Is Chinese Nuclear Tech Better Than the US?

Photo show three nuclear power plant reactors

*This video was recorded in mid-July, prior to Peter departing on his backpacking trip.

I’ve been asked to address the claim that China has surpassed the US as a nuclear power. On paper, China might have the upper hand, but that doesn’t always translate to real life.

China has been busy building the world’s largest nuclear fleet, and the US hasn’t built a plant since the 70s (even if they have had more recent expansions). However, the technology being used in the Chinese plants is dated and ignores major safety concerns. The US has struggled to keep a labor force large enough to operate new plants, but there’s potential for modular reactors and new tech to shift the tides in favor of the US in the coming decades.

Now onto the explosive stuff. The US nuclear arsenal is top-notch, well tested and maintained. The Chinese are expanding their arsenal, but precision manufacturing and testing are limiting that growth.

So, the Chinese may have the numbers leaning their way for nuclear power, but in the areas that really matter (like nuclear weapons) the US is still sitting comfy.

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.

Transcript

Hey, everybody. Peter Zeihan here, coming to you from a stormy day in Colorado. Hopefully, we won’t have a lightning strike close enough to make things too exciting. Anyway, today we’re taking a question from the Ask Peter forum. The question is about recent reports suggesting that the United States is falling behind China in nuclear technology. What are my thoughts on that?

This is a complex issue with both yes and no aspects. Let’s start with where China is doing well, which primarily concerns nuclear power generation and the deployment of new nuclear power facilities. Since the Three Mile Island incident in 1979, the United States has only built one nuclear facility, the Vogtle plant, constructed by Southern Company. A major issue they faced was talent and labor. When you haven’t built new nuclear power facilities for nearly 50 years, there aren’t many people entering that field, and those who were in it have mostly retired. As a result, the U.S. has had to reinvent certain skill sets and recruit former Navy nuclear engineers, like those who worked on submarines, to fill the ranks. This is a very costly process.

In contrast, China is building out what will easily become the world’s largest nuclear fleet. This means there’s a whole generation of nuclear engineers and construction workers in China who are experienced in this field. So, it’s not that Americans can’t do it or that we’ve lost the technology; we’ve lost the labor force. From a practical standpoint, that’s almost as bad. But it’s important to note that the type of nuclear reactors used in both the U.S. and China are typically light water reactors, a technology dating back to the 1950s. While China is developing a more robust and redundant labor force for 1950s and 1960s technology, this doesn’t necessarily mean they’re getting ahead in innovation.

If the United States decides to re-enter the nuclear power generation field, the likely approach would be through small modular reactors (SMRs). The advantage of large nuclear facilities is that they can generate over a gigawatt of power, enough to supply many cities. However, the problem with light water reactor technology is the potential for meltdowns, like a lighter version of the Three Mile Island incident. Public resistance to having these reactors near cities is a major reason why the U.S. hasn’t built more. In China, where public opinion and safety concerns are less of an issue, they’re building them rapidly.

The advantage of SMRs is their small size—they can fit on the back of a truck and be plugged into existing systems, like decommissioned coal plants. They are mobile and can be moved to where they’re needed. This makes them a good partner for renewable energy sources like wind and solar, which are intermittent, or for decarbonizing energy production. You can take an SMR to a decommissioned coal plant that already has all the infrastructure and simply set it up and run it. This technology could be a real game-changer.

However, building the prototype is a significant challenge. A company that was trying to break into this space faced setbacks last November when contracts fell apart, setting the effort back to the drawing board. While other companies are working on it, none are likely to have a working prototype within the next 3 to 5 years. Without a prototype, mass production of the technology is unlikely within the next decade. While SMRs are an interesting concept, they’re not progressing rapidly at the moment. As far as I know, China isn’t focusing on this direction either, as they’re more concerned with building large reactors.

There is also the possibility of using fourth-generation reactors, such as pebble-bed reactors. The French are working on this, but we’re not yet at the stage of having a functional prototype, so it’s too early to draw any conclusions. Even if the prototype is perfect, actual construction might not begin until 2035 to 2040.

Now, let’s talk about nuclear weapons. Nuclear materials aren’t just used for generating electricity; they can also make very dangerous weapons. The United States was not only the first country to build and use an atomic bomb but also the first to develop a hydrogen bomb. American nuclear weapons are likely still the best in the world, although we haven’t used one in quite some time. We’ve developed ways to use computer simulations to ensure our arsenal is effective and safe. The U.S. remains the world leader in maintaining and refurbishing nuclear reactor cores to ensure they don’t degrade.

