Peter Zeihan breaks down Russia’s Ukraine invasion as inevitable yet miscalculated, exposing NATO’s underestimation of Ukrainian resistance and Europe’s unity while Russia deploys poorly trained troops on repurposed buses. His analysis reveals Putin’s regime hinges on 130 loyalists amid demographic collapse, with China facing similar labor shortages due to its one-child policy. Zeihan warns Mexico’s cartel violence—now armed with 50-caliber rifles—could spiral into a nationwide gang war under AMLO’s militarized crackdown, straining U.S. trade and security. Global energy shifts, like California’s EV mandates, ignore lithium and nickel supply limits, while fertilizer shortages threaten food systems already strained by geopolitical instability, signaling potential economic breakdowns by 2030. [Automatically generated summary]
It's all about figuring out what works where and why and why if you try the same policies on the next town over, it's usually a disaster.
And then I worked actually here in Austin at a company called Stratfor for 12 years, and I was their sole generalist.
So it was my idea to kind of plug everything together and figure out what the map of the world looks like and how if you pull a string on one side of the world, something changes on the other side.
Well, your perspective on sort of global interactions with China and Russia and the United States and the energy supply and the food supply, I have not heard before.
I haven't heard it as comprehensively as I've seen you put it together.
So I'm kind of excited to talk to you about this.
So when, let's, let's, I guess we should start it with Russia.
When Russia invaded Ukraine, you were not surprised.
The Russian space is among the worst farmland in the world.
And so they've never been able to generate enough income to have a road network.
Everything has to be moved by rail.
And their frontiers are just huge and they're open.
And if you've got a force that can't maneuver itself, your only reasonable defense strategy is to be forward positioned and use geography to help you out.
So you expand until you reach mountains or oceans or deserts, and then you anchor on either side of those and plug the access points.
Unfortunately for Ukraine, there are two of those access points on the other side of Ukraine.
So the Russians were always, always, always going to try to push through and retake that territory, territory that they had controlled for most of the last 350 years.
Unfortunately for them, in the 30, 35 years since the Soviet system collapsed, the Ukrainians have developed an identity.
And now they would like to be something other than a road bump.
So one of the narratives that was going around was that the reason why Russia was pushing into Ukraine is because NATO was moving their arms closer to the border of Russia.
You just have to put it in the context to really understand it.
So the Russian point of view is for us to be secure, we need to expand until we reach a point where invaders cannot overwhelm us.
We have to be able to plug those access points.
But to give the Russians what they want, you have to sign over the future of Estonia, Latvia, Lithuania, Poland, Finland, the Czech Republic, Hungary, Slovakia, Romania, Belarus, Ukraine.
Oh, let's go on.
Azerbaijan, Armenia, Georgia, Kazakhstan, all the stands.
Basically, the Russians, in order to feel safe, they have to be able to occupy total populations that are twice of their own.
And I'm sorry, but that's just not feasible.
So, you know, technically, the people who claim that NATO provoked this are correct.
NATO can't have what it wants in Russia in order for Russia to feel safe.
But for Russia to feel safe, they've got to occupy over 180 million people.
Well, I don't think it was just the Russians who anticipated it.
Ukraine, the last war in 2014, basically rolled over.
They proved to be militarily incompetent.
They were corrupt.
They couldn't put up any sort of resistance.
Crimea fell in just a matter of a couple of days.
And I think a lot of us who were in the security side of things thought that this was going to be to a degree a bit of repeat.
Now, I was probably one of the more optimistic people for Ukraine because I had seen them develop a culture and seen them arm and train and had seen it be meaningful.
But Ukraine is still a flat country and the Russians are still one of the largest militaries in the world.
So even I was saying that within six months to a year, this was all going to be over.
But the Ukrainians have surprised to the upside.
And probably most importantly, the Europeans didn't just roll over and let this happen like they did the last seven times that the Russians have gone on the warpath since 1999.
And when you look at it going forward, if people didn't anticipate that the Ukrainians were going to be able to fight back as well as they have, and then you look at it going forward, like, where does this go?
Well, the Ukrainians are the underdog, but they're in the process of rapidly arming with more and more sophisticated equipment.
And by the time we get to May, they will have been able to do a lot of deferred maintenance on the equipment they captured from the Russians, which was more equipment than they started the war with.
And there will be 60,000 Ukrainian troops that have trained in NATO countries with more advanced equipment back in the field.
So, you know, we get our Athens, if you will.
On the other side, the Russians will have finished their second mobilization, and they will have at least another half a million men in the field.
Now, they will be badly trained and badly equipped and badly led with low morale.
But troops like that have a technical term attached to them.
Russian.
There's nothing about this war that is unique in Russian history.
The first year is always an absolute shit show.
And then the Russians throw bodies at the problem until it goes away.
And in half of those wars, the Russians ultimately win.
So by the time we get to May and the mud season is over, we'll have a more advanced Ukrainian force fighting a much larger Russian force.
And we will get our first real glimpse at how this is going to go.
And we should know which way it's going to break.
Now, it'll still take time.
Because if the Russians are going to win, it's going to take them a year to overwhelm Ukrainian defenses, and then they have to occupy the country, and that's going to kill a couple million people.
Or the Russians are going to be able to completely break the logistical supply chains that allow the Russian troops to even exist, and we'll have a half a million dead Russians, and the Ukrainians will be able to push the Russians out of Crimea in the east.
And then we get to talk about the next stage, because this is just the opening phase of what is going to be a multi-year and perhaps even multi-decade conflict.
Right now, the balance of forces clearly are edging more and more towards the Ukrainians.
They've proven to be more adaptable.
When the Russians made it clear that they were going to do a second mobilization, that seemed to have broken the log jam in a lot of countries, most notably Germany.
And we now have armored vehicles up to and including some light battle tanks, which I know all the tankies out there are going to hate that term.
But anyway, armored vehicles that have some serious firepower are going to be coming now.
The Bradleys from the United States specifically.
And that is a tool that the Ukrainians have not had.
So every time the Ukrainians have achieved a tactical breakthrough, they can only push as far as their infantry can run.
Now their infantry is going to be mobile.
And in a war of movement to this point, the Russians have proven that they're absolutely incompetent.
The guy who is the defense minister, Shoigu, is arguably one of the least competent people on the planet.
But he's a friend of Putin, and so he's been able to milk the Defense Department for everything.
Best guess is that he has taken a third of the budget himself for procurement, and his flunkies have taken another third, so very little gets to the military itself.
And when you're using a force that can only supply by rail, you're completely dependent upon trucks for local distribution.
And that's why the Ukrainians went after the trucks with all the javelins that they got early in the war.
They didn't really go after tanks.
They went after the trucks.
