Peter Zeihan: Global Demographics Will Change Everything | The Best of Raoul Pal The Journey Man

Welcome back to the best of Ralph Pal, the Journeyman. And no, your eyes do not deceive you. It is me, Nico Buga, senior executive producer for Real Vision. You're all stuck with me for these brief few seconds. Ral is traveling at the moment, but we've got a great episode from the vault for you. Ral and Peter Zeah's talk from 2024, all about what a new world order might look like. A very interesting piece to look at considering the war in the Middle East. What came true, what didn't, and what might still be ahead for all of us. Check it out. Enjoy, and thank you for watching.

>> Peter, welcome back to Real Vision. It's the first time you and I have spoken, I think.

>> I think so. I don't know how that happened, but here we are. So, what I'd love, as ever, I'd love to know a bit of your journey, how you got to where you are today, first to frame it for people, and then we'll dig into some of your big frameworks and then drill down a bit.

Sure. Uh, I'm a generalist. I've always been a generalist, and at my old company, I was the only generalist they had ever hired. So, uh, that's another way of saying that all the other analysts hated me because I kept getting Middle East studies in their Latin American projects, in the energy world, and blah, blah, blah. Anyway, uh, the clients preferred that because they got a broader view, and I didn't pick fights if we were on a topic I didn't know anything about. And so when I left, the clients followed me, and now I basically brief people on how the world is evolving in front of them and what their challenges and opportunities will be, and it keeps me in a lot of trouble in a lot of places.

>> We love that. That's why we love your Real Vision. So, talking of trouble, give us your big picture framework. Your framework by which you kind of understand the geopolitical world and and the way that you see things, because I think it always helps to frame it, if not, you end up straight down the rabbit hole. People don't understand it, how it all fits together, of course.

So, two big things: deglobalization and depopulation. First, deglobalization. Uh, people forget that globalization was not created for trade. It was created as a bribe to fight the Cold War. The US knew that it needed allies to line up with it to fight the Soviets, but since all of the potential allies had just been through the worst war in history, they weren't really in a mood. So, the US used its navy to patrol the global oceans to create a safety structure so that anyone could go trade with anyone else without needing a military escort. And that generated the NATO alliance and the alliance with Taiwan, Korea, and Japan. And as a side effect, created the international trade system we know today. But ever since the Cold War ended, the US has lost interest in maintaining that system with ever more ferocity. And we've now had eight elections in a row where we've gone with the more economically nationalist candidate. And that includes the transition from Trump to Biden. So, even if the system could be sustained, we don't have an interest in sustaining it anymore.

Then the second piece is, it can't be sustained for because of depopulation. Uh, when industrialization happened, when globalization happened, people started taking manufacturing and services jobs, which meant they moved from the farm and into the cities. On the farm, kids are free labor. You have as many as you can. But in the cities, kids are an expense. And you fast forward 75 years, and we have fewer and fewer and fewer and fewer of them. It's not that we're running out of children. In most advanced countries, that happened 40 years ago. We're now going through a 10-year period where a lot of the advanced world is going to run out of working-aged adults, and we are going to have to come up with a new theoretical model to manage our economic systems that is not based on the consumption of youth or the production of mature workers, or even having investment capital. And so, there is no structure that is globalized that can survive that. It's just a question of what parts break first and how fast.

Okay, let's address, uh, uh, deglobalization first. So, the process by which we deglobalize leaves power vacuums, I'm guessing.

>> Certainly.

>> How is this process of deglobalization working? Where are we, and where is it going?

>> We, we've been very fortunate these last three years because a few really heavy shocks have hit the system, but it's held. I'd say the two that are most noteworthy are the Ukraine war, which has the Russians from time to time even attacking civilian shipping and limiting Ukraine's ability to access the market, and then the Houthies doing what they're doing down in the Red Sea. Uh, in the case of the Russians, the Russians are among the most c, among the countries that are most dependent on the globalized structure, and the fact that we now have the US Navy actively patrolling places like the Red Sea to protect Russian, Chinese shipping and nobody else's. That, that's hilarious. Uh, and can't possibly last too much longer. That, as soon as we get the United States admitting, or maybe even assisting, uh, that the system is breaking down, uh, we'll probably have a bit of a free-for-all in the transport system, which among other things wrecks agriculture, on manufacturing, and energy.

Uh, the Houthi thing is really interesting, though. The US has retooled its navy over the last 40 years because we never thought we'd actually have to patrol the oceans as globalization kind of entered into the post-Cold War era. And so, if you wanted global security on the seas for civilian shipping today, you'd need about 800 destroyers. We only have 60. The rest of the world combined only has about 60. Uh, so there's no longer even a theoretical possibility that we can maintain the cover on all of this. And the US Navy has been stretched to the breaking point just to patrol the Red Sea, just to stop missile attacks for what is arguably the world's least competent terror group. Can you imagine if an actual country got involved? So, we're kind of right on the edge, and it wouldn't take a big nudge to knock us over.

And what does knocking over look like? As we're seeing this fragmentation, what does that, what does the tipping point look like to you?

>> Well, that's the thing. There are so many weak spots, uh, that it really matters what goes. Well, let me, let me back up. If you fast forward 10 years past the break, we're probably going to get to the same destination, but, you know, we all are going to live through those 10 years, so it really matters how it goes down. Uh, so guessing the specific trigger is a bit of a reach. Uh, like I said, the Red Sea and the Ukraine war were items where I thought for a while that, "Oh my God, are we there? Are we there? Are we there?" But let me just kind of go through the soft spots.

So, we've got the Europeans who are in demographic collapse, and within a few years, the Germans are going to lose a workforce. What is the European Union if the Germans aren't paying for it? What does global manufacturing look like if the, if the Germans don't have a workforce? We're going to see that in the next few years, regardless of what happens anywhere else. Uh, the, the Chinese are in a demographic freefall. They're now admitting that their birth rate dropped by 60% in the last 60 years, which has never happened, not even the Black Death. Uh, and we're going to see the end of the Chinese system within a decade, assuming there's not a war, assuming there's not a financial crisis, assuming there's not a political collapse, and assuming there's not an energy crisis, all of which are on deck. What does global manufacturing look like without the Chinese?

