The Breakdown - How Coronavirus Is Accelerating the End of Globalism, Feat. Peter Zeihan

Episode Date: April 1, 2020

“Some countries just aren’t going to emerge from the Coronavirus.” Peter Zeihan is one of the world’s foremost geopolitical experts. In his new book “Disunited Nations: The Scramble for Power in an Ungoverned World,” Zeihan argues that we’re at the end of the largest expansionary period in human history. As America withdraws from global leadership, a totally new (and for most parts of the world, more painful) ‘normal’ will emerge.  On this episode of The Breakdown, Zeihan joins @NLW to discuss why the Coronavirus crisis is rapidly accelerating the end of the era of globalization.  How the American-led global order used the dollar as the tool to keep the world together  Why geopolitics and demography are coinciding to end the era of globalization  Why Covid-19 will spark a massive return of American manufacturing  Why, when it comes to the dollar’s status as the world’s reserve currency “Never before has the “exorbitant privilege” of being the world’s reserve currency felt more exorbitant or more like a privilege.  Why the crisis could spell the end for the Euro  Why China isn’t nearly as well positioned in the post globalization era as many assume  Why the best positioned countries in the coming era are the US, Japan, Argentina, France and Turkey

The pessimism. So many parts of the world were living in complete abject denial about the end of the order. Europe, I would say, is the greatest concentration for this. Just the sheer insistence that everything was going to be fine and all they had to do was outweigh Trump and the world would go back to normal where the Americans pay for everything. I mean, it was just, it was assinine, but it was probably the dominant view around the world. add in coronavirus and all of a sudden we have 10 years of transition smashed it into a year or two. Most places in the world weren't going to be able to deal with the new disorder anyway.

And having absolutely no adjustment time while also under economic and political lockdown, some countries just aren't going to emerge from the coronavirus. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Wednesday, April 1st.

April 1st, guys, we are starting the first full month of lockdown in many places in the U.S. And certainly the first full month of global awareness of just how devastating the coronavirus can be to not only health outcomes, but to our economic and global systems. And that's kind of the subject for today. So yesterday I discussed with Nick Carter how this is really not just a health crisis or an economic crisis or even a financial crisis, but it is in fact a geopolitical crisis as well. Well, my guest today is one of the foremost geopolitical thinkers in the world. Peter Zion is a geopolitical consultant and the author of the recent Disunited Nations, The Scramble for Power in an ungoverned world. Now, Peter's thesis is that for 30 years, basically, since the end of the Cold War,

America has been withdrawing from the American-led global order. And this is consistent across administrations, across politics and partisan boundaries, but it comes with some very significant implications. And as the geopolitical shift happens, we're also dealing with issues of demography, as he'll get into. But for him, coronavirus is something of a wrecking ball, which is just rapidly accelerating these trends, which he thought were happening over the course of call it the next five or ten years. Basically, in short, his thesis is that the end of the world, as we know it, with an American-led global order, was coming sometime in the next decade. But as you'll hear, for every quarter or so that the coronavirus crisis continues, we're losing another year off that,

with some pretty massive implications. So this is an important conversation for me. I really care about not just Bitcoin and Crypto, or not even just the macroeconomic context for Bitcoin and Crypto, but how those things fit into the world at large. And Peter is one of the best thinkers I've come across when it comes to how all of these different factors from finance to economics, to politics, to demography, come together to shape the world that we live in. So I hope you enjoy this conversation as much as I did. As always, caveat with long interviews, we edit these very, very minimally to capture the, feel and flare of the whole conversation. But that said, let's dive in. All right, we're here with

Peter. Peter, thank you so much for joining. Pleasure to be here. So we were just talking about this a little bit before, but, you know, I think that the conversation that I'd love to have is how coronavirus is accelerating a larger set of ships. But to get into that conversation, I think we need to go back and look at that's larger set of shifts. So I wonder if you could kind of give us the the short version. This is admittedly a ridiculous question, but the short version of this, this big pattern that we're living through in the world, which is obviously the subject of your new book, This United Nations. Sure. So we've got two overlapping things that have nothing to do with one another that are kind of crashing together at the same time, just purely coincidentally,

that are ending the era of globalization for good. Step one is geopolitical. So at the end of World War II, the Americans were there on the plains of Northern Europe facing down the Soviets and realizing that they had no chance in that fight. We needed allies that would be willing to interspers themselves between us and the Soviets. And that basically could not be done if you want to occupy them. So what we did is we bribed them. We basically paid everyone to be on our side. We created a global structure that allowed anyone to go out without need of naval cover, purchase any sort of raw commodity, bring it home, metabolize it into a finished good, sell it within their own market or more likely export it to the United States and export their way back to being a first world country.

