Peter zeihan interview

in fact there's only ever been one international order it is now going away we're shifting into a period of disorder which is much more traditionally what the world looks like the two biggest losers are China and Germany it's gonna be like the 1890s we had come out of reconstruction and the world had changed but we didn't let that stop us from venturing out it's gonna be a breaking world one way or the other [Music] [Applause] [Music] [Applause] [Music] we're looking at 70 years of American foreign policy being ripped apart and dissolved over the course of the next few years now everyone thinks that this started with the Trump administration and as soon as Trump is gone we'll go back to normal but who don't know not in the way that people are thinking we are going back to a normal international environment it's not normal in the way that we've traditionally thought about it for the last couple of generations the problem is this that normal is not an international order in fact there's only ever been one international order it is now going away we're shifting into a period of disorder which is much more traditionally what the world looks like well you've got to take a step back way back really to the beginning of the industrial period or before if you want to the point was there are very few places in the world that have a good geography internally that allows them to consolidate into a single ethnic group and do so in a way that generates wealth you need flat land you need good agricultural space you need a good River so you can move things around in your own system that doesn't happen large portions of the planet and even that isn't quite enough you have to have significant barriers between you and your neighbors otherwise you'll tend to get invaded every generation or two this means that in the world before what we consider normal there were really only about a dozen significant powers and they would branch out beyond these core zones as empires in order to conquer a large tracts of territory and use those resources to feed their populations to trade to have captive markets and ultimately to out-compete everyone else who's among those twelve this led to Wars a lot of them constantly bigger and badder Wars as the industrial period built eventually got things like tanks and artillery and ultimately hydrogen bombs that led to World War two that brought the entire system crashing down and of those 12 geographies in the world only one of them wasn't leveled and that was the United States so at the end of World War two the Americans brought their allies together at Bretton Woods New Hampshire and basically held a conference and laid out with the rules of the new age we're going to be so instead of everyone competing for global domination it's pretty clear if the United States held all the tools here had the only global Navy had all the only economy that had survived the war had the only industrial base so the Americans proposed to trade will open our markets to you so you can export your way back to affluence we'll use our Navy to patrol the global oceans so that you can buy any product from anywhere in the world ship it home process it into finished goods and then re export it for hard currency we'll protect the entire supply chain you're not any longer limited to the territory in which you directly control you can access everything and in exchange all we ask is for the right to protect you from the Soviets and for all the empires there is a degree of confusion when up on the other side they're like ok let me get this right you're going to give us for free everything that we have been struggling to achieve ourselves for the last thousand years and you're gonna protect us deal that's the cold war this is NATO this is the European Union this is the Chinese Communist Party because the beauty of the Bretton Woods deal was you could extend it to new members at any time and as the 40s turned into the 50s turned into the 60s turns in the 70s the Bretton Woods alliance continued to expand and expand expand providing the economic basis for the Soviet containment strategy and that lasted right up until the end of the Cold War the problem is when the Cold War ended all of a sudden the security strategy needed to be updated which meant that the global economic system needed to be updated because for the Americans trade wasn't about trade trade was about security that's the bribe you used to get cooperation the president we had at the time was Herbert Walker Bush someone who is well-positioned in terms of understanding foreign affairs know how to play it forward and he put together a team to figure out what's next how do we take Bretton Woods and update it for this new strategic era but Americans voted him out of office and in the next six consecutive federal election contests Americans decisively chose the candidate who celebrated lack of foreign expertise so the economic aspects of the Bretton Woods system kind of lingered on the idea that the US will provide security for a global trade that will lubricate the system financially that the Americans will be the market of first and last resort but the idea that there was any sort of quid pro quo that faded away and in a series of events the Americans became disenchanted with the system because now they were subsidizing countries that were no longer under the security umbrella places became more powerful your brazil's your india's especially your china's i would say that the three landmark developments that really put us on a path to ending this system completely happened in the early 2000s the first was the launching of the euro now there are a number of reasons why the euro is perhaps not the best idea and was not exactly well thought out when it was put together it was ultimately a political goal and it the European Union together hard to argue with the political goal there you know a Europe that's united in peace I think everybody has an interest in that but the Europeans also had a clear and somewhat aggressive goal for the euro to displace the US dollar as the sole settler of the global system now the United States looked at this in the wait a minute so we're subsidizing your system we're protecting you from everyone we're helping you knit Central and Eastern Europe back into the European family and you want us to pay for it and I didn't really go over very well and that was one of the first things that kind of led the United States to break away from this global management system because if the