Uh, this week, we could theoretically have the Israelis target Iranian oil production, sparking a conflict over the energy flows, uh, from the Persian Gulf. That's 60% of internationally traded oil. That's enough to send prices through the roof and collapse, among other things, the Chinese system. So, we've got all of these straws that are supporting so much weight set up, and any of them could snap at any time. And when one goes, you should expect at least two or three of the others to go. So, it gets delightfully lively very, very quickly.

And the challenge in my mind is, in this grace period that we have been miraculously granted, how much can we prepare for what's coming in the agricultural world? Because of the Ukraine war, we're seeing movement in that space, especially with the Canadians and the Americans rapidly expanding their capacity to produce fertilizer to make up for what we're likely to lose from the Russian space. Uh, in manufacturing, we're seeing the United States go through an re-industrialization boom to select specific sectors that we're more concerned about to bring home. Semiconductors are on that list. It's not enough. It's not fast enough, but at least it's a few steps in the right direction.

>> And one of the things that I've learned about geopolitics in my 30 odd years in markets is we worry a lot.

>> And less happens.

>> It doesn't matter until it matters.

>> That's fair. Yeah.

>> That's right. And it's really, it's a very difficult game because, you know, the geopolitical analysis is a lot of it is all about risk.

>> Absolutely. And not all risks happen.

>> Yeah. And a lot of things don't happen, then something unexpected usually happens. It's usually not the thing you're looking at. Not you personally, but in general, that we're all focused on that actually is a tipping point in the equation. Where, where does China fit into this big picture of yours? What is the game here?

Before I jump into China, let me answer that first question. Two things to keep in mind. Number one, my concern about deglobalization isn't necessarily the risk of country on country. It's the risk that the entire system, the structure of the system itself is now outdated and can't be supported. So, it's, we're looking at something much more structural here than a normal national risk. And then the second issue is depopulation. When you don't have a workforce, you also don't have a tax base. Uh, and that is a glacial process that you can ignore until the point that the glacier hits you. And in the next 10 years, we're going to see that glacier hit Italy and Germany and Korea and Japan and China. Uh, and we've never gone through an experience like this before. Uh, the depopulation process has wrapped up with industrialization and urbanization, and we are still on our first pattern for that. So, we can guess at where it will lead, uh, but we have no historical examples.

Um, as to China, China's a puzzle because the data is so bad, uh, uh, deliberately. So, uh, part of the problem there is that the Chinese bureaucracy, which has been completely gutted by Xi as part of his, the formation of his cult of personality, they just stop collecting any, any data that they think their boss is going to find inconvenient. It's not that they collect it, they don't publish it. There's no archive anywhere, they just don't collect it anymore. Whether it's youth unemployment, death data, college dissertations, the bond market, it just doesn't exist anymore. So, we're, we're limited to looking at China's exposures on a broader basis, which are a lot easier because there's always counterparty data with the trade. And then second, looking at what data they do release, especially on something like demographic, where they're actually trying with some success to get their hands around the data.

Let's get some facts. 37% of you aren't subscribed to this channel. That's almost four out of 10, just freeloading the alpha. So, come on, hit subscribe, and I promise to keep leveling up the show with the best guess and the juiciest insight. Go on, do it.

Now, the, the problem in any demographic data is you have your census, which you run about every 10 years, and beyond that, governments really don't have a good grip on exactly what their population looks like, especially when it comes to ages. But there's certain moments in your life where the government becomes firmly aware of your existence. So, in China, it's immunizations when you're an infant, when you enter the equivalent of kindergarten, uh, when you get married, things like that, where there's a firm documentation. And as they examine this information and cross-reference it with other data within their system, they're updating their census information. And the most recent updates that we've seen since 2021 have pointed to a much worse picture than anything we thought existed before. So, the Chinese are now publicly admitting that their birth rate has been lower than the United States since the early 1990s. They're admitting that their birth rate in the last six years had dropped by more than what happened to the Jews of Europe during the Holocaust. And they're on the verge of admitting that they, India didn't pass them in terms of the world's most populous nation two years ago. It was probably 16 or 17 years ago. And so, we're bit by bit getting this better picture and realizing just how far down the path of trading is.

How I look at, I call it the magic formula for GDP. Global GDP, trend rate of GDP is driven by population growth, productivity growth, and debt growth. Debt growth equations finished, and that's really just servicing of previous debts. Now, population growth is collapsing across the entire Western world plus Southeast Asia, as you rightly point out, uh, actually pretty much everywhere except for the Middle East and Africa, where the birth rate is falling faster than any countries except for China until now, but they're younger, so they've got more time.

>> That's right. Much like you saw Bangladesh go from nine, nine children, seven children to now 1.6 children.

>> Exactly. Uh, you know, you see that process early, and it cements itself, you know, particularly as, you know, I've just got back from Zambia, you can see the, you can see the, uh, the population bulge that came out of Africa, but also you see the standard of living improving. So they have less, less kids because they, they have less deaths. You know, for 30 to 40 years, it's a great growth story, and then you're dead.

>> Yeah, that's right. So, we've got this, so GDP growth collapses, and, you know, I focus, as you probably do as well, is there's the debt side of the equation. The slower your GDP grows because of aging populations, the more unmanageable the system becomes. Um, and my, you know, what I've observed in this is basically we've been debasing currency to pay for these things via monetary printing or liquidity. The, the one thing that that is still around, but there's a big rejection going on, is immigration.

>> So, Europe took in huge numbers of immigrants. They really didn't. They took in a few.

>> Well, they took in quite a lot post the Berlin Wall going down. There was,

>> Oh, you're talking like the Yugoslav movements.

>> Yes, that's right. There was a,

>> That was still only about a million and a half people for an area that had over 300 million.

>> It was, it was bigger than that. I mean, Spain alone, I mean, lived in Spain, and you know, the, the population of Bulgarians, Romanians, Yugoslavians, everything else grew mass. Spain is a special case, but not because of Central or Southeast Europe, because they did a reconquista where they opened up the roles to former colonies. They brought in a couple million people that way. That was, I'd argue, the biggest deliberate intake of migrants in Europe in modern history. Uh, and because these people were all Iberian descended, didn't have quite the cultural problems that some of these other waves have had.

