© Agence France-PresseTraders at the New York Stock Exchange yesterday. The US fears China's ability to press the button on its Treasury bills.
The scene: the war games suite of the mightiest military power in the world.
The guests were assembled in the Warfare Analysis Laboratory, surrounded by uniformed officers from the highest levels of the Pentagon and a dizzying array of screens normally used to simulate nuclear world war.
The gentlemen were called to order and the games began.
"If you imagine the war room in
Dr. Strangelove, you're not far off," says participant James Rickards.
Yet this was no traditional battle game, but rather the Pentagon's first economic war game, and the authorities are loath to talk about it.
Economic war? It sounds preposterous. Except it gets less so with every dollar of debt run up by the US.
Behind the scenes, the military are worried about the market. For who owns much of this debt? China, the US's most powerful rival and threat. And that makes America vulnerable to a new kind of bloodless but ruthless war.
Rickards is not a soldier but a banker. He was joined in the war game by dozens of his Wall Street colleagues, flown in from Manhattan to this bunker at the Applied Physics Laboratory in Maryland for the two-day event in 2009, when the Pentagon started to get really alarmed.
The group was split into five teams: America, Russia, China, Pacific Rim, and a "grey team", representing shady outfits such as terrorist organisations. They were sent into "bunker rooms" and told to use financial or economic tools - currency, debt, stocks, gold - to bring their enemies to their knees. Everything was conducted via computer, and they could be as devious and ruthless as they liked. The bankers liked.
"These people would normally never come together. But there is nothing more fun than to take a Wall Street guy and tell him to be a bad guy," says Mr Rickards, a former senior executive who was involved in planning and executing the war game.
When the game was halted, the result left the military men quiet and sobered. Why did the bankers scare the soldiers? The answer lies in the way the world is now interconnected as never before.
Over the past few years, China has been buying up US government debt and is now its biggest holder. If China were to dump this debt, it would totally screw with the economy. China could, hypothetically, win any number of foreign policy objectives by making it impossible for you to pay your mortgage.
Paul Bracken is a professor and expert in private equity at the Yale School of Management who serves on government advisory committees at the US Department of Defence. He was one of the key players behind the 2009 economic war game, and the smaller versions that have been played out since.
"The atmosphere that day was one of surprise at the magnitude of the threat," he says.
"The Pentagon people were used to dealing in terms of military battles: how many ships, how many missiles. This opened up whole new strategies."
Of course, economic warfare is not new. God's plagues on the Egyptian pharaoh's crops, as reported in the Book of Exodus, were an early skirmish. Winston Churchill created a Ministry of Economic Warfare, to run as a "new instrument of war" against Hitler. Embargoes and sanctions have been targeted at dozens of countries, from South Africa to the former Soviet Union.
But this is different. The markets are now global, the holdings in each other's finances deep, and the technical ability to manipulate them instantaneous. In the 1970s the West feared that its enemies had their fingers on a nuclear button. The modern equivalent may be China's ability to press the button on US Treasury bills.
China is, Professor Bracken says, "the huge threat", but Russia, with its oil and gas, has shown no compunction in waging economic war on its neighbours, and could do so on a larger scale.
Another possibility is that major oil-producing countries could destabilise America by switching to euros instead of dollars as the currency in which oil is priced - so-called "petro-dollar warfare". Or a terrorist organisation might trigger a financial crash via some kind of shady hedge fund or computer attack.
What the economic war game showed Professor Bracken was that military and economic decision-making has to be more unified. Banks and bonds are now weapons, just as much as bombs. "That makes the military nervous, as they had always been in charge of operations. That's why they know they need to understand this," Professor Bracken says.
Mr Rickards says that, "If you're going to confront the US military, you would spend billions.But if you can do so just as effectively in financial space, and it would cost less, why not?"
Perhaps Britain felt a taste of this last year, with some stockmarket shocks that wiped millions off three British companies. BT lost pound stg. 969 million ($1.5 billion) on one afternoon in August, Next lost pound stg. 275m. Security services had to probe the possibility that it was not technical faults, as initially supposed, but a concerted attack by a nation state.