However, the only way to know for sure how well these systems work would be to engage in a full-scale international intercontinental nuclear missile exchange—a test that, thankfully, we don’t want to conduct. But I’m confident that American weapons are still the most advanced. From the last time we had insight into Russia’s nuclear capabilities, they’ve likely slipped from being the second-best to something like ninth in the world. They still have many warheads, but the question is whether these warheads have degraded. Considering the poor performance of other Russian military equipment in Ukraine, it would be surprising if their nuclear arsenal were the one thing still functioning perfectly. This doesn’t mean we should provoke Russia into a nuclear conflict, but if such a situation arose, the blast radius of their bombs might be less than expected. It would still be a disastrous event.

As for China, they currently have only a few hundred deliverable nuclear weapons. They’re working on expanding this force and aim to reach some form of numerical parity over the next 15 years. This goal involves overcoming significant challenges, primarily related to precision manufacturing. Building a plutonium bomb requires creating an explosive core with a series of synchronized explosions around the core to force it to collapse and trigger a reaction. The Chinese can do this, but scaling it up is a challenge. They also need to miniaturize the warhead and ensure it can survive the forces of launch and re-entry. While the Chinese are not lagging in these areas, achieving all these requirements together is complex and untested in real-world conflict scenarios.

If they fail, it won’t be for lack of trying.

Is the US Looking for a War?

*This video was recorded in May of 2024

The potential of dragging the US into a major conflict is top of mind for a lot of Americans, but what would it actually take to get us there?

The US isn’t just going to rush into a significant conflict, there has to be something major that occurs first. We’re talking a political leader with a strong international agenda or a major provocation (like Pearl Harbor). China (at least for now) knows better than to provoke the US due to Chinese reliance on maritime trade. Russia’s incompetence and aggressive actions in Ukraine pose a potential threat, but only if the conflict directly impacts US interests.

When looking at US military action within North America specifically, conflict with the Mexican drug cartels is top of mind. Although the situation in Mexico is dire, any action by the US without Mexico’s cooperation would be disastrous for the future of the US-Mexico trade relationship.

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.

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

Don’t do that.

America’s Cold War Missiles Return to Germany, Thanks to Russia

Picture of a Tomahawk cruise missile mid-flight

Well, it looks like the Germans are going to be celebrating Christmas in July. That’s due to the US and Germany’s decision made at the NATO conference to redeploy American mid-range weaponry to Germany. And yes, this hasn’t happened since the Cold War for…historic reasons.

Russia is the country to blame here. They’ve been violating arms treaties for the past 15 years, so the US got fed up and bailed on the INF treaty five years ago; this triggered the redeployment process. There are a whole boatload of reasons that this is happening, but defense against the Russians tops the list.

While the Russians may have opened this can of worms, the fallout isn’t going to be confined to them. Since the treaty that barred the US from taking actions globally is now kaput, the Chinese will be feeling some of the heat too. You can expect to see some intermediate-range American weapons in close proximity to China and throughout East Asia, which should help limit China’s global economic influence.

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.

Transcript

Hey everybody, Peter Zeihan here coming to you from the Lake of the Ozarks. It is Thursday, July 12th, and today we’re going to be talking about security in Europe. Specifically, the United States at the NATO conference has announced, with the Germans, that American mid-range weaponry is returning to Germany in a position that hasn’t been seen since the Cold War.

A combination of hypersonics, mid-range missiles, including the Tomahawk cruise missile system, is being deployed. The reason this is happening is because we had a series of Cold War and post-Cold War arms treaties between the United States, NATO, and the Soviet Union, like the Conventional Forces in Europe Treaty, or more specifically for this conversation, the Intermediate Nuclear Forces Treaty (INF). The Russians started bit by bit either violating or withdrawing from those treaties as far as 15 years ago and even started developing weapons systems that are expressly barred by the treaty and then deploying them.

Under the Trump administration, five years ago, the United States formally withdrew from the Intermediate Nuclear Forces Treaty and has been moving bit by bit to redeploy these weapon systems ever since. The INF specifically bars weapons systems with a range of 500 to 5,500 km, roughly 300 miles to 3,000 miles, which basically covers the entirety of the hot zone now between NATO and Russia, including all of Ukraine.

The idea of these treaties, which dates back to Reagan and Gorbachev, was that if you take the weapons that are actually useful off the field, then you won’t have a tactical engagement or a tactical escalation. That just leaves the big strategic missiles, like the intercontinental ballistic missiles that are based in the United States. The desire to not use those is quite strong, so you take away the usable day-to-day missiles, and it forces both sides to basically come to the peace table. Well, the Russians have repeatedly moved away from that system, and now they’re going to find themselves facing weapons systems that, while maybe designed 50 years ago, are perfectly serviceable.

