JS 95: Globalizing the U.S. Economy with Peter Zeihan Author of ‘The Accidental Superpower’

February 18th, 2015 by Jason | Comments Off on JS 95: Globalizing the U.S. Economy with Peter Zeihan Author of ‘The Accidental Superpower’

Peter

Jason Hartman opens with a short introduction for today’s Jet Setter show and talks about the bash America movement. He knows that a lot of his guests that come on to the show tend to bash America, yet they still live in the United States. He introduces his Creating Wealth podcast guest, Peter Zeihan, on to the show to give a better contrast as to why the United States is so important to the economy on a global scale and why it really isn’t as bad as you might think.

 

Key Takeaways:
3:20 – Jason’s opinion of the United States has changed over the years.
6:10 – The US is in the center of some fantastic technologies.
10:30 – Jason thinks American’s negative opinions of the US is massively overblown.
13:40 – There’s a couple of great upcoming shows to look out for.
16:15 – Jason is currently reading Tony Robbins’s latest book, Money, and is trying to get him on the show.
19:20 – Jason introduces Peter to the show.
22:20 – We have more older workers than we do younger workers right now, which is a first ever in history.
29:30 – If the US steps back in their trade, everybody worldwide would suffer.
36:20 – As broken as our social security system is, it’s no where near the kind of problems the Japanese and European retirees will be experiencing.
41:00 – Will the US become an oil exporter? There’s three angles to this.
45:15 – If 1% of the global manufacturers’ market is taken over by 3D printing, then that will result in a 10-15% drop in shipping.
51:30 – Don’t forget to check out Peter’s book, The Accidental Superpower.

 

Tweetables:

“A lot of life comes down to really just asking oneself the right questions.”

“We’re in this weird moment on a global scale, where we have more mature workers than young workers.”

“Next year, it is entirely possible that North America will already be oil-independent from the rest of the world.”

 

Mentioned In This Episode:

Abundance by Peter H. Diamandis and Steven Kotler.
The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global
Disorder by Peter Zeihan
Money: Master the Game by Tony Robbins
www.Zeihan.com

 

Transcript

Jason Hartman:
Hey, welcome listeners from all over the world. Welcome to the Jet Setter show. This is your host Jason Hartman, this is episode number 95. Thank you so much for joining me. It’s unusual that I do a specific intro for the Jet Setter show. Usually we just have the taped intro then we play the guest, but today I wanted to do something a little bit different and here’s why, I have noticed, you know, remember, my company; the Hartman Media company; publishes 20 different podcast shows and we have a lot of personal finance content, we have real estate investing content, we have travel and expat living; that’s this show, exploring lifestyle friendly destinations worldwide, of course, and we have a show called the Holistic Survival show.

It’s kind of interesting interviewing all these guest, because it runs the gamut from very, very negative to very positive. One of the things I have definitely notice and I used to buy into this myself and I have changed my thinking a bit on it over the years as I’ve interviewed all these thought leaders, really brilliant people. You know, brilliant people aren’t always right, either, you know, they can be write and wrong. What’s interesting is that there tends to be this very big movement and I’ll call it the ‘bash American’ movement and the bash American movement is pretty big, there’s some legitimate cause for it out there, because the government in the US is doing a lot of wrong things.

The US has massive debt, massively overspends, I mean, they’re just a lot of things. Liberties are being tranched on everywhere you look from, you know, George Bush’s Patriot Act to Obama’s expansion of the Patriot Act. I mean, it’s funny that people actually love or hate George Bush and love or hate Obama and they’re not the same people, because really the policies of those two Presidents are so similar in so many ways, but I won’t make it a political discussion, but just suffice it to say, the big issue with this kind of thinking, think about Einstein, the theory of relatively. It’s all relative, okay.

Maybe the US is doing a lot of things wrong. I wouldn’t deny that, I would agree with you, okay, but you look around the world and you think what country is really better off? I mean, the US happens to find itself in a very, very enviable position when you look at different countries around the world. I’m not saying it’s right, I’m not saying it’s fair, I’m not even making any moral judgment on it, I’m just saying it is the way it is and so many of the naysayers and the doom and gloomers have this, I believe, massive overreaction to the bash America movement.

I mean, many of the guests I’ve had on the show, I think they’re just downright wrong. I used to buy into a lot of their thinking. What I noticed about them, by the way, is that many of them actually live in the US, yet they promote living in Costa Rica or Argentina or, you know, where ever around the world, it doesn’t matter the place, just any other place, yet half of the time when I talk to them, they live in Texas or Florida or some other US state. That’s where they live! It’s just funny. It seems kind of hypocritical to me.

Now, the ones I interview on the show that live internationally, you know, having been to 74 countries myself and just leaving literally here in an hour and 20 minutes for Vancouver and going skiing in Whistler, Canada. It’s interesting how willing people are, oddly, to look the other way in living in these very primitive countries. I had John McAfee on my Creating Wealth show, my economic and investing and person finance, real estate investing show, the Creating Wealth show.

