Closed shops & Low growth in reports (= contraction in reality)

"The weakening & hard landing of Chinese economy"

China is transitioning from being the world's factory to being the world's biggest retirement home.

Bad news and more bad news.

When the Chinese say its "low growth", the reality is contraction.

August 25, 2022

Peter Zeihan – The Old World Order Is About To Collapse | Modern Wisdom with Chris Williamson

https://podcastnotes.org/modern-wisdom/peter-zeihan-the-old-world-order-is-about-to-collapse-modern-wisdom-with-chris-williamson/

Takeaways

• Globalization is ending; the year 2019 is as good as it is ever going to be
• After 70 years of people having fewer kids as a result of moving off the farm and into the city, the world is running out of mature adults, who are necessary for the consumption-based economic system to function 
• From an economic perspective, the U.S. is better positioned than most nations because its post-war generation actually continued to have kids at the onset of globalization + America has a much higher mortality rate once people age past 55
  • American wealth gets cycled back to the younger generation much faster than in nations where people live to be much older

• There are 1.3 billion people in China today; Peter expects this number to fall to 650 million by 2050
• “The Chinese system collapses this decade, for sure.” – Peter Zeihan
  • The Chinese crammed seven generations of growth into one generation, but a nation can only do this once, and now it is behind them, and now they have no children and relatively few people under the age of 45
• “China’s demographic collapse is unavoidable, its food collapse is highly likely, and that’s before you start talking about things like energy manufacturing and trade.” – Peter Zeihan 
• China is completely dependent on globalization, as maintained by the Americans, for the entirety of its economic and cultural system 
• If China invades Taiwan, Peter believes it would lead to the end of the Chinese system as an industrialized economy in less than a year
• “Even if they capture Taiwan, they would be cut off from global manufacturing, global investment, global energy, and global food. Trucks stop running in a couple of months. The lights go out in less than six, and that is all she wrote … mass famine in under a year.” – Peter Zeihan on the consequences of a Chinese invasion of Taiwan  
• After WW2, instead of adopting the empire model and having a single American-led structure that siphoned off resources, food, and energy from the rest of the world, the United States prioritized security over the Soviets and provided an economic security backdrop for other nations 
• In 1992, the U.S. began to structurally withdraw as the world’s police, and today it no longer has the military structure to guarantee global commerce 
• Peters predicts that several, smaller, regional bubbles of guaranteed commerce will form around the globe, i.e. de-globalization 
• The United States has never had to be at “the top of its game” because it’s been able to rely on its geography and demography to do most of its heavy lifting 
• A de-globalizing world requires the U.S. to build out its industrial capacity, which is an inflationary effort that will contribute to 9-15% inflation in the U.S. for the next six years 

Intro

• Peter Zeihan (@PeterZeihan) is a geopolitical analyst, author, and speaker. His fourth bookhttps://bookshop.org/books/the-end-of-the-world-is-just-the-beginning-mapping-the-collapse-of-globalization/978006323047 7"> The End of The World Is Just The Beginning: Mapping the Collapse of Globalization is a New York Times Bestseller. He writes a free newsletter called Zeihan on Politics where he shares his thoughts on geopolitical events happening around the globe. 
• In this conversation, Peter describes how the end of globalization will affect the world, why China is in serious trouble, the history of America’s security blanket, why a Chinese invasion of Taiwan would be the end of China as we know it, and why the U.S will likely experience 9-15% inflation for quite some time
• Check out thesehttps://podcastnotes.org/tag/geopolitics /"> Podcast Notes on other conversations about geopolitics 
• Host – Chris Williamson

The End of Globalization 

• The American Security Blanket + Globalization enabled any nation to participate in global trade over the last 70 years, which increased human flourishing around the world
  • Peter believes that globalization is now ending
• When globalization began to increase in the 1950s, people moved off the farm and into the cities to take manufacturing jobs 
  • When adults were living on the farm, they had a bunch of kids because kids were free labor. In a condo, however, kids turn into costly (and loud) furniture, so adults stopped having as many kids 
  • After 70 years of this trend unfolding, we are now running out of mature adults
  • The economic model of globalization is consumption-based, and it doesn’t work without people 
• After World War II, America effectively bribed other nations to align with the U.S. instead of the Soviet Union by offering protection in the open ocean
  • Example: America’s blue-water Navy will protect your cargo ships so you can conduct global trade and bring wealth to your nation, just side with us and not the Soviets