But we're seeing the immigration part of that population growth is tricky. So, you could theoretically import African workers, you know, and there's the, the migrant routes through Spain and Italy of African, but they're, they're getting rejected, and all of Europe, even the Schengen borders are, are going up, which is,

>> Something I wrote about a decade or so ago. I'm like, this Schengen agreement is not going to last.

>> But,

>> Yeah, I remember saying, "It's going to be great while it lasts."

>> Yeah. And it was amazing. And then, um, and then that's all changed. So, and I can understand why. It's very difficult to assimilate a, a younger population from, um,

>> a wildly different culture and racial background.

>> Different culture into an old population. Old like, change.

>> With the exception of Belgium and Switzerland, very special case, and the UK. You know, these, these are nation-states. It's the, the government was formed by one ethnicity in one place, and bringing in another ethnicity is problematic. It rubs against the entire legal structure of the system. This, I mean, this is not Australia. This is not Canada or the United States. These are not melting pots.

>> No, but that's fascinating because many of us on the economic side have looked at Australia. It's like, why the [ __ ] haven't these guys had a recession for 27 years? And then you just look at their immigration rate. The immigration rate's been like 3%.

>> Yeah. I mean, you've got three options. You can generate your own economic growth, of which population is going to be components. You always bring in new people, that helps. You can export products to somebody who uses them, and that's the China story. And the Australians fed both of those. And the third is to get into value-added work, which I really hope they start getting into soon, because the immigration story has a limited life. You can only go so far. And the China story is almost over. And its replacement story in Southeast Asia will still be very good, but it won't be nearly as hyper.

>> And how does India fit into this? Because this is a different story, because India's much earlier in the demographic curve.

>> It is its own thing.

>> Yeah. India, you know, it's so vast. It is both urbanizing, progressing, and its population average age 28.

>> Mhm.

>> Or 26. So, it's, it's the complete antithesis of the world. How do you, how does India fit into this equation?

>> So, three things. Number one, I wouldn't say it's in the antithesis of the world anymore. It is aging very, very quickly. Its birth rate has grown by two-thirds over the last 30 years. Uh, now, if it keeps going at this rate, it's not going to have a population crunch within 30 years. It's about 50. There's the dividend is real, and it's persistent, but it's not permanent.

Uh, second, this is not a trading country. Uh, India never joined the globalized order after World War II because it saw itself as either non-aligned or somewhat leaning pro-Soviet, and it saw the United States plan for what it was, a security program. So, it didn't really start this process until about 1990, for similar reasons to why Mexico was a latecomer.

Uh, third, it has the lowest per capita capital generation in the world because none of its rivers are navigable, and simply moving things around in the system, which is how you generate the base trade that allows capital to form, never happened in India. And you have this robust population growth because you have a basically a temperate zone without a winter, if that makes sense, which is the Ganges. So, food production is out of control. So, lots of people, very little capital makes it inefficient. And it's looked like this for 1500 years. So, the Indians need to do the same thing that we need to do in North America. They need to grossly expand their industrial plant to prepare for a post-China world. But everyone who borders India hates India, and India hates them. There are no partners. So, Americans can rely on Korea and Japan, Mexico, Canada, hopefully the United Kingdom, if they can figure out what Brexit means. And there's a constellation of powers that can work together to build a regional future. India's going to do it on its own. It's an Indian story. Uh, but India's looked like this for a millennia and a half. Uh, there's nothing new here. They're going to do it their own way. It'll be inefficient. It'll take longer. It'll be dirty. But if you think that India is about to turn the page, no, it's looked like this for 1500 years. So, it's a good story. It's just, it's only an Indian story.

>> So, given that backdrop and the deglobalization caused by this, what is the outcome?

>> Correct.

>> So, when we talk about, yes, there's risks, there's all of these flashpoints, there's all of these structural problems. Yes. But what is the, the range of outcomes that are on the table here, and over what kind of time horizon?

>> Yeah, every economic sector is going to have to be restructured to wrap itself around the new geopolitics. So, instead of having a globalized system, we're going to have a series of regional systems that might have some connections among them, but for the most part, are going to be trading within their own network. So, I mentioned the, the North America-centric system. That one's pretty much all ready set up, and all it has to do is build out some manufacturing capacity. Now, that's a multi-trillion dollar question. I don't mean to suggest we're going to do that in a year and a half or anything like that. But the energy is there, the food is there, the finance is there. Most importantly, the youth and the demand is there. So, you can have a North American-centric system that attaches to a few pieces elsewhere that does very well for itself. We'll probably see something somewhat similar in the Eastern Mediterranean and in Western Europe with Turkey and France, demographically stable, advanced countries being their own central nodes for their own immediate neighborhood.

Uh, the big wild card, from my point of view, is Southeast Asia. Uh, it's logical that it would partner up with North America, but it doesn't necessarily have to, because a lot of the pieces that the Chinese are already dropping, the Southeast Asians are picking up just fine, and Australia and New Zealand are right there for a lot of the raw inputs and even some financial assistance. So, we could either see that network merge with North America or go its own way. Both of those are viable options. But if you're not in one of those clusters, uh, you've got to figure out if you can, a) induce one of those clusters to include you, or b) if you have any hope of striking out on your own. And the only country that I can see right now that might be able to strike out on its own is Argentina, because it's got the population structure, the food production, the energy production, the mineral production.

>> Talk about a story that's always been.

>> I know.

>> With potential and never gone anywhere. Is Argentina.

>> Yeah. Just, just keep in mind that in the world we're moving into, where transport's more difficult and finance is hard to come by and rule of law breaks down, you know, the Argentines just call that an average Tuesday. They know it'll work in that world. Uh, so, even if they don't find a way to turn the page domestically, uh, it's not so much that the world has to rise to Argentina, it's that the world will fall to Argentina.

