in California for the last 25 years. And so we get Silicon Valley. And then fourth and finally, California has been the gateway to the United States from East Asia in two ways. Number one, California, with the tech sector, with all of that imagining, has designed new processes that could be applied to new manufacturing in new, new locations, whether that’s Japan, Korea, China, Vietnam or the rest.
And so part and parcel of the American de-industrialisation process under globalization has been made possible by the ideas generated in Silicon Valley. And then California makes money on the other side of things because as these products are coming back into the United States, a lot of them go through the port of Long Beach. So California is the first landfall.
Well, folks, all four of these trends that have made California. California have now flipped. The American political system, both left and right, has turned anti-immigration. People forget that the most anti-immigrant group in the country is first and second generation Mexican-Americans who see themselves of having crossed the right way. And everyone else needs to stay on the other side of the border in California.
Populations of Hispanics coming in from the South has been the single largest sort that has now turned flat to negative. In fact, overall migration from the south across the border to the north has been flat to negative for 17 years. It’s just it’s only now hit California. Number two, the capital situation has changed dramatically. The baby boomers are no longer mature workers.
They’re majority retired. So capital costs have gone up by about a factor of five in the last six months. They’re probably going to go up by a similar amount in absolute terms over the course of the next year and a half, which means Silicon Valley in its current form has been totally screwed by the lost capital and now the lack of people.
The millennials are no longer in the age group where they’re seeking those formative experiences. They may be late to the party six years later than most generations to this point so far. But they are doing all of the normal things now getting married, having kids, buying homes, and none of them want to do it in California. And so they’re moving out of California, back to the states that they’re from or to places that have brighter economic horizons for example, Texas.
And that’s why we see Texas grabbing more seats in the Electoral College of California’s extent, because the millennials are no longer benefiting California on a net basis. They’re moving away. And then finally, there’s Asia. The Chinese system is arguably in terminal decline. There are demographics of beyond atrocious higher capital costs globally make it difficult for companies to justify fresh investment outside of their home.
Domiciles. Trade tensions are forcing near shoring and reshoring, and the Chinese themselves are now entered into kind of a narcissistic political system that is ossified and incapable of making long term decisions or plans. That is weakening the case for exports from the East Asian sphere to the United States. California is the loser for all four of these trends.
And just as all four of these trends owed nothing in the original development in the seventies, eighties and nineties to anything done in Sacramento. Same with end. So California is going to have to reinvent itself. It’s going to have to come up with a new economic model that doesn’t require cheap capital and ample labor and international connections and high IT development.
It’s going to have to do something new, whether it can. Well, that’s a question for a different video.
We appreciate the interest and engagement from our followers, but with Peter’s travel schedule and sheer volume of requests, we are unable to answer non-business-related questions via e-mail. If you’d like to join in on the conversation, head over to the community tab on our YouTube Channel
With weapon systems moving toward hypersonics, what’s the point of holding geographic positions anymore? Theoretically, this works…at the push of a button, you can deliver a precise payload across huge distances…but the Russians have shown us this isn’t quite reality.
As the Russians descended into demographic decay, plugging these geographic access points NOW was their only way to prevent a future invasion. Sure, hypersonics are an excellent deterrent, but they’re expensive, can’t carry that large of a payload, and defense systems like the Patriot have proven rather effective.
Oh, and the Russians can’t even make the semiconductors necessary for more advanced targeting and strikes…so unless their enemies never moved, they’re probably looking at a surplus of really expensive paperweights.
While missiles, artillery, rockets, and an air force are all part of a combined arms warfare system, there’s simply no substitute for ground forces. The Russians are finding that even Ukraine, a country they dwarf militarily and economically, can have a shot at the title if they have the numbers and the right equipment.
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.
More than a few countries out there couldn’t walk and chew gum at the same time…but the US isn’t one of them. Today’s question in the ‘Ask Peter Series’ looks at whether or not the US has stretched itself too thin in Ukraine to deal with another major conflict.
Yes, the US has given the Ukrainians a couple of shiny new toys, but most of the stuff has been obsolete hand-me-downs. And how often do you get to test your new weapon systems in a real-world setting? So the only thing in the mix that throws up any red flags for me is the cluster munitions (and those were going to be retired soon anyways).
This war hasn’t impacted US military preparedness, and if China wanted to try its luck, they’d get an ass-whoopin’ compliments of Uncle Sam. The big piece here is that the people doing the walking and chewing the gum are entirely different. If anything, our involvement in Ukraine has been a proof of concept for how the US will fight the wars of the future.