You know John McAfee, he’s the big software security guru, right, and he talked about his experience living in Belize and, I mean, it was terrible and I have to say, I’ve been to Belize twice and it’s pretty primitive. Yes, they have beautiful beaches and so forth, but it’s funny, a lot of these people on this show, by the way, who during the middle of the interview, the connection drops because their internet connection is very slow or they have to reschedule the appointment because the power goes out, I mean, on a regular basis their power goes out. Really? Is the US so bad? I mean, my power never goes out. My internet connection is always fantastic here.

So, I just wanted to kind of balance a little bit of this thought out and I wanted to take a look with our guest today, Peter Zeihan as we look around the world and we look at the implications of America’s past, present, and its future and we compare it to some other countries and we talk about technology and really what you’re going to realize is that the US has the good fortunate of being at the center of so much of this massive and awesome technology that really is shaping the world in incredible, incredible ways.

If you listen to my Creating Wealth show and you listen to the interview with Steven Kotler the co-author with Peter Diamandis of the book Abundance and the new book Bold, you really realize, I mean, as bad as things are in some ways, exponential technology could save us all. Granted, the whole world would benefit from that, but one country in particular happens to be at the center of it, at the center of that entrepreneurship and that is the good old US of A.

So, make your own decisions as to what you think, but really, I just wanted to give some kind of an opposing view to the bash America movement, because we’ve certainly heard on the last dozen and dozens of episodes from enough people who are part of the bash America movement, okay.

So, you make the decision, these things are not clear cut. They are really just a million shades of grade, but let’s go to our interview. I’m going to play the entire episode here, by the way, from my Creating Wealth show, so you’ll hear my intro as I talk about some weather things and then we’ll get to the guest. Here is my episode from the Creating Wealth show that I think you’re going to enjoy, so let’s listen in.

Today we’re going to talk about the Accidental Superpower, and that is – well, you might have guessed it – you know who that is? It’s the United States. As mismanaged and messed up as the good old US of A is, it is the ‘accidental superpower’ of the next century. Our guest, Peter Zeihan, is quite an amazing person. He has a really interesting book, the title is The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder. He’s a former Vice-President of Strategic Intelligence for Stratfor.

Have you heard of Stratfor? That is the company that many very high-level people in Government and business rely on for all sorts of intelligence information. I would not doubt it if the evil NSA (had to throw that in, because I kind of agree with it) and the CIA and all of these very powerful agencies used Stratfor’s intelligence. I wouldn’t doubt that for a moment. I’m sure the Pentagon does, and lots of people, so interesting stuff we’re talking about. I think Peter is right on, by the way, because all of the naysayers and the Doom-and-gloomers – and believe me, I have interviewed them all, or almost all of them – on the Holistic Survival Show, if not on the Creating Wealth Show here. I think they’re really going to be amazingly wrong, and in a few episodes I’ve got a completely opposite guest coming up. What’s going to be interesting is to see the total opposite view, although you’ve seen it on prior episodes, to Peter’s. I almost wish I could get these two on together and have them just debate the subject because the question you’ve always got to ask yourself, whether it be political, economic, national – in terms of comparing countries and so forth – or a comparison of wealth with your peers and your neighbors and other people in your community. It’s all relative. This is the theory of relativity. It’s not Einstein’s Theory of Relativity, but it is the theory of relativity as it applies to the rest of life.

The important question to ask yourself – some people have these highly irrational fears and hatreds of America, and it’s just odd. I’m not talking about foreigners, I’m talking about Americans that have these attitudes, and I just interviewed one the other day on the Jet Setter Show! I’ve got a lot of expat-type people who think America’s a disaster, blah blah blah, and I just think their fears are so irrational. I started out launching the Holistic Survival Show  agreeing with them – I’ve heard the case and I’ve agreed with a lot of the things, but I just think it’s massively overblown. A lot of life comes down to really just asking oneself the right questions. That’s how we frame our thinking – by asking the right questions. The question I want you to ask yourself when you look at this issue of comparing nations and this issue of ‘Oh, the Government is over-spending and it’s just totally mismanaged and the dollar’s going to collapse and we’re going to have economic chaos’. Listen, I entertain those things constantly so I’m not like this Pollyanna person; I’m quite upset about all this stuff and I agree with a lot of it. As you ask yourself those questions, the real question and the most important one is incredibly simple and we must ask: ‘Compared to what?’ That is the question you should be asking.

Anyway, we’ll explore that with Peter here in a moment, and I think it’s quite interesting. I am headed off to Birmingham, Alabama for our Creating Wealth Seminar there, and our Property Tour, so that’s where I’m going. Then I will be in Alabama for Thanksgiving. I will be recording from there, but boy! We have recorded so many fantastic episodes for you that we have coming up. Today, I recorded a great episode with Daniel Pink. Yesterday, I recorded a fantastic episode with Brian Smith. You may not know his name but you certainly know his company: he’s the founder of UGG Boots. Remember UGG Boots? He founded that company, and you’re going to hear about how he took that from just a little idea to a billion dollar company, sold it in 1995 for, I’m sure, a fortune although the price is not disclosed.