firmest allies we've ever had the ones that we've poured the most military force and economic strength into supporting we're now trying to take everything that the Americans did and make it work against the American interests it was kind of rude that was step one step two is the ep-3 if you remember that event it was a spy plane that the United States was operating off the coast of China in international waters and the Chinese fighter pilot collided with it crashed the Chinese got the plane kept Kru for a couple of weeks and the plane itself for a few months and the Americans are looking at the Chinese like look we are after we met with Mal we admitted China to the Bretton Woods family and the fact that China by that time had already quadrupled its GDP was only possible because the Chinese for the first time in Chinese history were united under Chinese history and had access to the international system and were able to grow and yet you're trying to push us out of the security envelope again rude and since then Chinese relations have steadily gotten worse final event of course was 9/11 now you can argue left right and center about how the United States may have mismanaged its response to the 9/11 attacks but when you look around the world at the countries that chose to cooperate with the United States in American foreign policy in the aftermath of 9/11 and those that didn't most of our traditional allies were in the no category this was an issue that for the Americans was considered of paramount importance and to have countries like France and Germany and Turkey just wanting to stay out of it the whole idea of Bretton Woods we subsidized you but we get control of the security apparatus the deal was broken and from 2001 until today it's been bleeding away and he could just look at the presidents and how they've acted so under Bill Clinton he's the one who inherited the old system he started to do an update with the World Trade Organization and with NAFTA two of the biggest trade deals we've ever did done and he tried to change the terms of those deals to involve issues that were not pure security things like migration things like labor standards things like environmental standards try to shift the world into a more egalitarian direction then you get to george w bush who instead of trying to push the global trade system forward just put together a few midsize deals that for the most part were to reward specific allies Jordan Israel Morocco Singapore Australia Korea not insignificant deals but nothing compared to what had come for then you had Barack Obama the American interest in the entire industry vanished and now we have Donald Trump who is looking to peel back as many of them as possible whoever won the presidency back in 2016 was going to be the president who was going to rule over the end of the global order with Hillary Clinton it would have happened relatively slowly over four to eight years there have been pamphlets and powerpoints its timetables would be been are very very organized under Donald Trump it's happening over forty eight tweets but we're getting to the same place now the time frame doesn't really matter to the United States but it matters hugely to the rest of the world because everything everything about the global system is predicated on the concept of global order the u.s. makes shipping safe the u.s. prevents trade conflicts from ever rising up to the level of gunfire think of what happens to the energy market without that or the agricultural market or the manufacturers market everything that makes almost every economy in the world work requires American security overwatch there's one exception and that's the United States because for the Americans trade was always about security so the United States is the least involved economy in the world right now only about seven and a half percent of American GDP comes from merchandise exports at about 45 percent of that's within NAFTA so if the United States can figure out its own regional neighborhood the rest of the global system doesn't matter and the piece of the global system that the US has traditionally cared the most about has been energy the shale revolution is eradicated that breakeven price for oil production in America's shale fields is now under $40 a barrel and at today's price of just under 70 every shale field in the United States is economically viable so the United States in the worst case scenario is going to be fully energy independent by the end of 2020 could happen a lot faster if geopolitical events not just that direction and that doesn't even count the three million barrels a day they would get from Canada but functionally make us oil independent last year one of the things that Bretton Woods really changed about how we manufacture Goods is it took security out of the equation so before the Bretton Woods system kicked in you didn't have long supply chains because at any stage of the process you could have a war even if you weren't the target of the war even if you weren't a participant and it could interrupt one stage of the process and all of a sudden you don't have finished good what Bretton Woods did is removed any concern for security so we used to have all of our manufacturers done in kind of a single industrial conglomerate city you would bring in raw materials local infrastructure local populations local workforce would process that into intermediate and then finished goods in the same place and then they would be exported throughout the country throughout the world now we've taken those singular cities and broken up into dozens hundreds thousands of steps the iPhone for example 1200 different facilities in 50 different countries you can do that in a globalized system when no one's shooting each other but as soon as people start shooting at each other all of a sudden you no longer have iPhones automotive is another great example of how that works it's 30,000 pieces and if you only get 20 9999 pieces you don't have a car these multimodal supply chains are run around the world the only way that the United States has really participated in this huge dispersion of supply chain system is when it comes to different price points for different steps of the process so for example if you're doing high-end design of microchips you argument you're going to want the best engineers in the world that's going to get done in Silicon Hills in the Austin area or Silicon Valley in the San Jose area there's a flat done but if you're making the case for a computer that's really just