The Pomp Podcast - 284: Peter Zeihan Explains The Geopolitical Landscape

Episode Date: May 1, 2020

Peter Zeihan is a geopolitical strategist, author, and speaker who specializes in global energy, demographics and security. He analyzes the realities of geography and populations to deepen the understanding of how global politics impact markets and economic trends. In this conversation, we discuss how demographics drive economies, why consumption led growth will become impossible, what is happening in the oil markets, why Peter believes China won't be a unified or industrialized country in a decade, how a virus can lead to famine, and what is happening in various places around the world.  You can find Peter at https://zeihan.com/ =============================== Pomp writes a daily letter to over 45,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at pomp.substack.com ===============================

This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Peter Zahan is a geopolitical strategist, author, and speaker who specializes in global energy, demographics, and security. He analyzes the realities of geography and populations to deepen the understanding of how global politics impact markets and economic trends. In this conversation, we discuss how demographics drive economies, why consumption-led growth will become impossible, what is happening in the oil markets, why Peter believes China won't be a unified or industrialized country in a decade, how a virus can lead to famine, and what is happening in

various places around the world. I really enjoyed this conversation, and Peter didn't disappoint. Before we get into this episode, though, I want to remind you that we're posting these podcast episodes on YouTube, so go watch the videos and subscribe to the channel so you can get the full picture of the conversation. I also write a daily letter to over 45,000 investors about business, technology, and finance. I break down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at pomp.substack.com. Again, pomp.substack.com, or go into the description of this episode and you can click the link there. All right, let's get into this episode with Peter. I hope you guys enjoy it.

Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Guys, bang, bang. I've got Peter here with me. I'm super excited to do this. You are probably one of the most educated and thoughtful people when it comes to the geopolitical world. And obviously this is like your Super Bowl. So thanks for doing this.

Any time. For those that don't know who you are, maybe let's just start with your background and kind of the work that you've done up until maybe six months ago? Sure. So the technical term is geopolitical strategist. I help people figure out what the world is bringing their way and how they might be able to deal with it a little bit more constructively or at least allow them to make some informed decisions. My background, I've worked for think tanks.

I did a quick stint with the U.S. State Department. I worked for a company called Stratfor for a decade. But for the last nine years, I've been specifically helping clients, whether associations or branches of the military or specific companies, wrestle with the changes the world is going through. Got it. And so maybe talk us through just like the body of work you do, right? So like, where are you consuming information? How do you kind of work through that information to make some of the analysis and like the actual process of your work? And then we can get into kind of what's happening now, but just so people have that context. Sure. So for process, to be perfectly blunt, I cheat. Most, let me kind of tell a tech story. So back in the 1980s, we figured out this little thing called fax machines, which meant that instead of every newspaper of size in the United States needing to have multiple overseas bureaus, what they really only needed is two or three people to send information back and forth.

then we got email which meant that you really only needed one person in fact your editing staff didn't have to be abroad at all then we got file attachments and all of a sudden you could have roving reporters that you could dispatch to areas where there were stories and everyone else you could just kind of close down well now we've got algorithms that are actually writing stories so we've seen this narrowing of capacity in the press not just in the united states but around the world to the point that unless you're a national government putting out propaganda, you don't perceive a need for having an international news presence. And as this was going on back when I was at Stratfor in the 2000s,

we had to develop our own. And so we started working with local reporters and local sources all over the world. And I still deal with, whoops, just about knocked over my computer. And we still deal with a lot of those sources. and the cheat is that we built this model of how the world works with economics and finance and demographics and energy and structures and military geography and all of it.

And we spend most of our time now looking for things that prove us wrong. It's not nearly as healthy for the ego, but wow, it's a big time saver. In fact, I've got a staffer whose primary job every day is to prove me wrong. And wow, she really, really, really loves her job. I love it.

And I think one of the big takeaways from your work, it coincides very well with the investing world. You know, the best investors in the world say demographics lead a lot of trends and the demographics can tell you a lot about kind of where the world is going. And you've given a number of presentations now and spent a lot of time analyzing that. So maybe just give us kind of the summary of how demographics around the world look differently and kind of what that led you to believe was going to happen over some period of time before the virus really kicked in. Sure, so let me do a little, it's okay if I do a little

screen share here? Of course. All right, let me pull this up. Okay, so this is what we would call a standard demographic profile. This is Mexico, lots of children, fewer young adults, fewer mature adults, retirees at the top, and mortality builds it into a pyramid. And when you look at something like this, you're going to have a very different economic structure than what you might have for a country, say, let's pick out, oh, Italy's a good one. Here's Germany. Are you seeing Germany there? Or are you still in Italy? I am still seeing mexico you're still listening sorry it's been a nuts sort of experience here for the last you know month as opposed to germany so here's germany uh very heavy in the middle age moving

towards retiree and the difference between the two here is that in mexico you're gonna have a consumption-led system because young people do most of the spending and in germany you're gonna have an investment-led system because when you're in your 40s and your 50s you're saving for retirement. That simple dichotomy is kind of what drives most of what's going on in the global economy and has been driving the global economy for the last 30 years. What that means is we've been in this world where most of the developing world has been the consumption base, and most of the developed world has been the investment base. And that means the propensity for trade between the two is extreme because the poorer countries need the cash the more advanced countries need

the consumption and so you can have things going back and forth the germans are good at high-end stuff the mexicans tend to be good at low-end stuff and some version of this is replicated around the world so in an environment since the end of the cold war when you've got global security provided by the americans but no real global security challenges everybody pours money into economic development. And so from 1990 until roughly 2017, we had the greatest economic boom in human history. And I dare say for most people in the investment world, this is the world that they think is normal. It's not normal. It's the most historically atypical period we have ever known as a species. And it was always going to end because the developing world is aging rapidly,

far more rapidly than the rich world ever did. And so they're becoming Germany, but without the infrastructure, without the institutions, without the respect for democracy, without the capital structure, without the industrial base. As well, the Germans and other countries like them

were aging into mass retirement. So instead of a world where we've got propensity for growth and cooperation and trade, we're moving into a world where the rich world is all retired. They're neither producing nor consuming. And the developing world is becoming aged and losing that consumption edge, but without building the capacity to move up the value-added chain. You would call this an economic dislocation, which is a very nice way to see global collapse and depression.

There are a few countries that stand out as exceptions to that. The United States is at the top of the list. We have the youngest demography in the rich world, and we already have a demography that is younger than China's and will be younger than Brazil's within 20 years. So the United States is slipping into kind of this pocket reality where it builds its own stuff, trades with itself, and maybe a select group of other countries, and say what you will about the Trump administration, and there are so many things that we can say about the Trump administration.

One of the things they got right is picking out specific countries that they wanted to have relationships with after this transition. So we've had four big successes in trade negotiations, Japan, Korea, Mexico, Canada, and we're probably going to have a fifth one with the United Kingdom this year. That's the majority of the American trade relationship. So the United States, under normal circumstances, given three, four, five years, could have transitioned from where we are right now to that sort of friends and family trading plan without suffering a recession. What coronavirus has done is knock everything off the table and force the Americans to bring out kind of like fire hoses of stimulus and monetary push in order to keep their system more or less in place. So we've thrown a bottomless supply of money at those $3 trillion in just the last six weeks. That's twice as much as the rest of the world combined. They don't have the kind of capacity that we have, which means that price is no object for the Americans suddenly making this transition in a matter of a few months instead of a few years. And when we emerge on the other side of this, we're going to have American security, but not global security. An American trade network, but not a global trade network. American reindustrialization and global deindustrialization. And a demographic collapse in most of the world. It's going to be a completely new system. But historically speaking, it's a lot more normal than what we've been in for the last 30 years. Yeah. One of the things that's really interesting, as I kind of hear you describe this, is there's this weird, weird world where when Trump took office, kind of this America first type mentality, I don't think that it had anything obviously to do with coronavirus or kind of anything that's transpired since he took office.