The United States is dusting off things like hypersonics that it developed back in the ’70s and ’80s but never deployed. Now they are being deployed. The balance of forces for the Russians across the entire theater is about to go from problematic to catastrophic. Keep in mind that one of the many reasons why the Cold War ended when it did is because NATO and, to a greater extent, the United States, defeated the Russians in an arms race. The Soviet Union simply couldn’t keep up with the economic power of the United States. While Russia today is significantly economically weaker than the Soviet Union ever was, the United States is significantly economically stronger than it was back in the ’70s and ’80s. So there’s really no contest here. The Russians have proven over and over again that while they can’t innovate, they can’t develop new weapons systems that are particularly capable, and they certainly can’t produce them at scale. Meanwhile, the United States, in many cases, is just literally dusting off things that have been in storage for 20-30 years and bringing them back online while also developing new systems.

The strategic picture for the Russians is a direct consequence of some very bad decisions they’ve made. A lot of the Russian position for the last 15 years has really been a bluff, and it worked until 2022 with the Ukraine war, which mobilized pretty much everyone in Europe. The Germans were the country that was most in support of the INF when it was negotiated because they were the ones in the crosshairs, and they were the country that was the most willing to overlook all of the Russian violations of the treaty because they lived in this kind of strategic nirvana that they didn’t want to end. Now, it’s the Germans who are actually arguing that the United States needs to deploy more and more weapon systems, not just to Europe, but to Germany specifically.

Okay, that’s kind of the big first piece. The second piece is the INF provided handcuffs on what the U.S. could do, not just in Europe, but globally. The country that has arguably benefited the most from the Americans refusing to deploy intermediate-range weapon systems isn’t Germany, it’s Russia. It’s China. If you look at a map of East Asia and consider all of the U.S. allies, especially Japan, the Philippines, Taiwan, Indonesia, and Singapore, the distance from those countries to the Asian mainland is in that 500 km to 5,500 km range.

So for the entirety of the post-Cold War period, the United States has been barred from deploying appropriately ranged weapon systems to counter the Chinese rise. Well, not anymore. Over the course of the next 2-3 years, we’re going to see a mass deployment of American weapon systems off the Chinese coast that are perfect for boxing in the Chinese. The Chinese have always argued strategically that this was the goal of the United States all along, which, of course, is horse crap. But keep in mind that unlike the United States, China is a trading power, and not having these weapon systems has allowed the Chinese to, from a strategic and economic point of view, become a global economic player.

If these weapon systems are in place, everything that the Chinese do could literally be shut down within an hour. The capacity of the Chinese to import and export could be ended almost overnight. So while it may have been the Russians who were the ones who were messing around, it’s absolutely going to be the Chinese who are the ones who are going to find out.

Photo by U.S. Navyderivative work: The High Fin Sperm WhaleTomahawk_Block_IV_cruise_missile.jpg, Public Domain, Link Wikimedia Commons

Strong American Growth (and Something to Worry About)

If you don’t want to start your day with beautiful beach views and economic forecasts, you may want to skip the video. Today we’ll be discussing recent changes to the US economy and what future impacts might look like.

Trump and Biden boosted the economy with massive stimulus packages post-COVID, but things are beginning to settle down. There’s some minor issues starting to pop up, like a rise in loan delinquencies and higher interest rates, but the US economy still looks strong overall.

The bigger concern revolves around government spending surpassing private sector growth for the first time ever. This indicates a potential shift toward government-driven economic growth, that could undermine long-term dynamism and efficiency in the US economy.

This isn’t something that will happen overnight, but if left unaddressed, the US could face significant economic challenges down the road.

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.

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Can Former President Trump ‘Make Felonies Great Again’?

WE’RE LESS THAN A WEEK AWAY FROM THE WEBINAR!

Peter Zeihan’s Risk List: What Keeps a Geopolitical Strategist Up at Night

Please join Peter Zeihan for a webinar on June 5th at 12:00 PM EST on a topic that is near and dear to the hearts of the Zeihan on Geopolitics team: geopolitical risk. This webinar will feature Peter’s reasonable-fear list, focused on issues that in his opinion have the most potential to impact market outcomes.

Well, we’ve all heard the news at this point. Trump is a FELON, after being convicted on 34 counts of financial fraud related to hiding his affair. So, can Trump spin this “publicity” in a positive light or will it bite him in the ass come November?

The case was fairly straightforward, given the clear evidence and testimonials, but we’ll have to wait until July 11 for Trump’s sentencing. I wouldn’t expect him to see any jail time; however, the potential for probation and a (likely) dragged out appeals process could have significant impacts on his campaign schedule.

