Peter Zeihan - Gulf Power Economic Symposium 21

our first speaker of the day is a leading expert on how global politics impact our economy and the markets Peters ion has a talent for predicting the future and has helped industry leaders navigate geopolitical risks and opportunities his range of experience includes having worked for the US State Department in Australia all the way to founding his own firm Zion on geopolitics his first book The Accidental superpower debuted in 2014 and predicted the collapse of the global order this was followed by the second book the absent superpower which came out at the end of 2016 let's give a warm Northwest Florida welcome for Peter Zion [Applause] that's what I was looking for great hey everybody how you doing this morning I've spoken to the number of Southern Company events and you know I'm never really surprised when people ask me to come speak we're all looking for a little context these days and I'd like to think that my crystal ball was you know not made in China but I'm always surprised when I'm asked back it's like you know I'm I make my living explaining chaos and dysfunction and it's kind of been a banner year so far so I'm doing great but for everybody else but anyway let's get to it shall we our world began in New Hampshire you see back before World War two the world worked differently you didn't trade with your neighbors much less people on the other side of the planet because if someone threw a war even if you weren't invited you could lose access to whatever the resource or the market or the trade route was that you thought was important so if you saw something that you needed you went out and you took it you militarized it you colonize it you expand it into Empire and those empires fought over everything and those fights turn into World War two which brought the whole system crashing down and it left it to the last people standing the Americans to figure out what's next so we gathered our allies together here at Bretton Woods New Hampshire and we held a conference and what are you doing a conference you bait people in with a beautiful location maybe the promise of golf and then you lock them into a featureless room while some blowhard prattles on about how things are gonna be we've all been there the United States laid out the new rules of the game instead of everybody having a separate militarized sequestered Imperial economy everything would be pooled the US Navy the only one to survive the war would patrol the global ceilings for everyone provide the nuclear umbrella for everyone and allow global market access to the United States for everyone for the first time in world history there was a order anyone without needing to have a navy could buy any raw material from anywhere in the world ship it home turn it into a finished product and exported out wherever had never happened before there was just one catch you had to pick sides you heard that right we bribed up an alliance to fight and win the Cold War it worked really well global GDP expanded by a factor of 10 the global population tripled it has been the greatest and longest period of peace and prosperity in human history the plan just had one flaw we won well crap now what that we need a new plan then President Bush senior put together a team Brent Scowcroft : powell Dick Cheney and sent them off to figure out what's next what's Bretton Woods - how do we take this alliance the greatest alliance in human history and play it forward for another half century of engaged American preeminence and we Americans were so impressed that we voted him out of office and in the next six consecutive electoral contests the United States citizenry went with the domestic candidate the economic aspects the globalized system the idea that the United States would be the market of first and last resort an idea that the United States will patrol the global Commons for all that was allowed to stay but the idea that the Americans got some sort of security deference in exchange that faded away and the world got weird having no global responsibilities but benefiting from a global order the Chinese overcame the United States to become the top manufacturing power the Brazilians are giving our farmers are running for their money and the Russians have shown that if you take a stable global system where no one has can maintaining it you can inject instability and have a lot of fun Donald Trump has point Bretton Woods isn't working for us anymore strategically but economically it was never supposed to we subsidize the Alliance the Alliance fights the Soviets that was the deal where does the United States fit in in this brave new world without the Cold War well the short answer is we really don't and that's okay because we never bet the farm on trade for us trade is about a security policy it was never about the economics for us we have a continental economy as percentage of GAAP were the least involved country in the world so you got to remember a few things first it doesn't work that way for everyone else what is Russia without global energy markets what is China without freedom of the season-- global markets what is Brazil without international credit what is the EU without NATO none of them can function without the Americans providing the security overwatch that makes it all possible in the first place second because we're not economically integrated you have to rethink what our recent election was about it wasn't a debate between a United States that engage the global system or didn't it was a debate about the pace at which the United States would step back from the global system under a president Hillary Clinton it would have been a call process over four to eight years there would have been PowerPoint and pamphlets and timetables under President Donald Trump it's happening so much faster four to eight tweets but we're getting to this same place just at a different pace what if we look at this differently let's look at it by state now the darker the colored on this map the more involved the state is in international trade case the relationship between the colors on this map and the red blue breakdown in American politics anybody nobody it's because there isn't one there is absolutely no correlation between the way we interact with the outside world economically and our politics which means that the United States can maintain a globally devastating foreign policy without any translation into the political discussion at home let's look at it a different way politically now the reason that the Republicans tend to win the really big elections is that their coalition is more cohesive so the business community doesn't try to tell you what to do with your personal life the pro-lifers don't want to shut down the Marine Corps everybody has a short list of issues that they really care about you can build those into a platform take the platform to the polls everyone shows up everybody votes it's coherent it's cohesive it doesn't fight that's not how it works with the Democrats african-americans and gay Americans disagree on even what the term civil rights means Green's and unions disagree on every aspect of Industrial Policy single unwed mothers don't see why they should have to pay more taxes to cover the Millennials educational expenses it's a broader coalition but it's always a war with itself and any Democratic candidate in a normal election that tries to run on the issues immediately sparks and intern Ising feud Hillary Clinton cannot