Editor’s Note:What follows is an exclusive extract of Jim Rickards’ speech at World War D earlier this year. Jim is a lawyer, economist, investment banker and bestselling author of Currency Wars and The Death of Money. Read on for some of his thoughts on the future of warfare and what it means for world markets.
Financial warfare is not a metaphor. It’s real.
There’s real financial warfare going on now. There has been for years. There will be more in the future. I want to talk about that.
If you think of a traditional Venn diagram — one big circle is the world of national security, intelligence and defence. Another big circle is the world of capital markets, stocks, bonds, commodities, derivatives, etc.
Think of the intersection of the two, that’s what we’re talking about. That intersection is getting bigger, more important, and there are very few people standing in the middle.
There are brilliant practitioners on both sides — on the military side and on the financial side. But the number of people who are really conversing with both worlds is few. That’s going to be more and more important to you as investors on a going-forward basis.
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’t need any help from me in terms of a traditional war game.
This was the first financial 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.
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’re very important players in the space as well.
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 — the applied physics laboratory. You can see it in the picture.
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.
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.
Using those safe jurisdictions to issue this new currency, 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.
Obviously, this was a stretch. This is not anything that was going to happen tomorrow.
But at that time, we were actually ridiculed. We had uniformed military and intelligence experts, and people from the Fed, people from the United States Treasury, think tanks, universities, etc., and what I’ll call the Harvard professor-types, actually ridicule us, ‘This is ridiculous. Don’t you know gold has no place in the monetary system. It’s obsolete,’ etc. ‘Why are you doing this? This just seems like a waste of time.’
Be that as it may, we played it out. I won’t take you through every move; it’s all described in my first book Currency Wars. 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’re 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.
No one knows exactly, but that’s the right order of magnitude and they seem to be (determined to) acquire more.
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.
Editor’s Note: The official World War D Highlights Reel will go up online this weekend. In his full speech Jim Rickards, author of Currency Wars, reveals:
- Why we have entered an era of ‘mutually assured financial destruction’ and what this means for your investments
- Why a new global economic downturn is coming…only THIS time it will be ‘bigger than the Federal Reserve.’ (And the Fed is currently carrying $4 trillion on its balance sheet…)
- Why you’ll see a ‘sudden, instantaneous loss of confidence in the US dollar’ occur during this next downturn…and why YOU musn’t be ‘the last person in the room’ when this happens
- Why the King of Currency Destruction is actually recommending you go 20% cash right now with your portfolio. At first it doesn’t seem to make any sense. But Jim explains how you should do it and why…