The real question is how does this effect Trumps shot at the presidency? It was already going to be a long shot for Trump, so this conviction and the fallout it carries might be the kiss of death. All Biden has to do now is just keep breathing.

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.

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

Will the West Greenlight Strikes Inside Russia for Trigger Happy Ukraine?

WE’RE LESS THAN A WEEK AWAY FROM THE WEBINAR!

Peter Zeihan’s Risk List: What Keeps a Geopolitical Strategist Up at Night

Please join Peter Zeihan for a webinar on June 5th at 12:00 PM EST on a topic that is near and dear to the hearts of the Zeihan on Geopolitics team: geopolitical risk. This webinar will feature Peter’s reasonable-fear list, focused on issues that in his opinion have the most potential to impact market outcomes.

The Western world is beginning to entertain the conversation over the use of Western weapons targeting Russian systems within Russia. There are a handful of countries that have issued their support, but will it be enough?

Countries like Sweden, Poland and France are leading the charge, Germany has recently jumped on the train, and momentum is building. The initial rationale behind preventing Ukraine from using these weapons to strike within Russia was to prevent (or try to avoid) escalation. However, the mounting support in Europe has put the pressure on the Americans to make a decision, and soon.

Given the incompetence that has filtered its way into Putin’s inner circle, this could be a strategic window for the Western world to act – and the Ukrainians are getting a little trigger happy.

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.

Transcript

Hello, everybody. Peter Zeihan here, coming to you in Genoa. Piazza Villa Vittoria. the news today is that the Europeans, and to a lesser extent, the Americans, are debating how involved they want to give in the Ukraine war in terms of weapons and targeting. the idea what the Ukrainians have been asking for for some time and what the Scandinavians and the Central Europeans have picked up on, is as long as Russia is on the attack in places like Kharkiv and Luhansk and the nuts, that they should have the ability to use whatever weapons systems they can get their hands on to target Russian weapons systems and launchers within Russia if they’re part of an active conflict. The idea being that if you see that there is an air base just on the other side of the border where fighter bombers are taking off day in, day out and bombing civilian locations in Ukraine, then it’s silly to not use things like mid-range missiles to go after that air base to this point in order to contain the escalation threat. 

the West has pretty much put a blanket ban on that sort of weapon strikes from the Ukrainians, basically saying that if it comes from the United States or Germany or natural in general, then you can’t use it to strike targets within Russia proper that is now weakening. we got three things in play here. First, the countries in question number two, the personalities within Russia, and then three next steps. 

So first let’s talk about the countries, Sweden, Poland and the rest of the countries in northeastern and Central Europe have been advocating for this for some time. And so the countries that are most likely to bear some of the blowback being on board, you know, that it’s going to happen sooner or later. The question is how and when. 

the in the last couple of weeks, the country that has really stepped in started to argue from the Polish and the Swedish point of view is France. And, Emmanuel Macron, the president of France, is saying that this is obviously a silly restriction and we need to release it. that just left the more conservative members of the coalition who are really, really concerned about what the blowback will be. 

But in the last week, all of Schultz, the chancellor of Germany, who has been consistently the most conservative voice in the alliance on pretty much everything regarding this war and said that, yeah, this is something that has to happen and that really puts pressure on the United States to act as well. Right now, the largest country that is saying flat out maybe no, no, but whoa, whoa whoa, let’s let’s think about this slowly. 

Is, the government here? Maloney of Italy has basically said it’s kind of funny. She basically called out the French for being French, for having seen some big things but not actually do anything, which is, you know, kind of cute. from my point of view, anyone who it takes the French just like that. But, the point is that this conversation is happening. 

It’s already happened at the EU level, and there’s not necessarily been a green light, but the conversation is building steam. And the real question, of course, is the United States is going to go along, since that’s where most weapons come from. But, but, but the fact that the Germans are on board, I mean, it’s probably only a matter of time now how this normally goes down is that one country will say, this weapon system can be used for this purpose, and they will be used and they will test the Russian red line. 

And if nothing happens, then everyone piles on. That’s what happened with the same artillery that’s happened with the Storm Sherman missiles. And that’s probably going to now happen for targeting things within Russia proper. That just leaves the personalities. How serious is what’s going on in Russia in terms of the counter threats? Is this a red line that starts a nuclear war? 

Well, you look at the people involved. The person who has been making most of the threats is Dmitry Medvedev, who is the former president of the country. Which makes you think that maybe he’s kind of important, but he’s not. He’s incompetent. He’s basically an intern. And Vladimir Putin only keeps him around because he looks Putin’s ass. Just so, and so when you see him making the threat, you know, it’s not all that serious. 