So, do we end up with more kind of kinetic engagement between nations, or is it trade warfare between these regions that concerns you the most, or is it a combination of?

>> In the short term, definitely trade warfare. One of the problems you have when you face demographic collapse, um, is that you can no longer consume what you produce. That is certainly the situation the Chinese and the Germans are in today. Both of those countries have about the same number of people over 50 as under. And so, product dumping is the only way to work. Uh, the Germans were product dumping on the rest of Europe, and now Europe is catching up to them in terms of age. So, they have to go outside the bloc, and countries that still have a robust demography are also interested in re-industrializing themselves. The US at the top of that list. And so, it's not getting a very great reception. And the French will prevent the European Union from having any meaningful trade deal with anyone to grant market access to somebody like Germany.

Uh, in the case of China, it's product dumping left, right, and center. And that's why pretty much every country in the world, including the Russians now, uh, are basically blocking Chinese cars from access to their markets. The one exception is the one European country that doesn't have a car industry, Britain, which is kind of hilarious when you think about it.

>> So, the product dumping, does that not end up being a disinflationary world?

>> As long as it's allowed to happen, yes. But if it gets locked up in its home country because no one will take it, then it's a deflationary for them, and that's a real problem. And we're already seeing significant deflation in products in China.

>> Yeah. I mean, China's problem is deflation because, you know, debt, gen, debt, and old populations tend to lead to deflation. Yeah.

>> And that means that the real burden of that debt keeps going up, and it drives itself in this pretty doom loop that goes on. And Europe's been in that for a long time.

>> Yeah, China, but they've been able to export until now. So, it's only now really digging in in Europe. In the case of China, they probably need to destroy somewhere between a third and one and a half of their industrial capacity to take care of the deflation issue. That's, that's a system-ending event.

And does the US election affect this or accelerate it in terms of the tariff movements and and stuff like that? You know, the decoupling from Europe, China. How is that going to affect it if that, if that happens?

Well, the cop-out answer is I have no idea. Um, Harris has never been in an executive position before. So, whatever she says, there's no track record for us to evaluate. We just don't know.

And Trump, if you've seen his last 2025 public appearances, speeches, has clearly lost his mind. Uh, the dementia is full-blown, and he will not be president if he's elected. It'll be Vance, who, like Harris, has never been in an executive role ever. So, you don't think that Trump survives the term if he gets?

>> Oh God. I mean, Biden certainly wouldn't. Trump's like an hour and a half younger. Why in the world would we think that Trump would?

>> It's, yeah. No, it's, um, this, he, I mean, mentally, he's gone. Uh, so, we just, we have no data points to draw from whatsoever. Uh, you can look at what the previous administrations have done and maybe have a little bit of guidance. Um, Team Trump was very pro-tariffs, but then never used the income from the tariffs to do anything constructive. So, all that did was [ __ ] economic activity here. Or you can go with the Biden approach, which was to identify specific sub-sectors to, like, really dig in and provide technological fences around them, uh, to block tech transfer, which may be more productive, but again, unless you provide some sort of incentive to build out the industrial on the other side, is almost as pointless as what Team Trump was doing. So, neither of these are great strategies in isolation.

I mean, the problem we've had in the country is that we haven't really had an industrial policy since the '40s. And so, with the exception of Joe Biden, there is no one alive today who has any memory of it. And we're new at it. And the idea that we're going to get it right within two or three years, I'm kind of like, "Yeah, right." But even with that, I look at things like the IRA, which, as an economist, I'm like, "Oh my God, there's so much about this that is so wasteful and so stupid." But I was in favor of it anyway, because it's building an industrial plant here now. And even if we build the wrong thing in the wrong place, we can always retool it. The important thing is that it's built as soon as possible, because we have a limited window that the Chinese are still with us, and we need as much of that industrial plant as possible to help us build out ours.

Now, that leads me into, um, a big conversation I want to have with you, which is, I've been observing the Gavin Newsom going to China was very interesting because that, that's not his job. And for Xi to meet him, it meant that Gavin Newsom, yeah, who's a non-political, squeaky clean, out-of-the-box person, no geopolitical background, goes to China. He should be meeting a regional leader. He doesn't. He meets Xi. So, he's, he's clearly a messenger. Then he says, "Hey, Xi, come back to my place." Xi doesn't go to the United Nations. Doesn't go to DC, goes to California, and then leaves. And then there's a bunch of things happen about Xi going to Europe, Putin going there. My general thesis is there's a lot of people worried about kinetic warfare with China over Taiwan. And I'm starting to believe the Chinese and the Americans have done a deal, which is, let us build the Taiwan semiplants, the three in Arizona, Germany's building one, and, um, Japan's building one. And you give it a grace period and split the technology.

Well, let's start by saying no. Uh, the, uh, the Chinese can't operate any semiconductor facility on their own that makes chips better than 90 nanometers.

>> Yeah, but they would have Taiwan. They would have.

>> But if they wouldn't know what to do with it. The tech transfer would be immense. It's several generations beyond what they have the workforce to support. So, the only way that that would work is if the United States established a military authority over Taiwan and physically forced all of the Taiwanese to share all their technology on a day-by-day basis for decades, as well as American design firms continuing to provide all the inputs, logistical supply chains, and intermediate materials that allow these fabrications to work in the first place. Uh, it is the most complex supply chain humans have ever produced, and most of the single-point failures, of which there are thousands, are not in Taiwan. They're in Japan, Korea, Canada, the United States, uh, Belgium, the Netherlands, Germany. Uh, so, no. Uh, the tech, as we're discovering with the United States, as TSMC attempts to build a high-end fab just in Arizona, uh, it's not just the fab. There are hundreds of companies in northern Taiwan that then take the chips and do the packaging, the testing, and building them into intermediate products that ultimately end up in the manufacturing system. There's a whole ecosystem here, and the Chinese are not good at any of it. So, no.

