Mr. James G. Rickards is Senior Managing Director for Market Intelligence at Omnis, Inc., an applied research organization. He is also Co-Head of the firm’s practice in Threat Finance & Market Intelligence and a member of the Board of Directors.
James Rickards, an expert in the emerging field of “threat finance,” is advising the director of national intelligence.
‘A Pearl Harbor On The Dollar’
The concern now is not the gross size of countries’ economies, but how money moves between countries, and the way those movements can turn into a kind of financial warfare. Take China and the United States. The Chinese now hold about $1 trillion worth of U.S. debt, including Treasury notes and other securities. That gives them enormous power over the U.S. economy. Were they to suddenly sell those securities, the U.S. dollar would tank.
Rickards said China could set out to conquer the United States this way. Or it could simply decide that such a move made good economic sense.
“You can envision scenarios where they launch a financial attack, you know — a Pearl Harbor on the dollar, if you will,” he said. “And those are the things that I think national security professionals rightly think about. But it doesn’t even have to be that. It could just be China acting in its own best interests, in a way that causes interest rates to go up, the dollar to go down.”
If the Chinese were to dump their U.S. dollar notes all at once, they would hurt themselves almost as much as they hurt the Americans, because the value of those assets would drop so sharply. But Rickards said China could take a halfway step — exchange long-term U.S. debt for short-term notes.
“Don’t think the Chinese aren’t sophisticated about this,” he said. “There are plenty of economists in China who went to MIT and Harvard and the University of Chicago who know more about this than anyone. Those are the kinds of little plays within the bigger picture that I think people are not paying attention to, and they’re potentially threatening.”
The table shows the equivalent amount of goods, in a particular year, that could be purchased with $1.
Purchasing Power of Money in the United States from 1774 to 2008
February 26, 2009
Trillions of dollars in government spending might stabilize the economy, but for now it may have weakened some U.S. Security interests abroad and hampered the nation’s ability to respond financially to an attack at home. (Feb. 25)