molded plastic you might do that in Vietnam because the United States is the world largest market and because we're how should we put this somewhat finicky and we are kind of addicted the next day delivery anything that pulls those production pieces closer to home is generally perceived as better and because the United States has a low cost manufacturing location right on its southern border it's perfect so what NAFTA has done is given you the United States kind of a mini global system here in North America with the high-end stuff based on what it is being done in the United States being done in Canada and the Mid tech stuff and some of the lower stuff in Mexico in the Central American countries so we get kind of a global system in miniature but even that is only about 5% of our GDP but if you take all other American trade put together you're talking about roughly five to seven percent of GDP dependent who's doing the math a lot of that is energy trade where we export very high quality oil and the rest of the world provides us with very low quality oil which means that you can honestly you can fudge that you're now down talking to you know three to five percent of GDP most of that is going to be in the realm of manufactured goods look at what's happening with technology these days automation robotics algorithms 3d printing all of those technologies argue for having a more concentrated supply chain system with fewer steps as close to the end consumer as possible which means all that's coming back to the United States anyway so now we're talking about services financial primarily if you've got a global system that breaks down people are going to be working overtime to try to get their money from unsafe locations to safe locations the United States is already the number one destination for capital flight even in the age of Trump it's only gonna pick up so we'll probably have a risk if everything was cut off tomorrow we'd probably have a recession that would give us an adjustment of three to five percent of GDP for a few months and then we move on [Music] the Chinese economic system is based on integration with the global system originally importing capital absolutely importing technology having value-added within the Chinese system at a relatively low cost point building an industrial base that can achieve many of these global economies of scale locally because you've got a billion people to work with and then bringing in steps into the supply chain from Korea Taiwan Japan the Southeast Asian states to fill out the rest of the whole kind of Chinese China Inc if you will that is only possible if they have unlimited access to bring in raw materials and energy from beyond their continent if the financial system lubricates international financial flows to make this entire web work possible if they have access to a hard currency paying consumer base of mammoth size and regional and global security alignments mean that none of people in this entire network from raw material producers to manufacturing supplies chain steps to end consumers is interrupted ever that's an awfully specific and large list of requirements that china is wholly unable to guarantee or even influence by itself it is completely at the mercy of American commitment to the Bretton Woods system a commitment that is now collapsing which means that the Chinese need to find a fundamentally different economic model and because their political system is based on their economic performance a completely different political model President Xi has seen this coming and he spent the last six years consolidating the political space within the Chinese system and in essence publicly executing anyone who is an independent pole of power on live television so that the Chinese have no doubt who's in charge and if you remember back to last November when the Chinese Communist Party met at the Great Hall of the People they basically made him dictator for life and he has now consolidated more power unto his one person than any Chinese leader in history including the Emperor's including Merrill because he knows that the economic system is facing a high velocity crash that it's not going to survive and if the Chinese have to make a choice between a China that is authoritarian unified closed off from the world and poor or one with multiple power centers that can be exploited from the outside where some provinces do well and others don't and the whole thing fractures for the Chinese that's not a choice for long-term winners let's set North America to the side for a moment because there's a lot of domestic things in the United States Mexico and Canada they're going to shape that in a direction that has nothing to do with the international system but for the rest of the world there's really four big winners the first is Japan here's a country that because of its demographic aging has figured out a way to have a modern economy without having a workforce it's all based on automation and Ford positioned facilities in countries they want good relations with they have become the defective determiners of what the western Pacific looks like and that means among other things and into China as a significant power that's something we like very much the big challenge for them is you know how do you digest politically the smaller countries that maybe don't have the best relationship with you Korea's being at the top of that list moving over to the Western Hemisphere Argentina Arjen freaking Tina looks really good there topography is very similar to the United States they've got the equivalent of the American Midwest and the Pampas that got naturally navigable interconnected waterways to serve as natural transport arteries the climate is good they get winters so there's an insect hill so the health system is good they've got great wine and they don't have any security challenges there's no one within 5,000 miles of them that bears them ill-will or has the capacity to get to them in the first place so as brazil falls argentina can pick up every bit of that that looks interesting to them and if you look at what their traditional exports are oil natural gas iron wheat corn poultry pork beef and a world war global supply chains of breaking down and famines probably coming back they have everything that the world needs and they're gonna be able to get top dollar for it third country France yes they're in the EU yes when it goes away it's gonna be a big problem the French created the EU to achieve a political and strategic goal they never saw it as an