•  Peter believes that the year 2019 is as good as it is ever going to be 
  • Today, the average age of the post-war generation is 66; this group is retiring, liquidating their stocks and bonds that provided capital to the system for less volatile treasury bills and cash, consuming less, and riding off into the sunset  
  • We are running out of consumers, investors, and workers that support the consumption-based system 
• Most economic activity comes from people age 18 to 45; they are relatively low-cost workers because they are relatively low-skill workers, but they are consuming more than other groups because they’re raising children and buying homes 
• Peter sees the 45-65 age cohort as the most productive workers because they have all the experience, but they spend less considering their kids have moved out and their homes are paid off
• From an economic perspective, the U.S. is better positioned than most nations because its post-war generation actually continued to have kids (millennials) at the onset of globalization + America has a much higher mortality rate once people age past 55, so the wealth gets cycled back to the younger generation much faster than in nations where people live to be much older 

Why China is in Serious Trouble 

• China’s population probably peaked ten years ago, and in 2030, it will have more retirees than workers
  • These are some of the consequences of the one-child policy
  • There are 1.3 billion people in China today; Peter expects this number to fall to 650 million by 2050
• “The Chinese system collapses this decade, for sure.” – Peter Zeihan 
• China industrialized faster than any nation in history; what the United Kingdom did in seven generations, the Chinese did in one generation
  • The Chinese crammed seven generations of growth into one generation, but a nation can only do this once, and now it is behind them, and now they have no children and relatively few people under the age of 45
• “China’s demographic collapse is unavoidable, its food collapse is highly likely, and that’s before you start talking about things like energy manufacturing and trade.” – Peter Zeihan  

The Uniqueness of New Zealand, France, and the United States 

• New Zealand, France, and the United States have more physical space than other countries
  • Cities have more of a sprawl
  • People are more likely to have a backyard
  • More people can live in the countryside and be economically viable 
• These three countries urbanized at a slower rate
• They all have demographic problems of their own, but they all have replacement generations 
• Mexico shares these traits in the developing world
• It is easy for emerging nations, like Sub-saharan Africa, to import the technologies they need to begin their industrialization process, but they must learn how to use and create the technologies themselves if they want a stable system in the long-term 

The Causes of a Reduced Birth Rate

• Adults have fewer kids when they move into cities because cities have less room than farms in the countryside 
• Cities have electricity, which allows for more productivity and education to occur in the evening hours of the day, specifically for women   
  • “The entire women’s rights movement is linked indelibly to electricity.” – Peter Zeihan 
• Women have fewer kids when they have more choices on how they spend their time

China & The South China Sea 

• China tried to intimidate countries in the South China Sea, such as Vietnam and the Philippines, into cowering, but got the opposite effect; these nations turned to Japan and created defense pacts 
• China has a lot of ships, but not many with long-range capabilities, so it is limited in projecting power far away from the mainland 
• China is completely dependent on globalization, as maintained by the Americans, for the entirety of its economic and cultural system 
  • China can’t afford to lose access to the European, American, African,  and Persian Gulf markets without experiencing terminal effects
  • “As maintained by the Americans” = America keeping the ocean’s global trade routes safe, but the U.S. is now structurally withdrawing its blue-water Navy from many parts of the world 

The American Security Blanket 

• Before WW2, any empire that wanted to partake in international trade needed a Navy, or another empire would simply commander its cargo  
• After WW2, instead of adopting the empire model and having a single American-led structure that siphoned off resources, food, and energy from the rest of the world, the United States prioritized security over the Soviets and provided an economic security backdrop for other nations 
• The U.S. began to back away from being the world’s police starting in 1992
  • It began shutting down a portion of its overseas military bases
  • IT switched from a destroyer-heavy Navy (designed to patrol) to a carrier-heavy Navy (designed to hammer things)  
• The U.S. no longer has the military structure to guarantee global commerce 
• Peters predicts that several, smaller, regional bubbles of guaranteed commerce will form around the globe, i.e. de-globalization 
  • This is a shift away from the global commerce structure where everyone trades with everyone 