win Michael Dukakis cannot win but if the Democrats can float a candidate who runs on charisma papers over the policy differences runs on force of personality it's a bigger coalition more voters they can carry the day that way and then in the middle you've got two groups that are kind of hard to pin down they tend to be socially conservative they tend to be economically liberal but they're very squishy now this is more or less what it looked like since the late 1930s now for those of you who are not a Homa last year you may recall this is not how things altum Utley rolled again let's start with the Republicans the business community if L heard of campaign finance reform right 2016 was the first year at the federal level when those laws were fully in place the business community was told not only as your money not welcome in politics it's now a criminal offense and the largest chunk of the Republican Party was shown the door national security conservatives the military solid Republican voting bloc until Donald Trump started picking fights with John McCain and gold star families they actually looked at Secretary Clinton as the only member of the Obama team that had any concept as to how the world really worked she de facto had become their sponsor they were now in the wind evangelical Christians solid Republican group until we found out that Donald Trump has been in to softcore porn films if you're going to google that do it before lunch not after because can't unsee that pro-lifers they know that Donald Trump not only had a 35-year history of being a card-carrying Democrat but his number one personal issue to donate money to were pro-abortion groups they didn't trust him they didn't show it was even worse on the Left african-americans love Barack Obama what's not to love it's a 40-something black dude from South Chicago he's perfect Hillary Clinton was a 60 something white chick who had already lived in the White House they were never he got on board with her certainly not to the same degree gay Americans traumatized by the orlando massacre which confronted them with issues of security and immigration and identity in a maelstrom that they had never even considered before they were too shell-shocked to be a voting bloc the Socialists in the under 30s this is the Bernie Sanders crowd I adore senator Sanders he's just so delightfully out of put it on my pocket senator Sanders his team were the ones who came up with the crooked Hillary term they didn't think that Trump was the corrupt one they thought it was Hillary and when the Clinton political machine finally crushed the Sanders campaign and forced him to capitulate live on stage and endorsed his rival a third of his own audience walked out on him to the degree that they voted they didn't vote for Hillary unions they liked Trump on his own merits the anti-free trade rhetoric really resonates with them Hispanics opposed Trump eight to one in pre-election polling how can you possibly come back from that well come election day the margin was only 2 to 1 why the split pollsters forgot to ask if you were citizen and could actually vote relevant detail and then the Catholics just looked at both sides and wanted to take a shower here's where we actually ended up the two-party system that runs this country is currently off line now this is normal technology changes the balance of power among the states change economic trends shift demography evolves politics move with it on a delay the last time the two parties went through this sort of convulsion at the same time it was the 1930s Great Depression evolved into World War two in FDR the Republicans used to be the big government party to 12 years for the two parties to shake out into the firms that we recognize today it'll happen but not in the next two years they're offline and until the party's reform we cannot have a conversation about what it is that we want and until we decide what it is that we want we can't have a conversation about what policy would help us achieve that and so we're out and the world is on its own how about we look at it a little differently by voting latitude so let's start with the baby boomers for people born before 1946 this is probably how you still think of the baby boomers those damn liberal hippies that just don't understand well unfortunately for you folks the baby boomers are starting to look a little bit more like these days they are descending and to get off my long conservatism you know this is normal you retire you little crotchety that's normal what about the Millennials Millennials they were raised differently didn't keep track of the sport soccer games took an extended adolescence went to college based on who had the coolest dorms well life is catching up with them and it couldn't happen to some nicer group of people the oldest Millennials turned 37 this year and on average they have two children and they're discovering that they actually have to move back home because not only do they need the proximity to the bank of mom and dad they can't raise two kids in an efficiency apartment in downtown Manhattan on a barista salary the days of pooping and getting a trophy are long gone the world isn't turning out the way they were told and they're becoming angry and they are becoming bitter and 45% of them voted for Donald Trump now for the baby boomers the shift towards narcissistic populism is normal and the baby boomers will cease being a significant factor in American elections around 2030 to 2035 just because of mortality the Millennials who have just ossified their voting habits will be the dominant voting bloc in American politics until the twenty seventies which means that Donald Trump is likely to be the least populist most internationalist most inclusive president that we have in our lives now whether that's something to celebrate or more and of course is entirely up to your own personal politics but it does mean that the era of the United States running the global system is over graphically this is a standard demographic profile got children at the bottom young adults mature adults retirees at the top men on one side women on the other simple mortality makes it a pyramid this is India this is a consumption led demographic because when all your people are down at the bottom people who are roughly aged 45 and under you get a consumption led system because these are the people or buying cars and buying houses and going to college and smoking pot at spend spend spend spend spend spend spend well that brings a house down in Colorado but they're new their incomes have not yet expanded to meet their needs so they have to borrow so it's house loans and car loans and college loans it's high debt but also high growth this is where most of the activity in a modern economy comes from this spending not everybody's like that this is South Korea this is an investment lead system lots of people who have kicked the kids out the house is being paid down there's not a lot to buy anymore but their incomes are high and they're saving for retirement so they're shocking cash away it's going to investments it helps the industrial base it helps infrastructure helps job retraining they move up the value-added scale but because there's so few young people this can only work if they have access to export markets so a country like India can make it on its own after a fashion a country like Korea has to be integrated into a global pool and it's a starvation diet because eventually they're gonna start looking