It was the first time it had ever been done. In the past, if you were a naval power, you used that to forge your own empire. And for this time, the United States used its naval power to help everybody else recover. It worked great. And eventually it did defeat the Soviet Union. But when we got to 1992 and the Soviet Union had collapsed, we never bothered to kind of reset our foreign policy for the new age. So we kept providing all of these strategic goods for the global commons so that the world could grow, but the U.S. no longer got any sort of security in response. 30 years later, we've gone through four presidents,

Clinton, W, Obama, and now Trump, with decreasing interests in maintaining that system. So it was always going to collapse under whoever we elected, three years ago. It's just a question of how organized that collapse was going to be. Okay, so that's piece one. So the U.S. is just done. And without the United States, there is no power, there's no coalition of powers that can hold it together. Piece two is demographics. People in their 20s act different from people, and their 40s act different from people in their 60s. When you're in the 20s, it's all about

consumption. You're raising kids. You're going to college or buying homes. When you're in your 40s and your 50s, it's all about the savings. The kids have moved out. The house has been paid down. You're saving for retirement. And then when you're in your 60s, it's about whittling away at those savings and basically just kind of idling away and being a net consumer of capital. Well, global birth rates started dropping in the 1960s and really accelerated in the 70s and 80s. So we are at this weird moment in time, demographically, that's never happened before, where we have very few years. young workers doing the consumption. We have a lot of mature workers who are doing savings,

and we have a rising number of retirees who are consuming. But within the next few years, and it depends upon where you are, it's one to six years based on the country, the world jumps from a bunch of mature workers to a bunch of retirees. So at this moment in history, capital supplies have never been higher. And very soon, the capital will go away, and the retirees will basically consume it all, and we have to move to a completely different economic model that is not based on consumption or trade.

So both of these were coming to a head anyway. Both of them were going to crash into the system we understand sometime in this decade. What coronavirus has done is fast forward it. Because if we are offline as an economy for the better part of a year, there is not enough time to get through this debt overhang that we're going to have to set up the supply chains in the way that they used to be in the aftermath. So we have probably just ended the greatest expansion in American history, the greatest expansion in human history. And we're not going to see anything like it again in our lives. So this is, I think, a really important point for a lot of folks.

We have been living inside a normal that is fundamentally abnormal over the course of history, right? Absolutely. And so that has an economic dimension, a geopolitical dimension, a, structure of economy's dimension. And so let's, I guess, start to piece off, go a little bit more into the coronavirus and how it's accelerating the shift. I mean, which piece even to start with. You know, I agree down to those trust in institutions, the power balance within nations, the power balance between nations, possible monetary outcomes. I mean, I guess like, you know,

you've been trying to sift through it. I've been reading your dispatches kind of every day piecing through it. And I think one of the things that's, that's, so interesting is that it's this cascading set of crises that are all, you have to almost unwind and unpack them each, but they are kind of inextricable from one another. Yeah, they absolutely reinforce one another, and that's one of the big challenges in playing this forward while the change is going on. It's kind of funny. Back in February, we had started our next book project because we knew that the world that we understood was going to end, and so we wanted to provide kind of a guide for what it was going to look like on the backside. What's the future of

agriculture and manufacturing and finance. Talk about being overtaken by events. Trying to figure that out while the change is going on, when the change is being compressed into months instead of years, is a task that has so far occupied every waking moment that we have. But we're working on it. But let's just pick a couple of pieces. Probably the most obvious is going to be manufacturing.

The whole concept of global manufacturing and just in time supply, and economies of scale and competitive advantages is the idea that in an environment where transport is safe and cheap and there are no restrictions on interstate commerce, you can break up supply chains into dozens, hundreds, thousands of independent steps, and each facility producing each specific product can be done in a different location and then come together in multiple locations for ultimately assembly. that model doesn't work in an unsafe world and it certainly does not work in a world under quarantine. You have to... Actually, I want to pause. Sorry to interrupt you, but I think that I was trying to think through what are parts, you know, I've been familiarizing myself with your work over the last few weeks and thinking a lot about

this. So I want to make sure to not leave people behind who haven't spent that time. One of the key other parts of the setup for this is we've been living in a world where geography didn't matter. And that's one of the big shifts. So I want to make sure that we add that dimension to this, because it's kind of relevant in this context that you're discussing. Well, yeah, sure. The global order, the whole idea was international borders don't matter at all. We're all part of the same economic system. It started with just the United States, Western Europe, and Japan. By the time we got into the 60s, we had included Southeast Asia, most of the neutral

countries in Europe. And we continued on to expand, expand, expand, because the larger that family of nations was the less economic opportunity and strategic opportunity the Soviet Union would have. But then we got to the end of the Cold War and we decided everyone can play. So we really have had this truly globalized world, global and scope from roughly 1990 to the present. That was never sustainable. That was never going to be economically viable in the long term because ultimately somebody has to pay for the security environment. And the American consumer has limits as to how much it could absorb. It was one thing when the rest of the world combined was roughly the same economic size, I'm sorry, the rest of the free world combined was roughly the same economic size of the

United States. When it gets to be double or triple and the Chinese are thrown in for good measure, it's just no longer viable. Ultimately, the order was a strategic one and it was designed around the indirect subsidization of everyone else. When everyone else is poorer than you, that works. When everyone else is a peer, it doesn't work at all. Okay, great. So, yeah, This is just such an important, relevant context as we talk about this unwinding. So I interrupted you as you were talking about the manufacturing system as it was set up, which is where you could take all these component parts from everywhere and bring it back together. Right.