And they've destroyed roughly 2,000, maybe 2,500 of them.
And that has reduced the Russian military to going back to Russia, confiscating city buses and literally Scooby-Doo vans and bringing them back to the front.
And think of a Scooby-Doo van.
Now fill it full of artillery shells.
You know, every time you hit a bump, ha.
And that is their primary ammo supply system now, because the rail system into Crimea got blown up, the Kerch Bridge, and what's going into the east is all under artillery range.
So they have to use truck, and they're just not very good at it.
Um, I have never, I've not been as concerned about the nuclear question as some folks, because there's really only four scenarios.
Scenario one is the Russians consider throwing one against the United States.
But we've made it very clear from our intercepts and our sharing of information with the media that we know exactly where Putin is at any time.
We're listening to his phone calls.
We're reading his emails.
And so he now knows very clearly that if he throws a nuke at the United States, we're going to throw one, not at Russia, we're going to throw one at him.
And there's no version of this where he survives.
So he has tamped down the rhetoric quite a bit since last March.
Option number two, nuking Ukraine, that doesn't make sense.
They want to occupy Ukraine.
You don't want to have your troops in a place that's a radioactive wasteland.
There may have been a case last year for nuking Poland and Berlin and Stockholm in order to disrupt the weapons flows into Ukraine.
But after the battles of Izium and Kherson, the Ukrainians have more Russian gear now than they know what to do with.
It's going to take them months to bring that all online.
There's a lot of deferred maintenance that needs to be done.
And so disrupting the weapons flows no longer is a critical issue because the weapons are already there.
So the only scenario I can see where the Russians would seriously consider nukes is if Ukraine doesn't simply win, but decides to carry the fight across the border into Russia proper.
In that scenario where the very existence of the Russian government is threatened, that would probably change the math.
But I don't find that likely without a significant shift in mindset in Washington, because we're not just providing the Ukrainians with the weaponry and the ammo, we're providing them with the intelligence and most of the steps of the kill chain.
Without that, the weapons are of limited usefulness, especially at long range.
And the Ukrainians have no desire to rupture that relationship.
So we're talking about a theoretical that is at a minimum seven months away, probably further.
Well, the data exists on the other side of the front line.
All we know are about what has happened in the territories that have been liberated.
And if you think of things like Bucha and ISIM, German radio intercepts told us as far back as May that there were at least 70 places behind Russian lines that had suffered massacres like ISIM.
I'm sorry, like Bucha.
And when we've had additional liberation since then, it corroborates that general assessment.
So that's piece one you can be a little depressed about.
Piece two, the Russians see this as an existential fight for their survival.
They feel if they don't get those blocking positions, they're doomed.
And they're probably right.
But we now know that the Russians are fighting so badly.
They're doing much worse than the Iraqis did in 1992.
If we had a direct fight now between NATO and Russia, it would be 1,001 casualties.
And I don't know anyone at the Defense Department who's happy about that.
Because if the Russians see this as an existential conflict and they know they can't hold a match to NATO, then nukes are their only option.
So the primary reason why everyone in the West has gotten shoulder to shoulder on this is they know that if Ukraine falls and Poland's next, there will be a direct fight.
The Russians will lose, and then there will be a general nuclear exchange.
So there's plenty of really solid reasons to root for the Ukrainians on this one.
The Russian position is that our demographic structure is in such diseased and aged and terminal decline that the Russian state will be turning the lights off sometime between 2050 and 2070 anyway.
They've had a series of big melon scoops out of their birth rate throughout the history, World War I, World War II, the collectivizations under Stalin, Brezhnev's mismanagement, Khrushchev's mismanagement, the post-Cold War collapse.
And a lot of these stack on top of each other.
And the biggest one stacked on top of the post-Cold War collapse.
So there are more Russians in their 50s than their 40s in their 30s and their 20s than the teens.
And then they lie about the data of the teenagers on down.
Which means that there aren't enough Russians that have been born in the last 30 years to carry the ethnicity forward much farther.
And so they're thinking if they can forward position their military and plug those gaps now with their last generation of young people, then they can kind of die on their own terms 50 years from now.
Yeah, one way or another, this is the end of Russia.
The question is whether it dies in the long term on their terms or in the shorter term when they're completely unmoored.
Because if they fail to secure those borders, then they've got a 2,000-mile open border with countries they consider to be hostile, and they have no way of moving troops around in a way that would allow them to defend it.
They'd just be waiting for somebody to come over and knock them over.
I think that's what's been driving them, because 2022 was the last year where they had a sufficient number of people in their 20s to even attempt this.
So from my point of view, not only did the war always have to happen, it always had to happen by now.
Now, is this just because of the nature of a dictatorship that's run by someone like Putin, that it's just completely mismanaged because he's just dominated the power structure and made sure that everybody falls in line with his ideology and his reign?
Like, what caused all this to be so poorly managed?
Well, Russia has always been poorly managed and authoritarian.
But under Putin, it's taken a much darker turn because of the nature of the end of the Cold War.
If you remember back to 1982, there was a coup in the Soviet Union.
And Chernimirdin and Dropov and Gorbachev were FSB, well, then KGB agents who basically overthrew the old system of Brezhnev and took over because they were the only ones who really had a full understanding of what was going on.
They controlled the information.
They were not able to save the system, and so it broke.
And Putin is the successor to that legacy because he was also in the KGB.
And we're now in an environment that between the terminal demographic structure of the Soviet slash Russian system and Putin's personal paranoia, so he's gone through and purged what was left of the KGB FSB of anyone who has personal ambitions to succeed him.
We're left with an entire political elite of only about 130 people.
And Putin has removed anyone who has leadership ambitions.
Well, they're obviously not thrilled with the way that things are.
They're using one bit of propaganda after another to justify it saying that, you know, we're fighting all of NATO or like, you know, demons are involved.
You know, when it came to the Kearson offensive and it became clear that there was more going on than just NATO weapons, the Ukrainians actually knew what they were doing.
They changed the line from that these are all Nazis to these are actually gay demons.
In theory, steroids keep you going in a time when you should probably be laying down is really kind of the bottom line.
Whether he's medicated, over-medicated, or medicated because of medical reasons, we really don't know.
He's not in great health.
That is obvious.
And for someone who has been the shirtless horseback rider in the propaganda videos, that's a real problem.
He's visibly wearing bulletproof or bullet-resistant vests even around his own propaganda people.
There was this great piece that came out that I saw last week where it was all the propaganda shots that he's taking with like with the soldiers, mothers, and on the front and with the tech people and in the intelligence.
And it was like the same 12 people were in every single shot, just in different outfits.
And even with those people, he's wearing his ballistic vest.
