The End of the World is Just the Beginning: Mapping the Collapse of Globalization

by Peter Zeihan

According to traditional (and certainly non-Asian) financial norms, issues such as collateral requirements, credit access, and borrowing costs are based on a combination of factors ranging from personal or corporate history, preexisting debt loads, and straight-up believability.

Germans tend to enjoy easy access to credit not simply because they are frugal and borrow little and so are good credit bets, but also because the German economy is first-rate, highly diversified, macroeconomically stable, and highly productive, and German firms and governments tend to be run by . . . frugal Germans.

Borrowing in Italy costs more because the Italian government and population are as laid-back about debt repayments as they are about everything else. The Greek economy is a one-horse tourism show manned by a people with relatively loose understanding of what makes places like Germany tick.

the pre-1971 world, the scarcity of capital meant most work in the energy sphere was managed top-down, with as few players as possible, in order to manage risk. Exxon produced the crude oil in foreign countries. Exxon shipped the crude home via tankers. Exxon refined the crude into fuel at refineries it owned. Exxon distributed that fuel to retail stations. Exxon’s network of franchises sold the fuel to consumers.

Shale wells tend to kick out the majority of their production in just the first several months of their twentyish-year life cycle. That tends to suggest that the capital will either be repaid quickly . . . or never. In many cases, it definitely proved to be never.

First, the fiat age has enabled economies large and small, countries near and far, to paper over their problems with cash. The factors that enable this or that place to do well in any given age—the Geography of Success—pale in comparison to a bottomless supply of low-cost capital.

Second, everyone—and I mean everyone—is doing it. The only systems in existence today that are not expanding their money supply are those that have consciously chosen to forgo economic growth in favor of price stability.

America had a record number of homes available when the subprime bubble popped (roughly 3.5 million), but that was then. The United States still has positive population growth, so people want those homes. They are not stranded assets.

A similar balancing occurred with the shale sector. Credit terms tightened in chunks, because banks wised up, because Wall Street turned dubious, because of price shocks in the energy market that no financially strapped firm could survive.

The American monetary expansion during the 2007–9 financial crisis was about preventing financial Armageddon. It was strictly necessary, and in part because of the crisis-related reforms, American banks are now by far the healthiest on the planet.

China’s financial system, paired with its terminal demographics, condemns it to not being consumption-led, or even export-led, but lending-led. That makes China vulnerable to any development anywhere in the world that might impinge raw material supply, energy supply, or export routes—developments Beijing cannot influence, much less control. China has been on this path to destruction for nearly a half century.

From the dawn of civilization right up through the mid–Industrial Age, the various age groups—children, young workers, advanced workers, and retirees—existed in a rough balance that only changed at the margin. That made for a very stable, if very limited, capital supply. Young people borrow to fuel their spending, and there are a lot of them demanding that capital.

Few savers, many spenders. Supply and demand. Borrowing costs stay high.

In the world of 1990 through 2020, this has been just peachy because it meant all the richest and most upwardly mobile countries of the world were in the capital-rich stage of their aging process more or less at the same time.

Collectively, their savings has pushed the supply of capital up while pushing the cost of capital down. For everything. Everywhere. Between 1990 and 2020 this broad convergence of factors brought us the cheapest capital supplies and fastest economic growth in the history of our species. On top of the general craziness of the fiat age. On top of the hypergrowth of the Order era.

Replace a tax-heavy, mature-worker-heavy demographic of the 2000s and 2010s with the tax-poor, retiree-heavy demographic of the 2020s and 2030s and the governing models of the post–World War II era do not simply go broke, they become societal suicide pacts.

Everyone has heard about the mess that is Greece. The Greeks were admitted into the eurozone despite not meeting . . . well . . . any of the requirements in regard to debts and deficits. They then proceeded to act like a college dropout wielding a distant stepparent’s platinum credit card. Total credit expanded by a factor of seven in just seven years.

Germany, unsurprisingly, is the polar opposite. The Germans are remarkably conservative in their financial dealings, both as a people and a government. Qualifying for a mortgage first requires making regular mortgage-like payments into a sequestered bank account for several years to prove attitude and bona fides.

far from insignificant amount of that resentment put down roots in the United Kingdom, where the 2007–9 financial crisis emboldened economic and ethnic nationalists to push for separating the kingdom from the European Union. As part of the ensuing struggle, Britain’s political right and left both imploded.

The credit build in Hungary in the 2000s was among Europe’s biggest, expanding by a factor of eight. Much of that capital flooded into the housing market in a way that would make American subprime financiers blush, putting people with minimal income or credit histories into homes they could not pretend to afford. Making matters worse, most of the loans were in foreign currencies, so when the inevitable currency swings occurred, even Hungarians who were able to afford their homes under normal circumstances suddenly saw their mortgage payments double.