But in some way, we're almost backing into that out of necessity. So you see things like, let's bring all of our supply chains back to the US, a lot of this trade talk, right, is the virus is almost forcing that narrative now, and it's becoming more accepted. It's seen less as kind of, you know, either racist or in some way discriminatory. But one of the things that you said in a recent presentation, I think it was at the Upfront Summit, is the Americans' strategic order that helped them win the Cold War, that's not the strategic order that they're going to need to be successful in the future, right? Like, the important thing here is there is a necessity of change because the world is changing, and the countries that you described kind of recognize that. What happens to the countries that don't recognize this, right? do they literally yeah some of them won't be countries much longer uh little backstory so the core idea uh that drives a lot of what i do is why the united states did what it did during the 20th century so we we're pulling into western germany during world war ii and we're looking on the horizon we see the soviet war machine and to be perfectly blunt that's you know that's kind of

scary as shit so we were like okay this is in a different hemisphere from us we cannot with sea lift capacity, fight the Soviets in Europe. We will lose that fight. We need everyone in Europe to be on our side. So we basically bribed them. We rebuilt their countries. We provided them with security overwatch. We provided them with the nuclear umbrella. We opened our market so they could export their way back to being first world countries. If in exchange, they allowed us to write their security policies. And that trade, that guns for butter trade, is what enabled the United States to ultimately prevail in the Cold War. The big problem, however, is when we got to 1990 and the Cold War was over, we voted out of office the president who was figuring out what was next

and then voted in four successive presidents who didn't care about foreign affairs much at all. And so we've just kind of been on drift now for 30 years. And by providing global security, but not asking for anything in return, Americans became steadily more disenchanted with the world we know. Trump is not simply the natural progression of that. He's just kind of the next step on the road. Whoever comes after Trump is likely to be less inclusive and less internationalist than he is because the economic structure will demand that whoever is next go that direction. So if you look at, say, the Democratic primaries, when we had like 195,000 people trying to be president. All of them said that Trump was being too soft on China in the

trade talks. Trump is not nationalist by American standards on trade. He's kind of middle in the road. And the next phase of this is going to be far more mercantile than anything that we've seen in the last 80 years. Yeah. So speaking of China, you've pretty much said that they won't be a unified or industrial country in the next decade or so, which I think kind of shocks people. That's a great statement. Talk a little bit just about why you believe that and then what does the world look like if you're right in that prediction? Sure. So China is one of the fastest aging societies in the world. You hold a one-child policy for 35 years, you run out of 30-year-olds. I mean, that's how math works.

The Chinese cannot interact economically with the rest of the world without a global security paradigm in place. They don't have a long-range navy. In fact, 90% of their firepower can't sail more than about 1,000 miles from the shore, so that doesn't get them to any major consumption clusters. They import pretty much all of the raw commodities that allow them to function. That's everything from corn on one side to oil on the other. So if they don't control the sea lanes, which they can't, they're completely dependent upon American security largesse just to exist. And if you look back at the long stretch of the history of the Han Chinese, 3,500 years, they've very, very rarely been unified. They're usually engaged in some sort of civil war or fighting off some sort of invasion.

Neither of those goes well. In fact, their only period of peace and prosperity and unity in their entire history is under the American-led order since 1946, specifically since 1990. And if you look back to simply achieve political unity in the past, most of that period was under the Mongol occupation. This is not a place that holds together well. So they don't have the demography. They don't have the resources.

They don't have the financial model. They don't have the physical access. They don't have the military capacity. This only works. when someone from the outside forces everyone to be on the same side. That was the American-led global order, and that is now over. So the Chinese today, with this propaganda push on COVID, it's not to convince the world that the virus didn't come from China.

No one believes that. It's to force a nationalist uprising in China itself so that people are willing to side with the Chinese Communist Party in a period of extreme political and economic stress because that's what's coming for them. And if that doesn't work, China simply implodes. Yeah, I read the book, I think it was Paulson wrote back in like 2015, 2016,

and he was talking all about China and kind of his experience there. But one of the things that really stuck out to me was the whole idea like that entire political system and social structure is built on there being a lack of social unrest, right? The second that people see unrest, like this thing could flip very quickly. And so a lot of what they do is, you know, quote, unquote, taking care of the people.

I guess how much of the narrative around they're driving manufacturing, they're driving, you know, technological advancement, artificial intelligence kind of leaps and stuff coming out of China. How much of that can save them or maybe prolong what you're talking about versus like the trends are just too powerful and it won't really actually matter? The trend that matters is their social control program. They've basically blocked off the Chinese internet from the rest of the world, and they're using it and other data management tools, some proto-AI stuff, in order to manage their population so that whenever you do have, to be perfectly blunt, three people getting together in the same room to talk about the government, the government knows and can use its army of censors and thugs to basically break it up. it's never been tried before it's very arwellian we're now actually having a situation where the chinese government is installing monitors in people's apartments if they're suspected of maybe having covid in order to enforce quarantine so you know things that in this country are in the realm of fiction are now being implemented on a regular basis ethnic cleansing is being

done this way, forced sterilizations, what they're doing with the Uyghurs out in Zhejiang, a million people in concentration camps. They're trying to take the best data management tools available and use it to force the unity of the Han identity as defined by the CCP. Can you imagine what Milosevic would have done with these technologies? And now we're seeing it done on a scale that's like what, two orders of magnitude larger.

That's the only way that this works. And even for that to work, the United States still has to keep providing global security and asking for nothing in return because the only way they can keep that going is that they can continue to access resources and export markets. So the most likely future here where China holds is the U.S. stops doing what it's doing.

The lights go out in China because the power goes out because they can't import their materials anymore. The export markets disappear. And we drop into kind of a neo-Maoist tyranny where the standard of living in China just absolutely plummets and they just kind of become completely inward focused. In the few chapters of Chinese history

where the center has held, it's kind of looked like that. They'll just be doing it with, you know, webcams as opposed to monitors on every corner. It's not a pretty picture. And almost all the other scenarios are worse. So I totally understand why they're willing to denigrate their own population to that degree to remain in control because the alternative is implosion and

chaos. And, you know, that's not hardly a friendly version at all. The Chinese are fairly astute students of their own history. They understand what's at stake here. yeah before we move on to another part of the world um what would have to change or what data would you have to see uh to kind of change your mind as to like this is where we're headed if i saw x my mind would actually happen we would have to have a significant change in technology that allows people over age 65 to continue to continue to work and pay taxes coupled with a social change that forces them to continue to work and pay taxes.

Most of our medical breakthroughs when it comes to people age 55 or over is about extending life, not extending working life. And that mindset has to change radically for us to go in a different direction. And I guess part of that is a technological change is the type of work could also change, right? So just because you're getting older, you may not be able to go into the field or go into the factory and kind of do more of the manual labor. But if there was even something that could change the way that people work itself, that also is part of that? You know, that would be one way.