Well, the folks in the intelligence world who are listening to his phone calls and reading his email might, but that has not been made public, to my knowledge, from the American side.
The Soviet period was kind of a relief because we actually had an institution that pushed their weird religion to the side and actually worked on technocracy and technology.
And from the European point of view, that was a huge improvement.
And the belief in the post-Soviet period was that they would start from that and move forward and modernize and maybe even democratize.
And people believed that for far too long, even when it was clear that Russia was degenerating rather than advancing itself.
We are dealing with the end of the world that we know.
Russia is more of a symptom of this than a cause.
So to go back a little bit, in the world before World War II, if you had coal, oil, food, and iron ore, you could industrialize and try to make something of yourself.
But if you failed to have one of those, you were probably a colony.
At the end of the war, the Americans abolished the imperial system and patrolled the global oceans for everyone.
And as a result, now you only needed one of those four, and you could trade for the others.
And so for the first time in human history, we were all on the same path, you know, from different starting points and going at different speeds, but we were all industrializing and we were all urbanizing.
The problem, well, let's start with the opportunity.
When you urbanize, you move from the farm and into town to take an industrial job.
When you live on the farm, you have a lot of kids because they're free labor.
You move into the city, you have a lot fewer kids because kids are no longer free.
They're really expensive and noisy and annoying and dirty pieces of furniture.
And you have fewer of them.
And so your population starts to shift.
It used to be that you have loads of children, a few young adults, fewer retirees.
It's kind of a pyramid.
But as you urbanize, your pyramid opens up into a column because you have fewer kids, but everyone's living longer.
And as long as your population is a column, economic growth is spectacular because you don't have to spend a lot of money on your kids.
You're not old enough that you have a lot of retirees.
But you've got a lot of people in their 20s and 30s to build things and buy things, and then a lot of people in their 40s and 50s to do the investing.
And the rich world was a population column from 1945 to 1992.
And with the end of the Cold War, the developing world became a column in 1992 until now.
The problem is that this is all temporary because birth rate keeps dropping, people keep living older, and your column eventually inverts into an open pyramid upside down.
And now you no longer have children.
You no longer have a replacement generation at all.
And there aren't enough people in their 20s and 30s to buy everything.
And there aren't enough people in their 40s and 50s to pay for the retirees.
So this decade was always going to be the decade that most of the advanced world moves into mass retirement and the economic model collapses.
And next decade was always going to be the decade that that happened to the developing world.
And we find out recently that the Chinese have jumped the ship, and this is their last decade, too.
So all of the globalized connections and consumptions that create the world we know, we are at the end of it.
And we have to go back to a world where trade is more focused on the countries that have a better demographic and security infrastructure because the Americans are no longer patrolling the global oceans anymore.
So we're losing the security ramifications of an open system.
At the same time, we're losing the demographic capacity to support it in the first place.
Mao was concerned that as the country was modernizing, the birth rate wasn't dropping fast enough and that the young generation was literally going to eat the country alive.
So they went through a breakneck urbanization program, which destroyed their birth rate.
At the same time, they penalized anyone who wanted to have kids.
And both of those at the same time have generated the demographic collapse we're in now.
Well, without young people, we've seen their labor costs increase by a factor of 14 since the year 2000.
So Mexican labor is now one-third the cost of Chinese labor.
Their educational system focuses on memorization over skills.
So despite a trillion dollars of investment in a bottomless supply of intellectual property theft, they really haven't advanced technologically in the last 15 years.
Mexican labor is probably about twice as skilled as Chinese labor now, even though it's one-third the cost.
They've consolidated into an ethnic-based paranoid nationalist cult of personality, and it's very difficult for the Xi administration to even run it because it's not an administration anymore.
No one wants to bring Xi information on anything.
So, like, Putin lied to his face, for example, last February about the war, saying, Why would I invade Ukraine?
And you can see in some of the presses the defense guys in the back of the room, like, they didn't want to say anything because Xi has a history of shooting people he doesn't like.
And so, the Chinese were the only country that was caught with their pants down when this all went down.
The Biden administration is basically taking the trade policy of Donald Trump and running it through a grammar checker and putting it into institutions.
So, we now have tech barricades that prevent the Chinese from buying the equipment, the tools, or the software that's necessary to make semiconductors.
In fact, he went so far as to say any Americans working in the sector have to either quit or give up their American citizenship.
Every single one of them either quit or was transferred abroad within 24 hours.
So, the tech system is stalled.
They don't have the young people to go consumption-led.
They're completely dependent on the U.S. Navy to access international trade.
They are the most vulnerable country in the world right now.
And based on how things go with Russia, we're looking at a significant amount of raw materials falling off the map, specifically food and energy.
And the Chinese are the world's largest importer of both of those things.
So, there's no version of this where China comes through looking good.
And the challenge for the rest of us is to figure out how do we, in as smooth and quick as a process as possible, figure out how we can get along without them.
Do you think this is because, like, what is other than well, here would be a big problem, right?
Taiwan.
Like, if we impose the kind of sanctions that we've imposed on Russia, if China decides to invade Taiwan and the world stands up and the world imposes sanctions on China, how does that go?
So, you know, say what you will about the Russian economy.
It's corrupt, it's inefficient, it's not very high-value add.
But it's a massive producer and exporter of food and energy.
You put the sanctions that are on the Russians on Beijing, and you get a deindustrialization collapse and a famine that kills 500 million people in under a year.
And the Chinese know this.
They can only push so hard.
Also, you know, you can make the argument that if the Russians succeed, they actually solve or at least address some of their problems.
Even if the Chinese were able to capture Taiwan without firing a shot, it doesn't solve anything for them.
They're still food importers.
They're still dependent upon the United States.
They're still energy importers.
And even if they take every single one of those semiconductor fab facilities intact, they don't know how to operate them because they can't operate their own.
And their own are among the worst in the world, not the best.
The only reason, in my opinion, to be concerned about a Taiwan war is because Xi has so isolated himself that when one person is making all the decisions and that one person refuses to access information to make the decisions, strange stuff happens.
He does not have normal information flows anymore.
Like even at the height of the Trump administration, when Trump was basically isolated himself from the entire intelligence community, he was still getting the daily briefing.
There was still information being put in front of him.
But Xi is so isolated himself.
He doesn't want to hear anything except for what he wants to hear.
And since no one knows what the status of the conversation with the voices in his head in on a given day, no one wants to bring him anything unless they're ordered to.
That's one of the fun things about Russia versus China right now is that the Russian information security is so poor that American intelligence is literally listening in on everything.
But in China, we can hear into the office, but there are no conversations happening.
Well, let me start by saying I think it's safe to say that no country has really figured out how to handle this well.