like Japan now the only way you can make a country with the majority of retirees function is if your productive side of your economy has already evolved into automation because if you cannot replace workers with robots you're basically a national old folks home and that is over Japan of course is the world's leader in automation here's the united states we've got a Chunin demography we're somewhere in the middle let's start at the top of the baby-boomers largest generation we have ever had in this country as a percentage of the population there are so many boomers and they are in that capital where it's demographic that they and their savings have made the United States capital rich exorbitantly capital rich unprecedented ly capital rich - capital rich because all of those investment savings chasing the same number of economic opportunities have spanned money over everything that they could possibly invest in and it's pushed down the rate of return on capital in some cases to negative rates and this has forced them to be ever more aggressive going out looking for things that they can invest in to make that mythical extra 1% of return and they have been forced to invest in things that in retrospect were probably not the best idea this is subprime this is Enron this is brick this is disco none of this should have ever happened and by 2022 the majority of the baby boomers will have moved into retirement and all of those risky investments will have to be liquidated and all that money will come home and exist not as stocks and bonds but as tea bills in cash because they can't take the ball this great period for the last 15 years the most capital rich period in history is about to go into screaming retreat and the rate excuse me the cost of capital will at least quadruple gen-x that's the next one down that's my generation I am right here this red bar that's 1974 birth year smallest birth year in US history there are some things that are really working for Gen X right now because the baby boomers have all this cash and it really risks not risk-averse I have been able to refinance my house five times in the last six years so two point zero four percent for my mortgage is freaking awesome but by 2022 just five years from now all that money goes away all the Boomers become retirees and instead of pushing all this cash into the system we'll be drawing cash out of the system in the form of Medicare Medicaid and Social Security the capital glut will become a capital shortage and it's up to my generation all 11 of us not 11 million just 11 to pay for the retirement of 75 million boomers who have never balanced their checkbook and we know we're going to be doing this for the rest of our natural lives because Gen X will not outnumber the baby boomers until the Xers are in their 70s I just depressed myself and then there's the Millennials those neurotic narcissistic omnipresent Millennials now while the law deals do deserve every shovel full of crap I send their way thank god they're there three big reasons first consumption during the prime consuming demographic all those bedazzled flip-flops and all those circulation constricting jeans and all of that dairy-free soy-free fat-free gluten-free Fairtrade beard butter it all adds up their consumption is what has kept the United States out of recession for the past three years and they are to be part of that prime consuming demographic for at least another eight doesn't make us recession proof but it gives us a great bounce-back option second by 2030 when the Millennials mature and defined that word however helps you sleep at night they will fill out the tax paying class in a way that Gen X never could there is a light at the end of the fiscal tunnel there is an end to these battles in Washington over the budget it is not a train it's just a millennial wearing the new I boxers or whatever it's going to be could be worse could be a lot worse because third we think of the Millennials as omnipresent but they're not everywhere else in the world there was a baby bust that started around 1970 and if you looked at the developed world demography with the United States pulled out this is where they are so today courtesy of the Millennials the United States is the top consuming power and courtesy of the Boomers we are the top investment power and in just 13 years were the only consumption power and the only investment power we are in the midst of the great transition and economic evolution more extreme than anything that has happened in world history since the Black Plague itself and on the other end there's only one country left standing only one country that can absorb global exports and that one country has lost political will to participate in a global system where it's expected to absorb those exports which means that the economic model of almost every country in the world is in a period of slow-motion collapse everyone needs to change what they do to survive except us and then there's the final piece the shale revolution this is a price volume chart so the taller the bar the higher the full cycle production cost of crude and that's everything from exploration on the front end to taxes on the back end the broader the bar the more oil that comes out of the country OPEC is there in black on the far right US shale is the light blue on the far left as of 2012 that's the date on this graphic US shale was not all that strategically significant but things have changed we have new technologies multilateral drilling microseismic and here's where we are now full cycle breakeven is now about forty to forty three dollars a barrel in the United States and as these new technologies get combined into a best practices suite we are looking at that number be below twenty five dollars a barrel for crude and a dollar twenty-five for natural gas the United States and Canada as a unit became net energy exporters last month were there the last link that kept the United States bound to the international system broke just a few weeks ago it changes the way we view the world the deep blue those are the countries that we are willing to hurl nukes to defend the medium blue those are the core Bretton Woods allies orange those are the other guys we don't like to talk about them and then light blue that's the field of competition you see 1985 when this map was that's the hide the Cold War everything mattered everything was in play it was a global fight but now remove energy dependence change the way we view trade change the way we've used security in the Alliance and here's where we're going in the not-too-distant future and I made this graphic last October when I was convinced it was going to be a president Hillary Clinton you can imagine how much this is sped up we're unhooked were unplugged and we're letting pieces of it fall by the wayside doesn't matter if there's a plan a matter if the man in the white house is consistent this is where we're going and if you want to have a relationship with the United States and lets you kind of reprise this security guarantor and economic access plan he had to the Cold War you have to come to Washington and offer something it's transactional now there isn't a global strategy this leads to three major military conflicts the first one involves the Russians post Cold War there was a 60% drop in the Russian birthrate which he means that by 2022 that's the magic year the Russian army will be less than half the size that it was last year if the Russians are going to use military