It was all about who had the best advantage comparatively for each individual widget. In an environment of cheap transport and safe transport, that makes perfect sense. But once borders start to harden because of health reasons, that just goes out the window. And so what we're seeing is this massive, frantic, panicked retooling of the American manufacturing sector to build things that normally we would import. And that means shorter supply chains that are closer to the consumer. Now, this isn't something that is going to long outlast the coronavirus. A couple reasons why. Number one, most of the people who are, say, retooling for things like respirators.

They are not undoing their other manufacturing lines. They're just using their expertise in their labor force in new facilities. Second, a lot of this retooling is done at the machine shop level. Those are small shops usually employ no more than a dozen people. They're very quick at absorbing capital and new technologies so they can adjust on the fly. So we're establishing these new supply chains that really play to what the structure of a more disorderly world is going to be, more adaptable. Third, you don't just go back, and cost structures have changed radically in just the last five years.

One of the big outcomes of things like the Shale Revolution is the United States now has the cheapest electricity in the world without subsidization. A lot of these raw materials and intermediate materials that you need for most modern manufacturing are now actually generated in the United States at a cost point cheaper than any of anywhere else. So we've known for a couple of years now that there is almost no manufacturing process that you couldn't build the industrial plant for in North America and have it operate in terms of labor and input and taxes and transport at a lower cost point than what already exists in East Asia. Now the sticking point with all of that, of course, is the industrial plant is not free and it was already existing in East Asia. But coronavirus completely negates that. And so we're building it now in a panic because we have to.

And at the end of the crisis, even if global structures went back to normal, it would still be cheaper to operate in North America. This is a permanent shift. So this is something interesting, too. There's another dimension of the manufacturing, which is that I've seen more people who wouldn't have thought about this before coming to the realization and tweeting out about manufacturing as a national security concern, right? And these are people who come from every political spectrum, but who are like, crap, we probably should be able to produce medicines here, you know, or what have you. Right. And all of a side, it's like there's a, there's a political dimension to this too in terms of where you get the will to do different things. In a internationalized globalized system that's based on American security commitments and trust, the idea that your medical supply chain could be in another country makes perfect sense. But we're not in that world anymore.

And even before coronavirus hit, I don't think most people realize how much of a political shift there had been in this country on issues of trade and linking economic and national security together. Of the 197,000 Democrats who are trying to get the ticket, every single one of them said that Donald Trump was being too soft on China. So the degree to which the average American left, right, or center has already changed. change their opinion on what accounts for national security and economic issues shifted before coronavirus. And that was before people started dying. So this, it would take a generation to unwind this paranoia. Paranoys probably not the right word, but this new appreciation for the circumstances and go back to a more trusting world. You know, other countries just don't have that kind of time. It feels as well like there's going to be long-lasting psychological impact of this

isolation. It's not going to be a forgettable moment, right, where things just go back to normal in the same way for people. And I think that that's relevant, mostly in the context of making citizenries more open to radical shifts, I think, in some ways. That's probably going to happen. I mean, it's a little early in the crisis right now to know for sure, but the idea that you, you throw a few thousand extra deaths in an economic lockdown into a city, and that doesn't change them as kind of a reach. The question is how deep is this going to be? The only real point of comparison we have right now is a Spanish influenza outbreak at the end of World War I, but there was a lot of other things going on at that time.

In addition to the war itself, shortly after the outbreak was dealt with, we had the roaring 20s immediately followed by the Great Depression. I don't mean to suggest that those are necessarily going to be parallels that we're looking for, but we went through an extreme amount of social re-engineering in the 20s and the 30s, and then, of course, in the aftermath of World War II. What we're more likely to see this time is some sort of broad overhaul of national security, which was going to happen anyway because of the change in the global system, and also health care. Now, an overhaul of the health care system, wow, talk about something that is long,

overdue. The Obamacare system didn't bring his health care reform. It brought us health care payment reform. And so if it takes this to finally get us to get a health care system that is, you know, in the top 50 of the world finally, that would be great. But one miracle at a time. All right. So we, we discussed a little bit about this idea of accelerating shifts that were already happening in terms of manufacturing. We actually ended up touching on accelerating certain shifts in terms of domestic politics. But another dimension that I think is really interesting, especially for people kind of coming from my little corner of the Bitcoin or in crypto world, is changes in the global money system. And I know that you've written about both the impact on the euro or potential