But I think we all know that convincing our parents to use Skype has been a bit of a challenge these last couple of weeks. And trying to train people who thought they were going to retire in an entirely new industry, that's a reach. Yeah, for sure. Let's switch gears and go to the Middle East. Obviously, there's a cheery topic. Yeah, there is complete chaos right now. Everything from oil to a lot of kind of the geopolitical relations there. Just what's kind of your general view of that region itself and kind of how you look at the demographics and what you expect to happen there?

Well, you're going to have to break it up. It's, you know, there's a lot of different sub regions. So let's just kind of go through them. Saudi Arabia, Kuwait, Qatar, UAE, those countries, the very rich countries of the Arab side of the Persian Gulf, they're involved in a global price war, primarily with the Russians, but not exclusively anymore. They are deliberately trying to drive oil prices as low as possible, negative if they can, and I think they can. And if they pull this off, I'd say even odds at present, It's going to take about 20 million barrels of crude production globally offline for years.

And they will finally have what they wanted, which is a crude market where they can set the price and set the volume over the midterm. Looks broadly like they're going to be able to pull that off. So explain this more, because I think one of the things that you had previously said was around these negative prices in oil. But what occurred was last week or two weeks ago when the May contracts, the physically settled futures contracts went negative. That's not what you're talking about. The May contract was in the United States, one specific spot at Cushing ran out of future leased storage. Storage wasn't actually fully yet. Well, you know, four to six weeks from now, it really will be full.

And it won't just be at Cushing. What the Saudis are doing is any place they see a competitor, first and foremost the Russians, where they've got a pipeline that empties out into a populated area or a pipeline that hits a port, they are sending super tankers of crude to super saturate demand in those locations, specifically going after things like Rotterdam or Suez or Korea that are popular transshipment points for Russian crude, making sure that the tanks are completely full so the Russian crude has nowhere to go. So they're doing this to a slightly less intense degree wherever all their other competitors are. So for example, slightly less intense, there's 50 million barrels of crude from Saudi Arabia coming to the American Gulf Coast to try to knock shale out. That's nothing compared to what they're doing to Europe and Asia.

And the goal is just to fill up all the tanks so that the producers have nowhere to sell their crude whatsoever. So they have to shut down their pipelines and they have to shut down their wells. Now, in a place like the United States, if you do this and the wells get shut in, they can be turned back on later. And from the point that you start drilling a shale well

to the day you get first crude is only about six weeks. So U.S. shale is going to take a hell of a hit. There's probably about a million barrels per day of production already offline. Probably another 2 million are going to happen before the end of the year. That's probably going to be front-loaded. That's a 25% reduction in shale output.

That's a big deal. But it'll be back in a couple of years. But if you shut in wells in Nigeria and Siberia, they're gone. It's going to be years, if not a decade, before you see those producing again. So the Saudis are taking a long haul here, taking a big economic hit on the front side. They can afford it. across the gulf iran say what you will about the trump administration he won iran is no longer a net oil exporter they're going to actually be importing over the summer which is something they have not had to do in over a century i don't think that this is going to cause regime change anytime you've got a hundred thousand people in your elite it takes a really big stick to to move that but this is the end of iran having cash which means iran in lebanon and in gaza and iraq and syria and all the other place that the iranians have had their fingers all of a sudden

they don't have any money to back it up they're massively overextended which raises the opportunity for countries like turkey or saudi arabia to turn the tide in their favor so expect a lot more nutsoid violence in this region because the Iranians, everyone forgets, the Iranians are not the violent actors here. That's the Saudis. ISIS came from Saudi Arabia. Al-Qaeda came from Saudi Arabia. And we should expect to see a lot more groups like that boiling up throughout this entire region, just burning down everything that the Iranians think that they have achieved in the last 10 years. It's going to be wretchedly awful. What other countries are you concerned about? Well, so let's go back to Saudi Arabia for a second. The oil playbook that they're playing

out right now, where they're trying to literally saturate these areas, how much of that is opportunistic because it was presented by the virus driving down the consumption of oil versus this was like some playbook that they had ready and waiting and they were going to execute it with or without the virus occurring? The Saudis have tried something like this three or four times in the last 15 years, but the market has never been right. Now, totally, the market's right. The emotion and the leadership are also kind of lined up. The Saudis originally went to the Russians with a deal for a preemptive cut to manage the oil market back in January and February, and the Russians said no.

So the Saudis got pissed off. This wouldn't have worked without global oil demand being down by 20, 30 million barrels a day. Second, leadership. We got a new guy in charge, Mohammed bin Salman. if you've seen my readings or writings you know that he's not my favorite person he kind of makes putin look like a kinder gentler kind of gentleman but he's young and he's taken the institutions of saudi arabia by storm he's consolidating power and honestly this is what a

king does and if this works for him he will have consolidated his person as the most powerful person in the region for at least the next couple of decades. I think he's aware of that. This is his proving ground. And so far, in my opinion, it's going really well for him. Yeah, it's absolutely fascinating when you start to get into this game of, it almost feels like a perfect storm, right? Literally, when oil production goes down, they start to flood the market. You know, the piece to me that I don't understand is, what can Russia or other players in the market, what can they do, right?

Or do they just kind of have to take it on the chin and say, look, we just got to hope that, you know, consumption, you know, jumps back. Jumps back, sure. Some kind of level. Yeah, most countries have nothing they can do. There's not a damn thing that the Nigerians can do. For example, Venezuela is out of the picture already.

Brazil's probably going to have some shut-ins. They're going to damage them for a year. Shale's offline for a year or two. There's really not a lot of things. Russia's different. Russia has always been a master of linkage, whether it's something that is earned or deserved or not. And Russia's ability to dabble in a lot of different theaters

gives it some things that other countries couldn't do. So low-hanging fruit, Kazakhstan, Azerbaijan, both of them oil exporting former Soviet republics. A lot of that oil either transits Russia directly or transits territory that the Russians could shut down if they wanted to. So, you know, there's a million barrels per day easily that could go offline just by flipping a couple of switches. The Russians also can use, how should we say this, non-conventional means of limiting competitors' output. We saw back in, I think it was October, just how vulnerable some of the Saudi oil facilities could be.

It's entirely possible that the Russians could stoke some unrest in this or that country in order to take some oil infrastructure offline. and considering the current price environment, there would not be a huge rush to restart that. That brings risks. So for example, if the Saudis got caught doing that in Saudi Arabia, you can guarantee that the sort of tender mercies that the Saudis have unleashed upon their own region

with groups like ISIS and Al-Qaeda will then be visited upon the Muslim regions in Russia itself. Remember that the Saudis were one of the big sponsors of the Chechen Wars back in the 1990s, and it doesn't take much of a reach for them to extend further into Russia to places like Tatarstan or Bashkortostan,

which are big oil transshipment points within Russia. So Saudi can play that game as well. And when the Saudis play that game, it has a lot longer lasting effects. I mean, look at Afghanistan today. You know, that's largely because of policies the Saudis had in place back in the 80s. Can you imagine if that crept

far north to get into the Muslim belt in Russia itself. So yes, the Russians do have tools. And yes, the Russians do look for the long game, but that does not mean they're immune to the tools that they would be using. Yeah. And I guess as part of this analysis, I continue to hear most people talk about either the increase or kind of the rally back of consumption. There being some sort of production cuts or manipulation of how much production. One of the things I haven't heard people talk a lot about is the potential to actually build out more storage. And I'm assuming that's because it would take too long. Yeah, exactly. Is that what the challenge there is? Yeah. The most natural, most stable storage supply in the world is the American Strategic

Petroleum Reserve. How that works is we drill down into a salt formation, we inject water, And then we put a second pipe down that basically pulls it out. And so you inject the water, dissolve some salt, some ultra brine comes back up. And then when you're done hollowing out your cavern, you put in crude. And because of the natural temperature gradient in this bulb-shaped, dissolved storage facility, it circulates itself. So it's cheap. There's no chance of oxygen getting in.