Gosh, who else have I been interviewing? Oh, Chris Guillebeau today was a fascinating interview. We’ve got so many great interviews; Jerry Robinson, Bankruptcy of our Nation; next episode will be Chris Cabanillas talking about foreclosures and some really interesting information on shadow inventory of real estate; Dan Egan will be on to talk about market timing and retirement planning and investments; Tim Carney from the Washington Examiner talking about the big rip-off – how big business and big Government steal from us; we’ve got some market profiles coming up; we’re going to be announcing another Property Tour for the Spring of next year.

Joan Sotkin will be our tenth show, number 450, talking about prosperity and prosperity thinking. She’s got some really interesting views far beyond the Secret and all that stuff. Episode 451 is Mark Falk talking about the Wall Street conspiracy. This is planned out – these are all recorded and are in the can, as they say in the industry, but they’re subject to change because we might have someone we want to throw in before one of these. I had Perry Marshall on this morning for one of my other shows – we talked about the 80/20 rule, which was fascinating stuff. We’ve got a lot of really just incredible stuff coming up.

In the three days of this week (Monday, Wednesday, Friday), I think I’ve recorded – I don’t know, 21 or 23 interviews! I’ve just been on a tear, so we’ve got a lot of good stuff for you coming up. I’m always asking really good questions, or at least according to you listeners my questions are good, that I will say! A lot of good stuff, and thank you to all of you who have been purchasing our physical products that are massively discounted and for helping me get those out of my storage unit. Those are at  www.JasonHartman.com. Amazingly, they’re at pretty much half the price of our digital products, and I’m off to the UPS store to ship some of those out to you today. Thank you for ordering those.

Please be sure you get signed up and get your Early Bird deal for our Meet the Masters event coming up in Irvine, California on the second weekend of January. We’ll be doing a lot of planning and talking about how to make 2015 an awesome year with your real estate portfolios, how to really invest for success and how to guard against all of the attacks we have.

Speaking of which, I’ve got to talk about Tony Robbins’ new book which I’m just diving into. He hasn’t done a book in like 20 years, but it’s pretty interesting; it’s called MONEY Master the Game: Seven Simple Steps to Financial Freedom. It’s a pretty good exposé, so far, of the Wall Street industry, although it really just focuses on Wall Street. That’s what I don’t like about it, I’ll say; Wall Street, of course, massively, massively under-performs with income property as an investment, and we all know that and know how that works. What’s really interesting about the book is that Tony really does make some good distinctions about how there are so many hidden fees in the Wall Street game and in  the financial adviser industry (I guess I’ll call it that) and in the vast Wall Street conspiracy, to coin a Hillary Clinton phase about the vast right-wing conspiracy. I would disagree with her about that – I think it’s a vast left-wing conspiracy. In either case, Tony Robbins makes some really good distinctions about that. I think you’ll like the book.

I’m still trying to get Tony on the show, and you know what, I think I’m going to get him. Yesterday we got a note from his head publicist saying that they would come on. I said ‘No, we want Tony. There’s only one Tony so we want Tony Robbins in the flesh, in person on the show’, so hopefully we’ll get him. I might just have to join his really expensive, exclusive Platinum Partners Group, which is like $85,000 a year, to get Tony on the show, but I don’t know.

I’ve never paid a guest to be on the show, I’ve never made any deal with a guest to buy their books or anything like that to get them on the show. So far, it’s all just been that they came on the show because they thought it was good for them: good exposure and a good way to get their message out. A guest has never paid me to be on the show, either. I want to keep it really clean and keep good journalism. By the way, I’m glad to announce that I just got my acceptance letter into the prestigious and, I think, a little over a hundred years old – National Press Club. Yes, your host, Jason Hartman, yours truly is now a member of the prestigious organization, the National Press Club, as of yesterday when I got my acceptance letter. I’m kind of excited about that!

Anyway, that may lead to some other great guests! I’m still working on Ron Paul, Mitt Romney, I don’t know, maybe we could get Bill Clinton. That would be kind of cool. Remember we had his impersonator on the show before.

Without further ado, let’s get to our guest, but do make sure that in addition to checking out those physical products that we’ve got on sale while they last (they’re almost gone, folks, so get ‘em while you can at  www.JasonHartman.com  in the Store), register for Meet the Masters and check out the properties. We’ve got some great properties in several markets around the US, and we’re talking almost on a daily basis to different local market specialists in new markets as well. We’re working on a couple of new ones that we’re thinking about, so we’ll let you know about that as it develops. Let’s get to our guest and talk to Peter about the Accidental Superpower. Here he is.

It’s my pleasure to welcome Peter Zeihan to the show. He is founder of Zeihan on Geopolitics, he’s the author of  The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder.  He is also former VP of Strategic Intelligence at Stratfor and Peter, welcome, how are you?