Second, I will say there are seven different variants circulating in Beijing right now, or in China right now.
Three of them did not exist two or three months ago.
And it takes about six months of data for you to get good information on the R0 and the lethality.
So we just don't know.
And then third, in part because of Xi, when you're a one-man state, all policy and all authority starts and stops with you.
And unless you're providing very clear guidance on everything, which is impossible for one person to do for a whole country, especially one the size of China, the bureaucracy either goes into automatic or does nothing.
Well, right now it's doing nothing.
So the data decisions in China are not to gather data and figure out what we can do.
It's to, instead of gathering data and lying about it, we're just not going to gather any data at all.
So we're not going to know how bad these strains are until they get out of China and circulate in the rest of the world for six months.
So the lowest fatality estimate that I have seen that I consider credible is that they're going to lose a million and a half people.
Diabetes as a percentage of the population is higher.
They don't have a critical care system like we have.
And their hospitals are really their only line of defense.
They don't have a clinic and a doctor system in the towns like we do.
And what about nutrition education and the understanding of yeah, when you industrialize very, very quickly, especially in a culture like China where food is considered a sign of wealth, getting fat is the thing to do.
So we've got a lot of diabetes, a light off hypertension, a lot of overweight people, and over two-thirds of the population lives in a metro region and their air quality sucks too.
So we're kind of seeing like the worst aspects of the Indian system and the American system all in one.
Because you have a very comprehensive view of this that includes energy and nitrogen, fertilizers, everything.
Like has anybody ever brought you in and said, Peter, can you give us an assessment of what we're really dealing with versus what each individual expert has to contribute to it?
Because you're giving an overhaul, an overall sort of comprehensive view of this.
I'm happy to say that I am doing some work with the Defense Department.
I can't talk about the details, obviously, but I think it's good to give credit where it's due.
One of the many, many things about the war on terror that reshaped the U.S. government is that we focus all of our intelligence apparatus on supporting the troops, which is reasonable.
So instead of thinking, you know, it's 2045 and you're thinking over the horizon, who's our faux going to be and what kind of tank are they going to use so that we can start preparing, which is what we used to do.
It instead became, there's someone in the other side of this door and the third floor of this building at the edge of town in Fallujah.
What side of the door the hinges are?
Because we need to know if we need to blow it off the hinges or kick it in.
So we focused all on that second thing for 20 years, which meant not only did we lose all the analysts who knew how to think forward, we lost all the people who trained them.
20 years is a long time.
So even if everyone in DOD or the intelligence community disagrees with everything I have to say, and I have some friends, I have some colleagues, I have some non-friends who listen.
The fact that they're trying to rebuild that capacity is a really good sign.
And the fact that they started rebuilding that capacity so soon after the war on terror ended means that they recognize the hole in the system.
Well, Chinese history is rich with examples of how it all falls apart in a short period of time.
If I were a betting man, I think that the two most vulnerable parts of the international system right now are energy transport and food production.
About 80% of the calories that humans produce are produced with at least one imported input, whether it's pesticide, fertilizer, fuel, tractors, whatever.
And 90% of the calories they produce are dependent upon a foreign support system.
In the United States, it's less than 10.
We produce most of what we need locally, and most of the rest comes from Canada.
But you interrupt the food supply chain in any meaningful way.
And China is only one of a host of countries that has some very real problems.
Now, China faces the biggest one in absolute terms because of the size of their population.
But with the Russians having their problems, the Russian space is the world's largest single supplier fertilizer of all types.
So we are already knee-deep in a fertilizer crisis globally.
And we're seeing industrial accidents in the Russian space that are so big you can see them from orbit because a lot of petroleum stuff explodes if it doesn't go right.
And the Russian facility has been held together with duct tape and Western tech for a while now.
That's all gone now.
So China being kind of the last man in line to get a lot of this stuff is in a very vulnerable position.
We're probably going to see about a million barrels a day of Russian crude fall offline within the next few weeks as part of the price cap that the Europeans are putting into place.
But more important, all the insurance firms have said they're not going to deal with Russia anymore.
So you're not supposed to sail at all with your ship if you don't have an insurance policy.
So countries like China and India are stepping in and offering sovereign indemnifications, but that's something they've never done before.
And so if there's ever a case where a ship, for whatever reason, needs to file a claim, it's going to immediately go to international arbitration because they have no method for the payout.
As soon as that happens, no one's going to take an Indian insurance policy again.
That's another million to two million barrels a day that goes offline.
And then all the crude that the Chinese get from eastern Siberia is from fields that the Russians never developed themselves.
That was all BP.
BP is gone.
So we don't know how long the Russians can keep it operating, but we know it's going to go to zero.
We just don't know how long it's going to take.
And the Chinese are the last in line for all of this stuff.
And if you have a food or an energy crisis, or God forbid, both at the same time, on top of a health crisis, on top of government incompetence, there is no way a central government holds together in that sort of environment.
Now, like I said, Chinese history is rich with ways that can all fall apart.
Oftentimes it's based on having this hyper-centralization and an incompetent leader, or incompetent leader cadre maybe is a better way to phrase that.
But how it usually goes is that the North kind of falls in on itself.
It falls into famine.
It falls into tyranny.
You get hundreds of millions of people suffering from malnutrition and then ultimately dying.
The coast goes one way.
The interior kind of breaks off and shatters.
And then the cities of the coast in the south, your Shanghai or Fujian, your Guangzhou, your Hong Kong, they basically become independent city-states and integrate with foreign powers primarily in order to get food.
And if you look back at the last 14 centuries, for almost that entire period until 1945, the city-states have been dependent upon foreigners to keep themselves alive.
So we're really just reverting to a historical meme here.
That Hong Kong has essentially been taken over by the CCP and they've imposed their rule of law on people that had existed in more or less a westernized democracy.
Well, Hong Kong would probably be one of those cities that splits off.
But for that to happen, you first have to have the northern section basically fall in on itself.
As long as there are security services, these southern cities can't go their own way.
But as soon as something happens to those security services and they're focused on the homeland in the north, then the southern cities are going to bolt.
This is one of the beautiful things about authoritarianism is they start telling stories and eventually they believe them.
It happened in Russia.
It's happening in China.
Chinese academics as recently as 10 years ago were very, very aware of this and it shaped government policy.
They wanted to make sure that the Democrats, little D, in Hong Kong didn't get too uppity.
They tried to make sure that there were people from the South on the Politburo.
But as we've gotten into a more ossified and centralized decision-making system, all of the lessons of the past are going away and it's all about central control.
And they're, once again, because this is another trend that pops up in China over and over again, they're forgetting their own history.
I think we'll have a system of regional trade where you've got certain regional powers who have actually benefit from the environment.