Um, as for Newsom, keep in mind that he's the governor of a state that has an economy that's roughly the same size as France or the UK. So, the idea that he can have his own little quasi-foreign policy fits in perfectly. And also, if you think about what the California economic model, the last 40 years has been, it's been de-industrialized, focus on services. You take the capital of the American system, of the millennials of the American system, to imagine the future in a place like Silicon Valley, and then you use your ports to take Chinese finished goods and distribute them to the United States. All the same time that Silicon Valley is helping build out the Chinese industrial plant. That model's over. The millennials are aging out with the baby boomers two-thirds retired. The capital is gone, and the Chinese system is failing. So, the idea that Xi and Newsom have things to talk about. Oh, yeah. Because what they've basically been working on for the last generation is now stopping, and they're trying to see what they can salvage. It's reasonable.

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Okay. So, this moves me on a bit to the answer to depopulation. As I say, it is AI and robots. You're creating infinite humans in every form, from infinite knowledge to infinite physical labor. And it's happening fast. And it feels to me that this is the solution that is on the table, and the aging population and the falling population growth essentially drives the urgency of this faster and faster that we create a bunch of outcomes we don't even know. AGI being one of them, because of the desperate need for workers.

>> Well, let me give you three problems with that. I mean, number one, I, I would agree that automation in some form is going to stretch the worker, and that's essential in the environment that we're in. Uh, but first things first, let's say we're wildly successful at all of this, okay? And maybe that solves the production side of the equation. It doesn't solve the consumption side. And the number of wealthy people aged 20 to 45, the people who consume everything in the world, that is a population that is now in permanent decline. And increasing production doesn't solve that issue at all.

Uh, second, I don't think it's going to happen with the speed that people are hoping. Uh, remember when I said there's thousands of single-point failures? You lose any meaningful country out of the globalized coalition. I'm personally most worried about the Germans. And it's going to take us 10 to 15 years to rebuild that capacity in a more geopolitically, demographically stable area. Which means that these high-end chips that we've all set our hopes on, we're just not going to be able to produce very much of them at all. I'd actually argue that the most consequential outcome of this presidential election is whoever wins is going to be the one who's going to have to decide by fiat where these chips get applied. Do we use it to crack the genome so we save global agriculture from collapse, save a billion people from starving? Do we use it for worker productivity so that the manufacturing labor force could be stretched further? Do we use it in the capital markets so we get more efficient at applying what few investment dollars we have left? Or do we use it for national defense and cryptography? I mean, those are all good choices. We're probably only going to have enough chips to try one of them, much less all four.

I mean, if we're going to do AI for real, we need different hardware. Uh, the, the chip that we use currently, it's called a GPU. It's about the size of a postage stamp. It's the heart of a gaming console. It's designed for graphics. That's what GPU is, graphic processing unit. Uh, it generates a lot of heat, and so within a gaming console, you've got a bunch of fans blowing on it, but it can do calculations in parallel, which is makes it the best architecture of the existing chip network that we have. And so, you take 10,000 of these and put them in one room, it generates a lot of heat. That's where the power demand comes from. But they're very, very limited for what they are and what we're using them for. If you want a proper AI chip, it's not this big. It's about this big. It's a dinner plate, and it's got a cooling technology built into it, and it can handle billions of computations every second. They're designing those now. We are unlikely to have our first hard copy of it before the end of next year. And assuming that works, then it'll be another two years before we have our first production run in the fab. And assuming that works, it'll be another two to three years before we have enough to build our first server farm out of these things. So, you're already talking 2029, 2030.

>> Yeah, but we are building out 100,000 server plants already.

>> With the TU, which is the one with the highly volatile, vulnerable supply chain.

>> Yes, but they're already in place. I mean, I mean, Tesla's built its 100,000.

>> We'll be able to use the ones we have. But the idea that we can overhaul the entire economy on just a few server farms, I don't think so. It'll be useful for the people who can access them.

>> Yeah. And that is, it's clear that it's the tech giants, um, in the US that have the.

>> Putting the most money behind it.

>> Absolutely.

>> Yeah. And they've already built. I mean, it was an extraordinary conversation with, was it Larry Ellison, just talking about him and Elon begging, um, Jensen for chips. It's just like, "We just need all the GPUs you can produce. We'll pay you anything."

>> Keep in mind that these conversations only started a year ago. So, if every chip manufacturer that was capable of making the GPUs switched entirely to their production at the time that conversation happened, we won't have enough to build our first server farm for another year. It takes two years to do the retooling and then the fabrication.

>> So, from you, from every angle, there seems no optimism. Give me the optimistic case.

>> We're not looking at civilizational collapse here.

>> Yeah. And my view is actually the opposite. But even though I agree with all of your major points about the deglobalization and the population collapse, I'm more optimistic about the role of technology in a short enough time period, not today, not this year, not next year, but by 2030 that we have a lot of this kicking in. And in the interim, we just use the global money printer to paper over the cracks in the system and hope that holds together without something major going wrong. So, I actually think the outcome is more positive. But give me a positive take from you, and again, we can talk of time horizons because there's very, we're both talking very various time horizons from immediate, interim, long-term. So, you know, I don't mind different views on different time horizons.

>> Sure. So, we need to expand the industrial plant here in the United States, well, in NAFTA, uh, by about double. That's not just a growth story. That's the fastest growth story we've ever experienced, uh, in Mexico, in the United States, in Canada. It's going to last for several years, and it's going to build a supply chain system that is immune to a lot of international shocks. I mean, it's a really good story. We just have to do it as quickly as possible in an environment of constrained capital, constrained labor, which means it's an inflationary story.

>> But what do we build? And how does it use humans? Because you look at the new Tesla factory, they're just all robots.

>> Exactly. It's going to look different. It's not your 1950s factory anymore.

>> It's all going to look different, especially the stuff that left 30 and 40 years ago. And remember, we don't have to do this by ourselves. Mexico is right there. Colombia, we already have a free trade deal with. We're going to find new ways to put things together. I have no doubt about that. My concern is that we have to do it with the technology we have now. Because if we're talking about things like AI that are that are going to really manifest for a few years, in a few years, we need to be mostly done with the industrial buildout. So, we may be able to retool this on the other side of things, and that's great, and I welcome that. But we can't wait for those tools to become available because China's on a very limited time frame.

>> Well, so what are we going to build? It can't be Amazon warehouses, and there's like.