Peter Zeihan:
I’m doing well, how about yourself?

Jason:
Good good. Where are you located today? Just give our listeners a sense of geography.

Peter:
Sure, Austin, Texas. I’ve actually been home for three whole days, which is my first time in 2 months.

Jason:
[Laughs]. It sounds like my travel schedule, although I think yours is slightly worse than mine! Congratulations on being home in Austin, good place. Tell us a little bit about your book. There’s a lot of content here, it’s pretty heavy. I want to get your feeling on where America is going. There’s a lot of doom-and-gloom out there, of course.

Peter:
The book runs the gamut of everywhere from Ancient Egypt to modern Japan. The core concept is to illustrate how geography shapes how countries evolve and where that’s going to take us over the course of the next 30-40 years.

Jason:
The US has been pretty lucky, geographically, and I think that’s a contributing factor, of course, to its success. Will that continue? Is geography that big a deal anymore?

Peter:
Geography absolutely is that big of a deal. It really comes all down to transport. If you can move people and goods cheaply and effectively, everything is easier – from building your house to growing jobs to defense. Moving stuff by water costs about one thirteenth of what it does by land. The United States has about 15,000 miles of waterways, and that is more than the rest of the world combined. Add to that the fact that serious challenges to the United States are literally an ocean away and the fact that the US has discovered that it can be ruled by monkeys and do just fine.

Jason:
[Laughs] I love it! I’m not too pleased with our Government lately, either, but it’s been a long time. Other than the geographical issues:  we’ve got these nice water borders that protect us – certainly, European countries don’t have that advantage. Transportation is changing, new technologies; certainly there’s a lot going on out there.

Peter:
I would say that geography is obviously not the only factor. In fact, the second biggest one that the United States always does well is democracy. You can split any age structure apart into a couple of core chunks: people aged roughly 20-45 (these are your young workers, they’re starting out, they’re having families, they’re buying houses). This is where most of the consumption in a modern economy comes from, so this is where the growth is. People roughly 40-65 are your mature workers; they’re saving for retirement, but they’ve probably sent the kids on and probably have the house mostly paid for. This is where all the investments and all the tax payments come from.

We’re in this weird moment, historically, on a global scale, where we have more mature workers than young workers. That has never happened, so right now, capital is cheap and investment is everywhere. That’s allowing the Chinese prospect for oil in Ethiopia and it’s allowing the Brazilians to be an exporting commodity super-power and it’s allowing China to be a big deal. It’s allowing Sub-Prime to happen. All of the economic headlines of the last 15 years have happened because we have all this investment capital. As soon as this group of people retires, they’ll take all that money with them and we go from the most capital-rich world we’ve ever had to the most capital-poor world we’ve ever had, except in the United States. While the boomers are a big group here, our boomers actually had kids: Gen Y. We still have the consumption and we still have the investment building up from below, but we’re going to be the only ones that can boast that.

Jason:
Right, that’s very interesting. You look at Japan and then China in about 15 years, both with huge demographic problems for sure, and the US because of its immigration and because of Generation Y being slightly larger than the baby boomers by about 4 million, depending on who you talk to. I say it’s 80 million and 76 million, respectively. That’s very good, but what are you saying when you say they take the capital with them when they retire?

Peter:
Think about what you do when you’re preparing for retirement: you’re saving a chunk of your paycheck. As you get older, you save a larger chunk of a larger paycheck in preparation for the big day. Your last paycheck, you probably put the whole thing into your 401(k). What happens two weeks after? You never contribute to that savings again and what you do have in savings is no longer in foreign stocks or mutual funds, it is primarily going to be in cash and in government debt here in the United States. The velocity of your money comes to almost a screeching standstill. Instead of having things that push for growth and push for return, you’re more concerned about preserving what you have. Once you turn 65, your money becomes very uninteresting. That’s a real problem if you’re anyone from X-on to the corner store to the Admiral of an aircraft carrier battle group that has to be funded by the IRS. Without that velocity of cash, everything slows down and in most of the world, it’s simply going to stop.

Jason:
I certainly agree with you that older people and retired people become more conservative, but the new problem, Peter, is that there’s too much life at the end of the money. You look at the unfunded entitlements coming up and I don’t know, it doesn’t look very good. I had Lawrence Kotlikoff on the show and he’s done extensive studies on that. Some people say it’s $60 trillion, some people, like him, say it’s $220 trillion, and I don’t know how we’re going to pay for that, except with a printing press. It’s not going to be through taxes, right?

Peter:
Absolutely, and I’m not going to put a number on it – it’s absolutely massive and there’s no way around it. We’re already spending one third on pensions of what the Europeans do on average. The problems that the Europeans and the Japanese are experiencing right now are far worse that anything that we will actually ever face. The Chinese are now the fastest aging society in the world, but fun fact: you brought up the printing press. I don’t like saying this because I’m a bit of a Libertarian, but that’s actually an option here.