economic Union it's just like what the United States did with Bretton Woods sacrifice some economics in order to get some security strategic advantages so the French never integrated into the EU as much as any of the other major members so for them it's like 15 to 20 percent of GDP is wrapped up in trade for the Germans it's 40 to 60 percent based on where you draw the line so they will have a very painful adjustment period but on the back end of this not only are they not going to be involved in any of the Wars of the disorder they don't even border a country that is going to be near a frontline so they have Europe's second most powerful military and second most powerful Navy but no security challenges they're an exporter of food they're manufacturing supply chain base has been kept national because they're French and they can even get energy from the former colonies relatively easily so most of the challenges that the rest of the planets going to be struggling with and failing to succeed with the French have in hand at the start of the era and then finally there's turkey turkey has everything that it needs nearby can get food from Southeast Europe primarily Bulgaria and Romania you can get energy from Iraqi Kurdistan or Azerbaijan it's got NATO's second most powerful army there's no country near it that can really hold a candle to it in a meaningful way and they've got a phenomenally young demography so all of these advantages will last not just for years but for decades the only problem the Turks have is while they're more powerful than anyone in their neighborhood and maybe even more powerful than everyone in their neighborhood they're not strong enough to go in all directions at the same time so they're gonna have to choose and until they can solidify their political system and right now they're in this transition from semi democracy to hardcore dictatorship that means one guy Erewhon has to make the decision where does he want his country to go everyone else is trying to manipulate them into going a direction away from them so one of the reasons the Russians were involved in Syria is try to bait the Turks into Syria because if the Turks are in Syria they can't also be in Ukraine but on the backside of this turkey may have made some bad security decisions but they're gonna be a self-sufficient country in a neo Imperial set up in a world that is largely chaotic and broken down and that's actually pretty good largely everybody else I mean that's a bit of an overstatement there are parts of the world that are gonna do all right Southeast Asia I think is gonna kind of come into its own for the first time but all of the regional power centers that we've become convinced of as the up-and-comers are ones that are for the most part depending on the Bretton Woods system so I would say that the two biggest losers are China and Germany for the Chinese everything about their political unity is predicated on international stability which means that China reverts to something that's actually more normal its history fighting regions a lot of internal chaos warlords for 3000 years of Chinese history this is what about 2,500 of it looks like this is more normal for them they were in the a typical period right now Germany's more and less complicated and we're talking about Germany here I mean this is a country that went from economic destitution in 1935 to invading France six years later the German capacity for regeneration and rebuilding is immense and just because their entire economies can collapse does not mean that the Germans are removed from the board they will reinvent themselves but every time they reinvent themselves their neighbors usually don't like what it looks like the challenge is figuring out what they're gonna do Germany is one of the most advanced countries in the world it's become one of the big successes of the Bretton Woods system you know Jeremy that's no longer warlike in genocide all but its free and democratic and even a little pacifist I mean this is amazing but you change the circumstances and that goes away Germany right now imports rough 85% of its energy roughly two-thirds of its GDP is in some way dependent upon exports if you take that away the Germans have a choice to make they suffer a three-quarters reduction in their standard of living and they give up on electricity or they act like Germans and they find another way the problem is there's no single place that they can go to get everything that they need France has maybe half the market that they need but all of Europe together doesn't have enough the Yamal Peninsula in North West Siberia has the energy that they need unfortunately st. Petersburg and Moscow are in the way there is no series of deals there's no series of invasions that can give the Germans the standard of living that they enjoy today it will drop catastrophic alee and that will absolutely have political consequences can you imagine what would happen if we had the effect of the great depression concentrated into one year because that's what the Germans are going to be dealing with the political stress that will generate the directions that will force the Germans to go will not be pretty the Europeans have a common currency but because of national proclivities on things like banking and financing there is no national authority that really regulates what the governments spend money on or for the banking sector itself that split meant that a lot of Europeans got into debt at the state level it also means that a lot of the European banks took advantage of cheap euro borrowing well beyond what they could have probably handled in the first place and so the banks themselves have a bad debt load that it honestly is an order of magnitude larger than what's going on in a sovereign debt system so you get these three different clusters of European countries some which run it by the books Germany the Netherlands some of which will have massive sovereign debt issues Ireland Greece and some which have massive private banking catastrophes waiting to happen Italy you put that all on the same system and you know bailouts in the trillions have to happen how do you pay for that here in the United States the Fed prints and currency the Treasury issues debt they talk you get the two of them at a two-top in a bar they've got it hacked out in an hour in Europe you have to have a meeting with 28 different members with all their translators and you have to find out who's gonna pay for it because you can't just print the currency so they confiscated