So one of the fun things about the United States is that we've got more navigable waterways than everyone else in the world put together, about 13,000 miles.
And it's about one-tenth the cost to move things by water as it is to move it by truck.
So with that sort of environment and ocean moats, the United States is an economic power whoever is in charge.
I mean, we've had decades of bipartisan effort to try to screw this up, and we haven't pulled it off yet.
We're not going to do it under Biden.
He doesn't have the energy.
Which means that globalization, from our point of view, from an economic point of view, was a problem because we had one of the world's best geographies.
And we deliberately sublimated that in order to support our allies against the Soviets in the Cold War.
We basically paid people with globalization to be on our side.
And it worked.
But we're getting away from that.
And now geography is going to have a much bigger role to play.
And if you layer demographics on top of that, if you have a country with a decent geography and a decent demography, they can kind of write their own ticket in the world we're going to.
And there are a few of those.
The United States is at the top of the list.
Argentina looks really good.
France and Turkey look great.
And then Japan is kind of a consolation prize because they've managed to cut a deal with both the American right and the American left and get themselves invited into kind of an American friends and family plan.
So you get these spheres of influence that don't necessarily cooperate or compete with one another, but are kind of in their own little worlds.
And anything outside of those spheres of influence is probably a territory that is not very economically viable.
And most of them don't have demographic structures that are sustainable at all.
Well, one of the things that came up during COVID was our understanding, really for the first time, of the supply chain and what happens when it gets cut off.
When medicine, so much medicine is produced in China, so many computer chips, so many different things are made over there, that there's been a real conversation about the need to have all that stuff here and for the United States to be self-sustaining.
With the inflation, I mean, I don't want to come across as a partisan here, but the Inflation Reduction Act, while from an inflation point of view is ridiculous, there's nothing about that that addresses inflation.
It did put together a nationalist economic policy that we probably did need in terms of pushing the reindustrialization on some specific sectors.
It'll probably be the first of a series of things that are coming.
And a lot of this stuff is not particularly complicated.
So take the medication issue.
It's 1950s technology for the most part.
The medicines that we import from China and India are not the biologics or the cutting-edge stuff or the cancer drugs.
They're the day-to-day maintenance things that a lot of us use.
And it is not particularly expensive or time-consuming to build out the capacity here.
It's basic chemistry.
But there has not been an economic incentive to do it yet.
So you get one act of Congress and splash a little cash on it, and it might cost us 8 cents for a pill instead of 4 cents.
But, you know, we can argue whether or not that is worth the price.
You get into more sophisticated manufacturing, and it kind of does this weird split.
So the United States is a world leader at the very high end, whether it's semiconductors or vehicles or machinery or software.
But we're also a world leader on the low end if it's input intensive.
So energy products and food products, fuel, processed foods.
Our problem is in the middle, places where it's not the natural bounty of North America that helps us out, and it's not the ingenuity and the skill of the American workforce that helps us out.
The stuff in the middle.
To be perfectly blunt, for that, we've got Mexico, and they're great at it.
The American-Mexican trade relationship is already the largest in the world, and they're going to be our largest trading partner moving forward for at least the next 30 years, probably a lot more.
But most of the people that I've seen who have done the assessments suggest that any gain in terms of law enforcement and criminal activity would be lost in terms of workdays and sickness.
So from a purely economic point of view, at best it looks like it might be a wash.
Well, then you're talking about a regulatory issue.
And just keep in mind that whenever you move something in from an illegal to a regulatory point of view, there is a, how should we call this, an adjustment process?
So I live in Colorado now, which was the first state to legalize pot.
And what we discovered was that, yes, you solve some problems and you bring a lot of money in for the government, but it has criminalized a lot of economic activity in Colorado.
Because think about what happened with POT.
It's still controlled from a financial point of view at the federal level.
So banks won't touch it.
So all the pot dispensaries have a walk-in safe where they keep all the cash.
So the Federal Reserve is like, this is a theft issue.
This is a security issue.
We can't allow this to happen.
So what we're going to do is we're going to hire out a bunch of armored cars and trucks, and we're going to send these to these pot dispensaries after hours.
And with armored guards, we're going to come in and we're going to take all your cash.
We're going to spray a lot of febreze on it.
We're going to take it back to the Federal Reserve Building.
We're going to count it and give you a digital deposit.
The Sinaloa cartel is like, whoa, whoa, whoa, whoa, whoa.
Let me get this right.
The Federal Reserve of the United States of America is now in the business of money laundering.
Count us in.
And so now they are laundering their money through the pot industry of Colorado.
This is a gentleman named John Norris, and he started out his career as a game warden, a guy who checks fishing licenses and stuff.
And along the way, he discovered that because of the legalization of marijuana in California, they decriminalize it to the point where growing it is a misdemeanor.
And so people are growing it on federal land, on state land.
And so these state forests and federal forests in California are filled with cartels.
They're growing marijuana.
So he had to form a tactical unit to combat these cartels.
So they're wearing tactical gear.
This guy was a game warden.
And now they've got Belgian malamois and fucking machine guns.
And they're going in there and they're fighting off cartels.
He thought of himself as a Korean conglomerate president.
So it's like, we smuggle drugs.
That's our business.
You don't mess with things that mess with the business.
So you don't trip the old lady.
You don't steal her purse.
You don't shoot at the cops.
These are people who live where we operate.
We want them to be on our side.
So maybe even throw a party every once in a while.
You focus on the business.
We got El Chapo.
We removed him from circulation.
The guy who died or got captured yesterday was his son, one of the Los Tapitos.
And his cartel, as a result, is fracturing because his leadership's gone.
The replacement cartel is Jalisco New Generation.
They're led by a former Mexican military officer who thinks that rather than don't shit where you sleep so that the people on your side, whenever you move into a town, you shoot it up.
You do kick over the old lady.
You do take her purse.
You make the people scared of you.
That's the point of this.
Drug running is a side gig.
We are here to be powerful.
And drug running is just one of the ways we make that happen.
And he has taken the fight to every cartel and the Mexican government.
And they're in the process of trying to break into the United States.
Yeah, El Chapo and the Sinaloa became the largest drug trafficking organization in America under the Obama administration.
And one of the reasons our birth rate went down so far, so fast is they basically either co-opted or killed American gangs.
So they killed the people who were doing the killing.
Not a lot of Americans got killed after that.
All of the other cartels control the access points in the United States, but Jalisco New Generation now is challenging every single one of them, trying to break through.
And if they do, and they bring their business acumen, if you will, north of the border, they're going to start killing white chicks named Sheila in Phoenix.
And then we're going to have a very different conversation in this country about the drug war and about trade with Mexico.