The United States is the only hard currency in the world that exists in sufficient volume to lubricate the global system. All of the other players like the Japanese and the Chinese aren’t international as currencies. They keep those at home because they realize that if they opened them, they’d have massive capital flight.
With the  Euro, because of the supers’ bail-out a few years ago, they decided to pay for the bail-out by using insured bank deposits. That meant that everybody that had Euros in a Euro account tried to move them if they could, and we’ve seen the Euro absolutely wither as a global currency of exchange, and much less as a reserve currency.

The next country down with a nationally stable currency is the United Kingdom. The pound only has one third the circulation of the US dollar. After that, you’re talking about the Canadian dollar and the Australian dollar. If you take all the hard currencies that are left and put them together, it’s less than half the circulation of the US system. Two thirds of our currency is held abroad so even if we print currency, two thirds of the inflation is somebody’s else’s issue. To paraphrase, it’s our currency, but it’s your problem.

Jason:
I couldn’t agree more. That’s exactly – and I’m not saying it’s fair by any means. I am a Libertarian, so I’m not saying it’s fair by any means.

Peter:
There’s nothing about geopolitics that’s fair.

Jason:
[Laughs]. That’s a fair statement, for sure. The US is in a very enviable position. I have all these Doom-and-gloomers on the show occasionally that talk about how we’re going to lose the reserve currency status, and I don’t think that’s even a possibility. Granted, we see some trading outside of the dollars with the bricks and so forth, but the US has the largest military humankind has ever known, and between that and the other facts (e.g. we’re the biggest customer the world has ever known), we can kind of throw out weight around and make sure we retain that status of having that reserve currency so that we can inflate out problems away.

Peter:
We certainly can throw out weight around, but the argument of  The Accidental Superpower  is that we don’t have to. The global system of free trade was created by the United States at the end of World War Two to fight the Cold War. We basically said everybody could trade with whoever they wanted, they could sell whatever they wanted to us, we don’t have to be able to sell back, and we will guard everyone’s trade globally. The oceans are now a global commons that we maintain. In exchange, we got to fight the Cold War our way, but we never bet our economic system on global trade.

Even today, it’s only about 10-12% of GDP from the United States that is involved in the wider system. That is the lowest in the world. For a while, we were neck and neck with Rwanda but because of shale, that cut down out exposure just enough that we are absolutely number one now, even compared to land-locked Central Asian and African countries. That gives us an inordinate flexibility, and we can throw our weight around in that regard, but what I see happening is the United States sliding back from its commitment to free trade, which is only going to be a minor inconvenience for us. Imagine what that means for everyone else. If you’re an export-led system like the Koreans or the Chinese or the Germans, and the Americans are no longer committed to keeping your trade safe and your market open, there’s a disaster on the horizon.

Jason:
Wow, that’s interesting. So you’re saying that we won’t maintain the waters and the shipping and these other countries will have to secure their own exports through military?

Peter:
There’s a pair of challenges that everybody faces as the United States gets back. Step 1 is of course, yes, finding out ways to protect your own international trade, whether that’s the export of finished foods or the import of raw materials like energy. That’s challenge number one, and there’s really only three countries in the world that can do that reliably, outside of the United States: Japan, United Kingdom and France. That’s it. The second problem is much bigger: If the United States takes its market and goes home, and with the re-industrialization we’re seeing in the American manufacturing base right now, that’s absolutely happening, where do you sell? You can’t just go out there and conquer a country for the market, that’s a little difficult. There are a few places where that might be possible on a small scale, but that’s not going to allow countries like China to maintain both this growth rate and the economy that they’ve built up over the last 30 years.

Jason:
I think China’s in trouble. I just would not bet on China. As pretty as it looked for a while, it reminds me of Japan in 1989, you know?

Peter:
Or the Soviets in 1970.

Jason:
Yeah, fair enough.

Peter:
Or Sub-Prime in 2006. It’s a bubble.

Jason:
But many people argue that China will be able to create its own middle class. I think they’re far from doing that, but is that a possibility? They’ve probably got a decade and a half to do it, and then they can sell to themselves.

Peter:
Yeah, that is certainly their goal. I don’t find it very realistic. What Xi is doing currently with his big corruption crackdown, that is the goal, but this is just step one of about thirty to get there. The Chinese problem is that they basically took a page out of the Japanese book from the 1960s and 1970s, which is more or less what we did with Enron and Sub-Prime, and so that anyone who could employ somebody could get a subsidized loan, typically at 0% rate. When you have a bottomless supply of 0% money, of course you can have a lot of employment, of course you can have a lot of growth. The Chinese concern is two-fold. 1: If they stop this system and employment drops, people will start getting together in large groups and going on long walks together, and the politburo knows that that’s a problem because that’s how they got their jobs. The second problem is much more damning: this system has now been in place for so long that the vast majority of economic growth in the Chinese system comes from investments, which is basically funded by borrowed money. That’s great, so long as you never have to pay the loans back and so long as the money never runs out. As soon as it does, you have the Enron model collapse on you.