insured bank deposits who wants that currency now if you can have money in a European Bank and the European government can just come in and take it to pay for someone else's bailout and so ever since the Cypriot bailout which was what seven years ago now the European euro has collapsed as a mode of international financial exchange they obviously still use it in Europe but it is very clearly a local currency rather than a global one I think it's now for trying to finance internationally it's dropped to number five it used to be number one so that's the euro next is the Japanese yen back in the 80s the Japanese tried to internationalize and that's right about the time they realized that their economic model had gone as far as they could they faced a series of protracted recessions that led the 20 years of economic stagnation and the largest capital flight in the history of their country so they stopped making it convertible it's still technically out there but it's only like 2 percent of global exchange and it's not going to be a significant player again especially now that the Japanese have offloaded their industrial plant and it's not even using the N except for repay trading profits home next down is the yuan Wow okay in terms of gross monetary size the Chinese yuan is by far the world's largest currency because the Chinese use a debt driven model to drive their economic development doesn't matter if you can make a product or if you have a business plan or if it's a good idea as long as you're employing people that's the goal of their development model because people have jobs they're not going to get getting together in large groups and going on long walks together like beer doesn't like to see that that's how they got their jobs the other half of that is they just print currency like mad so think of what America was doing at the height of QE the Chinese were about doing about 20 times that volume just as a matter of course so their monetary base is well over double the Americans despite the fact that our economy is still over twice the size of theirs that means if they have it convertible all the money comes out and what they've seen in the last two years is these baby steps they were taking towards full convertibility in an open account led to so much money flooding out that they had to shut it down so they're not interested next one down is the pound hard currency independent central bank ticks all the boxes but if there's one thing that everyone in the world agrees upon it's that the Brits should never be in charge again who's next Canada Australia Sweden Denmark New Zealand that's all of the world's hard currencies so if those countries were to combine to try to float a global currency they'd probably only be able to manage a quarter of what the world would need think about what the global currency has to be it has to have an agreed upon value it has to be available in a volume to lubricate international and trade movement and the currency has to be run by a country that doesn't really care what its day-to-day value is which means it can't be a trading country if it was Japan or China they'd intervene everyday that would just request is qualify it right there if it was China would have to be an open account that disqualifies it the only currency that can be the global currency is the US dollar which is why we see whenever there's a period of international chaos like the subprime crisis or the Asian financial crisis the money floods to the United States because it's the only store of value that is accessible that has rule of law and that has enough bulk that the locals don't care what it does day to day you can't have that anywhere else in the world the United States has a young and growing population even into the trump era we still have inward immigration of skilled labor large consumer base large industrial base and the technologies that are being developed right now and being applied in the United States are bringing industry back to the country even before you consider international breakdowns self-sufficient in energy the United States's picture is bright the trajectory is up might not be a straight line trajectory but it's still very very positive if you're looking at Mexico even in the worst case scenario with the Trump administration you still have an industrialized country at a lower price point than the United States it's all about the differential between wage costs everything that Trump is doing is pushing wages down in Mexico the wider that differential is the greater the case for economic integration between the United States and Mexico so everything that Trump is doing is actually going to deepen the bilateral relationship not saying it's gonna be as friendly as it has been but it's gonna get deeper so that's all right Southeast Asia you've got a lot of countries that have always been exploited because foreigners could access them on their terms if the global system gets more dangerous all of a sudden it makes more sense to do some value-added manufacturing in place like Indonesia for the first time in their history they might actually be able to modern but then of course there's plenty of dark spots Brazil looks horrible Germany's going to be nasty at best the Russian Federation is literally dying out and China's probably gonna fall apart the overall picture for the world is of a dark Darwinian future for at least the next twenty years because that's how long it's gonna take for a lot of these mid-sized powers to kind of reinvent themselves in a narrow Imperial format that's gonna be ugly it's gonna be rough for democracy that's certainly gonna be rough for free-market capitalism and what emerges on the other side is going to be a much more dangerous place so you've got to pick your battles for the most part for the Americans this is going to turn out just fine the question in my mind is what happens on the back end after 20 years of navel-gazing of the Americans redefining themselves and coming back together re formulating their political parties into a new more stable form finally having that conversation with ourselves about what we actually want we're gonna look out in the world and realize it's the world that we thought was there is gone and we're going to have to start all over again it's gonna be like the 1890s we had come out of reconstruction and the world had changed but we didn't let that stop us from venturing out it's gonna be a brave new world one way or the other [Music] [Music] [Applause] [Music] [Applause] [Music]