Singapore has a big credit signature, with a fivefold increase in credit since 2000. But Singapore is a financial center and so is constantly investing in places outside of itself. Much of its “private credit” is wrapped up in foreign economies. Additionally, Singapore has a government investment agency—Temasek—that is responsible for funneling a lot of the city-state’s money into projects abroad. Factor those items out and the picture doesn’t look all that bubbly.

With the combination of a fairly diversified economy, government policies welcoming immigration, and a bevy of mineral reserves big enough to feed insatiable Chinese demand, Australia has avoided recession for a generation. Others noticed, and foreign money has spammed into the country to take advantage of the longest continuous period of economic growth in human history. That has turned the Great Down Under into the most overcredited of the Western countries to not yet experience a credit collapse. Credit has increased sixfold since 2000.

Indonesia is a country I tend to be bullish about for a mix of reasons: a large, young, upwardly mobile population; a government that by design focuses on the densely (over)populated island of Java, enabling it to concentrate its efforts on a fairly specific and politically unified geography; broad-scale energy security; an excellent location astride the world’s most prolific trade routes; and proximity to the massive mineral and agricultural exporters of Australia and New Zealand on one hand, and to the complementary industrial and financial partners of Singapore, Thailand, and Malaysia on the other.

Indonesia still faces a bevy of significant challenges—insufficient skilled labor, rickety infrastructure, corruption (which sits either near the top or at the top of the list)—but the country’s overcrediting is far less concerning than the headline figure would suggest.

credit picture of Brazil is a reasonable echo of Greece: a sixfold increase, peaking in 2014. In that year investor sentiment and the Brazilian political system broke at the same time, triggering a political crisis and deep recession that at the time of this writing shows no sign of abating. Making matters worse, Brazil’s constitution and currency only date back to the 1990s. Not only is this modern Brazil’s first true political and economic crisis, but it is a full-blown constitutional crisis that hits at the very bedrock of everything that makes Brazil Brazil.

Given that it has been the world’s largest oil exporter for the past fifty straight years, the word “credit” isn’t what normally comes to mind when one thinks of Saudi Arabia. Yet the Saudis have quite successfully leveraged their oil income stream to acquire rafts of credit for all portions of their system, generating a credit boom of 750 percent since 2000.

most of the credit has gone either to vanity projects in the desert, or to subsidies for the population in order to purchase citizen loyalty. When the flow breaks—and it will—that loyalty will crumble.

Credit in India is up by a cool factor of ten since 2000, with barely a dip along the way. The steady drumbeat of economic expansion has made India a far calmer place politically than its constant bouts of famine and religious and racial churn would suggest.

In Turkey the picture is getting complicated. Between 2000 and 2013, total credit increased by more than a factor of twelve—one of the sharpest and most sustained increases in the world. The boom granted Prime Minister (and now President) Recep Tayyip Erdogan the political capital required to consolidate control over an often-fractious system, ending decades of uncomfortable cohabitation between his own Anatolian religious conservatives, the pro-Western modernizers of the Greater Istanbul region, and a secularized military that saw itself as the guardian of the state.

Not to belabor the point, but the absolute financial blowout that is China has generated the largest and most unsustainable credit boom in human history both in absolute and relative measures. The Chinese will exit the modern world just as they entered it: with a big splash.

In any capital-constrained world, more money tends to be applied to locations and populations that have a lot of low-hanging fruit. Infrastructure is easier and cheaper to construct and maintain in flat, temperate zones than in mountains or tropics. Similarly, it is easier and cheaper to maintain skill sets for populations that are already educated than to boost low skill levels.

Technology is going to be a mess. Server farms, smartphones, and software don’t just magically manifest. They are the end results of thousands of concurrent and often unrelated trends. Most broadly, a healthy and growing technology sector requires a massive market to generate revenues and fuel development, gobs of skilled labor to do the brain and implementation work, and a near-bottomless supply of financing to fuel research, operationalization, and mass application.

Countries that have not yet been able to get involved with the technology sector at all now can’t even try. Others that had a foot in the door are going to lose their feet. It will be less a story of developed countries’ richness and the developing world’s poverty, and more a story of a handful of developed countries’ richness and everyone else’s nothing.