There's no chance of a leak. There's no chance of an explosion. If you want to do above-ground storage, you constantly have to churn that stuff, or it starts to separate, or you get associated gases that bubble out, and you get an explosion danger. It's not that it can't be done. It's not that it's technologically complicated, but it's expensive, and it's time-consuming. So we might see storage this year expand by 3%, 4%, 5%. That would be a huge build-out for one year. But honestly, anything more than that, not in the cards.

Yeah, it's pretty crazy to kind of think about 3% to 4% would be big, right? You know, it's such a small number, but still would be big historically. What about India? That obviously is a country that's got a massive population. I think a lot of people, especially in the tech community, are talking about kind of all of the advancements that are going there and kind of, you know, how quickly they are growing with internet adoption and all of that. But what's your thoughts there from a demographic standpoint?

The demographics are weird. I mean, overall, they're very similar to Mexico. They're on the young side, but there's a huge split between the north and the south of the country. The north of the country is practically pre-industrial when it comes to demographic structure. Lots and lots of children and young people. The southern half is almost like Germany. It's aging into mass retirement incredibly quickly. Most of the excellent educational opportunities are in the south.

and most of the call centers are in the South. It's not that the North is a lost cause. It's just that this really is not one country. It's more kind of like the Holy Roman Empire where there are little pockets that do different things. Now, in the world that I see coming, India is likely to do pretty well. They never really joined the American-led order.

They never became an export-led economy. They're the first place outside of the Persian Gulf, so they're never going to have a true energy crisis. um the problem is is that northern section that is just horrendously overpopulated and horrendously underdeveloped has been horrendously overpopulated and horrendously overdeveloped for 1500 years now uh there's no way that it's going to turn the corner in the next 10 uh if it hasn't in the last 1500 so india is stable but i don't think it's about to become a superpower in any stretch of imagination. In addition, that northern section, wow, you want to talk about COVID? That just

absolutely terrifies me. One of the reasons why the Spanish flu hit India so much harder than it hit Europe or the United States back in the 1918 epidemic is because of that density of population. It's far more densely populated now, and this new virus is far more communicable than the spanish flu was so india by the numbers seems to be doing okay but that's because india doesn't test so we're just going to see the death rate skyrocket which is going to unwind a lot of the gains also kind of the core industry that india uses to fuel its tech center is call centers so you know you work in a call center for a while you build up your expertise and then you move into software. Well, they're losing that completely. The reason why everyone moved their call centers

to the Philippines and India is you could build a pocket that had a good power connection, good internet connection, good phone connections. You build a server farm. You put in a lot of hardwired desktops that have the capacity that you need. And then you have three and four shifts of people that cycle through the same hardware. Well, you can't do that with COVID. So they all had to go home. And not everybody has a power at home. Not everybody has internet at home. So we're seeing companies in the United States who had outsourced all of their call centers and tech support to India and the Philippines having to bring that back. Because in the United States, that sort of technical support can work from home. And for every day that this continues, India is seeing

the bedrock staff development of the call centers erode away, which means the next step up is going to be that much harder moving forward. It doesn't mean the end of Indian tech, but it does mean the end of cost-effective Indian tech. And that has always been their big selling point. So they'll still have some stuff at the top end. The top 1% in India, that's still 15 million people. That's not insignificant but this big institutional boost that they had that gave them scads of programmers at a low cost that's probably over and what is the second and third order effects of that right if those u.s based companies are kind of international companies uh shy away from that model given what they're seeing right now like that capital obviously doesn't go into that

economy and kind of how do you see that um rippling through the indian economy i mean we're seeing like things like that in a number of manufacturing sectors right now already. I'd say the big ones are wiring, textiles, automotive, electronics, and white goods. These are all sectors that aren't particularly technologically advanced. They've always relied on multiple price points for labor for distributed supply chains, and none of them work in this environment. So Americans are discovering that if they want a washing machine, they might have to build it themselves. If they want textiles, they might have to weave them themselves. And the technology has advanced to the point that in most of these sectors, if not all of them, once you've paid for the industrial

plant, operating it is actually cheaper in North America than it is in East or South Asia. And so we're going to see this huge scale, just pickup of industries, relocation into North America in shorter, simpler supply chains that are closer to the end consumer. And what gets left behind, it really depends upon where you are. If you're in Thailand or Malaysia, the semiconductor supply chain system is a lot stickier. Usually the crystals are grown, sliced, cut, doped, cooked, and built into chips all in the same facility. You don't just pick that up and move it. But textiles, you know, you can have a facility that's one acre in North Carolina with a staff of two that is cheaper to operate than a facility in India with a staff of 2,000 people at looms.

That's not going to come back. For it to come back, the global security situation would have to not change. And if the Americans are going home, they have no reason to have a supply chain system in South and Southeast Asia. So you will still have some of this for Indians who want to supply themselves but the idea that call centers and textiles can be kind of that first step towards more for towards a deeper development experience moving up the value added chain building infrastructure expanding you know that that model is over the rules of how we've operated for the last 70 years are changing right now and countries like india are going to have to find a completely new model to take advantage of it or pioneer their own to

move forward. And if you look at the last 1,500 years of Indian history, there's not a particularly robust historical analog that they can draw from here. Stagnation is by far the most likely outcome and especially if you keep that one percent at the top that's still value-added, the degree of inequality you're going to see in India is going to be huge, and that will absolutely have political connotations. Would it be fair to say that a lot of this is also accelerated by technology? So the U.S.-based companies, you know, by pulling back some of those call centers, things like, hey, people can do this from home, we can, you know, kind of cut costs, but also other parts of manufacturing. The U.S. companies are now getting more kind of adept at actually doing

this here in America because they can replace that worker with a piece of technology and that drives down costs as well and makes it more cost efficient? Yeah, the sort of jobs that are coming back from South and Southeast and East Asia to the United States are not going to look the same here. They're going to be far more technologically driven, but maybe not as much as you think. Remember, we all of a sudden have 25 million unemployed people in this country that we didn't have a month ago. So labor shortages simply aren't a concern right now. So on our side of the pond, what's going to be happening over the next three months is our metro regions are going to start to open up. They're going to be forced to re-industrialize if they want these products.