Channel: Nathan Watson

Views: 99,475

Rating: 4.8069382 out of 5

Keywords: Geopolitics

Id: lFjr-Q1qi-g

Length: 34min 47sec (2087 seconds)

Published: Tue Nov 20 2018

Reddit Comments

[u/TaylorSeriesExpansio]

All his talks sound so similar but still fascinatig

[u/tIawdnaeulav]

Great Marco economic find

[u/vegaseller]

I have been saying this for years. If you are objective and have actually looked at the rest of the world such as an EM specialist like myself, you would realize just how great America is. America has the best demographics, best technology, complete energy independence, very little dependence on foreign trade, nearly limitless cheap natural gas to power everything, massive agricultural and abundant land/resources, high cap rates in many growing regions. It is basically Switzerland for the rest of the world, and not just Europe. Where do rich Latins hide their money? Miami. Where do rich Chinese park their money? SF or LA. If anything goes wrong in the rest of the world, America is the safe haven for the wealthy to hide their assets, this is what happened during the dot com era (post asian financial crisis and japan bust) and the roaring 20s (European capital flight from WWI). At the same time, it attracts high human capital (the best universities are in the U.S.) and has the best technology center on the planet. Its price to rent is just about the lowest in the world. The average home price/income in the United States is like 3, compared to like 10 in Europe and 50 in Asia.

[u/QuantamentalInvestor]

I think he's overestimating the dependence of China on international trade to function

[u/ImFlyImPilot]

I’m preordering his book in February. I’ve been listening to his talks for 3 years. Him and other geopolitical analysts just get so far above the fray before they make predictions

[u/Cronk_77]

His book "The Accidental Superpower" was a great read, and I would highly recommend if you enjoyed this talk.

[u/Bizkitgto]

Wow, gold, thank-you so much kind stranger!