It would be serious if it was coming from someone, say, Nikola Patrushev, who is the guy who used to run the entire intelligence system. But in the last month, he’s basically been fired from his position and downgraded. So what Putin has discovered is the people that he has surrounded himself are really good at talking a good game, but not necessarily good at prosecuting a war. 

So he sacked his defense minister and brought him into a less dangerous position, put an economist and a bean counter in charge of the Defense Ministry, which in time, if it works, will make for a more competent defense industry, not because people will know how to fight, but because it won’t all be stolen. But then at the National Security Council, he basically just put his crony in there and fired the guy who can actually find Canada on a map. 

That’s Patrushev. So we’re in this flux when it comes to Russian foreign policy making, an especially strategic decision making, which I think the Europeans have picked up on and why they’re having this conversation now. Because right now, Putin’s inner circle is anything but competent. At a minimum, it needs more time to find its feet. After this most recent of a shakeup. 

And that’s a great time to up the ante in a way that the Russians are going to find very, very, very uncomfortable. 

Why the US Is Ditching Coal as an Energy Source

WEBINAR – Peter Zeihan’s Risk List: What Keeps a Geopolitical Strategist Up at Night

Please join Peter Zeihan for a webinar on June 5th at 12:00 PM EST on a topic that is near and dear to the hearts of the Zeihan on Geopolitics team: geopolitical risk. This webinar will feature Peter’s reasonable-fear list, focused on issues that in his opinion have the most potential to impact market outcomes.

Other than a slight bump in sales during the holidays (shoutout to all the naughty kids), coal has been on the decline for quite a while now. With more environmentally friendly alternatives surging into the spotlight, how does coal fit into the energy framework?

Coal once played a critical role in the US, but political shifts are pushing more and more states towards eco-friendly options like solar and wind. Even natural gas is getting some attention as it becomes more economically viable and a cleaner alternative to coal.

Although the US is stepping away from coal, the international market will likely continue to do well for years to come.

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.

Transcript

Hey, everybody. Peter Zeihan here coming to you from Dockman Valley above Denver, Colorado. today we’re talking about coal. coal has been the primary fuel of industrialization since industrialization started 150, 200 years ago. but obviously it has fallen on some tough times, and it has definitely fallen out of favor for carbon related and pollution related issues. 

in the United States, at its peak, coal in the modern era, coal was providing about half of all electricity generation. Or was the thermal input for half of all electricity generation. So as much as everything else put together and now it has slipped not just below natural gas, but it’s starting to duke it out with wind. and as of calendar year 2023, about 16% came from coal. 

So it’s already fallen below nuclear on most days as well. Anyway, the reason is twofold. the first one is politics. We have chosen to favor solar and wind in the fuel mix wherever possible, and that has displace a little bit of coal. Not as much as you might think, though. coal is what we know as a baseload fuel, because you basically, once you start the boiler, you don’t stop it. 

You can you can kind of slowly tear it up and down. But getting a coal power plant fully running to full efficiency takes the better part of a day. And so if you are spinning it up and spinning it down every night as the sun sets or rises, you’re not going to be using your coal nearly as efficiently. 

So like with nuclear, you tend to have the thing running full out the whole time, providing that baseload capacity. And you leave it to things like natural gas that can be spun up faster to handle all the incremental increases in demand. So, yes, solar and wind have had an impact that has been negative, but not a very big one. 

the big one has come from natural gas. unique among the world’s natural gas producers, the United States produces, its natural gas is a byproduct of other operations, specifically of oil production and natural gas liquids production in the shale fields. And the natural gas just kind of comes up as a byproduct. Now, that’s not making it necessarily a classical waste product, but it is pretty close because people have to build take capacity to get rid of the natural gas, even though they know that the margins for it and the profit from it are not very high. 

So if you’re in the Bakken in North Dakota or the Permian in New Mexico, in Texas, or the Eagle Ford in southern Texas, you have a problem with natural gas and you just have to get rid of it however you can. but remember that the shale revolution wasn’t originally about oil production. It was about natural gas production. 

So we now have 20 years of expertise in producing pure natural gas, or drawing natural gas, as they like to call it. And even in those fields where there’s no oil or very little liquids at all. the cost production curve is very, very low. in fact, in a number of places like the Marcellus in Pennsylvania and Ohio and West Virginia, the full cycle breakeven price for a lot of natural gas production is well below $2 per thousand cubic feet, and coal just can’t compete with that. 