Some states are going to be able to take advantage of that better than others because they either have a better health care system or a better testing regime or a better infrastructure or cheaper electricity or a population that's more willing to work in a slightly higher risk environment. Texas. I mean, Texas has been a boom state for a while now, but in the environment that we're moving into, Texas has the interface between the Texas Triangle cities and the Gulf Coast, and between the United States and Mexico. So it's got that multi-tiered wage strategy that has been familiar to us. It's a tech center, especially Dallas-Fort Worth. It's an energy sector, especially especially um houston and it's a cutting edge tech

operationalization operationalization facility in the case of austin so it's all in one place in a state that has no income tax so i expect texas is going to kind of outsize performance for the next couple of years that doesn't mean other places aren't going to be taking advantage of this i just that's kind of where i think it's going to happen first one of the things to keep in mind is that because of the physical and demographic structure of the United States we will have secondary epidemics from this but they won't be nationwide it'll hit

Denver it'll hit Fort Lauderdale whatever and you can lock those cities down our mass transit system particularly among our cities is awful and right now that's a good thing because it means it limits the capacity of the virus to jump from city to city to city you don't have that in China you don't have that in Indonesia. You certainly don't have that in India or France. There, once you get an epidemic, it's going to go national very, very quickly. And that is going to provide Americans with a bit of a leg up in this process. We will, in time, evolve in the technological direction that you're pointing out. Absolutely. But it probably isn't going to start out that way. Yeah, it's really interesting to kind of think through, it's almost like there's

a psychological shift that happens, right? And the short term solution is, like you said, just putting the people to work. And then over time, you've already shifted your mindset, you know, you're not going back to these other areas of the world. And so then building the technology would make sense. One of the areas that I went about three years ago, four years ago now, was Nigeria. And when I was there, I was blown away by a lot of the demographics and both in growth and kind of things that people there were talking about and how technologically advanced they were compared to what I thought they were. So I was really kind of surprised. What was kind of your thoughts just kind of in West Africa in general? I mean, the geography is so riven in

sub-Saharan Africa, it's really hard to draw any sort of conclusions. Nigeria, as you pointed out, is the demographic heavyweight, both in terms of age structure and just size. the biggest problem they're going to be having however is they've never really been able to diversify their economy away from crude and they're more importantly their political system is completely based on the divvying up of the crude resources if you want to go back to like the biafran war that was a period where some parts of the country thought that they could deny oil income to other parts of the country and so the biafrans tried to leave we had a civil war as a result. And now we have a rotating presidential system where every few years, a different region

of the country has the president, a different region of the country has the vice president. And as long as nobody dies out of order, the oil flows and everybody is happily subsidized. Oil's going to zero. So the entire political compromise system that has kept violence in Nigeria to a relatively tolerable level is going away. We think economic restructuring in this country is difficult. It is. They're going to have to deal with the ground-up overhaul of their political system this year. I don't see how they do that in a peaceful manner. Yeah, and I guess part of this too is as we see more and more countries get to these levels of social unrest. One of the things I've been thinking through is just how technology plays a

factor in that, right? Obviously, if this was happening 30 years ago, it would be much harder for one, the government to, it'd be much easier for the government to kind of prevent the spread of the bad things they were doing because people just didn't have cell phones and couldn't communicate as easily, et cetera. But now it's also much easier for the dissidents or those who are uprising to rally and kind of move resources and communicate and collaborate. Do you see places like Nigeria, where we know that there is a high degree of penetration in mobile phones, internet adoption, kind of having a higher propensity for the social unrest because of that technology adoption? Or is it simply driven by just the reworking of the political system,

and it's going to happen whether they've got technology or not? Yeah, that's a really messy question. In a place like Nigeria, it could go either way. The problem there is that most of their politics are ethnic and regional based. And so it doesn't require a huge technological distribution system in order to get these people riled up. It's not that it's built into their nature. I don't mean anything racist like that. It's just that there are very clear dividing lines in Nigeria. And some of the big successes they've had in the last 40 years is to think of Nigeria as a country and to think of themselves as Nigerians rather than Igbo or some other Fulani group, I'm concerned that that is going to spin apart once the oil stops flowing.

But remember, technology works both ways here. If there's anything that the Chinese and the Russians and the Egyptians have shown us in the last 10 years is you can use it just as easy to clamp down. So you're familiar with the Twitter revolution in Egypt, I'm sure. If you remember the first phase of that, the military decided they did not like the Mubarak clan. So they were hands-off versus the protesters, and the protesters used the internet and Twitter and cell phones to organize and ultimately overthrow the Mubarak regime. But then the military decided it didn't like the replacement government that was elected. So what they did is they went and they shut down Twitter, and they were able to do their crackdown. They arrested the entire government, and there

There was that one horrific trial where they condemned 600 people to death, and now it's basically a one-party state with complete information lockdown. Well, the Russians came in and was like, hey, that was really cool that you did that. How did you do that? And so the Egyptian generals showed the Russians, well, we have these two cables that come into the country, and that's the entire internet connection to the outside world. We just cut them. So the Russians went and they built kill switches on all the places where the cables came into Russia so they could do the same thing whenever they want.

And now they've got monitoring centers at those cables. So if they see message traffic that they don't like, they can go and hunt down the individual people responsible. The Chinese, of course, have amped that up to the next degree where now they've even forced cooperation with companies like Google so that if they see messages they don't like, they're automatically tagged by algorithms

and sent to the Chinese security services complete with the physical location for where the message was sent from so a team can just go arrest the person. So I don't think we're going to see that kind of thing in Nigeria, but the Chinese and the Russians are absolutely exporting these technologies

to thugs around the world. Nigeria's great hope is that there's a degree of pride in the country that they've overcome some of their past differences. I think that's wonderful. I hope it's sustainable. I fear it's not. If we go north to Europe, there's a lot going on there. What's kind of the general idea of how that plays out? Okay. So Europe is, aside from Japan, the oldest part of the world in terms of demographic

structure. So as a whole, the whole continent was going to age into mass retirement this decade. For most of them, that means that coronavirus has ended any hope they have of economic recovery. A country like Germany that was probably going to hit mass retirement in 2026 just lost a massive amount of time and capital, and it's going to take them two, three years to recover from COVID, which puts us within two to three years of their deadline. Italy's even older, had a shorter deadline, was in a worse position going in. Some of these countries will never recover to where they were in February. Against that backdrop, the Americans are removing themselves from the equation. And Europe, because of their demographic structure, doesn't consume enough to

absorb their own industrial output. They have to export it. And if the United States is off the board, there's no place to export it to. So this entire economic model was going to collapse in the next few years anyway. COVID has just moved up the timeframe. The poorer countries in Europe, the less well-run countries in Europe, the more indebted countries in Europe are making a last ditch plea for Germany to bail them out. And the Germans are like, we only have two years left for us. Why in the world would we give those two years up in order to salvage you for another two years? So we are looking at the end of the European experiment here. There is no way that the common currency and the common market survives in this environment because they don't have an

export market. They're running out of finance. So we're just kind of seeing Europe in its death throes right now. The question is, how long can they kind of hang on by their fingernails until we start seeing political and structural breakdowns? And honestly, if you're in Germany and the Netherlands and you can establish maybe a quasi-independent relationship with the United States, there might be a path forward there, but there's definitely not a path forward for Europe as a whole. Why have more of these countries not tried to create that kind of ally relationship with the United States? And is it just they don't see the writing on the wall? They are arrogant and think that it's not going to happen? What's going on there? Well, there's all of that. I don't

mean to suggest that any of that is wrong. But I mean, ultimately, if you're just to pick a couple small countries, Slovenia or Ireland or Slovakia, an independent political and strategic environment where you look after your own interests? I'm sorry, that doesn't work. They're too small. These countries only exist because of the American-led order. Yet the big powers, especially Germany and France,

are big enough to think for themselves. The Germans aren't supposed to be thinking for themselves on strategic issues. And so you get this built-in dichotomy of these small countries who can't look out for themselves and honestly would prefer not to, so they just kind of coast along with NATO

and the EU doing all the big decisions. And they're allowed to exist as independent places. While the big countries make the big decisions and then everyone tries to play the Americans and the French off of one another. That only works for a little bit longer. And so what we're going to be seeing is kind of a Franco-centric Western Europe

that will emerge out of this, a Germo-centric Central Europe that has to deal with the Russians. And the small countries either sign up for one of these two spheres or die. There aren't a lot of countries that have the strategic flexibility to do anything else. And of those that do, they luckily get along pretty well. So Britain, Norway, Sweden, Denmark, those four specifically may be tossed in the Netherlands.