So back in 2019, the Los Chipitos, I can't remember his name.
I keep wanting to say in Octavia, and that's not it, because that's a girl's name.
Anyway, it begins with an O. He was captured in 2019, and they weren't able to get him out of town fast enough.
So all of his homies basically got together with assault weapons and descended upon the police units that did it, and they were forced to let the guy go.
We're seeing a change in heart of the administration in Mexico.
Lopez Oberdor, for the first couple of years of his presidency, followed what he called hugs, not drugs, the idea that if we don't bother the cartels, they'll just be nice.
Yeah, so that didn't work out.
And now he's taken a much more direct approach.
And since most of the security services at the local level have been infiltrated by the cartels, he's tapped the military to do it.
So the military is now taking active steps against the cartels.
And if you are in a cartel, that means you need heavier weaponry to fight back.
And that's why the 50 Cals and things like them are starting to pop up a lot more.
I would argue that the AMLO administration isn't to the point yet that they have a strategy.
But they realize that the murder rate has reached the point that hugs not drugs is no longer a viable option.
And so they're trying to militarize the equation in the hopes that the Mexican military is more capable than this or that cartel.
You can kind of break the cartel world into three groups.
You've got Jalisco New Generation, the hyper-violent ones.
You've got the Los Chipitos and the associated groups that are what's left of Sinaloa.
They're the most capable ones for smuggling drugs.
That's where the money is.
And so that is where AMLO seems to be focusing his efforts.
And then you've got what's left of the Zetas and the Golf cartels, which is a very Twilight 2000 dog-eat-dog world out in eastern Mexico, which everyone's just kind of ignoring because it's not strategic.
It's just violent.
But it appears, and I don't want to oversell this because Amelo is clearly making this up as he goes.
It appears that they think if they can put a pinch in the income, that maybe they can turn Sinaloa into the next Zetas and just break it apart.
I don't think that's a very good plan, but it's better than what they've been doing for the last two and a half years.
Worst case scenario would be if Jalisco New Generation penetrates north of the border and it changes our political discussion to be very anti-Mexico.
One of the great achievements, in my opinion, of the Trump administration is convincing America's hard right that Mexicans are part of the family and taking one of the biggest looming racial issues in the United States and just dissolving it.
If Americans start to think of Mexicans as drug runners again, regardless of why, that damages our most productive trading relationship and our most brilliant opportunity for our future right out of the gate.
Our advantage with Mexico so far is because they haven't had to fight a war in a long time, that the military is not particularly competent, but it's still armed.
And so when you bring it into the system, they hit with a punch that compared to the normal local security services is really impressive.
But every time an armed group of the state has been brought into the fight, the cartels have found a way to corrupt it.
And if you do that to the military, we could have a very real problem here.
Think Chicago at the height of El Capone, but on a national scale.
This is one of those where being a border country is a negative because, you know, we may be great trading partners and to a degree friends and integrated economically and demographically, but we're always going to be titchy about the other one telling us what to do.
Trump and AMLO got along great because Trump really never asked anything of ALMLO.
He said, as long as you take steps to limit Central American immigration into the United States, I'm going to be hands-off on everything else.
And so relations were pretty warm.
Biden comes in and takes a much more traditional American approach.
So it's about immigration.
It's about drugs.
It's about rule of law.
It's about investment.
And Amlo is like a really, really angry Trump.
And he sees this all as unnecessary challenges to him personally.
So the relationship between Trump and I'm sorry, between Biden and AMLO is really poor.
And in that sort of environment, it's been very, very difficult for anyone in the U.S. bureaucracy to have a productive relationship with anyone south of the border.
But I focus on the fact that we've got the greatest opportunity for economic expansion in the history of our country.
And it's not just us.
It's Canada and it's Mexico as well.
This is going to be a great story.
We're going to emerge from this in 10 years in so much of a better place.
And we're hopefully within 10 years, it'll probably be more like 15 or 20, be able then go back and reintegrate with the world and share what we've learned and remake the human condition.
This is a once, not in a generation, this is a once-in-a-century opportunity to overhaul what being human means.
And I'm really excited about where this leads us.
I just wish we could bring more countries with us along.
I mean, when you've got a one-man government, you're talking a popular uprising with leaders that don't exist to displace an old paranoid guy who has all the guns.
There's definitely a lot of unhappiness with the system, but because Xi has systematically removed everyone with an opinion or competence, if Xi were to die tomorrow, I don't think there is a replacement system in the wings.
It's basically a system of cronies.
So if you look back to what happened after Mao died, you had the gang of four, and you had a period of absolute chaos until Deng Xiaoping took over.
But Ding Xiaoping was part of the system.
Xi is far more paranoid and far more isolated and far more consolidated than Mao ever was.
So when Ding took over, he realized that one-man government was awful.
So he worked out a series of secession in 10-year increments that different parts of the country, different factions would have time in government and rule.
And then when they were not the ones who were making the big decisions, they'd still be in the Polar Bureau.
So we got our third generation and our fourth generation in the form of Zhang Zimin and Hu Zhintao.
But Ding realized when he set this system up around 1980 that he wasn't going to be there forever.
And he wasn't going to be able to predict what was going to happen in the 2000s.
So he told these two factions, you then have to pick a compromise candidate for who comes next.
And they went with Xi because he's from the South, but his family is with the Maoists, and he had a foot in all camps.
Well, Xi spent his first five years purging the system of all the other factions.
And then the second five years of his reign and making sure that everyone realized it was him and him only who was in charge.
After 10 years of that, there's no one left.
And so there is no secession plan post-Xi.
There is no one waiting in the wings.
And the old factions as they once existed have basically been sledgehammered.
Well, I'm adopted, so I really have always been on the outside looking in.
That is definitely a part of my worldview.
But my background is in economic development.
So, you know, figuring out what works where and why.
And once you kind of get the ideology out of it, you can look for patterns.
And that took me to Stratford and that took me to geography.
And so just kind of combining the data patterns with the American strategy for World War II and beyond, with the demographic developments that have happened because of that strategy, it leads you some pretty unavoidable conclusions.
And then it's merely an issue of filling in the blanks.
And most of my career now has been filling in the blanks for the last 10 years.
I am very sector and goal agnostic in my work, which means I don't really care what your investment strategy is.
If it doesn't play against demography and geography in a comprehensive way, at best you're hoping that everyone just kind of sways in your general direction.
And so there's no shortage of people in a room when I'm speaking who get really upset because they have an investment thesis or maybe they've bet their company on something that I just see as a non-issue.
So, you know, obviously the folks in the crypto world have never liked me.
And I dropped a video last night about how EVs are just a disaster that aren't going to be with us very much very much longer.
And I've gotten some interesting communications because of that one.