>> That's distribution. We still need that. Yes. I expect, uh, Amazon warehouses will probably also become impromptu manufacturing centers. Things like 3D printing are really well set up for that. Uh, we need to roughly increase the power grid by half because moving stuff, stamping stuff, welding stuff takes more electricity than even a data center. Uh, we're going to see electronics probably be the biggest sticking point because that's a technology that today requires fingers and eyes. And that's going to be hard to do because we just don't have the labor force here. Uh, Mexico, it's going to have to be central Mexico because northern Mexico, the labor's already gobbled up in more value-added industries. Uh, and then automation, of course, is something we'll plug into that. Uh, courtesy of, uh, NAFTA 2, I'd say we're already 90% along the way of where we need to be with something like automotive and heavy machinery. So, you know, that's largely done. Uh, but electronics manufacturing, I think that's going to be the sticking point moving forward. Uh, textiles is coming back pretty robustly, and that's all automated now. So, you know, these are all good stories, but, um, it's not a straight line.

>> I worry less about the US for many of those reasons, and because it does lean into technology, and more worried about Europe.

>> Sure.

>> Because it's actively rejecting technology. The only technology it's adopting at scale is renewable energy, which is great because over time it lowers the cost of electricity if you're in a place that's sunny or windy, which most of Europe isn't.

>> But the overall issue is, what is the future for Europe? That's what I, I struggle with. And it's not cataclysmic, it's just a bit miserable.

>> There are four futures. I mean, keep in mind, as soon as the Europeans realize that the Germans are going to be a net beneficiary instead of a net giver to EU funds.

>> When, when do you think that happens? What time horizon?

>> Within six years.

>> Right. Yeah.

>> Yeah. So, it's the EU in its current form is at the end. That doesn't mean there can't be some sort of European association in the future. I think there will, but economically, there's four different stories. You've got the UK, which once it figures out that really its only option is merger with NAFTA, it'll have to suck it up and give much more to the United States, Canada, and Mexico than it ever gave to the European Union. But it's the only way to get on the right side of a tariff wall with the customers that can allow it to maintain its economic model. It's the only game in town.

Uh, second is France and whoever countries it chooses to bring into its immediate orbit, which will probably include Spain, Portugal, uh, Belgium, and Italy, maybe an association with the Netherlands, although I think the Dutch are much more likely to jump ship with the Brits. And that's a Paris-centered thing.

Third, Central Europe. Their demographics are aging very, very rapidly, in many ways even faster than Western Europe, but from a such a younger base that they still have another 30 to 40 years to go. And you partner them with Scandinavia, which has the most stable demographics outside of France. That's an association that has a lot in common, not just culturally, but strategically. And they're all concerned about Russia being public enemy number one.

That just leaves Germany, which is hosed. Uh, the German demographic is awful. Their industry was designed for a different world. They're having an energy crisis, which is shutting down their entire chemical sector, which is now feeding through their manufacturing system. I don't see how that works unless someone pays them to exist. Germany is the new Greece.

>> So, that's a nice statement. How does Europe fund itself without Germany? They have a very, very different sort of association, less based on economics and more based on politics and and military factors. You basically the European equivalent of a NATO that's run by the French.

>> And do you think they're going to do that?

>> I think that's the only option. Whether they do it is entirely up to them.

>> And where does Russia fit into all of this? Its demographics are.

>> Truly [ __ ] atrocious.

>> Yeah.

>> Um, they've been kind of sidelined in the system. They play this role of antagonist within the system. Where, where do they, where do they fit into all of this in the end? Is this all down to Putin? Or if Putin changes, does it change? I mean, how do you see Russia in this, in this system?

>> Yeah, the whole logic of the Ukraine war is that the Russians are trying to reach a more defensible external perimeter, something much more similar to what they had in the Soviet period. Right now, they've got about 4,000 miles of open terrain on their borders. If they can get to the Vistula and the Danube and the Baltic, they shrink that 4,000 to about 500 miles, and that's a lot more manageable for a country with a falling population. So, it's not that Ukraine was always going to happen. It was Ukraine was never the end of the story. So, if the Russians do succeed in Ukraine, they will be coming for Romania and Poland and Estonia, Latvia, and Lithuania, and we will get a straight-up fight between either NATO and Russia, if NATO is still around, or the Scandinavian, Central American, Central European block and Russia, uh, one way or the other. If Russia.

>> How can Russia afford?

This? Uh, efficiency and economic activity had never been things they've overly cared about. But they've not done particularly well with war. Not done particularly well, but the balance of forces is still firmly on their side in numbers and industrial plant and and weapons. And you know, they now have the Iranians, the Chinese, and the North Koreans basically belling up to the bar to help out. And at this moment, the West has not reacted to that reality.

Now, let's look for the potential of the flip side happening in Russia. What would change that situation? If Putin goes, does Russia change? No. Or does it just have another power vacuum and it creates the same? Putin has so purged the system of anyone who's not in his circle that everybody basically sees the world through the same lens. So we might have some differences on the margin, but I don't think a new leader in Russia would make a difference. What what would theoretically make a difference is if Russian forces such suffered a catastrophic public humiliating defeat like they did in the Crimean War, like they did in World War I, that would trigger a political revolution which would tear the system down and then that's the end of unified Russia. Uh, but at the moment, that hasn't happened. Uh, you that could happen in Crimea, it could happen in Kur, could happen in Belgar. There are a lot of candidates, but at the moment, this has from a from a front line point of view, this has been a very stagnant fight the last couple of years. The tactics keep changing, the weapons keep changing, but the lines on the map haven't moved very much, and it makes it easier for the Russian government to spin this is something that is still showing progress.

Let's try and kick about the positive view on China. How does it resolve this mess of excess capacity, huge debts, aging population, and a reordering of global trade of which maybe it doesn't get the free reign to export everything everywhere at no cost? We understand the downside which is the collapse of China, but what how do they get out of this? What what is the other the flip side of the equation that could go right?