They're Atlantic facing. They have a history of resisting France and Germany. They tend to work together pretty well with the exception of the Brits. They're all the same genetic pool. You know, thanks for the Vikings. And they all have reasonably positive relationships with the United States. So it's entirely possible that that extreme northern chunk ultimately enters into some sort of association with the Americans. But that is 100% dependent upon how British American trade talks go this year. And what COVID has done is it's forced the Brits to kind of put that off, because they're thinking in the short term, it's probably best if we don't sever all links to continental Europe. And that delay may prove fatal for longer term strategic relations with the United States, just because they're going to run out of time. Yeah. And I guess as part of this, like go back to France for a second, like the yellow vest protests and things that we saw there, is that kind of like early signs of some of this order cracking and people basically saying, hey, we've had enough?

Because my understanding is a lot of that was around like gas taxes and very government driven initiatives. Or is that something that's so separate and is more micro and unrelated to the macro environment? While I like to draw everything into my big theory, I'm afraid that that one doesn't quite fit. Yellow Jackets, France has always had a relatively statist economy. In terms of percent of GDP, they're usually up near the top in terms of what the state controls versus the private sector. And what Macron was trying to do was to loosen that up a little bit so that the country could be a little bit more dynamic. He looks at what the Germans were able to achieve with labor reforms in the early 2000s, and he wanted to do something similar in France in order to spark more economic activity

so that France could be a stronger economic pole in Europe versus Germany specifically. And that has not worked out nearly as well as he thought. Honestly, COVID's kind of a blessing because it's made the protests kind of impossible. So the French government is continuing on with the status tradition, but it's trying to make a few tweaks on the edges.

It's kind of like we're seeing the Keystone Pipeline is having to sprint for construction right now because the protesters can't get there. The same thing's going on in France with economic reforms. It's happening all over the world. One last area of the world that we haven't talked about is South America and Central America as well. Just kind of thoughts there.

I know that you've got a lot of thoughts on Mexico, but also maybe some on South America. Sure. So yeah, I'm a big fan of Mexico for demographic and industrial reasons. You know, they're the only really, they're the only economy of skies that is now linked to the United States at the hip.

and relations between Mexico and city and Washington are actually the best they have ever been in the history of both countries which is kind of crazy when you consider who's in charge in both countries but that's true moving next down next step Central America these are states that can only succeed if they are completely under the American wing the Trump administration has I don't want to say ruined but certainly complicated relations with all of them and everything the Trump administration has done has the net effect of basically emptying out these countries and forcing people to go somewhere else for their well-being. So say what you will about Trump. He has encouraged a migration crisis that he will probably be able to profit from

politically for quite some time. South. Once you get into South America, Venezuela dies as a country this year. It was already collapsing, and if oil prices go to zero, that's it. We're looking at complete state breakdown famine several million people are going to die and the rest we're going to have very little choice to relocate this is the end of the country as a country until a another power goes in and physically reconstructs it from the ground up that is a decade process that is a thankless task and the only reason anyone would do that is to get the oil and right now no one cares about the oil. And in fact, five years from now, when the U.S. refining base is retooled, it won't even be able to take Venezuelan crude. So no one will be interested. So this is probably

the end of Venezuelan culture outside of Miami. What happens in that situation, right? So, when we get to the point of kind of no return, nobody wants the natural resources that are there. There's a complete societal breakdown. Do other surrounding countries kind of take a piece of the land and incorporate it in? Is there, you know, a bunch of different countries that are created out of what used to be Venezuela? Like, what does that look like? You'll get a political and strategic no man's land. The only country that borders Venezuela that might be able to do anything is Colombia. And there's a lot of really rugged terrain between populated Colombia and Venezuela, so that would be a big strategic issue. The furthest the Colombians might be able to go

is like the Maracabo Basin, you know, the big Gulf Gulf of Venezuela, but even that's a bit of a reach, but really that's the only player in the game. So more likely what we're going to see, we've already seen an 80% reduction in domestic food production. We're looking at a complete collapse as in going to zero for oil production, and that means all food imports stop. So if you have a net reduction in the amount of calories that are available by 90% or more, this is an Ethiopia-style famine and state collapse. And it will just become a no-man's land that's going to be awful. Anyone who had money already got out, and most of the people who could walk have left. What's left is an impoverished, emaciated population that, I hate to say it,

just going to die this is the worst humanitarian disaster we will have seen in the last 60 years yeah so speaking of famine um one of the the concepts that i've seen you writing about more recently is uh is the virus driving famine um and maybe talk a little bit this is more kind of globally uh very specific types of countries getting hit and it has to do with this food production and kind of changes to consumption. So maybe explain what you mean by, in Venezuela, we're seeing it because the country's going to fail, but the virus itself may drive famine globally in certain areas as well. It's a messy situation. I mean, we're used to thinking of manufacturing as really complicated with supply chains. Honestly, we face the same thing in agriculture.

It's a complicated supply chain of systems that allows countries to grow crops in the first place. Now, in the short term, we don't see any interruption to things like oil or fuel or fertilizer or pesticides, herbicides, you know, all these oil-derived things. We're kind of in surplus right now because oil prices are so inexpensive. The problem we see is kind of twofold. Number one distribution, when you've got a robust global trading system, you've got containers and cargo ships going back and forth all the time. when you drop that, collapse it because of economic recession and shut-ins, all of a sudden you get container ships that are full of empty containers over here when they're needed to take food over here. We've got dislocations throughout the entire logistics system that are not going to

get sorted out in the next three to six months. We've got to find entirely new ways of doing things and the country that faces that in the least extreme is the united states and that's the country with the best capacity to maybe do something so when the country with the least interest has the most capacity you can see where a lot of countries are going to fall through the cracks second in every country that loses a call center or a manufacturing facility that's less income so we're seeing this disconnect in currency markets with the u.s dollar going up and everybody else going down. Every internationally traded food product is U.S. dollar denominated. So if countries are taking a double hit here, they're losing income and they have to pay more to import

food. This could become a deep chronic issue from which a lot of countries will not recover. How does that get reversed, right? There's a lot of these trends that are already underway. What are the one or two things that could happen that could prevent us from going to that world? uh the united states needs to elect um i don't know gandhi to be president you got to remember that we're in a very artificial period in history and it's because the united states has provided global security for everybody for 30 years without asking for anything in return when the united states stepped back from that it was always going to be a question of just you know which country collapses in what order and how we're just seeing that and

fast forward now. If the United States is not interested in being a global leader, and no one else has the capacity to be a global leader, then countries and regions have to figure out how to operate on their own. A lot of these countries are food importers, or they're dependent on exporting manufactured goods. That just goes away in this new disorderly world that we're moving into. We're going to see, we'll get through this as a planet, I guess, because we will see countries like France that have more independent capacity, kind of building their own sphere of influence. But if you're not in one of those sphere of influences, or God forbid, you disagree with the dominant power in your neighborhood, this is not something that you're going to be able

to bounce back from. Yeah, it's pretty crazy to think through this stuff. You mentioned currencies. And, you know, obviously, we've got the situation in Lebanon going on right now, where the protesters are seeing currency be devalued away, food prices are getting more expensive, and literally people are just going into the street and fighting and going yeah i mean if it's pretty straightforward if you import half your food your currency drops by half yeah and well it may be taking a step further right i'm literally going and attacking banks because the banks won't allow

the withdrawals and they won't let them withdraw on other currencies you have to do the lebanese pound uh and then even being smart enough to understand like this is happening at the central bank level and actually going to that point um maybe just talk a little bit about on a on a global basis, as these economic situations transpire, obviously the central banks and governments will say, well, we have a couple of tools other than the strategic moves of food production and things like that. We can manipulate interest rates. We can participate in quantitative easing. That has a lot of different effects on economies, both globally and on the national level. How do you think about those central bank actions kind of overlaid on all of this?