Jason:
Very interesting. I really like how at the beginning of our discussion, you talked about how inter-connected this is, and I just want to make sure I drill down on that a little bit. It was fascinating the way you posed it. Are you saying that the baby boomers in the US are funding through investment the growth of these other economies in a big, big way?

Peter:
Absolutely, but it’s not just the American baby-boomers. The baby-boom phenomenon exists across the developed world, up to and even including China. However, as large as the boomers are, they as a percentage of the population are the largest generation we’ve ever had. It’s only because of mortality that Gen Y is starting to populate to highly.

Jason:
Right, but ours has the money, though.

Peter:
Among the world’s baby-boomers, ours is actually smaller compared to everybody else’s bulge, and ours actually had kids. But then so did the Germans, so did the Dutch, so did the French, so did the Brits, so did the Japanese, and so the boomer bulge, as I call it in  The Accidental Superpower, has actually spammed the global system with capital and it started happening in the early 1990s. That’s about the time that the Cold War ended and everyone started to take a good hard look at what other things there are that you can do with really cheap credits. When the 2000s came around, the Europeans launched the Euro-Zone, and that allowed all of this boomer cash to flood into Italy, Spain, Greece and the rest. The Sub-Prime, the Chinese boom and the European financial crisis are all pieces of this puzzle that have all happened for the same reasons: open markets and cheap credit. You close the market, the credit becomes more expensive and it all comes tumbling down.

Jason:
So when does this end? This boomer-bulge, this spamming the world with capital (I love the way you put that). When does it end? If you talk to Harry Dent, he would say 2013-2014 and I remember him predicting that back in the mid-90s. There was something to that theory, I guess. I don’t know, he’s been right and wrong on a lot of things, but what is your timeline for that? Gosh, if you run an investment company or you want capital for anything, even for a business that’s not investment or real estate deal or whatever, knowing when that capital is going to dry up or taper is a really important thing to know!

Peter:
Absolutely. You just have to look at the age structure. The oldest of the baby boomers started retirement in 2007. That actually means that we’re in a period of ever-greater capital right now because until the majority of the boomers hits, they’re putting more and more away in their final years. In the United States, the majority of boomers will probably be retired in 2019-2022, and for the rest of the developed world, you can probably take a little bit of a shoulder on that – roughly 2018 to roughly 2024. We’re going to have stranger and stranger things happen. We’ll have more bubbles here and elsewhere, and probably bigger in places like China than elsewhere, and then countries will start sliding off the map from a financial point of view. First in Europe, and then there’ll be a big push everywhere around 2021. That’s kind of what we’re going for, assuming everything goes in an orderly manner.

There is a possibility, perhaps even a probability, that one day the Americans will wake up, we’ll be scared about something and we’ll just pull the rug out from under the free trade system. If that happens, then this happens in 6 weeks instead of 6 years.

Jason:
But America is in a much better position, even with this going on, than other countries around the world, right?

Peter:
Absolutely. As broken as our social security and medicare and medicaid problems are, it’s nothing compared to the problems that the Europeans have, and the promises that have been made to our soon-to-be retirees are not nearly as robust as the ones that have been made to the Japanese and the European near-retirees. The overall cost here is extreme, I do not mean to belittle that at all, but it’s less than half of what they’re facing everywhere else.

Then you’ve got countries like China, which is now the fastest aging demography in the world because of the one-child policy, but they don’t have a social support infrastructure. You have what they call the 4.2.1 problem – 4 grandparents, 2 parents and 1 child, and as those four grandparents move into retirement, they are dependent upon their two children. If we think we have a big social pressure cooker coming up because of the financial issues that we have with our near-retiring class, it’s nothing compared to what the Chinese are going to be wrestling with.

Jason:
Yeah, in the US they call that the sandwich generation, but boy, that sandwich is a lot worse in China, that’s for sure. That one child is going to have to work awfully hard to provide for those aging parents and grandparents.

Peter:
Yeah. The parents and grandparents will be moving in, and that means they won’t be able to have grandchildren, which only compounds the problem 10 years down the line.

Jason:
The thing to remember with all of this is: Economics is relative. If the world all goes to hell in a handbasket and everybody gets poor – if Peter and I have $100 and all our neighbors have $50, we’re rich. It’s all a relative thing. That’s the important thing to understand. Ostensibly, the prices of the  goods and services in the marketplace will adjust to whatever happens. The part that kills you is the lag-time when it’s adjusting in all these markets and bubbles.

I like your theory a lot. The one hole I might poke in it a little bit is the retirement age. 65 is the new 45 and I don’t think many 65 year olds feel 65, if you will. Just because they can start collecting social security and granted, the age might increase for that if the government is smart, but with what’s going on with longevity sciences and so forth nowadays, it’s quite fascinating. I don’t know. Peter, you can tell by literally just watching a movie from the 70s and looking at their depiction of a character who is, say, 50. Someone turns 50 every 8 seconds in this country, and 60 about every 8 seconds, or maybe even less, because that’s a moving target too. 65 ain’t what it used to be for most people, unless they’re diabetic and obese. It doesn’t have to be what it used to be, right?