tactics in an attempt to shape the world they have to do it right now and so they are so you have to look at the world from their point of view the deep red is areas of ethnic Russian majority populations the other colors don't mean that the country is empty it just means that they're not ethnically Russian in the majority the western periphery of that red zone is the Great North European Plain at its widest extent 2,000 miles north to south of territory that makes Kansas look hilly that is completely indefensible with the army the Russians have now much less the one we'll have in five years so as the Russian thinking goes if they can forward position the rapidly shrinking military into these five arcs anchor between Geographic barriers like the Carpathian Mountains and the Black Sea the Baltic Sea the Caucasus 2,000 miles of great wide open shrinks down to about 450 miles of constrained access points those are gaps that they can plug with a smaller army all they have to do is conquer all are part of eleven different countries five of which happen to be in NATO say what you will about the Russians they have never had a problem thinking big here's the problem for the rest of the world that's the Royal export Network seven million barrels of crude a day goes through the conflicts interrupt that and it's more than enough to trot cause a global energy deus induced depression lasting the decade that's war one here's war two Persian Gulf now the reason that the Persian Gulf has been so calm for the last forty years and just kind of marinate in that statement for a second is Bretton Woods we keep a carrier battle group in the Gulf to make sure the oil can flow to the Alliance to the trade system remember the oil guarantees trade trade gives us the Alliance the Alliance gives us our security we now define our security differently we're no longer using the Alliance we've never used the trade and courtesy of Shell we don't even need the oil every link in the chain of logic that's kept us bound to this region has broken more or less at the same time and lo and behold we're pulling out that leaves it to the locals to figure out who is in charge they've got some opinions on that the two countries that matter the most are Saudi Arabia and Iran the country that sponsored 9/11 in the country that clapped it's you know it's none of these people are our friends these two countries are opposed economically strategically militarily ethnically demographically politically but you know it's kind of tedious talking about the Middle East we're all kind of done aren't we let me just put it this way it's kind of like the fight between the University of Texas and Texas A&M just with more guns that people use and like all of the world's truly great rivalries eventually fans end up in the wrong bar so down here at the UT tower you've got the guar super field which is the world's largest oil-producing asset immediately adjacent to the ahh bra Singh facility the world's largest immediately adjacent to the roster neural oil loading platform also the world's largest and in the Austin metro area you have two and a half million religious Shia living in Sunni Saudi Arabia here at Kyle Field you've got 80 percent of Iran's oil and natural gas in capacity and in Texas A&M campus you have three million ethnic Arabs in Persian Iran the intelligence agencies on both sides are burning the midnight oil trying to stoke a revolution in these zones on the other side working from the very accurate assessment that if you can wreck the oil income you've pretty much wrecked the country that's 11 million barrels per day of crude that assumes no one gets caught in the crossfire more likely the numbers more likely to be around 20 that changes the way that oil moves back at the dawn of shale this is how it flowed you'd have three major zones of sales one North America second Western Europe and then third whatever was left over would go to East Asia and Asia would pay a premium because they didn't have any production locally shale comes along the Europeans show that you can take a financial crisis and make it your new normal less crude going to Europe less crude going to North America everything now has to go to East Asia the Asian premium becomes a discount because there's no place else to go now accelerate the shale revolution and remove energy from the former Soviet Union and the Persian Gulf the Europeans have to dust off the world Imperial handbooks and go out and find crude themselves the United States checks out and there's not enough left over for the East Asians the red bars on the far right those are net oil imports the green bars on the far left those are net oil exports notice how conveniently far apart they are it's a 7,000 mile sail from the Persian Gulf to Osaka which means that in this new world of constraint oil supplies if you are China or Korea or Taiwan or Japan your only option is to take your navy sail it around East Asia to the Persian Gulf pick sides and a centuries-old blood feud load up the crude yourself convoy at home and hope to god that no one to take it from you now if this were anywhere else in the world I'd be really worried but this is East Asia and if there's anything that we know about Japan and Korea and Taiwan and China so they've got a centuries-old history of brotherly love and cooperation and nothing could possibly go wrong we're gonna get hot shooting Wars in these three zones we're maritime traffic is it so much a casualty as it's the target that's 80% of global oil shipments that's 75% of global manufacturing supply chain steps that's 75% of global agricultural shipments what all these zones have in common the United States doesn't care our energy is local our food is local and we're now on the verge of a system where manufacturers have no choice but to put their facilities in secure locations where inputs and production and consumption aren't just safe they're co-located and the oldest place in the world that that happens is North America we are in our second industrialization period right now and it's accelerating and that's before the shots start getting exchanged it's not that Americans are checking out because they're cold or ignorant it's that we're isolated the tan area on this map that's the greater Midwest system single most productive agricultural zone in the world the blue lines that's what really matters moving things from A to B is a bit of a drag but if you can float it it's 1/12 the cost and the greater Mississippi system by itself has more miles of naturally navigable waterway than the rest of the world put together in addition deserts and mountains to the south lakes enforce to the north ocean moats on either side not only do we have the richest chunk of territory in the world we have the most securable decades of bipartisan effort have yet to screw this up and we're not gonna figure out how to do in the next four we're good this is natural this isn't policy it's stuck for better for worse we are condemned to being a superpower just a disengaged one that's not how it works elsewhere this is China this northern European plane that is the Chinese core it is less than 10% the size of the great Midwest and yet it has to support a population four times as big now China doesn't work like the United States in the United States because that River overlay the river system overlays lots of flat land it's very easy to get around and so Americans tend to identify it with people each other very very tightly that