I'd actually argue that most central banks don't have those options anymore. Okay, explain that. Most of the world never recovered from the 2007 financial crisis. The Europeans and the Japanese, for example, never got their interest rates back above zero. So when we went into this crisis, there were only a handful of countries that only had some moderate monetary flexibility, the United States having more than everybody else put together. So, I mean, if after 10 years of recovery, you never had monetary recovery when you went into the next crisis, I'm sorry, that's it. That's the end of your currency as a functional currency, especially if it was a hard one. The demographic situation, most countries don't have consumption.

The demographic situation, most countries don't have long range investment capacity. So what we've seen is the United States was able to put out more stimulus than everybody else put together combined. The U.S. Federal Reserve, because it is the only hard currency that matters, was able to do more than everybody else combined. And now countries are coming to the U.S. Fed for swap lines, which is basically dollarizing the global system. And the more that happens, regardless of whether those actions are successful or not, the more the United States has the flexibility to do whatever it wants with monetary and fiscal policy. So that $3 trillion, you know, foreigners bought up most of the debt.

Most of it the Fed didn't have to do. So we still have the option, and we'll take advantage of this later in the year, to do another couple of $2 trillion stimuluses over the course of the summer in order to keep our system moving. Most countries can't even pretend to do things like that. so we haven't honestly really even started a significant qe in this environment the fed has gone in and you know supported bond markets here and there and i don't mean to suggest that's insignificant but it's nothing on the scale that would need to be done in the rest of the world

and the fed just isn't interested yeah it feels very much um i think five trillion uh is kind of a base number that i see thrown around a lot and tends to feel uh like there's a lot more room to go. In this world, though, as the U.S. continues to do this, is this a world where the U.S. dollar just continues to strengthen and we see one currency just fail or be devalued materially against that dollar? Well, remember, there's only eight hard currencies in the world right now. So this, honestly, in my opinion, this is not all that bold of a forecast. But yeah, the U.S. currency has nowhere to go but up for at least a couple of decades, probably five. Let's go through the competitors. China wanted to open its system up. They did so about three years ago, and a trillion

and a half dollars of Chinese assets fled within six months. So they slammed that shut. They will never open it again. They realize that that's never going to happen. Yuan will never be a global currency. And that assumes China holds, which I don't think it will. Next, the yen. The yen tried to do something that is similar to the Chinese back in the 80s. It had a similar outcome. They're not interested. So they print more currency than we do on a regular basis, despite the fact their economy is less than one-third the size. Euro. Wow. It's not that they've mismanaged it. It's just they failed to take advantage of what time they've had in order to reform their system and to prepare for what a world without favorable demographics is. They failed to do that. So we

are probably looking at the unwinding of the euro over the course of the next few years. I hope that's not front-loaded. I'm losing hope on that when I look at European news these days, and that is the second greatest store of value in the world, and so as that unwinds, even if the Deutsche Mark proves to be a rock-solid currency, everyone from the periphery is going to be going willy-nilly, and most of that's going to come to the U.S. dollar, so that's a big surge. After that's the pound. You know, if there's anything that everyone in the world can agree on, it's that the should never be in charge of anything ever again. And the way they handled the Brexit negotiations

absolutely underlined that. So they're going to get gutted in the United States with the trade talks. And that will probably nearly end the presence of the British pound in most people's currency baskets. They're basically going to be folded into the NAFTA system.

Compared to how the rest of the world is going to look, that's not a bad position to be in. You'll be part of the largest market, largest investment pool, blah, blah, blah, blah, blah. but that does mean they lose monetary autonomy. After that, you're down to Canada. And don't get me wrong, the Canadians run a tight ship

in terms of monetary policy, but a country of 35 million people cannot direct how the world is going to work. After that, talking Australia, Sweden, Denmark, New Zealand, that's everyone. So to say that the US dollar is just going to be the only currency of size and that it's only going to go up,

it's not a reach. yeah and I guess as part of that obviously the the Bitcoin community has this whole bent of the separation of state and money right so exactly what you're talking good luck with that that's what I kind of want here thoughts on in terms of there's two schools of thoughts one is bitcoins gonna go replace everything and be the next global reserve currency and then another school of thought which is as I sit in one of these developing countries my local currency or my national currency fails, I want dollars. I may not have access to dollars.

It may be dangerous to get them. They may not be readily available. So therefore, the next best thing is something that's unmanipulatable because I don't trust any of these other currencies other than the dollar at the national level. Do you put any credence into it's kind of like the best of the worst situations type argument or does that feel like even that's a reach? I don't want to suggest for a moment that electronic currencies don't have a place they do uh bitcoin specifically i'm a little dubious about just because of the limitations and the mining process you get past that and you deal with other forms electronic currency i'm a little bit more confident but i think you kind of hit it right there it's never going to be a global currency because you

have to have a monetary authority to have a currency currency ultimately is about exchange and Bitcoin is just not good at that. But the idea that it is a store of value, I think needs to evaporate. I think you're only setting yourself up for disappointment for that. But as a means of transfer of value, it can totally work.

So your idea that you've got some local money you need to move, you can't get access to the dollar market, so you put into Bitcoin as an intermediary, sure, it's the same thing porn rings do. It's the same thing that drug smugglers do. Keep that in mind. if this isn't something you perceive as an investment vehicle

because central banks, whether successful or not, are going to see this as a problem. And we've already seen a significant change in Europe and in East Asia for how they regulate the digital currencies. That will only expand. And if it gets to the point that the United States is concerned that it's impacting the tax take, you can expect the Federal Reserve and the IRS to act appropriately.

So careful what you use it for, careful how big of your portfolio it is careful what your underlying assumptions for why it exists in the first place because the the people who make the laws and regulate things like this have their own opinions and right now they don't feel like they've been pushed don't push them for sure and i guess as part of that um you know a lot of them i believe uh see the technology as valuable kind of you're talking about you know electronic currencies or digital currencies And so one of the ideas that I've got pretty high conviction in is like every currency is going to be digital in the future. And where the competition is going to be is not a digital currency versus a non digital currency, but rather a competition of monetary policy. So there's gonna be a digital dollar, there'll be a digital one, yen, you know, euro pound, whatever. And then obviously, you've got the Bitcoin, you've got stable coins and all these different things. And ultimately, where people are going to make decisions is at that monetary policy level, the dollar out of all the fiat currencies. seems to be the strongest and will continue to kind of extend their lead there. But what I wonder

is, if everything is digitized, do you get people who say, hey, I want the programmatic nature of something like a Bitcoin? Again, it's nearly impossible to tell how this plays out. But it feels like we're moving towards all currencies being digital and the monetary policy is really where that competition occurs. Well, the digitization of the financial market is continuing to pace. For example, the Brits stopped using paper checks like four or five years ago.

