{"id":58995,"date":"2014-08-20T02:42:34","date_gmt":"2014-08-20T06:42:34","guid":{"rendered":"http:\/\/countingpips.com\/?p=58995"},"modified":"2014-08-20T07:27:58","modified_gmt":"2014-08-20T11:27:58","slug":"how-the-future-of-warfare-is-financial-war","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/08\/how-the-future-of-warfare-is-financial-war\/","title":{"rendered":"How The Future of Warfare is Financial War"},"content":{"rendered":"
August 20, 2014<\/div>
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By MoneyMorning.com.au<\/span><\/a><\/p>\n

Editor\u2019s Note: <\/em><\/strong>What follows is an exclusive extract of Jim Rickards\u2019 speech at World War D<\/a> earlier this year. Jim is a lawyer, economist, investment banker and bestselling author of <\/em>Currency Wars and <\/em>The Death of Money. Read on for some of his thoughts on the future of warfare and what it means for world markets.<\/em><\/p>\n

Financial warfare<\/strong> is not a metaphor. It\u2019s real.<\/p>\n

There\u2019s real financial warfare going on now. There has been for years. There will be more in the future. I want to talk about that.<\/p>\n

If you think of a traditional Venn diagram \u2014 one big circle is the world of national security, intelligence and defence. Another big circle is the world of capital markets, stocks<\/a>, bonds, commodities, derivatives, etc.<\/p>\n

Think of the intersection of the two, that\u2019s what we\u2019re talking about. That intersection is getting bigger, more important, and there are very few people standing in the middle.<\/p>

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[There are] brilliant practitioners on both sides \u2014 on the military side and on the financial side. But the number of people who are really conversing with both worlds is few. That\u2019s going to be more and more important to you as investors on a going-forward basis.<\/p>\n

I want to talk a little bit about a financial war game that was conducted in 2009. I was invited by the Pentagon to be a facilitator and a planner of this game. Of course, the Pentagon, our Defense Department, had been doing war games forever. They didn\u2019t need any help from me in terms of a traditional war game.<\/p>\n

This was the first financial <\/em>war game ever done. The weapons were non-kinetic and nothing that would shoot or explode; you could only use stocks, bonds, currencies, derivatives, commodities.<\/p>\n

We had some of the usual teams, as you might imagine. There was a US team, a Russian team, a Chinese team and so forth. We also had a team of banks and hedge funds, because they\u2019re very important players in the space as well.<\/p>\n

We spent days, months really, designing this, and played it out over a couple of days in March 2009, at a top secret weapons laboratory outside of Washington \u2014 the applied physics laboratory. You can see it in the picture.<\/p>\n

\"applied<\/a>
\nClick to enlarge<\/a><\/em><\/div>\n

What was interesting was one of the scenarios that I introduced myself. Some colleagues, who were Russia and China (the Russia and China teams) would get together, pool their gold and issue a new currency backed by that gold<\/a>.<\/p>\n

Of course, we had the gold in a Swiss vault and the currency issued by a UK bank because nobody would trust a Russian or a Chinese bank per se.<\/p>\n

Using those safe jurisdictions to issue this new currency<\/a>, Russia and China would then say, henceforth, any Russian natural resource exports or any Chinese manufactured exports could only be paid for in this new currency. If you wanted some, you could trade and earn it or you could deposit your gold and they would issue the currency and then you could use this for transactions with them.<\/p>\n

Obviously, this was a stretch. This is not anything that was going to happen tomorrow.<\/p>\n

But at that time, we were actually ridiculed. We had uniformed military and intelligence experts, and people from the Federal Reserve<\/a>, people from the United States Treasury, think tanks, universities, etc., and what I\u2019ll call the Harvard professor-types, actually ridicule us, \u2018This is ridiculous. Don\u2019t you know gold has no place in the monetary system. It\u2019s obsolete,\u2019 etc. \u2018Why are you doing this? This just seems like a waste of time.\u2019<\/p>\n

Be that as it may, we played it out. I won\u2019t take you through every move; it\u2019s all described in my first book Currency Wars<\/em>. Since then, since 2009, Russia has increased its gold reserves 70%. China has increased its gold reserves several hundred percent. No one knows the exact number because they\u2019re not transparent about it. Officially, as you know, in 2009 they now stay at 1,054 tons, whether today they have 3,000 tons or 4,000 tons.<\/p>\n

No one knows exactly, but that\u2019s the right order of magnitude and they seem to be (determined to) acquire more.<\/p>\n

Their actions are actually playing out as we modelled for the Defense Department in 2009. China is now a very robust actor in financial warfare.<\/p>\n

Editor\u2019s Note:<\/em><\/strong> Very soon, hopefully this weekend, the official World War D Highlights Reel will go up online. In his full speech Jim Rickards, author of<\/em> Currency Wars, reveals:<\/em><\/p>\n