doesn't happen in China in northern China there's no navigable river so there's no natural economic impetus for development and you've all played risk right you know how no one wants to start in East Asia because they can come at you from every direction that's northern China there's no internal barriers so it took three thousand years of war and ethnic cleansing to consolidate that into a single ethno-political group that we know now as the Han Chinese northern China isn't home to the business folks it's home to the Nationalists the militarists the politicos the industrious they live in central China because the Yangtze is one of the world's great rivers it's 2,000 miles long and to end this is where the manufacturers are at home and then down south you got something completely different the terrain is very rough it drops into the tropics and the same thing happens to a northern China man who goes into southern China is an America that goes into Honduras they start getting bit by strange bugs they start changing colors and then they die horribly it's a disease built the Greater Hong Kong zone that southern Chinese coast that has always been the last piece of China to get amalgamated into any sort of unified China and this most recent iteration is no exception how do you get these people to be on the same side well there's two things you do number one you beat the crap out of anyone who steps out of line it's a national security state you don't give the option for descent second you bribe everybody you take all of the savings of the population give it to the four big state banks and they divvy it out to any company who can promise employment not a product not profitability not expansion employment because if people have jobs even if their jobs were they do nothing then they don't have the time to get together in large groups and go on long walks together just ask the Politburo that's how they got their jobs this is total lending from those big four state banks now back here in 2007 this is the year of American subprime this is the most over credited year in American history total Chinese lending surpassed total American lending in that year despite the fact that their economy was less than one-third the size of ours at the time then because of the Asian financial crisis lending tripled over the next 18 months because they couldn't shut down operations just for the silly reason that nobody was buying their crap they couldn't fire anyone so they just kept going now it looks like they kind of got it after control but no they just found new ways to force-feed money through the system my personal favorite is their insurance program for about a year you could actually go out and purchase an insurance product for some new widget that you had yet to design and then 48 hours later cash in the policy because the product failed loved it just fresh ways to shove in credit the Chinese are realizing that something is very wrong this is foreign direct investment from and to China to the United States now the the orange bars that's from the United States to China you'll notice in the early years it was all one way which is what you would expect the United States was a more developed economy it invests in poorer economies makes sense in recent years it's become more or less equal as the Chinese have closed the gap or at least it did until last year this is not the culmination of a decades-old plan by the Chinese to force all of our children to learn Mandarin this is Chinese businessmen getting their money the cofee out of town before it's too late this is capital flight this is what you do when you think the end is not and it is demographically 25 years after the one-child policy that Chinese are running out of 25 year olds you may have heard about a year ago or sorry a year and a half ago the Chinese went from one child policy to a two-child policy it'll riddle me this how long does it take to raise a 25 year old those of you who are parents don't help the others my mother assures me that the answer to that question is 47 years and she's glad she's almost done China doesn't have that kind of time and there's also a hobgoblin waiting in the wings this is that same map from before with a lot of military data thrown on top of it I want to call your attention to this line here this purple line that roughly parallels the coast this is the prime oil tanker shipping route from the Persian Gulf to Northeast Asia every single weapon system that the Chinese and the Japanese have is projection oriented can interrupt that line what about this line the deep-sea route every long-range weapon system the Japanese have can interrupt that line but nothing that the Chinese have can if this becomes a war of movement and it'll be a naval conflict China screwed they import 80% of their crude now three-quarters of that on the ocean along this route and Japan will control the route remember when I said that world leaders had to come to Washington to seek a bilateral deal it's transactional now Shinzo Abe a was number two he doesn't need the Trump administration to side with the Japanese during the war although if we wanted to pitch in that he would not complain he just needs us to be neutral and to make sure that he could seal the deal he came with him with a gift a 500 billion dollar bribe money from the federal government to invest in American infrastructure and industrial plant separate from what Japan Inc is going to do will it be enough who knows but good start he understands who he's talking to back in China things are getting real really fast there's an anti-corruption campaign going on it's been going on for about three years now and it's not about making China corruption free or making it a country that observes rule of law although if they achieve that they're not going to complain it is more about publicly executing enough high-ranking officials whose names your average citizen knows so that your average citizen looks up at the television and says you know what it doesn't matter if I've got a job or if I can feed my family that is President Xi I am Han Chinese he is my leader and that is enough it's a blatant cry for nationalism and at any other time in any other country we would call this a cult of personality she has already exceeded the power level concentrating more upon to himself than any Chinese leader in history with the exception of Mao and later this month he passes mouth because later this month the Chinese Communist Party leadership meets further five-year plenum the way leadership in China works is you serve as president for five years you nominate your successor and then there's a five year transition period she is coming out of that first five years as he's supposed to nominate his successor now and my bet is that when they meet later this month he will nominate his heretofore unheard-of identical twin brother because she believes that China cannot handle a leadership transition right now with the global economy in flux with their demographics collapsing with trade that they're so dependent on likely to evaporate and so President Xi was the fifth world to come to Washington to seek terms only he didn't come to Washington he signal ahead that he didn't want the press corps there or the diplomatic work is he wanted to have a conversation that wouldn't be reported back home so they went to Maura lager where Trump could control the environment and he told Trump you hold all the cards in this relationship we're the dependent