Well, as you said, the core issue here is an imbalance between supply and demand. So either you double supply or you have I'm sorry, either you double demand or you have supply. Uh, doubling demand would require Star Wars style cloning where you grow fully grown adults complete with skills in a short period of time. I am unaware of any breakthroughs in that technology. And then the other one is destroying half the industrial plant, but now you've destroyed over a third, probably closer to two-thirds of jobs. And if there's one thing that the Chinese system won't do, it's generate a lot of unemployed because when unemployed got antsy the last time around, they formed the Chinese Communist Party and went on a long walk and turn down the government. So I don't see how this is fixable uh without a significant change in the structure of the system and the CCP has a vested interest in not changing the structure of the system.

So okay, let's move on to Japan and Australia. Two other places we haven't talked much about. Where how are they going to fit into this equation? Where's the kind of downside and upside with these two as well?

Well, pretty bullish on both of those at least in the midterm, next 10, 20 years. Uh, Australia is probably going to replicate its success of the last 30 years just working with C with Southeast Asia rather than China. Uh, they're not as debt driven. It's a much healthier growth profile and honestly has a lot longer to run because the demographics are better. So, it might not be the breakth break neck growth they've seen since the 80s, but it's still going to be a really good story. There's probably needs to be an adjustment, but here and there. We probably do need to have that recession. And oh my god, the housing market's a nightmare. And uh, the sooner that is adjusted, the better. But that is going to knock easily 10% off of the headline GDP when it happens. And that'll be rough. But on the other side of this, it's a pretty good story. Japan is is unique. The they're the original story of demographic decay, but unlike everyone else who's been ignoring it, they've been working on it in bits and pieces since the 80s. So, they found ways to keep people in the work force longer. They found ways to encourage younger families to have children. And so, while they're still old and they're still aging, they're no longer the fastest aging society in the world. There's 15 countries that are aging faster, ranging from Spain to Germany to Italy to Belgium to Thailand to Taiwan, China of course and Korea. So other countries are going to get to demographic dissolution due to old age before they do. Uh, in addition uh, they've also altered their economic structure in a way they don't think China can. They've offshored most of their industrial production to third countries that have healthier demographic stories. So in many ways that is part of the story of the renaissance of the American South where country companies like Toyota have basically gone into places like Kentucky and North Carolina and built massive uh production facilities in order to get on the right side of the tariff threat. Uh, they've not just done that in the United States, they've done that in Mexico, they've done that in Southeast Asia and it's working pretty well. So you do the design and specific component manufacturer in Japan, but most of the work is done somewhere else.

So if we see all of these struggles, these global struggles and there seem to be very few options as this thing either accelerates downwards or or glides in that path. How does politics change in this?

Well, think of it this way. We're on the verge of every economic model we have ever designed as a species no longer working. I mean, basically fascism, communism, socialism, capitalism, they're all about distribution of goods and the balance between supply and demand and labor and capital. I mean, they all differ on how it should be done, but that's the core format. The demographic decline means demand goes away and capital goes away. So we need to admit something new. And to think that countries can come up with new economic models and it doesn't change their political system is silly. And if you look at how we designed those four systems we use right now over the course of the last couple of centuries, every time a new one was introduced, especially in a place that has some geopolitical pressure like say Germany, you know, [ __ ] got really real really fast. So, I don't know how that will play out because we haven't invented the model yet. But if you're in Southeast Asia or North America or Argentina where the demographic picture is better and you can still use the old models to underpin some very strong growth, this isn't your problem yet. We're going to be able to look at the Germanies of the world, the Koreas of the world, maybe the China of the world and see what they do and hopefully learn a few things, even if it's just from their mistakes.

Yeah. I mean, again, my view is that thing has been invented. It's called AI and it's the most powerful technology humanity has ever created and it'll be the fastest adoption of every technology we've ever seen if we can build the hardware.

Because of the economic importance of this. There's tens of thousands of industrial steps that are required to make that specific subsector work and we're going to lose a lot of them. We will rebuild them, but it'll take 15 years. Yeah, I'm I'm more optimistic and I think by 2030 we start to see the fruits of this coming through. I'm also pretty encouraged on renewable energy and the overall lowering of electricity costs. The renewable story is the second most complex manufacturing supply chain we have ever had. So, you know, from from your lips to God's ears, but those things are very vulnerable to any changes in the economic order.

Okay, we've established the flash points, the problems, the structural issues. What the [ __ ] do people do about it?

Well, it depends upon where you are. If you're in Germany, you probably want to get a visa.

To go where?

I'd come to the United States personally, but there's other options. Canada seems to be really popular, assuming they haven't closed their doors yet. Uh, but we're going to see the last time we went through this evolution of economic orders and degradation for a mix of geopolitical and demographic issues, it was the 1840s. We had the German civil wars. A fifth of the population left. And who was the skilled fifth?

Okay, let's assume that 60% of people watching this are North Americans. And let's assume they're in their mid-30s, late 30s. They're average millennial. What do they do in this environment for their future?

Sure.

Because it sounds like their future's pretty [ __ ]

No, no, it's great. We need to double the industrial plant. That's a great story. So the let me give you three things. Um, one from an investment point of view, anything that's going to invest in productive capac capacity, especially where electricity meets industry, is where the greatest expansions are going to go. I'm not going to identify any specific investment plays. That's not my world. But the idea that capital can't just boom in this sort of environment considering the demands in front of us is silly. Uh, number two, trades, specifically welding and electricians. Those are going to be the single most in-demand jobs for the next 5 to 10 years. And basically, we're already in a situation where about one or two years of experience, you can be learning six figures very, very easily. Uh, third, Spanish. The interface between North America is amazing and the interface specifically between Texas and Northern Mexico is absolutely epic. The biggest weakness in the North American story right now isn't technology. It's not electricity. It's technical bilingualism. We have a lot of engineers in Mexico who don't speak English and a lot of engineers in the United States that don't speak Spanish. If we can bridge that, then you can start talking about really taking full advantage of what we have on the border. And that's a job that earns six figures within a couple of weeks.

And how do financial markets do in all of this?