impact on the euro, as well as the strengthening of the dollar going around. So I wonder if we might dive in there. Sure. So let's kind of break that into two topics. Step one, let's talk about currencies and the likely path forward for that. Step two, let's talk about economic structure in general. Okay, so currencies. The United States is the noun, say, $2.2 trillion stimulus, fiscal, and recovery program, a combination of bailouts and checks to people, loans to business, that sort of thing. Every dime of which is fueled by deficit spending. So we're talking 10% of GDP is a supplementary program, which is entirely based upon money that we don't have in the bank. This is on top of a deficit for the Trump administration for the current fiscal year that is like the third largest in history. So just a huge amount of quantitative easing, debasement of the currency, printing of currency, you know, whatever your preferred phrase for that concept is. And the dollar has gone up. The degree to which the United States is the sole, sole store of value in the global system

was already pretty extreme in the last two years and it's only gone up during the crisis. is there's nothing that the Europeans can do in terms of stimulus spending without actually raising debt. Even if they decide to do something like QE, like the United States, has done, they don't have to have the debate, which last time took years, over who gets how much of whatever the stimulus spending happens to be. And no one wants to throw money any more money than they have to

in the black hole that has become Greece. Italy, despite the death rate and how tragic that is, has had 30 years to clean up their banking sector. They've actually gone the wrong direction in northern. in Europe wants to be responsible for paying for that. So aside from some German debt, because there's actually a shortage of high quality debt in Europe, the Europeans are having a hard time raising the capital

that is necessary to deal with this crisis, whereas the U.S. can just flip a switch, and that's what we've done. Investors look at that, and they're wondering, okay, which of these systems is still going to be around in a few years? And they're all flooding their money into the United States despite all the deficit spending. As for other countries in around the world,

Japanese aren't interested. The Chinese have capital controls and the Brits are an economic structure that's about one-sixth the size of the United States. And that's everybody. So if the euro continues to exist, it will exist over a shriveled, demographically spent economy that is no longer capable of exports. That's not a functional block. And that's their best case scenario. More likely, this whole thing just breaks up and the United States basically absorbs a huge amount of capital from Europe. China is a bit of a black box because what data they do share, they tend to lie about, but we know that 99% of the yuan in circulation is all within the mainland.

It's not an internationally traded currency at all. And folks, that's everyone. So we've got a centralization of financial holdings in a singular economy that is no longer interested in holding up the ceiling of the world. that's actually a fairly stable system because if the United States was interested in what happened with its currency on a day-to-day basis,

it would probably manipulate it. But since it really doesn't care what the world looks like, it becomes the perfect store of value. So love it or hate it, the US dollar is where it's at, and in the last few days, since the stimulus spending was finalized, it's even risen versus gold,

which if there is any environment where gold should be doing well, it's right now. So it's it. It's the US dollar or nothing. broader global structures, broader global economic issues. If the global demographic is aging past the point of mass consumption and even past the point of mass savings, capitalism doesn't work. The concept of greater market size, greater interconnections, greater financial heft, greater technological advancement, more and more and more and more. This is basically the economic model that we have been in since the time of the Columbus expeditions. This isn't because of the order.

The order just put it on steroids. Well, it all ends this decade. And with coronavirus, it might all be ending right now. We need a new ism. We know socialism doesn't work. We know communism doesn't work. We know Nazism and it doesn't work. And we're pretty sure that capitalism is in its final days.

What's next? No idea. But I will point out that in the past, when humans have come up with different economic isms, we have tend to argued about them. relatively strenuously. Now, the United States is the last major country that has to deal with this. We've got the best demography going forward. We're the only country that if you include immigration is actually above replacement levels. Our average age is five years younger than the Europeans and even

younger than that than the Japanese. We're now younger than the Chinese on average. So this process has happened here more slowly than everywhere else and we've got a hell of a head start on everyone else. So we probably have more than a decade to figure this out, but we're going to have to watch the rest of the world struggle with this at a time of severe economic dislocation over the course of this next decade. Hopefully we'll learn a few things. Well, we're already seeing the power vacuum isn't the right word, but the thing that always happens in times of crisis where power shifts radically

and gets consolidated very quickly. Obviously, I think Hungary is kind of the, but canary in the coal mine isn't even the right analogy. Holy crap. Yeah. But we're seeing this already, and it's hard to imagine how this doesn't just wreak havoc on less state. I mean, it's wreaking havoc on incredibly stable countries, relatively speaking. So the idea that it won't just absolutely tear asunder, you know, certain places is nuts to me.