partner we don't have a military that is capable of replacing you much we can't even break out of the first island chain we can't get past the Japanese much less run some sort of global system our economy our financial structure our demographic structure it's all terminal please don't kick over the applecart let's talk about whatever you want let's talk about North Korea in the South China Sea and cyber crime let's talk about all of it whether or not you believe she is not the point the point is that Trump believed them enough to not lower the boom right then and there and in bilateral relations the United States has actually seen more progress on trade issues on intellectual property and on North Korea than we have in the previous 15 years is it enough no but the Chinese understand exactly where the Power Balance is now after we have this leadership transition well the mood change we'll see we'll know real soon on a considerably less cheery topic there's Europe this is where it's at the northern European Plain it's the second densest concentration of rivers overlaying arable land in the world but unlike the greater Mississippi system where it's all linked into a single Network these are all different there's 13 major river networks none of them interconnect so you have French rivers and Dutch rivers and German rivers and Polish rivers and Russian rivers identity clings to the River Valley differentiates rather than unites but it's flat it's well watered there's good transport options options development is easy here that's just that war tends to be easier you move out of that zone and it gets weird fast you get islands Highlands arid zones fewer rivers so developments easier in the north it's harder in the periphery and the Europeans decided to put this all into the same system what the euro has done it's taken what is special about the north and allowed it to take over because if development is harder and say Sicily and all of a sudden you're in the same currency zone you can't use currency policy to equalize so 15 years of the euro zone excuse me 17 years of the euro zone has basically unwound and hollowed out 50 years of economic development in the periphery with every day that the Euro continues to exist the periphery falls further and further behind the only way that you can make a system this weird work is to change the rules of the game to bring in an external security arbiter who says that war is no longer legal but we're leaving and Bretton Woods is almost over so what's gonna happen the country that matters the most the man in the middle the Germans for rivers the densest footprint for capital generation in the world but it's in the middle of the plain surrounded by 8 significant powers so if you are Germany you can never be bigger than all of them put together so you have to be better better infrastructure better skilled labor better industrial plan better educational system better financing terms more efficient government but you take anything as efficient and capable as Germany and make it as big as Germany and it threatens to overwhelm everybody near them so European history is a pendulum for doing periods of extreme German strength which force everybody to form a coalition to tear it down an extreme German weakness that sucks everybody in like a black hole and the only way to stop the pendulum is to bring in an external security guarantor and so Merkel was the fifth world leader to come see Trump this is my favorite photo of Trump he's on his training lesson please make sure that she didn't cater and she led with this mr. president you do realize that if you say if you do what you say you're going to do if you abandon the free trade model if you back away from NATO that that's not just the end of NATO it's the end of the European Union it is the end of Germany Trump's response was uh-huh you see Merkel miscalculated she didn't understand the new transactional nature of the relationship she came to Washington asking the United States to continue what had been doing since 1946 and offered nothing in return and so Trump on her way out the door gave her a parting gift a bill for services rendered for defending Germany for the past seven decades you can imagine how well that went over in Berlin for all intents and purposes not just the American German relationship but the NATO alliance is all ready gone and it's about to get a whole lot worse on the Left you've got the demographic profile for Italy and in one graphic this is why the European financial crisis is going to end in tears consumption led growth consumption by 20 and 30 things is flat-out impossible they are now a terminal demography because you cannot get people in their 40s and 50s to kick out kids like they're teenagers not even in Italy Germany is even worse the country that brought us eugenics obviously can't have a national open conversation about popping population policy you guys have heard of what's happened to deutsche bank one of europe's like we're known financial institutions is on the brink this is why think of how banks make their money it's about the spread between the cost of their funds and the cost of their loans the zero percent interest rates have collapsed the spread and the lack of people our 20s and 30s have collapsed the number of loans fewer loans less income per loan that's how banks died it's not that I see deutsche bank is the face a few of the future of Europe I see Deutsche Bank as the best case outcome because the Germans are kind of sticklers on things like accuracy in accounting and transparency Italy not so much non-performing loan stacks here's the United States and dark word about 2% this bar right here this is at 5% of the total when a bank has non-performing loans that total 5% of the portfolio or more the FDIC comes in shuts the bank down distributes the assets to other healthier institutions the yellow those are the eurozone countries the red is Italy here's the fun bit we don't define non-performing loans in the same way in the United States if you're 31 days late on your payment you're in arrears you get a warning if you're 91 days late then you're in default it's a non-performing loan in the bank and foreclose on you in peripheral Europe if you're 271 days late but you've made a partial payment you're in good standing that red bar uses that definition in relative terms the Italian financial system already has a bad loan stack 80 times higher than the United States did at the height of subprime this is not gonna end well and we've already had five major Italian banks crumpled this year it's accelerating and so Theresa May was the first world leader to come and visit Donald Trump and to seek a bilateral deal and she says Donald we're leaving the European Union brexit is happening it's not reversible to that end we have to do a few things differently on our side of the pond first we have to double our intelligence budget and our diplomatic budget because we now have to do all of this for ourselves we would like to share every scrap of information we get from those expansions with you second we have two super carriers that will be floating in the next five years they are the only super carriers in the world that do not fly American flags we would like to integrate them into your aircraft carrier battle group systems we would like to fight shoulder-to-shoulder with you for the next generation in terms like oh well this is huge what can I possibly offer in exchange he's like well how about a free trade