John Bassett, a fellow of the Royal United Services Institute, says the British government is just waking up to the new order.
"If those were deliberate attacks on the London stockmarket, it was highly unlikely to be a criminal gang, much more likely an economic rival," he says. "This is a ruthless competition for global economic supremacy, and the West isn't winning."
At the end of that Pentagon session, the 80-odd players returned from their bunkers and assessed the damage.
China won, without so much as reaching for a gun. And the soldiers looked at each other and wondered if it was still only a game.
Source: Agence France-Presse
enjoy 'the show'--the economic situation is a complete farce. First off, this article neglects to state that the only one who holds more treasury debt than china is the federal reserve--this is new within the last two years and a sign that the dollar is already on its death bed, as when a country 'owns' the majority of its 'debt' then what it really means is that it's printed so much money than no one else can buy it, so they have to 'buy' it themselves. All of this is a facade for printing money to create debt backed by the public which is then handed to bankers and other rich thieves.
Second off, china can't dump treasuries--why? Well, if they did, the instant they did (since they hold a lot), there'd be a massive sell off game and the price would tank instantly. The Fed could theoretically prop up the price for a while (that's what QE was, essentially--they probably still do it), but they'd stop quickly before buying all of china's holdings, still tanking the value. Tanking the value may be the 'purpose' of the economic 'warfare', however pause and think about it for a moment--if you were china, would you want to instantly devalue trillions of dollars in your own holdings? Would that be a wise financial move? Their currency is also a fiat currency (backed by a 'faith' in the government that issues it, but truly just paper otherwise)--if treasuries tanked, the dollar would tank. If the dollar tanks, where is all the money going to go? Probably metal--not yuans. And if the dollar tanks and metal is skyrocketing, that's where everyone's going to go to. Furthermore, china links their fiat currency to the US dollar--they'd have to remove the peg first. And they benefit by having a relatively weak currency to the dollar as that's what creates the economic imbalance that exports manufacturing from the "first world" to the "third" and it's why Japan has been intervening in their currency--not to strengthen it, but to weaken it--for the past two years.
Next, there's the big elephant in the room--the fact that the US is run primarily by psychopaths and are clearly not above bombing (including the use of nuclear bombs), assassinating, using economic warfare themselves, cyber warfare, spying, infiltrating--everyone knows that countries either get in line with the elites or they get taken out. China is no different and even if there was to be a war between the two nuclear armed countries--even though china has 5 times as many people as the US--the US would raze them to the ground with nukes before the Fed stopped buying up the treasuries that china was dumping. Such an act would very certainly and very clearly be an act of war and the US would go to war (but even then it'd be a complete farce just to hand more money to the bankers or create more debt attempting to enslave the populace).
From the article:
"Another possibility is that major oil-producing countries could destabilise America by switching to euros instead of dollars as the currency in which oil is priced - so-called "petro-dollar warfare"."
Well, isn't this what Libya was trying to do? Hmm...what happened to them again?
"Or a terrorist organisation might trigger a financial crash via some kind of shady hedge fund or computer attack. "
This line can only be a description of Goldman Sachs and no other organization (well, perhaps JP Morgan or BoFA) and this is what they've already been doing for years (see housing crisis, greece, HFT, etc). This sentence is yet another example of the elites, through 'the show', telling people what they've already been doing for years and pretending it could happen through some 'shady organization'--except the organization that could and is doing it is, in fact, shady, but lives on wall st and in the white house, and already has billions and billions of dollars.
There's no economic war and there never will be--the ENTIRE GLOBAL ECONOMY is a facade to extract wealth from the poor, give it to bankers, and then enslave the populace through false debt. Everything else is 'the show'--that's it. They manipulate every market, they create the debt, they burden the people with it; they lie cheat and steal 24x7. I'm convinced, at this point, that the only two things that can tank the market are them intentionally pulling the plug, or the comets. Maybe a bank run could have some kind of effect against them, but even that seems overly optimistic, these days.
Admittedly, though, there's no reason not to do a bank run.