Yeah, Europe is probably the best example there. in an open world of limited borders, the idea that you can have a medical supply chain that stretches through a number of countries makes perfect sense. But one of the first things that happened, even before they announced travel bans, the Europeans closed their borders to medical trade. So, you know, if you need to access four different countries in order to build a ventilator, you're out of ventilators. For the larger countries, Switzerland, I realize they're not in the EU, Germany and France, they can make this work because they've got a fairly large, diverse. manufacturing base as it is. But if you're Portugal or the Czech Republic, you are absolutely screwed. And it's only in the environment of the order that these countries have been able to exist without having to worry about their own defense. You move into a world where that is

where economic self-sufficiency and military protection are actually issues. Most of these countries simply go away. So let's talk about a little bit actually now. The context of the conversation is corona as a catalyst, but this is obviously a larger pattern, and that's the point of the conversation too. So let's zoom to the other side of this. You know, maybe it's coming a little bit faster, but what happens in the context of kind of geopolitical relationships, the power balance between nations?

I mean, one thing I feel like especially right now is there are a lot of folks who are looking over at China, and they see the U.S. in withdrawal, they see China on the expansion, right? I mean, again, our little corner of the world is interested in things like the DSEP, right, the digital currency and what that might mean for the Belt and Road Initiative and all these sort of things. But let's talk about, well, one, maybe start with the relationship between the U.S. and China, how this changes or doesn't change anything. And then two, more broadly speaking, in the scramble, if there will be a scramble, you know, on the other side of this, how does that play out from a geopolitical perspective? Well, I think the best way to start that whole conversation is talk about the reality of China. Anyone who thinks that the Chinese are rising is reading too much Chinese propaganda.

They're kind of desperate with their own system politically and economically right now. As I mentioned earlier, the average Chinese citizen is now older than the average American. So their capacity to have a consumption-led system that is not dependent on international interconnections is pretty much ending right now anyway, and that was before coronavirus. China's system is very heavily internationalized, and that is a very new thing in Chinese history. Traditionally, the Chinese have never been able to punch out beyond the first island chain. Those are the lines of islands that roughly parallel the coast from Japan to Taiwan to the Philippines to Indonesia to Singapore. It kind of forms in a coastal waterway system that any sort of naval power has always been able to keep China blocked up in, and it's only under the American-led order that everyone on all sides of that chain have been on the same side.

That is the strategic environment in which China has been able to unify and become wealthy. And as soon as that strategic environment breaks, China simply goes away as a significant power, much on a regional sense, much less on a global sense. So they are on borrowed time. They know it. And President Xi is doing everything he can with propaganda to try to convince the world otherwise and that there's some new era about to happen of Chinese glory. He doesn't believe it. But if he can get enough people outside of China to believe it, then maybe they'll have a little bit of traction.

That's part of the reasons why some of this coronavirus propaganda was so intense trying to shift blame away from the Chinese Communist Party and especially Xi personally to anyone else. And it absolutely backfired, most spectacularly when they tried to blame the Italians. And everyone in Europe just kind of turned a page and turned their back on China to whatever degree they could. where to go with this next.

It's what of those giant topics that touches everything. This is my favorite. It's like, welcome to the black hole. Yeah, exactly. If you're talking about relations between the United States and China, the thing you have to keep in mind is that there is no aspect of that relationship that the Americans do not control, and there is no aspect to that relationship that the Americans decide to change the

parameters of that would not benefit the United States. We're seeing that in manufacturing right now. We saw that in finance last year. We're seeing that in currency right now. So the next big steps are likely to be more direct American actions against Chinese interests as a result of some of the propaganda. Picking a fight with the United States at any time is not necessarily the best idea. Picking a fight with the United States when they had their smallest footprint militarily

in the rest of the world that they have had since the 19th. is the very definition of stupidity. And picking a fight with the United States when they're scared is borderline suicidal. So I expect a sanctions regime on China versus any number of industries for any number of reasons. Some will be linked to COVID. Some will be linked to oil trade with Iran. It's really a short list. And I also expect a broad collapse of Chinese relations with most of the rest of the world because of one belt,

one road. The first big infections that we saw outside of China were in Iran. That wasn't by accident. Those were just Chinese engineers going back and forth. And Iran is a real country. It has a medical system. That's why we noticed it. Other places the Chinese have been in Southeast Asia and Africa, you know, it's just they don't have medical systems to detect this sort of thing. We probably already have rampant raging epidemics in most of these places. And it's not going to take a lot of epidemiological investigation to determine where it ultimately came from. So let's talk, I guess. So one of the interesting points that you made around China is the backfiring of a propaganda

campaign. I feel like the place that Americans have seen this, although it's still kind of in between a little bit, is particularly around the World Health Organization. And you've seen this in the context of tweets from the WHO basically parroting the Chinese line in January. saying it can't be transmitted human to human. And again, you know, the trust in institutions falling thing is nothing novel. It's been a long-term pattern as well.