deal bilateral of course he's like done they started negotiations that day here's the kicker this is legal in the European Union the European Commission that's their executive branch has sole authority to negotiate free trade deals with all members of the European Union even if you have one foot out the door so all the talk in Brussels is not just how to punish the Brits for leaving it's about how to punish them more for having the audacity to plan for the next day this is not what I would call institutional flexibility I mean really really Europe it's like you've got a financial crisis a currency crisis a banking crisis a consumption crisis a Democrat at crisis a Turkish crisis a Russian crisis a Ukraine crisis and you're drowning in amber waves of refugees but you want to bitch about Britain gives you an idea where their priorities are and how disconnected from geopolitical reality they've become this is not an institution that's going to survive the test of time well that's enough for an hour if you are looking for a coaster or perhaps a doorstop might I make some suggestions the accidental superpower the left that's the first one it's about how the world came to be in its current form how it's breaking down in the five major crises that Americans are likely to care about the most the new one the absent superpower starts with the shale revolution plays it forward shows how it remakes American industry in global economic trends and the three major wars that will erupt around the world as a result you don't need to buy them you don't even need to read them but it would be a huge help to me personally if you would all review them on Amazon five stars thank you oh you guys are great thank you very much we've got a few minutes for questions I just want to have this up in the background this is my global stability map countries in blue on the future no matter how hard they try they cannot mess it up they will not just succeed they will thrive countries in green more or less the same strategic situation they have today yellow and brown is where it starts to break down countries in yellow have something going for them self-sufficient or food or energy a good strategic situation Ally they can really trust something but they're still gonna lose a lot more fights than they win it's definitely downhill Brown oh the brown countries are utterly dependent upon the world in its current form as maintained by the Americans and they lack the capacity to impose a replacement system even in their own neighborhoods that can survive the test of time countries in red those are the failed States if you don't know which ones those are yet don't bother learning the names because it won't be worth it in a few years so yeah we've got some time for Q&A we've got some microphones on the side have at it folks oh don't be shy please I am a little concern that you're kind of downplaying the threat of China sure um in particular sure they had the one-child now that it's two children but their population is four times what we have here in the US and in addition historically they've been stealing intellectual property and manufacturing technologies and now they're just buying it growing aerospace industry threats potentially to our national defense I think I think you know because they own a lot of these manufacturing technologies now and I just I'm not necessarily behind that they're not a threat I don't mean to suggest that china is a non-player what I'm saying is that everything that argues for Chinese success is based on factors that are beyond their capacity to influence much less dictate they need a global market they have the have an inability to service the global market without someone else providing the security environment their financial system is far past the point of no return every country that has ever tried to do before has had a cataclysmic crash that has taken decades to recover from the only thing that stands out in Japan in that regard I'm sorry from China in that regard is that they've allowed it to get bigger so the crash would be that much worse and they have the third fastest aging population in the world so they really are at their high point right now does that mean that their crash will have consequences yeah over there because the second it gets truly ugly there are half a dozen countries on the Chinese periphery that had the technical know-how to go nuclear and a long weekend if they need to I think we're gonna be looking back in ten years on the Chinese not just as a has-been power but as the little guy we might actually be bolstering a little bit in order to stabilize the region but I do not worry about them being a monolith because they're not now between here and there is it gonna be dicey a roller coaster oh yeah oh yeah but again that's mostly a problem on that side of the Pacific rather than on this side go ahead guys I'm gonna ask just to give some credibility to your predictions in everything that you've talked about I moved here from Missouri two years ago and we saw towards the end of my time frame their farmland prime farmland being sold to Chinese companies sure and so my question would be how does that play into the overall global economy when foreign countries are actually purchasing farmland and supply chains and different things to prepare for the future let me first deal with the nationalist side of that and then I'll deal with the economic side on the nationalist side the top owner of farmland in the United States owning about 0.8 percent of the total is Canada total overseas ownership of American farm lands less than 2% of the total China is ranked number 11 so it's not that it hasn't been rising it's just that it's still very small second the economic side this is one aspect of flight when you are in a country that is on this map that is in either yellow or especially brown and you are looking to get your money away from a tax man who's going to be spending on the things of national survival and you yourself are trying to get out you try to find a first world country with a strong rule of law where you can invest in a physical asset preferably one that has an income stream and ideally a government guarantee farmland residential property t-bills infrastructure bonds those are all good choices and the big investment surge that we have seen in the United States in the last three or four years is primarily capital flight driven so it's not just baby boomer money it's also a lot of baby move your money from beyond the United States in the last two calendar years that total based on how who's doing the math and how they do it somewhere between one point six trillion and three point two trillion u.s. it's the largest flow of capital flight to the United States in our history no matter what the number is so for the most part I see this as a very good thing because it's not like you can take the farmland and take it home with you in fact you can't even take the grain that produces home with you unless the United States lets you so this is just this is just free money I like free money if they get fifty percent back on the back end ten years from now they're really excited because that means they got 50 percent back that's more than they get at home please oil is currently traded in the dollar denomination and has been for quite some time since 1946 for the first time in history the Union is now almost on a free market trade outside of China the expectation is that oil will become a basket of currencies