Peter:
There are certainly people who are working older or working for longer than the law requires, but they’re certainly a small minority. One of the key things to remember about the age-structure here is that it’s boomer vs. X vs. Y. Boomer is the largest generation, Y is the second largest and X is a very distant third. If you’re a boomer and you want to take your retirement and enjoy it because physically you can, there’s nothing legally to stop you and your vote is almost certain to guarantee that position moving forward. The boomers have electoral allies in their children, Gen Y. If the Gen Y’ers vote to water down the benefits and reform social security, medicare and medicaid, that means that their parents move in from them. From their point of view, living with your parents is a one-way street and they’re in the process of finally moving out now.

Jason:
At age 28, by the way! Finally!

Peter:
Yeah, finally.

Jason:
Finally is a good word. The problem with Generation Y in that scenario you just painted is that they actually like their parents, unlike Gen X.

Peter:
Fair enough, fair enough. But this electoral alliance between those two generations will stick Gen X with the bill and what Gen X can’t pay will have to be printed away. There are definitely some movements on the fringe for people to work longer, but it’s not the rank and file. You might get some people who are in that legendary 1% who are willing, for their own reasons, to keep on working, but that’s not what you’re going to be seeing out of a blue-collar worker.

Jason:
Yeah, okay, fair enough. That’s probably true on the whole. The people I know are pretty vibrant and I can’t imagine them retiring at age 65. I know I’m not interested in that when I get there. I know we’ve got to wrap up, but talk to us just for a moment about the shale oil boom. Is America going to become an oil exporter? I don’t think the Middle East is in very good shape at all. They’ve ridden a very nice wave, certainly – look at some of these very rich Middle Eastern countries, but I think that monopoly is probably drying up between alternatives and domestic oil and natural gas production, isn’t it?

Peter:
There’s three angles to this and  I’ll address them all in order. First of all, there’s the trade angle. The single largest connection between the United States and the wider international community for decades now has been energy imports, and because of shale, that is going down to zero. By this time next year, it is entirely possible that North America will already be oil-independent from the rest of the world. That doesn’t mean we won’t take the odd cargo from the Middle East, but the 2-4 million barrels per day that we have imported over the course of the last 20 years is already a thing of the past. We’re just working on the margins to mop up the last couple of bits now. That’s the trade point of view. It reinforces everything I’ve been talking about with American existentialism and just building off from the world.

Jason:
That is phenomenal, by the way. Wow, talk about a decoupling! That is going to hurt the Middle East.

Peter:
Well let’s deal with number two first, because there’s something else going on here. There’s a 45-1 price disconnect between natural gas and oil in this country because of shale. They started drilling for shale gas and we had a lot of it, and then they started drilling for shale oil. What they discovered was almost every single shale oil well also produced natural gas as a by-product. Aside from a couple of big projects in places like Marcellus, we are not drilling for natural gas on purpose almost everywhere  in this country. Natural gas is a waste product, which means it is being produced well below the cost of production. Everybody’s just after the oil. That is allowing the United States to have the cheapest electricity costs anywhere in the world. It is allowing us to see massive re-shoring of industry, taking advantage of the cheap natural gas and the cheap electricity. From a completely unintentional point of view, we are facing an industrial renaissance at the same time as the rest of the world is starting to envision marketing capital crunches.

Jason:
Very interesting. And then you take into account technology.. I just think 3D printing is going to bring a lot of that back on-shore too.

Peter:
That’s a great example. 3D printing is a technology where basically you use something that looks like a dot-matrix printer to print layer after layer after layer until a 3D object emerges. It’s a fringe technology for most industries, but what they’re discovering is because you can print objects that normally require a lot of assembly, supply chains are collapsing in on themselves. You’re seeing these at foreign Chrysler plants, for example, and they’re shrinking the supply chain of a car from 30,000 parts in 50 different countries at 100 different facilities to 10,000 parts in 6 different countries at a dozen facilies, most of which are in North America.

Jason:
It’s going to allow for a lot more vertical integration. When you look at producing something like a space x – the fact that you can just make these parts and experiment with them and iterate really quickly is just going to be phenomenal.

Peter:
Absolutely. We’re seeing the collapse of the supply chain model over the last 50 years, and for roughly every 1% of the manufacturing that gets shipped over to 3D printing, you’re probably going to see a 10-15% decline in shipping.

Jason:
Wow.

Peter:
All of a sudden you don’t have to shuttle all those intermediate parts around, so the shipping becomes a lot less busy. China will become a lot less busy because you can just print the part that you need at the car dealership, for example.

Jason:
That’s a stunning number, by the way. Do you want to repeat that? That’s an amazing number.