But I think that we are seeing this acceleration. And interestingly, it is a, it's almost the international institutions are getting hammered as well for having been potentially captured in some way by interest around the world. It depends on which institution you're referring to. If you're talking about things like the United Nations, well, those only work are if the United States is very actively involved. We really haven't been involved for 15 years ever since the Iraq War. If you're talking about things like the World Bank and the IMF, those tend to be a lot less politicized. They still are completely dependent upon the first world countries backing them up financially. But to this point, there really hasn't been too much lost in confidence in those institutions from the top. I have no doubt that they're going to. going to have a smaller agreement moving forward, but I don't think we're going to see kind of like the collapse and confidence that we've seen with the United Nations. World Health Organization is kind of in between. The statements they made on coronavirus early on were obviously wrong,

and they were obviously catering to the Chinese, but you got to put themselves in their shoes. They knew that something was happening. They knew what was going to be bad, and the only source of data they had on it was the Chinese. So if they did not report in a way that the Chinese felt was appropriate. They just weren't going to get anything. We know we haven't gotten all the data that we need out of China. We know they've been lying about every aspect of it. But what little we've gotten out has been because of the World Health Organization. So I don't feel great about it, but I'm probably not as willing to condemn them as much as other people. That's interesting. I think that's an interesting nuance to the position. I think maybe the

then the challenge gets to a broader question of just, China's information policy of the global order and what people think about that, you know, in some ways. Well, the Chinese Communist Party's first and foremost goal is the survival of the Chinese Communist Party. And when Xi took over five years ago, they basically went into a series of political lockdowns and purges where anyone who has any sort of independent opinion or thinking capacity was either imprisoned or killed. So we now have a one-man dictatorial system.

He's got a cult of personality that's far more intense than anything existed for Mao. He has more authority over the Chinese system than any of the Chinese emperors of old. He is the most powerful Chinese leader in the history of the Chinese people, which means the capacity for catastrophic mistakes is huge because you don't say things that will disagree with the party line, but with the line of Xi, and you do not want to be the person who brings bad news. So everything that I have heard from people who are within the Chinese system is that Xi is far more temperamental than Trump and is far more willing to punish his subordinates than

Trump. You know, Trump can't just point a guy at the Washington Post and say, I want him dead. She's been doing that for years. And so the degree to which we get doctored or completely fabricated data is just kind of the norm now. And the fact that anyone treats any Chinese data with any sort of respect anymore, I honestly kind of find it funny. Yeah, well, that's one of the big jokes in this situation is people, when people still to this day say, oh, the U.S. has surpassed, you know, China's X, Y, or Z, right, in terms of the body count of the coronavirus.

Yeah, but something you have to keep in mind with coronavirus specific. Everybody's data collection is different. There is no global institution to collect data on that. In fact, I think the United States, there isn't a national program yet. So you've got to look at the specifics of the case. So South Korea is a great example. Everything is basically linked back to one megachurch, which was attended by a bunch of 20 and 30-somethings. So their data is a good cluster study, but it actually shows very, very low fatality rates because most of the cases that they picked out were young people.

Italy is the opposite. Most Italians live in two and three-generation homes. So once a virus gets into the population, the elderly cannot shelter in place. They are simply exposed. So all of a sudden, this wave of sick elderly people came in and hit the hospitals. The Italians had absolutely no warning, but they only tested the people at the hospitals, you know, people in their 60s, 70s, 80s, and 90s. So of course, their fatality rate was much higher.

We haven't had a situation that's roughly analogous to what the United States is about to experience yet. The closest is probably what's going on right now in Spain and France. And I got to tell you, it doesn't look great. I want to almost zoom out for me. here. My first instinct there was to say, okay, well, then how does this play off for the next three months? But that's almost, that's really difficult. Let's work backwards to that almost from a different question, which is, you know, you have a sense of what the world looks like on the other side of the U.S. is full would treat, right? The end of this system that we've been in. You thought maybe it was

going to be a decade from now or sometime in the next decade. It seems like it might be here. I guess the question is two parts. One, what does that world look like? you know, you've already explained some parts of it, but about as a whole. And then two, has this, has the coronavirus changed anything about how you think that it plays out in terms of which country's stand to benefit, in terms of, basically in terms of anything other than the speed with which change is happening. Yeah, let's start with that latter piece first. The coronavirus is changing the speed. The countries that are going to be able to survive this intact are pretty much the same ones and we're going to survive before because they've got a better demography or a better governing

system or a military that is right-sized to their needs or they can go out and get what they need. Those factors haven't changed. Coronavirus is just greatly accelerated at the Times table. And there might be a cultural shift in some of these places that change the way that they choose to interact with the world. Probably the best example is Japan, which will still need some sort of manufacturing supply chain that integrates with other countries. Coronavirus might make them a little gun-shy about that.