Things like this happen with me with almost every presentation.
They're not nearly as good on carbon as people think.
Most of the data that exists doesn't take into the fact that most of this stuff is processed in China where it's all coal-driven.
And it doesn't take into affect the, I'm sorry, it does not take into account the fact that most grids that they run on are also majority fossil fuels.
And that extends the break-even time for carbon from one year to either five or 10, based on what model you're talking on.
Cybertruck's far worse than EVs.
But the bigger problems, we're just not going to be able to make them much longer.
If we really do want to electrify everything, that doesn't just mean EVs.
That means the entire system that feeds into the EVs.
We need twice as much copper and four times as much chromium and four times as much nickel and 10 times as much lithium and so on.
We have never, ever, in any decade in human history doubled the amount of a mainline material production in 10 years, ever.
So how does the government, say, of California justify these mandates when they're saying something like, by 2035, all combustion vehicles must stop being sold in the state of California?
Let's put the ideology to the side, because I'm not even going to try to explain that.
I will give a little bit of defense for California, though, because I do consider myself a green.
I just think of myself as a green who can do math, so I don't get invited to any of the parties.
California's state legislature gives a lot of authority to their state bureaucracy.
So the bureaucracy will set the goalposts, no ICEs by 2035, knowing that the technology doesn't exist, knowing that the supply chains don't exist, but they will set the goalposts.
If we get closer to that date, say 2027, and it's apparent that the technology is not proceeding at a pace that will allow that target to be reached, they have the authority already to move the goalposts.
Yeah, and there's going to be, well, there is a fascinating discussion happening in the environmental community right now because they're being confronted with reality.
So California and Germany have very similar green tech policies.
But the Germans have spent three times as much as California, but are only getting about a fifth as much power.
Because I don't know if you've ever been to Germany, but the sun doesn't shine in Germany.
And now with the Russians on the warpath and their clean-ish energy from natural gas going away, they're going back to lignite coal in force.
It was already their number one source of power.
The idea that Germany is green is ridiculous because they rely on really, really dirty coal now, especially so.
But there's now a conversation going on between the German environmentalists and the Californian environmentalists about why California, in relative terms, is doing so well at this while Germany is not.
And the answer is simple geography.
But that's never been part of the conversation in the environmental community before.
Now it is.
They should have had this conversation 15, 20 years ago, but they're having it now.
And as soon as they come to the conclusion, unwillingly, but they'll get there, that we have to choose where we put our copper and our lithium and our nickel, EVs are not going to make the cut at all.
So one of the many, many, many aspects of modernization is that people become more connected but live in smaller units.
Because as you urbanize, you have fewer kids.
And that means that people are looking for other ways to belong because the old traditional methods of family and farm aren't as tight as they used to be.
And so this is much more further advanced in places like Japan or Europe than it is in the United States.
But it's happening here too.
And when you're looking for social opportunities, politics are a way that can reach across the geographic distances, no matter where you happen to be.
And you can use social media and tech to communicate with people who have a belief system that you find attractive for whatever reason.
And so the same thing that makes the environmental community more potent, if less informed, is exactly the same thing that brought Donald Trump to power because you've got people who felt like they were on the outside of a society who all of a sudden could link into one another.
It's a technology conversation from my point of view.
I don't want to condemn any technology that has not been through its development process, but what I have seen from hydrogen at the moment suggests that it is far dirtier than gasoline.
It could provide gas alternative meat amid EV push.
Porsche said Tuesday that a pilot plant in Chile started production of an alternative fuel as it aims to produce millions of gallons by mid-decade.
Officials say e-fuels act like gasoline, allowing vehicle owners a more environmentally friendly way to drive.
Porsche officials celebrated the beginning of the e-fuel production with the filling of a Porsche 911 with the first synthetic fuel produced at the site.
Yeah, so e-fuels are a type of synthetic methanol produced by a complex process using water, hydrogen, and carbon dioxide.
Companies say they enable the nearly CO2 neutral operation of a gas-powered engine.
Vehicles would still need to use oil to lubricate the engine.
In the pilot phase, Porsche expects to produce around 130,000 liters of e-fuel.
Plans are to expand that to almost 55 million liters by mid-decade, around 550 million liters.
Roughly two years later, the Chilean plant was initially announced with Porsche in late 2020 when the automaker said Automaker said it would invest $24 million in the development of the plant.
And the e-fuels partners include Chilean operating company, Highly Innovative Fuels, Renewable Energies.
The three base materials, water, carbon dioxygen, carbon dioxide, and oxygen, are three of the most stable molecules in the natural world.
And so to break them apart with electricity to make something else is a massive power suck.
If you're going to do that with a conventional fuel system like we have in pretty much every part of the world, you're talking about a carbon footprint that's at least triple what we do with gasoline right now.
The idea would be that if we can do it with green tech, solar in Chile, for example, that maybe we can make that footprint carbon-free, or at least carbon neutral, and then use the electricity to generate this stuff in a relatively green way.
That's a lot of solar power.
And all of that to get, in their best case scenario, 550 million gallons.
We use almost 10 million barrels of liquid fuels in just the United States every day.
So you need to expand that by a factor of a couple hundred.
You have to basically take the rod, you go through a chelating, dissolving chemistry process, and you separate out the various isotopes of uranium from the plutonium.
But then what do you do with the plutonium?
Because you have now purified it because of this process.
Nano-diamond batteries will be able to charge devices and machines of any size, from aircrafts and rockets to electric vehicles, hearing aids, smartphones, sensors, and more.
We need a central repository where the stuff can be processed and the plutonium can be disposed of or at least incarcerated forever.
That is the idea behind Yucca Mountain.
But because the U.S. is a federal system with the state and the local authorities having as much power as the federal, it's been locked up in courts ever since it started.
I think that's what other countries who have experienced this problem have done.
There aren't a lot of them because most of the nuclear industries of the world are linked into the American system and we don't allow it because we don't want the plutonium processing.
And it would probably take Congress literally ramming it through the courts.
They'd have to change the law so that the states can't fight it, and that triggers a legal fight, which in the United States, as we all know, we love to do.
There's nothing that at this point is promising that has reached the prototype stage.
There are things like flow batteries and iron batteries that, you know, the chemistry looks intriguing, but none of it's been tested out in a meaningful way yet.
I would say let's invest a trillion dollars in material science solutions before we start applying them at scale when we know they already that they don't work.
I'd rather see us spend a trillion dollars on figuring out what might work rather than us spending a trillion dollars on working on things that we know already don't work.
Yeah, I've been hearing that for 40 years, and it hasn't happened yet.
I don't mean to suggest that soil fertility isn't an issue, but when it comes to crop rotation and the fact that your fertilizer is made within North America, it's a manageable issue.