It's like the United States is a real laggard when it comes to that. But you got to keep in mind what the overall environment that you're going to be swimming in is. If we're moving into a world where the US dollar is large and in charge, but the US economy is largely restricted

to North America, the propensity for financial flows into the United States are pretty high. basically whenever you have a regional instability you have a flow of money even as we saw in the 07 financial crisis the U.S. started that crisis and money flowed to the United States because it was the only store of value so if you've got the United States with this global reach but only a relatively regional concern then the United States will be perfectly willing to throw spanners in the work for any country for any reason using its monetary policy to do that

that's the sort of environment that bitcoin is going to be swimming in and i'm not saying that that's good or i'm not saying that it's bad and i'm not saying there's not opportunity within the volatility but you have to keep in mind that any money that is not domiciled in the united states dollar zone will be seen as a target or an opportunity for u.s policymakers moving forward so just be very very careful with that yeah for sure and we've seen that right i mean you see uh politicians like brad sherman and stuff right come out you know pretty aggressively uh against a lot of this stuff um in closing here uh i guess my big question is like the picture you paint of the world um one uh is very rooted in data and demographics and over time we've learned

that that is a great way to view the world um but what is like the one thing if you said you know what i was wrong 10 years from now 20 years from now like what's the one thing where you're like like, you know what, this is probably the thing that I missed or the thing that I have the lowest level of confidence in this kind of view of the world? The problem with my world is always timing. It's easy for me to look at all the structural factors and draw a line forward and tell you where the natural conclusion is going to be. But whether that's going to be in 20 years or 10 years or Tuesday is always the problem. So the Chinese have proven remarkably adaptive and resilient at learning the lessons of the countries that have collapsed before them and have managed to leverage

themselves from honestly a complete backwards pre-industrial disaster to the world's second largest economy. You know, if you look at their policies, you wouldn't have guessed that that's where this would have gone. But it took 30 years of the Americans just basically sitting and twiddling their thumbs for that to happen. So the problem there is there is agency, agency by the Chinese to learn the lessons of the past, lack of agency by the Americans and not choosing to act, which means that if the Americans all of a sudden use their agency tomorrow, China ceases to exist next month. That is the challenge when you're doing a structural analysis like that. There are decision makers who matter. Not everybody is the Czech Republic. Some of these

countries really can move the needle. And to this point, the United States has chosen not to. i would argue that coronavirus has pushed the united states to probably move the needle further than it needed to be yeah it's a uh it's a wild world that we are uh we are walking further and further into um i finish up with uh two questions and let you ask me one to uh to wrap up uh what is the most important book you've ever read other than your own jared diamonds guns germs and steel If you want to get an idea of how the world came to be in the shape that it is, that's absolutely the best place to start. That is a fantastic recommendation. I couldn't agree more.

And then you spent a lot of time thinking about the earth and the global economy and situation. Aliens, are you a believer or non-believer? Do I think they exist? Yes, but I do not understand the transport technology that they use. So I don't know if they've been here. listen uh to go as far as i already be thinking about the transport technology you're ahead of the curve well you know faster than light does that mean time dilation does that mean portals i don't know i love it um what one question do you have for me to uh to finish up how do you think

this is all going to work i mean you deal with digital currencies all the time we're seeing changes in policy prerogative the americans are scared when they tend to be scared they tend to overreact and make adjustments to the system that lasts for decades uh in a world where populism and in a country where populism is rising up so strongly you know how do you think this is going to shake up for your industry yeah i think that it's um it's really my view has changed over the last 12 months or so um and the reason being uh i actually am very much uh convinced of a strong dollar for the foreseeable future. And really because of such a deflationary environment and kind of this idea of the relative printing everywhere else to the United States, a lot of

what you've shared and others that I've brought on the podcast, I think that that makes a lot of sense to me. The one thing that I keep going back to though is around Bitcoin specifically, this idea of I don't need a bank account. I don't need to kind of interface with the legacy system. All I need is an internet connection and I can access this. I can use it. It's programmatic and it's monetary policy and it's transparent. So I actually know the monetary policy decisions that we made in the future because it's just programmatically being done. To me, it's this weird thing where when you say like, how does it play out? That really is kind of three components. So the regulatory side, the US dollar price kind of value, and then three is like the amount of

adoption. And so if you go in reverse, like adoption right now, it's probably about 1% of the world, you know, give or take about 70 million people own or have transacted in Bitcoin. I think that will continue to rise just as more people get educated, time goes on. The rate at which that changes is, you know, kind of up for debate. In terms of the US dollar price, like it's just supply demand economics, right? So as supply continues to get cut kind of programmatically in terms of that incoming supply, U.S. dollar price should rise. How fast, you know, what timelines

people are spending literally, you know, billions of dollars betting on that in the markets. And so we'll kind of see how that plays out. And then the regulatory front, I think is actually probably the most interesting piece of this. And recently a video resurfaced of Vladimir Putin. And somebody asked him, you know,

is Russia thinking about creating a cryptocurrency? And asked him this in 2018 on kind of his national talk show, whatever he's got there. And the first thing he said is, well, we can't because a cryptocurrency is fully decentralized. It's not controlled by anyone. And he was pretty well versed in his answer. And what it got me thinking about is like,

my guess is that most of the world leaders understand this much better than they let on. Two, they've actually thought more deeply about kind of the repercussions of it. You see that again with like the Brad Shermans who want to just ban ownership and do things like that. But three is they haven't really taken extreme measures now. And so you could make one argument, like, it's just not big enough.

It's kind of a thorn in their side, but it's not important enough yet. The second camp, though, would be they realize, like, you can't shut it down. And so you see things like the congressman from North Carolina, you know, saying in the congressional hearings, like, hey, anyone who's trying to shut this down has never been successful. Like, it is a decentralized, anti-fragile system. and so like i'm with you on this weird world of like you don't want to have showdowns with governments right like you like people tend to lose those uh especially developed countries where it's the most powerful military in the world um but at the same time uh i wrote about a year ago this weird world of every currency that's fallen at some point there's been a change

of power when that currency falls either that preceded it or right afterwards uh and it was all about who had the most powerful military, who had the best offense, right? And you would go and take over somewhere. In a cyber world though, does that reverse? Is it almost whoever has the best defense actually is the strongest? Meaning that, you know, if we go and we hack into, you know, China's electrical grid, they basically kick us out at some point and they fix the, you know, the patch, the hole, and they can keep us out. They're actually stronger. It's not so much about offense. It's more about defense. And in that world, the Bitcoin network's the strongest computing power computing network in the world like does that then all of a sudden mean in some

weird way like the strongest quote-unquote military behind a currency is this computer network versus a fiat currency i don't know but like that's a framework that i keep trying to think through um that i think just hasn't been discussed enough and like i'm not smart enough to come up with the answer so well there's only one way to test the theory too so yeah exactly and so um i don't know it's just i think a lot of uh bitcoin are specifically like this specific role because it's so multi-disciplinary right and obviously the work that you do uh you have so many different inputs that you've got to analyze to figure out what's going to happen um or at least think about that and i think bitcoin is very similar to that chuck yeah so listen i appreciate

you um you taking the time to do this where where can we send people to uh uh to read more and uh and get the books and kind of get everything that, uh, that you've been cranking out. So the website is zion.com. That's Z E I H A N.com. You can sign up for the newsletter there. It's completely free. And you can follow me on Twitter at, at Peter Zion. Awesome. And you, uh, you've been doing a fantastic job, so I appreciate you doing this and, uh,

and hopefully we can drive some people over there and, uh, I highly recommend the books. The books are fantastic. Oh yeah. Disunited nations came just before the, uh, the crackdown on transport. So it doesn't deal with COVID, but it totally talks about national collapse. Absolutely. All right, Peter, thanks so much. All right. Take care.