Oh my god, the international noise is going to be immense. And as systems falter, the capital flight that's coming to the United States is going to be absolutely gargantuan. It's probably already around $2 trillion US a year. Most of that is going into residential real estate and T-bills. If we can find a better way to capture that and apply that to the buildout problems we're going to have, we're all going to be better off.

So you think the US continues to absorb the world's capital, maybe at an accelerating pace?

There's really no other option.

And that's a much stronger dollar as well, I guess?

Probably we're probably looking at the beginning of a multi-decade US dollar run.

So it's US capital markets. So that's a continuation of the story we've seen already, right? Which is

In part at least. Yes.

I mean, US capital markets and the dollar have been strong for essentially since 2012-ish and have been sucking more of the world's capital. I mean, Europe and others have been left behind in that equation, including China.

Well, as a rule, the United States is more efficient at deploying that capital. And because it is the global store of value, and there's not even a theoretical competition, ever since the BRICS removed themselves from the conversation back in November, uh, you know, there there's really nowhere else to go. It's not that there's not enough capital for I'm sorry. It's not that there aren't other destinations, but most of them are running a very similar system to the US and are very tightly linked to the US. Australia, Taiwan, uh, New Zealand, Sweden, these are also hard currencies that have a very similar political structure governing them. They're all being net beneficiaries, but only one of them is the global store of value.

What about the UK? We talked about the UK. The UK needs to make up its [ __ ] mind.

If you're watching the average person watching this and you're from the UK, I mean, you can I just came back from the UK. It feels pretty miserable because nobody can see a path.

It's purely a political problem. When the Brexiteers started making up everything that was going to happen on the other side of Brexit, they forgot to ask the countries that were involved in making those things happen. So when uh, the UK government came to the United States in the aftermath of Brexit, you know, the United States had a very long list of things that they the Brits would have to do if they wanted to get a free trade deal. And the Brexiter response was like, "But that's not what we told the people." And the Trump administration's like, "Well, you lied to the people. You forgot to ask us." And basically Britain has not yet come to the conclusion that if they don't accept American and Canadian and Mexican terms, it's never going to happen. So, we're in this nether world right now. We have been for 7 years where the Brits have are no longer in Europe, but haven't managed to turn the page to whatever is next. So, the talk about having a trade deal with China, with India, with the United Arab Emirates or whoever it happens to be, that's all kind of irrelevant. I mean, India has trade deals with no one. China is past due. The UAE isn't a manufacturing power and doesn't have the consumption base for it to matter. and it's too far away. There's only one play here, and that's NAFTA. And the sooner that London admits that to itself, the sooner it can get on with life. But until that happens, they're stuck in this nether world. Uh, because they're never going to get back to the EU. And I would argue at this point, they shouldn't even try.

And the two regions we actually miss talking about just as a a final area which is the kind of Saudi, Turkey, Iran grouping and Israel, let's call it, you know, the whether there's a new formation of the Middle East or old wounds continue to remain open. How do you see that nexus of of major, you know, regional superpowers?

There's one country out of those four that matters and that's Turkey. It's got the industrial plant. It's got the political unity. It's got the infrastructure in place. If there is going to be a new superpower in the region, it will not be Iran. It will not be Saudi Arabia. They are not intellectually capable. That's not a racial thing. I'm just saying they don't have the workforce necessary to even try, much less the infrastructure.

Iran Iran does. It's got 70 million people and

It's got people who are trained.

Well, they have one of the highest education rates in the world in Iran.

They did in the 70s. It has degraded significantly. And when it comes to technical skills, they just don't have it. Uh, back in the Shah's regime, they did and there was a lot of hope there. But there's also the geographic area issue. Building infrastructure and industrial plant that spans areas requires relatively flat land. And Iran just doesn't have very much of that. Turkey does, especially around Siamara. So I can see the Turks um picking the parts of the Middle East they're interested in. Maybe Israel will be part of that. So that's a political question for them to work out. Uh, as the Europeans have problems, I think that the Western excuse me, the Eastern Balkans are a very likely addition to a Turkish circle. Uh, and based on what happens with Saudi Arabia and Iran, you know, maybe Iraq isn't in play as well, but that's their network. Uh, and I really doubt Iran and Saudi Arabia are going to be within it. They're probably going to be just on the other side of the edge because the Saudis would love to have a security guarantor that they don't border and and the only way Turkey can be a security guarantor for anyone in the Gulf is by taking over Iraq first. And the Suns do not want to see that happen.

No. And so if you're young and you can move around the world because you can work from anywhere,

The US, but it's not easy to go to.

Australia, not easy to go to. Yeah.

Canada, pretty easy to go to.

Not anymore.

Okay, the federal government just reduced inward migration visa approvals by 80%.

So then where do you go? Latin America.

You're going to have to find a way in and you're probably going to have to be in a less than fully legal status. In the meantime, there are still ways to get into the United States uh on a student visa, on an internship visa, and then you have to wait for politics to change so that we're a little bit more willing to accept migrants. Uh, the same holds for all of the other settler states. I mean, there's there's a very clear story here of where the economic growth is going to be. And the smart thing on the part of the settler states at the moment would be to have the doors as open as possible uh with an admitting immigration system because labor is in short supply and skilled labor is on the move. But we're just not there yet.

No. Very interesting. Let's see where the US election leads in some of these as well. We'll wait and find out whether it changes anything. Um, you've got some pretty bold predictions around that as well. And yeah, it's going to be, you know, we already said it's been a hell of a year. Well, last year was a hell of a year. The year before that, and it feels like 2025, 26. The I mean, there's a lot to come still.

Yeah, we're only at the beginning of this transition.

And when does it finish?

Demographically, the majority of the countries that matter will be flipped over the side within 10 years.

So, it's between now and call it

2025. Yeah. Between now and 20 2035 is when the [ __ ] will hit the fan. We'll have figured out a way through it for the countries that are going to do well uh by 2040.

That's a long way.

It is.

That's a long way for some [ __ ]

It is. Probably probably uh when we will finally be able to apply AI at scale.

Well, let's wait and see how this all plays out. Peter, look, fascinating talking to you. Um, and I very much appreciate you coming on and giving us your insights to your very big picture and then drilling down.

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