The Effects of Declining Globalization 

• Removing global security forces the transportation, finance, energy, industrial, commodities, agriculture, and manufacturing sectors to unwind and reform 
• The U.S. is at risk of losing access to all Russian crude, the commodity that has largely fueled the global economic expansion since 1992
  • Because energy demand is inelastic, losing just 5% of crude can result in a tripling in price 
• The entire German economy is based on taking cheap Russian gas, processing it into petrochemicals, and then using the inputs to power its manufacturing sector
  • If Germany gets cut off from Russian energy, not only does its electricity turn off, but its manufacturing model also fails 
  • Germany is being forced to decide if it likes being “Western” more than it likes being “modern” 

North America’s Outlook 

• Peter believes North America is relatively well-positioned for what’s to come
  • It’s a net energy exporter, plus it has the world’s largest refining and agricultural power
• The United States has skilled blue-collar and white-collar workers
• The U.S. has made several strategic trade partnerships with other nations that have strong economies and/or positive demographic outlook (Colombia, Chile, South Korea, Japan, Australia, and more) 
• The United States has never had to be “at the top of its game” because of its large and young population, and its large and fertile land mass 
  • The U.S. has been able to rely on geography and demography to do most of the heavy lifting 
• America’s DNA often has it overdo and then overcorrect 

The Future of the Global Population 

• The world has never had a population bust, barring an endemic disease or war
• Peter is most concerned about the Zoomer Generation, whose dream job is to code alone in the closet, which is not conducive behavior for having kids 
  • The Zoomers will probably have the lowest birth rates, lowest marriage rates, and highest suicide rates
• Assuming nothing goes wrong, he predicts that the global population will peak at 9 billion people and then slowly decline
  • The decline from 9 billion will be much sharper if de-globalization happens in the way he thinks it will
  • This could happen within the next year 

Artificial Intelligence’s Role in Globalization

• We are decades away from artificial general intelligence (AGI) 
• A large portion of artificial intelligence in development today is focused on image recognition, but Peter is most excited about the AI at the intersection of automation and agriculture 

Where Peter Could Be Wrong

• Globalization could persist because of “some lingering American commitment”

China Invading Taiwan

• If China invades Taiwan, Peter believes it would lead to the end of the Chinese system as an industrialized economy in less than a year 
• The Russia-Ukraine war has revealed some interesting things about a potential China-Taiwan war 
  • China has always assumed its war with Taiwan would be a walk-over, no one else would get involved, and that its population base would be unbothered by it
• There are many notable differences between the Russia-Ukraine and China-Taiwan conflicts:
  • The U.S. has a much closer relationship with Taiwan than it does with Ukraine 
  • Ukraine has been preparing for its war for the last 8 years, while Taiwan has been preparing for the last 60 years
  • You can walk to Ukraine from Russia; it’s “a bit of a swim” to get to Taiwan from China
  • China is dependent on oil imports while Russia is energy-secure
• “Even if they capture Taiwan, they would be cut off from global manufacturing, global investment, global energy, and global food. Trucks stop running in a couple of months. The lights go out in less than six, and that is all she wrote … mass famine in under a year.” – Peter Zeihan on the consequences of a Chinese invasion of Taiwan 
• Many of the higher-ups in the CCP are afraid to bring information to Xi because he has a history of shooting the messenger 

Predictions for the Next Decade 

• “The next five years are going to be tough.” – Peter Zeihan 
• Energy and food are covered if you’re in the friends and family network of the Americans
• Building industrial capacity is the obstacle in the coming years
• Peter expects to see 9-15% inflation in the U.S. for the next five to six years 
• He predicts that many governments will collapse in the next decade