And that might change the nature of kind of this new imperial Japan that's going to emerge. But let's talk general structure. You've got two phases. Phase one, I call the disorder, and that's just the breakdown of the global system. And everyone's scrambling to try to either take advantage or just survive in the new environment. So global trade goes away, global agriculture goes away, global energy goes away, global finance goes away. All of these things that have allowed our world to function in the way that we're familiar with, just break down. And we move into a system where the United States basically draws a hard red line around the Western

hemisphere and says the rest of you, you're on your own, unless you can bring something to the negotiating table with us that we really, really want. We will no longer pay you to be on our side. But you have the option of paying us to be on your side as long as you keep paying. The most gross and obvious example of that right now are the military negotiations with Koreans, where the Trump administration has said, yeah, that $800 million a year that you pay us to keep our troops there, try $5 billion, and then we'll renegotiate next year to see if that goes up. And so the United States is in the process of closing down its military facilities in Korean bringing the troops home

because the Koreans think that this is a bluff. It's not. In any country that can't bring something to the table, cash is always good that the United States wants is basically left on its own. For countries that import, the majority of their food stuff, which is, you know, about 50 of them, that's the end. Unless they have a way to guarantee that they can get food supplies, I mean, that's just it. We've seen huge population booms in the last 70 years, a tripling of the population. In the Middle East, it's been a sextupling. That unwinds. We have famine.

We have financial crisis. Because if you think countries that had 100% or 60% of GDP in debt or a problem in a global order where the system was flush with capital, what happens in a global disorder when it's not. A lot of these places break. One of the things that we have forgotten in the world before the order, in the world before World War II, is it was pretty normal for a stock or a market to go to zero at some point.

That was kind of the natural end of things. It's only since 1945 in this era of global security and growth that we just became used to the ups and the downs and the ups and the downs. Usually recession is a contingency ending event. We're going to go back to that good and hard, and the adjustment to that area is going to be more than enough to shatter a lot of countries. Once we get past that, and that process could take five years in some regions, it could take 25 years in others. We did get to a new multipolar order. The United States continues to reign more or less supreme over the Western Hemisphere and has largely turned its back on the rest of the world, and you'll have these pockets where local powers have enough capacity to impose.

a local order on their own neighborhoods. Japan in East Asia, Turkey in the Middle East, France, in Western Europe, and it's entirely possible that the United States will have a partner come competitor in South America in Argentina. But that's it. Those five countries are the only ones that are likely to have any sort of long-term staying power in a world without the United States holding up the ceiling. What is it about those countries? I mean, I know that the kind of key of the book, but for people, I'm sure there's a few people who just said, wait, Turkey and Argentina, what are you talking about? Sure, yeah. It's like, aren't these financial basic cases? I really get it. Yeah, so it's, I don't want to use these as hard and fast requirements.

Sure. Context is everything. But the first thing you want is a reasonable demography with a reasonable concentration of young people. Because if you've lost young people, then your country's going to die in the next 30 years anyway. I mean, if you don't have anyone in your population underage 40, I'm sorry, you just don't have a sustainable system from the get-go. Step two, you have to have a system of borders that you can actually work with. They have to be relatively secure versus your neighbors, and the interior of your country has to have a significant chunk of usable territory. Kind of think of it as a crunchy candy.

You want a hard coating that's hard to get past, but kind of a gooey center that's easy to work with. Argentina, for example, has the second best chunk of well-river navigable, waterways overlaying by perfectly temperate farmland in the world after the American Midwest. I mean, there's really no way the Argentines can screw it up. And they've been trying year after year for 90 years. And there's still the richest country in Latin America. Just give you an idea of how hard you have to work to break something like that. France is probably a close third. Third, you need to have either internal energy supplies or relatively close energy supplies. Or relatively

close energy supplies or the ability to go out and get energy supplies. We like to think that the green revolution of solar and wind is going to change energy, and in some places it will. In the United States, that might be right, but most parts of the world just aren't sunny or windy enough in order to get baseline, mainline, I'm sorry, baseload power from it. So you still have to have access to fossil fuels. If you kind of throw those categories together, these five states are really the only ones who can pull it off. Now, they all have exemptions where they're going to have challenges. So, for example, Japan has an absolutely horrible demography, worst on the world, and has no indigenous energy. But what it does have is the world's second most powerful expeditionary Navy. So we can go out

and interface with chunks of the world that it wants to, and it's going to have access to the Western Hemisphere in a way that the Chinese won't. So they're going to be able to import and establish political military links to countries that can provide them with what they need. And in exchange, the Japanese have a market, the Japanese have military protection, the Japanese have financial strength. So they have things to trade. Turkey's borders are maybe not as good as, say, France's or Argentina's or Japan's, but everyone around them is kind of a mess. So the military is right-sized for the challenges in front of them. Every story is different, but these are the five

that are going to determine the future of the human condition. What do you think, how does this change the lived experience of, if you are, I mean, I guess it's different everywhere you are, but if you're an American, how does this actually feel to live through the next decade? We're going to have a change in our workforce. It's probably the single biggest change we're going to have, because we're going to have to do more with manufacturing, lots more small batch manufacturing machine shops.