In part, it’s because the really easy to exploit seams were gotten 50 to 100 years ago, and in part it’s because the there’s a population disconnect. most of our good call, the anthracite, the hard coal comes from places like the powder River basin. in the vicinity of Wyoming. And so it’s a long way to truck or rail that to a population center. 

Or the other stuff is in Kentucky and West Virginia, which is usually by two minutes, more polluting, not as much calorie content. And so it generally is burned more locally. And it’s not exactly a high demand product for other areas who are trying to reduce air pollution. Well, natural gas burns cleaner. It generates less, fumes. It generates less carbon. 

It doesn’t have the sulfur byproducts. It doesn’t have mercury. There’s no natural gas ash for disposal on the other end. It’s just a simple, simpler process. Once you have the physical infrastructure in place, and this isn’t 2010, folks, there are plenty of pipelines to take the natural gas away. So everyone who is wanted to convert from coal to natural gas pretty much has at this point. 

And all that’s left are the holdouts, where the local economics make a little bit more sense for coal places like Kentucky and West Virginia. And there we have another problem. the two senators who have been most in favor of keeping coal on the fuel lists are Joe Manchin of West Virginia and Mitch McConnell of Kentucky. And both of them are in the process of stepping back from public life. 

It’s not that other representatives from this area won’t fill those shoes, but they won’t do what they’re sold with the same amount of gravitas. And so you’ve seen states throughout the Midwest and the South who used to be primarily coal powered, largely cut the fuel out of their fuel mix almost completely. And so the political coalition that has been protecting coal for the last 30 years is pretty much gone. 

I don’t mean to suggest that we’re going to stop using coal completely in the next five years or anything like this, but it’s never coming back because most of the power plants that burn the stuff are over 40 years old. And as a rule, 40 years is about the life cycle for a power plant. If you’re going to extend its life beyond that time, you have to do some expensive refits and you have to make sure that it’s going to make sense for you going ten, 20, 30 years in the future. 

And for coal, that future isn’t very bright. If there is a future for American coal, it’s not going to be in America. One of the things that people forget in an age of green politics is that oil and natural gas are the low carbon fossil fuels that are internationally traded. And if you break down globalization, the ability of large portions of the world to source those two fuels withers. 

And in that sort of environment, people will be clamoring for whatever sort of fuel they can get, and that will make them turn to American oil and natural gas, of course, but will probably also give American coal a fresh lease on life. It just won’t be burned here. 

Things I (Don’t) Worry About: The US Power Grid

WEBINAR – Peter Zeihan’s Risk List: What Keeps a Geopolitical Strategist Up at Night

Please join Peter Zeihan for a webinar on June 5th at 12:00 PM EST on a topic that is near and dear to the hearts of the Zeihan on Geopolitics team: geopolitical risk. This webinar will feature Peter’s reasonable-fear list, focused on issues that in his opinion have the most potential to impact market outcomes.

I’ve started hearing rumblings about the American power grid and vulnerability to cyber attacks. Sure there’s been hiccups throughout the years, but this one isn’t keeping me up at night.

Those hiccups I mentioned, such as the post-9/11 power surge, have laid the groundwork for improving the American power grid’s resilience. Through technological advancements, decentralizing power generation, and network segmentation, the American power grid is reasonably equipped to handle most potential hacks. That’s a major pain for the green transition, but shockingly positive for security.

Thanks to the segmented nature of our grid and the quick response plans in place, hacks just don’t pose that big of risk. So no, the stability and safety of the American power grid does not keep me from catching some ZZZs.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

The US Places Huge Tariffs on Chinese Imports

Some hefty tariffs have just been placed on many Chinese imports, including electric vehicles, semiconductors, solar panels, and more. This is an attempt to prevent China from dominating industries that the US wants to develop.

China will probably slap some more subsidies on these goods, which will lead to more tariffs and so on and so forth. These Chinese goods might also be hit with some European tariffs, but they’ll likely be smaller and easier to offset with subsidies. The developing world might be in the crosshairs as the next Chinese import market, but some infrastructure buildout will have to happen first.

As China continues along its downward spiral, impacts like these tariffs will have more outsized effects on the Chinese economy.

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.

TranscripT

Hello from Poznan. Peter Zeihan here. Still in Poland. Today is the 14th of May. You’ll see this on the 15th. And the news is that the American administration under Joe Biden has just announced a series of very robust tariffs on Chinese imports, roughly 100% on electric vehicles, about 50% on semiconductors and solar panels on similar levels on a raft of other things. 

the goal, very simply, is to prevent the Chinese from swamping industries that the Biden administration is attempting to develop. this is something that has extraordinarily high bipartisan support. In fact, Donald Trump has already come out in favor because of his style, saying, I would have done even more. and that’s actually kind of on the point. 

the Chinese will respond to this by increasing their subsidies even more, which will force this administration or the next one to again up the tariff levels. Basically, the Chinese government will not be allowed to swamp products of these types and an increasingly wider variety of types into the American market at all. Now, that will, of course, trigger its own counter effects, because the Chinese will then try to put it into any market they can. 