I mean, we're not Brazil where there's zero soil fertility.
And if something happens to one season of fertilizer supply, you just don't grow anything.
So they have to basically rip out the vegetation, poison the land with lime to get rid of the acid, and you get left with something like beach sand, and then you just throw fertilizer on it.
And without the fertilizer, nothing grows.
Now, with the fertilizer, you can get two, maybe even three crops.
So it's not a horrible business model, or at least it hasn't been to this point.
Over half of the world's population is food threatened now.
and that's before we have fertilizer shortages and what what was the cause of this like why why has there been so runaway success that's Since the Cold War ended, we've brought huge new swaths of humanity into the globalized system.
And the integration of Russia and China and Brazil, that is the story of the post-World War, I'm sorry, of the post-Cold War era.
But the reason that these parts of the world weren't in the first round wasn't just ideology.
It was that their geography isn't as good.
So Brazil's land sucks without fertilizer.
The Russian territories has very low productivity, and China has some of the worst land in the world.
It took globalization and the access to all of the resources of the globalized world in order to make these places do very well from an agricultural point of view.
We're going to have to pick winners and losers, unfortunately.
There's just not enough.
If we do start a significant build out of the fertilizer system, it takes about three years to bring new nitrogen or phosphate systems online, but it takes like 10 years for potash.
Now, the Canadians, after the Russians, are the world's leader, and they have started.
They've seen the writing on the wall, and they're trying to speed it up however they can.
But they still think they're going to need seven years.
Potash is a mineral that you mine, and I'm grossly oversimplifying here, but you basically crush it and dissolve a little bit of acid and turn it into a pellet form that you can distribute on a field.
Potash is potassium, and then phosphate and nitrogen.
Nitrogen, as a rule, is made out of natural gas, and the United States is the world's largest producer of natural gas, and we're in the process of building out our nitrogen capacity in part because of this.
Because of what's going on in China, we don't know, because the decision-making process has become so opaque.
But the United States is pushing the trade dispute issue to the hilt, which is a really big problem if you're concerned about global stability.
But if you think it was all going to break down anyway, there's something to be said for pulling the cord earlier.
The Russian system could break tomorrow or at that point.
And that is not just wheat.
That is barley.
That is potash.
That is nitrogen.
That is ammonia.
That is lithium.
That is nickel.
That is copper.
Pieces are falling out.
And the risk here is that something will fall out that will then domino.
And I think the issue to watch for that this coming year is the energy question.
Because now that we have insurance companies saying just no, we're not going anywhere near the Russian space at all.
It doesn't take much imagination for someone to think that something's going to go wrong in a war zone where energy has already been weaponized.
And once Russian stuff goes offline for whatever reason, pressure builds up back into the pipe all the way to Siberia, and then the wells freeze shut and you have to redrill them.
And the last time it took the Russians 30 years to redrill everything.
So when we lose Russian crude this time, it's gone for good.
25 years from now, we're going to be on the other side of this.
So we're going to see a significant breakdown in a lot of systems over the course of this decade and into next.
But after that, my bet is we're going to see a number of technological advantages be developed in the United States and within its group that allow us to do more with less and which transform the economy into a more sustainable footing.
We'll also have had 30 years, 25 years, for this demographic situation to play out, and we will find out what is next.
One of the big mysteries right now is we've never, ever, in any era had a country with more retirees than working-age population.
We don't know really what that leads to.
We know they're not growing food.
We know they're not producing goods.
But 25 years from now, that big retiree class is mostly gone.
And then we get to see after 25 years of experimentation what sort of economic model might replace that.
Now, hopefully for the United States and Mexico and Canada, we're going to learn something from all these experimentations because the Germans are probably going to be at the leading edge of this.
And they're not going to go quietly into that good night.
They're going to try to survive.
Some countries are going to pull it off.
But I don't think anyone has an idea of what that system looks like because n equals zero.
And I've heard you talk about the generations that are upcoming in this country, and not with a very rosy perspective.
You have a lot of concern about just the temperament, the ideology, the way these kids have been raised that doesn't lead itself well to adapt to this looming future.
Well, their parents were Gen X. We were a small generation, too.
So a small generation generates a small generation, and they were raised in an era of digitization.
So an iPad was part of their childhood experience, which means they're a little bit more socially awkward, and they date less, and they are less comfortable around other people.
So they are likely to also generate very few children.
Now, this is something that the Germans and the Chinese and the Italians have been dealing with for 70 years, smaller and smaller generations.
And as we have seen, if you want it decentralized and not under government control, it is a haven for fraudsters.
And now it is in the process of going to zero, except for Bitcoin, which will probably go negative, because if we're moving into a world with carbon taxes, you have to take into account the energy that it took to produce it in the first place.
Well, the people who really like crypto are convinced that it's the currency of the future and that a decentralized ledger is the way to go and that anything that is controlled by a government entity is by definition a negative.
And if it's done by the private sector freely, it will be better.
And that's just not how currency works.
Currency is a method of exchange and a store of value.
And for that, there has to be a degree of trust, and you have to have it managed in terms of volume.
I mean, one of the craziest things about Bitcoin is that there will never be more than X number of units of Bitcoin.
Well, by default, that means it can't be used for trade, because the whole idea of economic activity is that there's expansion, which means you need more currency to lubricate and manage that expansion.
If currency is locked into a specific number, you get monetary inflation.
And that is one of the fastest ways to destroy an economic model.
And that means that the people who hold it are the ones that make the money, but everyone else suffers.
I'm sorry, that's not viable.
The alternative is you have some private dude out there who generates the coins on a whim.
How is that different from the monetary reserve or the monetary authorities that we have at the Federal Reserve, except for the point that there's no accountability?
The idea of smoothing the connections within the plumbing of the financial system or moving beyond a physical currency at all, you know, that all makes sense.
That's kind of like the next step.
But a separate currency where everything is mitigated or managed by the Fed, that's not something the Federal Reserve has an interest in.
Yeah, well, the Chinese have proven that their social credit source system broke.
They didn't have the processing capacity to keep track of it, and that is with a near-bottomless supply of resources and full control of the political system.
For those who thought the United States was behind the digital currency space race, the news was welcome.
In a subsequent white paper on the project named Project CEDAR, the New York Fed explained that it has already completed stage one of testing and proved that international currency transactions can be done both quickly and safely through the blockchain.
So the way trade finance works is if you're in Korea and you want to sell something to Chile, you sell it in one, it's transferred into U.S. dollars, and then the U.S. dollars are transferred into pesos.
There's a three-step process, and each of those requires a transaction.
But if you can digitize it, then it's click-click, and you're done.