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everyone. Peter Zeihan here coming to you from an incredibly green Colorado. We’ve gotten double our annual precipitation before we even hit April, but hasn’t stopped yet. Today, as part of the ask period to your series, we’re going to talk about chewing gum and walking at the same time. The concern is that in supplying weapons to the Ukrainians, the United States might be stretching its bandwidth to be able to deal with a major conflict like, say, with China.
The punch line is, no, this is not something I’m worried about at all. For the simple reason that the people would be doing the gum chewing and the walking or different people, any sort of military conflict that the Americans are going to get involved with, with the Russians are going to be primarily on land first and foremost in Ukraine itself.
That’s an army job. And any conflict that soon involved the Chinese is going to be on the high seas. That’s the Navy’s and to a lesser degree, Marines job. So the United States is perfectly capable of fighting two wars if they’re very different sorts of wars. So I’m not worried there. Number one. Number two, nothing has happened with the Ukraine war yet that has really hit American military preparedness.
So let’s get this first. From the weapons point of view, it’s already been given most of the weapons system, almost all the weapons systems that the United States has provided to the Ukrainians are things that the United States you know, most of the stuff that the American right it to the Ukrainians are things that the U.S. military hasn’t used itself since at least the 1990s and in most cases further back.
This is Army surplus that has to technologically be high the military uses. And so really, the Ukrainians are just going through our hand-me-downs now. We would have given these things to the allies. That’s what we did at the end of the Cold War, for example. But most of the military’s in Europe have been downsizing or skipping a generation.
What we’ll do is left all this stuff like Hummers going around and warehouses. So with a couple of notable exceptions, these are not things that the U.S. uses at all, the notable exceptions. There are currently two Patriot batteries operate in Ukraine that is very close to the top of an aircraft that the United States has right now. I would argue that even though taking those out of American service might be at the strategic issue for the U.S. a little bit.
It’s worth it because we’re getting real time experience with U.S. technology and third party hands against top of the line Russian equipment, most notably the Kinzel cruise missiles. And we now know for certain that even without American personnel operating them, the Patriots don’t done that. The Russians have that was a great bit of information that we didn’t have before.
The other thing is, are three shells. Now, the United States has not been engaged in a massive war to Vietnam. Even when you look at the Gulf Wars, they were very short little events. And so we haven’t had to use artillery in volume for a very long period of time in the United States, which means that our production of artillery shells has been pared to the bone and we are going through we the Ukraine is going through more artillery shells in a month and the United States can produce in a year.
And Europe is even further behind when it comes to munitions. So that has prompted the United States to get Canadians weapons systems that we are in the process of phasing out. And most notably, that is the cluster munitions that you may have seen in the news recently. Now, a cluster munition is one single piece of explosive. There are dozens or hundreds of little but spread over an area.
The Ukrainians have been on the receiving end of these weapons since the beginning of the war. Russians have preferred to use the cluster munitions whenever they’re targeting a city. They’ll use them when they go in and get things like tanks and so there’s already hundreds of thousands, if not tens of millions of these little bomblets, some of which haven’t exploded, scattered across all of eastern and southern Ukraine, aren’t brought up.
The kids aren’t thrilled. But from the Ukraine interview, gimme, gimme, gimme, gimme, gimme. Because anywhere they can get and I believe they’re going to use cluster munitions on their population centers. That’s the job for the Russians anyway. These are weapons that are for is it’s a little distasteful. And the United States Army was in the process of them out anyway.
So again, this kind of falls into the category of surplus stuff, even if it’s not quite kind of there anyway. Bottom line, U.S. military preparedness really hasn’t been affected by this war to this point. If anything, it’s proving to be a useful proof of concept for how the U.S. is likely to fight wars in the future. In the aftermath of the war on terror in Iraq and Afghanistan.
There is no political support in the United States for a mass deployment for anything except for top level national defense. That’s not seen as an issue right now. No one’s dumb enough to attack the United States directly. At least I don’t think that’s going to happen. Which means that U.S. strategic policy is going to be operating through third parties and or using special forces.
And so with Ukraine, where we have a motivated third party who was very willing to be an ally except in equipment, and we’re finding out how well that works and getting some expertize and figuring out what to do better the next time around. So all in all, in a weird sort of way, you can kind of thank the Russians for getting the United States to where it needs to go, both getting rid of its what and learning how to fight for the next century.