how do you see that influencing the price of oil and your map of that's not cheat right you don't need to worry about that that story pops up every five to ten years and whoever the bug who is that buggy in the United States at the time is the country that's setting up the exchange right now it's China before was Venezuela before that it was Iran before that it was Russia it's never happened the country that came close was Iran and what they discovered was whenever they try to pay I'm sorry a demand payment in currency other than the US dollar the countries in question China primarily is like okay well there's a two percent transfer fee for us to take it from dollars into whatever currency you want you're obviously paying for that and it just ended up to a hit to them right now the United States dollar is basically absorbing wholesale the entire eurozone overseas market the euro has dropped from the top finance currency to number six in the last six years because they thought they could get away with using insured bank deposits to pay for a bailout and so nobody wants the Euro anymore and the next currency down that's a hard currency with the country that is actually interested in being convertible is United Kingdom and while they would love to be the global currency again no one else thinks that's a good idea so the US dollar is used in roughly 70% of global international transactions and it is used 100% for all commodities regardless of what it is where it comes from and where it goes and this exchange is not something that you need to worry about thank you with with these talking about a lot of potential implosions by a lot of different areas in this world how do you see refugee crisis affecting a lot of this or immigration and general affecting economies throughout the world we're gonna have a global depopulation agricultural supply chains are gonna break down we're probably looking at a 40 to 50 percent reduction in the world's ability to generate food you combine that with the breakdowns on this map any place that is red has to basically discourage 80% or more of its population any places in brown probably have it's gonna be the greatest migration movements in history and there just aren't many places that they can go so if you are in Europe you are facing the greatest inward migration routes in human history and if you're in the Western Hemisphere you barely notice because it's a long swim so what will happen is the people with the wherewithal with the creativity with suitcases of cash and engineering degrees they will take the long trip to the United States to Canada to Australia to the United Kingdom because those are the first world countries that are actually insulated from some of this instability everybody else it's a mess so yes refugees yes out migration huge problems for the future but for the most part it's a problem for the eastern hemisphere we're gonna get the cream of the crop and so if you're a gen Xer and you're kind of gradually going into this management role as the baby boomers all retire you're gonna have a choice you can hire Millennials who want to work in their flip-flops odd hours and probably weren't paying attention in class or you can get a 55 year old German who knew how to build bridges and power plants when he was 12 your choice this is a good problem in your opinion how much of a real threat or problem do you feel like our little buddy from North Korea Rocketman okay it states okay anyone who tells you that they really understand what's going on in North Korea is lying because everybody spies have been killed so what I'm about to share with you is kind of a collective best guess of the intelligence agencies in China South Korea Japan United States United Kingdom France Germany and Russia it's still a guess but it's a guest for the people who probably should know best guess back in 1994 Kim il-sung the founder of modern North Korea the guy who fought the Japanese in world war ii slipped in the shower and fell on some bullets three days after he died he was supposed to be in Seoul working out the practical mechanics of reunification I mean think of what the fifteen ninety four think of what had just happened the Soviet Union had just dissolved completely the Chinese and the Americans had just had their Tet Tet and agreed to work together post Tiananmen the world have changed the Stalinist system didn't work he had no sponsor and so he knew he had to figure out a new way forward and his generals knowing that in any version of a reunified Korea you aren't gonna need a 1.5 million man army and all those generals would become redundant so they often they take the second generation Kim jong-il put him in charge remember him right this guy he was raised in North Korea he grew up drinking the kool-aid he was batshit crazy and within two years of him taking over he caused a nationwide famine that killed two to three million people out of a country of 20 million a family the first generation is like oh holy crap that's not what we meant so they took the third-generation Kim Jong gun this guy and they sent him abroad to figure out how the world really works and they sent all the people of his generation with him scattered Marin the world some even came to the United States Kim Jong on whose self went to school in Switzerland one of my buddies Marco former analyst of mine sat next to him in chemistry class and he emphasizes that while Kim jong-un's certainly has impulse control issues crazy is not a word that he would use to describe him very kandi guy the problem with the plan that the first generation came up with is that Kim jong-il died too soon and so the third generation is brought back Kim jong-un at the tender age of 27 and they're put in charge of the whole place the second generation is L blow to the side now consider the world from Kim Jong Un's point of view the first generation honestly want you to remake the country to bring it into the new age but not till they're dead and since they snuffed out your grandfather there'll be no problem off in your fat ass the second generation once you dead now you just took their jobs their power the prestige their position worst job ever and so you appear erratic you lob the odd missile over Japan you test the odd nuke you bomb the odd South Korean city sink the odd South Korean ship you make everybody guess what you're gonna do next this sound familiar the United States these days it works it keeps everybody off balance everyone's reacting so no one can plan and whenever the opportunity presents itself you purge as many members of the second generation as you possible so he's killed all three of his uncles he's killed both of us half-brothers and then one night in the not-too-distant future you kill everyone who's left in the first and second generation at the same time in a night of long knives and if you miss one you're dead man this is all probably just an internal dynastic succession struggle being rhetorically carried out on a wider stage and if that is true and if Trump believes it you can lean on that because it's not about us probably all right you guys have been great thank you very much [Applause] you

Channel: Gulf Power

Views: 94,169

Rating: 4.765182 out of 5

Keywords: Gulf Power, Pensacola, Florida, geopolitics, Peter Zeihan

Id: feU7HT0x_qU

Length: 70min 17sec (4217 seconds)

Published: Mon Feb 05 2018

Reddit Comments

[u/Sateloco]

Very good! Thank you for posting! He looks and sounds like Don Draper from Mad Men.