And so this concept of the gig economy and everybody kind of doing their own thing, that is not going to go away, but it's going to be far less emphasized than it has been in the past because we're not going to be able to just make money on services and import the stuff we want. We're actually going to have to go out and build some of the stuff we want. Now, again, the degree of change, the Americans workforce is going to have to go through is minor compared to most countries because we still have Mexico. Mexico is our greatest demographic, political security and economic partner. They became our largest trade. partner last year. It's a position they will not give up in our lifetime. The relationship between the two countries has become quite beautiful. And even the Trump administration has stopped haranguing the Mexicans on economic issues because he realized that it just wasn't resonating even with his core constituents. So this is something that we can adapt to. All of the other problems that we've been talking about in the United States, most notably say the retirement of the boomers, you know, these are real issues. These are normal issues. These are issues we're going to have to deal with. But they're not system challenging issues. The American evolution to

whatever's next is going to be relatively slow. We face no broad-scale industrial collapses once we get past this coronavirus problem. How much do you think, you know, the, the coronavirus has accelerated things? I know that's hard to put a pin in, but is this a one or two-year shift in acceleration? Is this a five-year shift? Is this a decade-long shift? Or is that kind of contingent on what happens next and how it happens? I'd kind of say that every quarter we're dealing with coronavirus speeds up the process by about a year, just kind of if it was a rule of thumb. Best guess, according to the folks at the CDC and Fauci,

if you haven't been following Fauci, you definitely follow Fauci, is that we're going to have a relapse in the fall and that the summer is going to be of limited use in limiting, in reducing this. We're going to face a horrible year. There's no way around that. Okay, so that's three quarters right there. That speeds it up by three years. Well, what was supposed to happen in 2022, 2023?

That's the year that the majority of the American baby boomers and most European baby boomers were supposed to move into mass retirement. So we really only had two to three years left of what we considered be a normal financial world. We've now lost that. So 2021, it's going to feel like we're in the late 2020s when it comes to global degradation.

I'm trying to think if there's anything else before I wrap it up. I've kept you for an hour or two. I think I'll just do my standard, my standard outro question, which is a subjective one. So I've been asking everyone on this show sort of at the end, as I've had recently, one source of pessimism, one source of optimism as you look forward over the next few months. Sure. Optimism is easy. We are trying out a number of new technology is when it comes to vaccine manufacture and development. And so far, they have wildly outperformed our most optimistic expectations. We're two to three months ahead of where we would expect to be with normal vaccine development for coronavirus. In fact, we're already

well into our first set of human trials. It is possible, not likely, possible that we will have a functional vaccine that has entered production workers by the fourth quarter. at some point in the fourth quarter. That would be amazing and that would really break the back of this. A lot of things have to go right. Nothing has to go wrong. And these are all untested techniques. We just have no basis for comparison. But right now it looks pretty good. So that's the optimism. The pessimism. So many parts of the world were living in complete abject denial about the end of the order. Europe, I would say, is the greatest concentration for this. Just the sheer insistence that everything was going to be fine, and all they had to do was

outweigh Trump, and the world would go back to normal where the Americans pay for everything. I mean, it was just, it was assinine, but it was probably the dominant view around the world. Add in coronavirus, and all of a sudden, we have 10 years of transition smashed it into a year or two. Most places in the world weren't going to be able to deal with the new disorder anyway, and having absolutely no adjustment time while also under economic and political lockdown, some countries just aren't going to emerge from the coronavirus. Well, on that note, I feel like that's it.

We've just teed ourselves up for the inevitable request for an episode two with you. But until then, I really appreciate you hanging out for a little while. Where can people find you if they want to learn more? Sure. So the website is Zion.com. That's Z-E-I-H-A-N-D-C-R. I'm on Twitter at at petersion.com.

And we are now doing consulting on all types. So if you go to either the website or the Twitter feed, you can find out more. We do consulting sessions. We do webinars and we do mass Zoom conferences for broad audiences wherever they happen to be. Awesome. Well, thank you so much for your time again today. I really appreciate the chance to zoom out with you. Pleasure.

You guys take care. Quite a way to end the podcast. some countries just might not come out of the coronavirus. You know, we're already seeing just heaving of political systems and economic systems, and in many places we're still on the crescendo up. I think one of the things that I appreciate so much about Peter's perspective is that it's not politicized in the sense of shooting or aiming for some outcome. It is just raw, unfiltered, an unglamarized reality at the best that he can make it out.

Now, of course, there are so many factors here. There are so many variables that could change that taking too much stock in any one type of prediction, I think, is really difficult. But what I think Peter offers is the ability to see all of the ingredients together that make up his predictions. And that creates, for me, a much more value because you could listen, you could hear all the things that he's saying and maybe come to your own conclusions. And as always, you know, we're Bitcoiners, ultimately.

We like to come to our own conclusions. We like to trust, not verify. but I think Peter provides and presents a pretty compelling case for how the world is changing. And so I hope you enjoyed this episode. Let me know what you thought. Hit me up on Twitter at NLW, and we will be back tomorrow for another episode of The Breakdown. Peace, guys.