Today’s windy video comes to you from just below the Continental Divide.
You know those little ‘Made in China’ stickers on everything you can buy in the US? Well, don’t be surprised when those all say ‘Made in America’ in a few years as the US carries out the greatest reindustrialization process ever…and if you thought the United States’ industrial buildout during WWII was wild…buckle up.
There’s a lot at play here, but we’ll touch on the legacy factors first. The US arguably has the world’s most highly skilled labor force, but we’re hyper-focused on the value-added stuff and outsource the rest. This arrangement can’t last much longer, but the shale revolution and petrochemical production have primed us for all the reshoring coming down the line.
Recently, COVID showed the US (and the world) that our supply chains weren’t as great as we thought. Now we’re having to reshore everything and turn over the power system, driving construction levels and spending through the roof. And the Inflation Reduction Act has helped provide the funding and regulatory structure to make it all happen.
Although inflation will be up there for a while (surprise, you can’t double your industrial plant without that happening), we’re on a solid trajectory to establish a fully regionalized supply chain. And if the US wants to have any sense of security down the line, we’ll just have to suck it up for a bit.
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey, everyone. Peter Zeihan here. Coming to you from Heart Lake, above Boulder, Colorado. Just below the continental divide, which is where I’ll be for the next few days. I suppose some day. Then, before I left, I could do a few videos and this first one is going to be on construction spending in the United States. I know some of you like and I get it.
But remember that we are in the midst of the greatest industrialization process in the United States history, building an industrial infrastructure and factories and refineries and pipelines and roads and all that faster than we did during World War Two. There’s a lot of things in play here, so let me start with kind of the legacy factors, and then we will go into the more the issues of the now.
So first legacies. The United States has the most highly skilled labor force in the world by a significant margin. There are a few countries like Singapore where the overall educational level might be higher. But, you know, Singapore is a country of 5 million people. The US is a country of 330 million. If I didn’t say the German to the French, which might have a little bit more productivity per hour than the United States, you know, we’re talking about the labor force in the United States four or five, six times as much.
And that means there’s not a lot that the United States can’t do far puts its mind to it. Now, historically, since 1945 and especially since 1991, what the U.S. has done is focus on the really, really, really high value added. We basically shipped all of our underwear manufacturing overseas, first to Mexico and then to China and India and instead we designed computers, we designed space station, designed microchips.
Not a lot of the manufacturing happens here because to be perfectly blunt, that’s not sufficiently high value added for the skill set of the American workforce. So that’s always been in the background. Second, the shale revolution courtesy of the shale revolution, the United States is glutted with natural gas, which is not merely a power fuel. It’s also used as an input for chemical components, which then go into all other types of manufacturing, whether or not you’re looking to do electrical work or diapers or anything in between.
The shale revolution made us net independent of natural gas roughly ten years ago. Net oil independent a little bit after we had a few hiccups because of COVID, but we’re back to being that independent in all the factors that matter again. And one of the first things that the shale revolution encouraged the United States to do in terms of industrial build out what we’re fighting, the chemicals and so we now are the world’s largest producer of all the precursor materials that go into all petrochemicals everywhere in the world.
And now we’re using those materials to do the next stage of heavy manufacturing. So this kind of the first big phase of this industrial spending issue isn’t necessarily for building power lines. It’s for building the stuff that allows us to build the stuff. Now on to the more current issues, too big things. First, COVID. We discovered that our international supply chains perhaps weren’t as reliable as we thought they were.
And between China’s centrality and all things manufacturing and China’s own COVID lockdown, we found out that if we wanted stuff, we had to build it ourselves. So we did. And during COVID, we saw total industrial construction spending double above the 50 year average. More recently, in the last two years, we had the Inflation Reduction Act passed by the Biden administration, which has nothing to do with inflation.
There’s more going on here than just aspects of a Green New Deal. It’s turning over the power system and reshoring the production line for everything in the power system. It includes everything that we did with NAFTA and after to you know, I should say a third thing, because after two is a big piece of this, too. But anyway, the I.R.A. put roughly $1,000,000,000 into the system to build out what we need in order to meet the requirements.
And that has doubled the construction spending again. So we were already at record levels three years ago. We’ve now doubled the record and this is going on from there. Now, this does mean we’re going to have some more inflation in the short in the mid-term, because there’s no way you double the size of the industrial plant without that.