Expect to hear a lot about capital flight and capital controls. In the more or less unified world of the Order, capital can fly back and forth across borders with few limitations. Very few countries have meaningful restrictions, because of a general realization that any steps taken to slow the flow of capital in or out will starve the country of investment, and that has costs: in economic growth, employment, tourism, technological transfer, and opportunities to participate in the modern world in general. Historically, such openness is as abnormal as everything else in the world of the Order, and for the same reasons.

Capital flight is already a feature of the late Order. The United States’ mostly well-earned reputation for having a hands-off approach to private capital has made it the undeniable global financial hub. The Chinese hyperfinancialization model (and to a lesser degree, similar financial systems throughout East Asia) has sent irregular bursts of cash into the United States. European wobbles since 2000 provided even more.

As the gap between American growth and stability and global depression and instability widens, expect that figure to inflate.

Rapidly retiring populations increase demands for state spending, while shrinking working-age populations simultaneously gut government capacity to raise funds. Anyone looking to ship their money out will be viewed as borderline traitorous. Restrictions on such flight—aka capital controls—are the solution.

When firms don’t think they will be able to get their profits out of a foreign country, they are far less likely to have any interest in operations in that country in the first place. The biggest risks to capital will be in the places with the fastest-aging populations as well as those with the most rapidly retiring workforces: Russia, China, Korea, Japan, and Germany, in that order.

Inflation will be all over the place. A quick economics lesson: Inflation occurs when costs rise, and can be caused by any sort of disconnect in supply and demand: supply chain disruptions when someone hijacks a container ship, a young and/or hungry population that needs more housing and food, fads where everyone must have a Cabbage Patch do...

Disinflation is a very specific sort of price drop. When your smartphone or computer gets an update that enables you to do something better and quicker, that’s disinflationary. It’s the same when a new oil field or car plant or copper smelter comes online and increases supply. Prices drop, but the relationships that make up the market are not unduly tweaked.

Then there is deflation. Prices drop, but it’s because something is very, very wrong. Perhaps your population has aged faster than your housing market or industrial plant can adjust. Cratering demand generates an oversupply in something basic, like electricity or condos or electronics. Markets cannot adjust without amputating part of the production side, which hurts workers, which reduces demand even more.

Expect a lot more populism. The global demographic is aging rapidly, and most older folks are rather . . . set in their ways. But more than that, retirees are dependent upon their pensions. Most pension schemes are funded either by tax revenues or by dividends provided by large-scale bond holdings.

One outcome is governments that increasingly cater to populist demands, walling themselves off from others economically and taking more aggressive stances on military matters. Did you wince at your parents’ and grandparents’ voting patterns before? Just imagine the sorts of loons they’ll support should their pension income fail.

“Normal” retirees have to shift their holdings into low-risk investments because they cannot tolerate volatility, but rich folks have so much stored up that they do two things differently. First, the ultra-rich only need to preserve a fraction of their holdings to maintain their lifestyle. They can tolerate a much higher risk level and so keep much of their investment portfolio—typically well over half—fully engaged in stock and bond markets. Second, the rich are far more likely to realize they can’t take it with them, and there’s no reason to die with $100 million in the bank.

My point isn’t that capitalism is dead, but instead that even the Americans, the youngest and richest advanced population in the world—the people with the most “more” of all—are already eyeball-deep into the transition from a capitalist, globalized system to . . . whatever comes next.

Kashagan’s half a million barrels of daily output is obviously not long for this world. But it is hardly the only production zone that faces complete collapse in the years to come. That will be crushing. Modern energy in general and oil in specific is what separates our contemporary world from the preindustrial. It separates what we define as “civilization” from what came before.

discovery and exploitation of oil deposits throughout territory that now comprises not just southwestern Iran, but also Iraq, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, and Oman.

These eight countries have two things in common. First, they are technologically incompetent or, at the very best, criminally lazy. Their educational systems are sad jokes, and local citizens lucky enough to gain technical degrees out-of-region tend not to return. The locals’ incompetence is hardly limited to the energy sector. These countries as a matter of course import millions of foreign workers to handle everything from their power systems to building construction to civic infrastructure. All eight countries rely on outside workers—primarily from the United States, the United Kingdom, France, Russia, Turkey, Algeria, and Egypt—to keep the crude flowing.

Second, as technically incompetent as these states are, they are even less competent when it comes to naval action. Few have ever domestically constructed anything more interesting than a speedboat, and in nearly all cases, not even that. Iran’s navy in particular is mostly composed of inflatable Zodiacs.

single one of them is utterly dependent upon outside powers to get every drop of their crude production to end consumers. For more than half of those exports, that means reaching the Northeast Asian states of Japan, Korea, Taiwan, and China. For half of the remainder, it means reaching Europe or North America.