Nuclear War? More like Financial Warfare

This week, Russian President Vladimir Putin wanted to remind the world he is in control over what happens in the Ukraine.

I want to remind you that Russia is one of the most powerful nuclear nations. This is a reality, not just words,’ said Putin at a Youth Forum.

And supposedly in a phone call to European Union President Manuel Baroso, Putin said, ‘If I want, I take Kiev in two weeks.’ You’ll find that quote around the web. However, most have added in the words ‘could’ or ‘will’ in front of the ‘take’. I prefer to think Putin said it like a Neanderthal.

When Putin baits the press like this, it’s not surprising to see all the online news networks running with ‘nuclear war’ in a headline.

I don’t know the intricacies of the problems in the Ukraine and Russia. But I do know this: There will be no nuclear war.

To me, Putin is just talking up the threat of nuclear war. Let’s be honest — Russia isn’t the only country with these types of weapons. Under the Nuclear Non-Proliferation Treaty (NPT), United States, United Kingdom, France and China are all nuclear weapon states. And there’re three or four countries either claiming, or suspected of having, nuclear weapons.

Basically, each of these countries has the ability to inflict the same amount of damage on each other.

Russia can remind the world it’s a nuclear power all it wants. But a bunch of other government officials also have access to weapons that could end the world.

Perhaps the best explanation of nuclear war came from Jim Rickards at our World War D conference in April this year.

Mr Rickards reckons nuclear war is like ‘two scorpions in the bottle. One scorpion can sting and kill the other, but the victim has just enough strength left to sting back and they both die.

His point is countries around the world have stock piled these weapons. This is why we’ve had nuclear peace instead of war.

There is something much more sinister than the empty threats of nuclear warfare. And that is financial warfare.

Warring countries tearing apart the financial system.

Mr Rickards says it’s surprisingly easy to do.

In his most recent book, The Death of Money, Mr Rickards told the story of a financial war game he helped design and play out in the Pentagon in America.

It finally dawned on the US government that financial warfare was a more real threat than nuclear war. At the same time the boffins realised they had no modelling for how a financial war would play out. So in 2009 Mr Rickards and his colleagues put together a financial warfare game. At the time, may people thought Rickards scenarios were silly. His team had Russia and China becoming alliances.

Together, these two countries combined their gold assets and issued a new currency. Then buyers of Russia and China’s exports had two options. Sell their gold holdings to China and Russia to purchase the goods. Or use the new currency issued to buy these products.

Effectively, it forced outside trading partners to dump the US dollar and take up Russia and China’s currency.

It was only a game. But trading partners decided they needed China and Russia’s products more than they needed US dollars. Dollars were dumped and Mr Rickards and company proved their point. The Pentagon saw just how quickly the American financial system could come undone.

And there’d be no need for missiles.

 

Inflict malicious harm on your enemies
 

Economic sanctions are a form of financial warfare.

The European Union is trying to prevent all investment in Russian oil companies until Putin pulls out of the Ukraine.

An EU document on this said:

‘[To] prohibit debt financing (through bonds, equities and syndicated loans) to deference companies and to all companies whose core activity is the exploration, production and transportation of oil and oil products and in which the Russian state is the majority shareholder. This extension would significantly increase the burden placed on the Russian state to finance its companies.’

Yet, according to this report, the economic sanctions from America applied in May this year aren’t affecting Russia.

I’m sure the European Union and America would like to get their way with the Ukraine, but they do it through tougher sanctions.

Because Russia can fight back.

Without the nukes.

Mr Rickards explained at World War D that America has more to lose these days.

Sure, the US could freeze Putin’s assets. And even push two of Russia’s banks out of the US dollar payment system.

But in retaliation, Russia could simply default on roughly $163 billion of the US treasury bonds. If Russia defaults on its payments, it could send interest rates in the US soaring, quickly sinking the housing and stock market at the same time.

And then to really drive the message the home, Russia could then unleash its best hackers and bring down the New York Stock Exchange.

People often assume that America could just unleash their own hackers.

Sure they could.

Well yeah,’ says Mr Rickards ‘But whose exchange being closed will hurt the economy more? Russia’s or America’s. Moscow’s exchange is a peanut, its chump change compared to ours.

When it comes to financial warfare, Mr Rickards says the goal is to ‘inflict malicious harm on your enemies’.

Shae Smith+
Editor, Money Weekend

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Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.


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