Peter:
If 1% of the global manufacturers’ market is taken over by 3D printing, that will probably result in a 10-15% drop in shipping logs.

Jason:
Wow, that’s startling. What that means to energy cost deflation too, potentially, because those ships use fuel to ship!

Peter:
We use roughly 8-10 million barrels per day of crude oil, just on transport in this world. If the Americans all of a sudden are producing their energy locally and are not shipping it from the Middle East, that cuts off a bit. If we’re using 3D printing  en masse, that cuts off container shipping. We’re seeing a real secular decline in a lot of the industries that we just assumed were there forever. It’s all coming home. But, you asked another question so let’s get to the third piece of shale, and that’s the Middle East.

This is where, of course, my geopolitical points of view tend to really messy very quickly. Throughout the Cold War and the post-Cold War era, Iran was a big problem because Iran controlled the Strait of Hormuz. The Strait of Hormuz allowed energy to flow and we used energy flows to guarantee global trade to guarantee our alliance system. The Americans have now evolved beyond the alliance system, we never used the trade, we no longer need the energy and all of a sudden, the Persian Gulf is no longer Iran’s pressure point. That doesn’t mean it’s not a pressure point – it’s just it’s ours now. Iran is still an oil exporter, as is every other country within the Gulf, so instead of us being the country that has an aircraft carrier battlegroup on station at all times in order to ensure global energy flow, global trade and global security, all of a sudden, we’re the wild card.

The only country that really seems to have registered this is the Saudis. They realized that they are absolutely hopeless in defending themselves; their army just does not do well outside of air conditioning. Without American demand and American security guarantees for their exports, they have to find a new way of protecting their own, and the tools that they’re starting to reach for are now looking very friendly to the region. They’re starting to dust off the playbook from before 9/11 and they’re finding people throughout their system with a history of violence, they’re all crawling on their back in the pocket and sending them to places like Syria, Iraq and Iran. Their goal is to set the entire region on fire so that their potential rivals cannot consolidate that region, and that’s when they conquer them. It’s a risky strategy, but if you don’t have the capability of deploying in a conventional sense and you have a very deep pocketbook, they’re making it work so far. But it does make places like Syria very ugly.

Jason:
This is why I would love to see those countries – especially the more depressed countries in that region – create some wealth and have vibrant economies, although I don’t know if they can with their governments. Then it would probably be a lot less likely that they would turn to terror. I just think people would be happier.

Peter:
I’d love to see it too, but I don’t think it’s very likely because at the core, you’re going to have a ‘democratic’ economic and political system, you have to have a people who have a stake in that system. The easiest way to do that is to have people that have a certain degree of ownership and wealth, and the easy way to get that is to have a navigable waterway that allows you to generate the wealth in the first place. There isn’t a navigable river anywhere in the Middle East, and most of the land of the Middle East is, of course, arid.

Jason:
Very good points. Peter, give out your website and tell people where they can get the book.

Peter:
Of course. You can get the book,  The Accidental Superpower  on any bookshelf in any bookstore these days. It has gone global already so you can get it on Amazon, Barnes & Noble’s website, Books-A-Million, your local bookseller, any of them. The site itself is  www.zeihan.com, where you can find out more about my speaking business, the book and a lot of other stuff.

Jason:
Fantastic. You are a very interesting guy. Peter, I’ve got to ask you one last question and that is about Argentina, just quickly before you go. Do you think Argentina’s really an up and comer, finally, or no?

Peter:
Not currently, but in the future, I’m actually quite bullish on Argentina. Argentina boasts the world’s second densest concentration of navigable waterways and the fourth largest chunk of arable land in the world. They are, in many ways, the United States in slight miniature. If there is a country in this world that has the capability of consolidating a unified identity like the United States, a rich capital system like the United States and become the major exporter of everything that matters like the United States, it’s Argentina. They even have great shale reserves. Of course, the Argentina that we know today does not fit that description, but I like to bring up Argentina when I’m talking about the United States as an example of how you can screw it up, but think about what it took. Every day, the leadership of Argentina woke up, looked at themselves in the mirror and said ‘Okay, how can I screw this up a little bit more today?’ If you do that for 90 years, you can turn the United States into Argentina.

Jason:
[Laughs]. And they’re working on it over here, too.

Peter:
I’m not too worried about that because really, we just don’t have that kind of attention span!  We can screw it up, it just takes a lot of effort.

Jason:
Yeah. One of the shows I do is about expat living and looking at different countries around the world as places to invest and so forth, and one of my guests said something really kind of funny and cute. She says ‘I love Argentina; the problem there is corruption and corruption is almost part of its charm’.

Peter:
[Laughs] Hear, hear.

Jason:
Well, Peter, thank you very much for joining us. Very insightful discussion and I agree with you wholeheartedly on almost everything you said; it was very insightful. Again, the book is  The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder. Peter, again, thank you for joining us.

Peter:
It has been a pleasure.

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This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit  www.hartmanmedia.com  or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

 

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