Here in Europe, the question like in the United States isn’t will there be tariffs on Chinese products? But how high? Now, under policies currently under consideration by the European Commission, who kind of the executive arm of the European Union. tariffs are coming, but they’re going to be somewhere between 10 and 40% most likely. And that’s just not enough. 

the Chinese subsidizing of these industries is so extreme that anything less than 100% that the Biden administration has done is really not going to do more than slow things. And if you think Ford and GM have a lot of political pull in the United States, that’s nothing compared to Mercedes and Fiat. And, and Volkswagen. So high, high, high tariffs are coming to Europe on these topics as well. 

The only other place these products can then go is the developing world. But the developing world for the most part, doesn’t have the electrical system that’s necessary to use light electric vehicles. So the Chinese will be able to swamp some of these markets, but not enough to move the needle on where the Europeans versus the American versus the Chinese feel they need to be. 

Now, keep in mind that part of the reason why the Chinese are doing this is in the five years since the Covid started, the Chinese are now realizing that their population has shrunk a lot more than they originally thought. So they no longer have enough people under age 45 to mount any sort of consumption led economic recovery. And with the exception of industrial demand in China the last two years, we’ve really seen no increase in consumption at all. 

the population is simply aged out. So export led growth is all they have, and they’re no longer being allowed access to the American market. And very soon they won’t be allowed sufficient access to the European market as well. 

Much Higher Interest Rates for Much, Much Longer

THIS IS YOUR LAST CHANCE TO REGISTER FOR TODAY’S WEBINAR ON THE STATE OF GLOBAL ENERGY!

TODAY at 12:00 PM EST  Peter will deliver his analysis and forecasts for regional energy production and his assessment of geopolitical risk—everything from war, to instability and regulatory risk—with an eye on challenges and opportunities facing global production and supply.

Click the link below to register!

Who doesn’t love spending their morning trying to understand what the Federal Reserve is doing? Oh, no takers? Well, let’s at least look at inflation trends and where I expect interest rates to go.

Thanks to COVID-related supply chain disruptions, inflation has stabilized around 3% (instead of the Fed’s magic 2%). Those baby boomers are also part of the problem. As they age into retirement, capital availability is going to decline and the Fed’s going to have rethink their strategy.

I doubt we’ll see interest rates drop for the next few years, so if you’re planning on borrowing some money…you might want to get on that ASAP.

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.

TranscripT

Hey everybody, Peter Zeihan here coming to you from Colorado. And today we’re going to talk about the Federal Reserve and monetary policy, specifically on the 26th of April, the personal Consumption Expenditures Index, which is the Fed’s preferred measure of inflation, ticked up to 2.7% when everyone’s been hoping that’s going to tick down. the folks on Wall Street are starting to get very thoughtful because they had all bet in the fourth quarter of last year.

In the first quarter of this year, that by now we would have had a half a dozen rate cuts to stimulate the economy. And the Federal Reserve does not seem interested at all. And playing to their preferred narrative. So I thought it was worth going back to understand why we are where we are, and why you should not expect rate cuts probably at all.

If anything, rate increases for the remainder of the next 2 to 5 years. So step one, most of the inflation story that we’ve been experience of late has been Covid related. Every time that we saw a shift in consumption because of an opening or closing or new variant or new vaccine, whatever it was, we changed what we consume in terms of goods.

And every time we changed our consumption patterns, we had to, retool the supply chains to match the new demand. And it’s going to vary wildly by product and by region. But on average, you’re looking at an 18 to 24 month adjustment period before supply chains can catch up to what we want. Well, most of us reopened more than two years ago in California, the last American state to reopen for good, did so just under two years ago.

So for the last two years, we’ve been seeing inflation steadily tick down as supply chains catch up and the goods mismatch and the supply chain mismatch becomes a smaller and smaller feature in the system. unfortunately for the people who want lower rates, well, this has brought inflation down from 9%. We’re roughly ahead of the peak to something closer to three.

we’ve leveled off at three. And while we might have a little bit more to shake out as California fully comes back into the the system, I doubt we’re going to get down to the 2%, which is the ceiling that the Federal Reserve prefers. So we’re probably at what is our new normal, for inflation low. So not new, not our new average.

