The Peter Zeihan Podcast Series - MedShare Donation + Russian Sanctions Are Making Global Finance Spicy || Peter Zeihan

Episode Date: October 11, 2024

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Hey everyone, Peter Zion here. If you are seeing this, you are about to view a free current affairs video despite not having signed up for my subscription service on Patreon. And the reason for this generosity is quite simple. I'm trying to bribe you. There are a lot of people in Western North Carolina, Northern Georgia, and most recently in Florida, that are suffering from various hurricanes, and they need all the help they can get. So anyone who signs up for my subscription service before the end of the month of our October, I will give every cent that I would have earned from those subscriptions for all of October, all of November, and all of December to a medical charity called MedShare. MedShare steps in to help people in their communities when for no fault of their own, they've lost the ability

to temporarily look out for themselves. Now, if you've been following me for a while, you know that I strongly support MedShare's projects in Ukraine, but at this point, there are needs closer to home. So again, anyone who signs up in the month of October, every cent that I would have gotten between now and the end of the year is going straight to MedShare. MedShare's headquarters are in Atlanta. They had the foresight to pre-position equipment and personnel before both Hurricane Helene and more recently Hurricane Milton. And they're already providing a combination of medevac, medical assistance, equipment assistance in order to help everyone in all of the affected areas. So please, please sign up. Every cent will go to them.

And if you don't want to sign up, you know, consider just giving them an independent donation just because. Okay, that's it for me. On with the video. Everyone, Peter Zion here coming to you from the South Carolina Coast. And since we're on a beach, we have to talk about finance. Pet. We're about to get something really interesting happen in Russia with the sanctions. Now, first, the back story.

If you remember back a few months, the United States restricted dollar liquidity and the Europeans restricted euro liquidity, which is a fancy way of saying that if you are a Russian entity, you can no longer access the currencies in order to health liquidity. Basically think of it like lubricate oil that allows everything to move. It allows any sort of financial institution to get temporary loans in order to just kind of smooth over operations. And the sanctions that hit basically shut down the Moscow stock exchange because without currency to constantly churning through,

any sort of international exchange becomes impossible. Keep in mind that especially for the U.S. dollar, it's the intermediary in all foreign trade. So when the United States said, nope, you're out, the Russians had to find other ways to do things. And in the meantime, that shut down a lot of operations. So the exchange itself actually closed down for a while. Anyway, what happened was the Chinese stepped into that role with Yuan, basically introducing an extra step and extra cost, but allowing operations to begin again. The problem is, is on October 12th, the exemption for the Chinese runs out.

Basically, in order to make sure there was less of a shock for the global system, in the first phase of the sanctions, the Russians were denied access to this liquidity. And now in the second phase, anyone who's dealing with the Russians will be denied access to liquidity. So for the last few months,

the Chinese who have, have dollar liquidity, have been providing yuan to the Russians. Now that will be removed as well, or the Chinese companies, the Chinese banks, all of which are state-owned, will lose access to dollar liquidity. And since the Chinese economy is roughly nine times, the size of the Russian economy, every Chinese financial institution has far more exposure to the global system in the American economy than the new to the Russians. So basically all this yuan liquidity is going to go away overnight.

And we're going to have that other seizing effect in the Russian system with pretty much any company that uses any parts or sells any commodity or product on the international system, which is, you know, 80% of them, is going to be shit out of luck. There will be some exceptions. The Russian government has picked up a lot of yuan over the last couple of years because they're trying to limit their exposure to everything else. So they have sufficient currency reserves to provide limited supply to limit. companies. But almost all of that is going to be going to the companies that have to import parts for weapons systems. So you're looking at maybe 20, 30 percent of the Russian companies that need this liquidity, maybe being able to get some of it in order to keep weapons manufacturers running because the Russians want to come to technical skills, as we've seen in this war, it's suffered

greatly. Probably half of their parts are coming from China, and about 10 to 20 percent are coming from the West. that requires currency liquidity. And so the companies that are involved in those trades and in that manufacturer, they'll be able to still get you on from the central government and then use that to access international systems. But everyone else is going to be high and dry. Textbooks tell us that this shift to a more our tart model is going to completely devastate any sort of economic flexibility. Everything from payroll to sourcing is going to be almost impossible. The problem with saying with that in confidence is we've never had anyone of note get cut off to this

degree before. In past times when the United States has done something like this, it's been to a country like, say, Iran, where let's just say that manufacturing international trade is not something they're really good at, at least not in this millennia. And there wasn't a secondary level, so rubles or yuan or euro or whatever could still be used to get in through the back door. This is much more airtight. So on the 12th, we are going to find out just what effect this does. And based on its effectiveness, we'll know exactly what the next round of sanctions will be.