But once we get to the back side of this a few years from now, we will have a supply chain system that is local, that is employed by locals, that serves local customers and uses less energy and less water, and has fewer steps and is largely immune to international shocks. This is a really good story. At every step.
We just have to suck up a little bit more inflation while we’re doing the work. Alright. That’s it. I’m going to go put on some gloves, but.
New York is a service-based economy, and anytime you have a system like that, cost of living becomes an issue. While the finance bros working 80-hour weeks might be able to afford NYC prices, there’s a three-headed dragon wreaking havoc on everyone else…real estate.
The first head is the demographic problem, which comes naturally with being part of the fastest-aging region in the US. Many of these lifelong New Yorkers are aging into retirement, and it doesn’t make sense to stay there anymore. So we are amid a mass exodus of lifelong NYC service workers.
The second head was/is COVID. Once people realized they could work remotely and live a more spacious life outside the city, many didn’t want to crawl back into their studio apartments. Yes, NYC has made a more robust recovery than San Francisco, but it’s still not quite back to how it was. The government is taking quite a hit for each person that never returned to the city.
This dragon’s third and worst head is international fear and its impact on rent prices. As economies across the globe enter a state of flux, there’s nothing quite like parking your assets in a 50th-floor penthouse apartment in NYC (even better if you never step foot in it). For people who actually want to live in the city (like my social media manager), that means crazy rent prices and low inventory.
Does this mean that NYC is done? Of course not. For many, this probably sounds like the status quo for the world’s financial capital. However, the business models for the private sector and the government will have to change if NYC wants to thrive for years to come.
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Everybody. Peter Zion here coming to you from New York’s Central Park. New York is a city, obviously, where there’s not a lot of manufacturing or agriculture because there hasn’t been greenfield potential here in over a century. It’s a services economy with finance, of course, being the biggest and baddest. But in any system that is based on services, cost of living becomes a critical issue because these are all very highly value added jobs, but people still have to live there. And the people who serve the services economy and serve the people who serve the services economy still need a place to live as well. So living costs are a big issue with real estate probably being at the top of the list. And in that, New York is facing a triple challenge.
The first is demographics. The American Northeast is the oldest and fastest aging part of the country. And as more people move into retirement, a lot of folks who have lived here all their lives to serve the services are discovering it’s kind of out of their pay grade. So we’re seeing a significant amount of relocation of older folks to warmer climes. Of course not everyone can afford to up and leave a rental apartment in New York for a condo in Boca. So it’s disproportionately hitting people who are on the wealthier end of that scale. Well, the second big issue is COVID and more importantly, technology. When COVID hit and everything shut down and the office went away temporarily, New Yorkers in many cases decided to decamp to other places. Some moved to upstate. Some moved to the south. Some moved to Florida. Because if you could just wire in for work, then you didn’t need to be paying a new York rent or New York taxes in many cases. And now that COVID is over, those technologies have only improved. And a lot of people are resisting coming back. Now, New York has not had as much of a problem getting people to move back to, say, San Francisco. But it’s still had a disproportionate hit on the economy overall, specifically. You’re talking about people moving into places like Jackson Hole or Charleston and maybe commuting in once or twice a month. And that’s a very different real estate picture on this side of the equation, because any money that you can use to buy a condo in New York, you’re going to be able to get, you know, a mansion in South Carolina. And since roughly 8% of the population of New York pays 90% of the taxes, every person who relocates is a real fiscal hit to the government here. But the third one is probably the most important because even with people moving out, we’re still seeing rental costs here in New York be stable to positive. The third big factor is international fear. The more problems we see in Europe and especially in China, the more people who try to get their money out and get it into a place with rule of law where you might actually be able to buy a physical asset with real estate being the number one for most consumers. And so you get these these ridiculous needle buildings in New York that not a lot of New Yorkers live in. Most of these have been bought out by foreigners who may not even have an intention of ever looking at the floor, much less moving in simply as a way to park their assets. And so we’re getting these huge distortions in a lot of property markets around the country, with New York being at the top of that list where foreigners have come in and bought up property, especially at the higher end, just to park on it. And that’s made it more difficult for everyone else to find a place or even find someone to build a place because the hot money is going to something like this that is not really of use to solving the real estate or the living cost problems of the city.
Alright. Does this mean that New York’s done? Of course not. It’s still the world financial capital, but it does mean that the business model for both the private sector and the government is going to have to change in order for the city to thrive in the future.