And unless we have a change in the Fed’s mandate, you shouldn’t expect interest rates to go down below where they are. If anything, you should expect them to go up. now, that requires understanding a couple other things that are in play. one of them is a little petty, and one of them is definitely not. First, the petty one.

The Federal Reserve looks at Wall Street and it says you have been dealing with capital inflows, of a huge volume, and you’ve been fairly irresponsible with them. you’re responsible for the.com crash. You’re responsible for the subprime crash. and we needed ten years to rebuild the financial sector after each of those catastrophes. So if there’s something that people in Wall Street in the financial community think, oh, well, this has to happen.

Well, it has to happen for their business plans. It doesn’t have to happen for the United States. Economy certainly doesn’t have to happen for the real economy. And it certainly doesn’t have to happen from the Fed’s point of view. So there’s probably a certain amount of wry revenge in play when the Federal Reserve looks at what Wall Street wants and then chooses to do something completely different for independent reasons.

The second issue is that there there really are independent reasons. And for that we have to look at demographics. So when you’re 45 to 65, that is when you’re the most capital rich that you will ever be in your life because your kids are moving out, your house is being paid down and you are saving your money for retirement

Also, if you’ve been at your job for decades, you’re pretty good at it. You’re income’s the highest it will ever be. So from 45 to 65 and especially 55 to 65. That is where all private capital comes from. The savings, all of that capital rich group. Well, the largest generation we’ve had in human history are the baby boomers, not just here in the United States, around the world.

The oldest baby boomers hit 45 in 1990, and the youngest baby boomers will hit 65 and retire and liquidate all their money or all their savings at the low velocity investments they’ll retire in 2030. So from Roth early 2000 to 2020, almost all of the baby boomers were in that capital rich portion of their lives. And as a result, capital availability on a on an American basis, on a global basis was the highest had ever been.

Capital costs were the lowest it was ever been. And in that environment, the fed will be the first to tell you that that made American finance really matter, because there is no way the United States could metabolize all of the baby boomer capital. So an entire financial class rose up to take advantage of the trough and to come up with new financial products, to metabolize it and send a great amount of it abroad.

At the same time, the Chinese were going through something similar from 2000 to 2. 2020 is roughly when their economy was firing on all cylinders. And while it’s not based on private savings to the same degree that ours is, they do a lot more monetization, which is a fancy way of saying printing currency, all the gold bugs in the crypto guys, to a certain degree are right that that’s not great, that it puts everything on a sugar high.

But the Chinese central bank is the one that’s guilty of that, not the US Federal Reserve. Anyway, for 20 years we had all this capital just spamming out of the United States and out of China. And Wall Street was necessary. The financial sector was necessary. A wave above bottomless wave of financial professionals was necessary to use all that capital.

And did they get it all right? No, none of us do. Anyway. That wave’s gone. The vast majority of baby boomers are now retired, and the rest of them will leak out of the system over the next five six years, which means their capital is gone. It’s been turned into low velocity investments like T-bills and cash. The next generation down Gen X is small and the next large generation, the millennials won’t be entering that capital rich period for another 10 to 12 years.

And that assumes they do everything on time. And to this point, whether it’s having a kid buying a house or getting married, the millennials have been doing everything about six years late anyway. Bottom line is there’s not nearly as much free capital available, which means we don’t need nearly as large of a financial sector. And so the Federal Reserve is looking at all this.

And they like there’s less capital demand is falling. Our tools are designed to regulate capital on demand. That means we need to find a new model. And in this new model, the financial sector is no longer all knowing, all seen and omnipresent. So the Federal Reserve rightly is concerned about inflation. And now that we’re in a period of deja globalization, we’re seeing demand for American employment.

And American capital in American materials skyrocket as the U.S. steadily and with increasing speed, disentangle itself from global supply chains. And that means building a lot more industrial plant. And it absorbs all of the things that the private sector has always absorbed. But now, to build a fundamentally new infrastructure that’s expensive, that’s a lot of demand, that’s a lot of inflation.

Now, I’d argue that it’s productive inflation because it’s building the industrial plant that we’ll need for the next generation or two. But until and unless the Federal Reserve mandates changes, they’re not going to be able to get to a world of 2% inflation. Certainly not if they lower interest rates. So when people say higher for a longer, they may be thinking about another quarter or two before interest rates drop.

But I say that until this industrial plant is built out and until we have another large capital generating class in their 50s, why higher for longer means another decade before we see any appreciable relief in capital costs. So bottom line, if you’re going to borrow, do it now. Because even today, with capital costs that have increased by a factor of four in the last five years, this is still the cheapest capital you’re going to be able to access until the mid 2030s.