Geopolitical Roundtable With Peter Zeihan
The best-selling author discusses the coming global disorder and its impacts on China, Russia, ISIS, terrorism, reshoring, cyber warfare and the shale revolution
Last week in Manhattan, we hosted a small group lunch discussion with a handful of financial advisors and a favorite research advisor to our own work, Geopolitical Strategist Peter Zeihan, author of the best-selling book, The Accidental Superpower, The Next Generation of American Preeminence and the Coming Global Disorder. The goal was to engage in a deep conversation about major events happening the world and how they may affect our industry, while providing an opportunity for clients to ask questions on their minds.
In the book, Peter tells the story of the world’s leaders coming together in Bretton Woods, New Hampshire, at the close of World War II to establish a new world order whereby the United States would serve as the military protector of the world’s sea lanes, therefore enabling a new generation of global trade. The book describes United States’ more recent retreat from this role as global protector, and the resulting effects making waves around the world. Peter kicked off the discussion by describing the single biggest trend in the world today, populism, and why we’re seeing the United States move to an anti-trade stance by both the Democrats and the Republicans, France to an anti-immigrant stance, Turkey emerging as a major power and beginning to invade its neighbors, China laying the groundwork for a Maoist political system that is walled off from the world, and Russia entering a demographic twilight that is prompting Putin to replace the entire ruling cadre with young, nationalist loyalists.
The discussion that followed ranged from where to invest in the coming global disorder to cyber warfare, China, Russia, ISIS, reshoring, terrorism and the shale revolution. In response to the positive feedback we received from those who read our last Q&A series with Peter, we have summarized the major questions below. Thanks to Peter for allowing us to share his answers with our followers.
Q&A With Peter Zeihan
Q: If the United States goes to war, can we stabilize it?
Peter Zeihan: There’s no way the United States can walk out of the trade system and there not be a hell of a shakeout, because nobody has the ability to guarantee global sea lanes. Most countries don’t have the ability to guarantee their own defense. The problem that a country like China has is its end users aren’t local.
Q: How can the United States just simply step back from global trade? Do you need Congress’ approval?
Peter Zeihan: No. When it comes to enforcing international sea lanes that’s not an act of Congress. That’s a force disposition issue, and we’ve been steadily paring back our deployments for years. Look at what happened in the Persian Gulf last year. We only had a carrier there for five months. For the previous 40 years we’ve had one there for 12 months out of the year.
Q: If we step back from international trade, it would take quite a bit to build up our manufacturing infrastructure again. Then we’d also have rising prices again, right?
Peter Zeihan: You would definitely have an inflationary pulse, which the monetary authorities would love right now. It doesn’t take a huge amount of time to build that kind of infrastructure, particularly when you consider it doesn’t all necessarily have to be in the United States. There are other countries that we have friendly relations with that aren’t going to be nearly as disrupted –Southeast Asia is a potential partner, Mexico. Canada has a huge amount of spare capacity right now.
Q: Given where we are with our debt situation in the United States, how much room is there for a fiscal expansion?
Peter Zeihan: The federal debt issue is a political issue, it’s not a financial one. There’s enough spare capital in the world that is running scared that we can absorb every bit of it. Even if there wasn’t, there is no competitor to the U.S. dollar, so the Federal Reserve can step in if it has to. I don’t see that as an economic restriction. I also don’t see the federal approach as being the way that it is going to go. I would look at a lot of by-state issues. For example, between Indiana and Kentucky. You’ve got governors and legislatures from different parties that have nonetheless been able to put together the largest public works program that the country has seen in the last decade with this bridge system across the Ohio. It’s working, and a lot of the money is not local, it’s foreign. It’s just a question of finding a way to mate up a capital source with local needs. When it comes to overseeing infrastructure development, it has rarely been federal. Even with the interstate system, the construction firms are all local and managed by the states. We’re going to see 50 different experiments in how to do this, and some states have got a leg up on this. Alabama looks phenomenal. The number one state in the country for per capita FDI is Alabama. They get their city council together, and they go to Germany or Korea and they basically make a pitch. So Hyundai, Volkswagen and Daewoo –they’re all there.
Q: What do you think about money pouring into infrastructure in this country?
Peter Zeihan: It’s a good idea. I speak to a lot of community development boards. I see relatively inexpensive energy, relatively strong consumer growth because of the Millennial Generation, borrowing costs at rock bottom lows between the combination of the boomers preparing for retirement trying to get that last 1 percent so there’s a lot of capital is still out there, and then the capital flight that’s coming in. So if you’re looking to borrow money for long-term purposes, now is a great time to do it.
Some of the boards that I work with are in the process of developing financial products to tap the capital flight. Because what the foreigners want is a physical asset that will hold its value. If it pays a dividend, that’s fantastic, and if it’s backed by a government, ever better. Treasury bills are the number one best destination right now, residential property, primarily condos in the gateway cities are number two, and shale bonds are number three. They’re backed by a hard asset, and they’ve got a dividend. Just keep in mind that this is dumb, stupid money for the most part. If they get 50 percent on the dollar 10 years from now, they’re thrilled because that means they got it out of the country.
Q: This view of the United States retreating from its role on the global stage, is it fairly recent or have you been evolving it for some time?
Peter Zeihan: It’s constantly evolving. I worked for a global intelligence company called Stratforfor 12 years. It was my job to synthesize everything that was coming in to a global network, and that is the genesis for these ideas. The book