Violence and the Dollar in the South China Sea

So far, South Korea, Taiwan, America and Japan have all sent warplanes careening through China’s new ‘air defence identification zone’ in the South China Sea. And they’re playing right into our hands for the upcoming Port Phillip Publishing symposium.

Yes, those must be some big hands. But we’ll need them to keep up with our fellow symposium speakers. One of them was a negotiator with Iran in the 1981 hostage crisis, and took part in America’s first ever economic war games. A second made his finance career in Hong Kong and Asia before it was fashionable. And a third is an expert on alternative warfare tactics.

That’s the perfect combination to make sense of what’s going on in South-East Asia right now. But despite the humbling amount of experience, we reckon their speeches will all make one crucial mistake. The same mistake the Chinese made in the early 1800s when it was the British hanging out in the South China Sea. And the Chinese have only just recovered from that experience. Literally recovered in the sense that they finally got Hong Kong back. So they haven’t forgotten their mistake.

What’s our point? Well you’ll have to come and see at the symposium. Unfortunately, it’s the opposite of what we’d like to tell the attendees. We’d like to say that the world will get rid of its skin disease known in the medical profession as ‘national borders’. Or that governments will leave people alone. But they won’t.

Behind every government act is violence. Even something as warm and fuzzy as foreign aid to the Philippines is only possible because the Australian Tax Office has the power to throw you in jail. Economic warfare between nations is no different to internal economic warfare. Currency wars and trade wars might seem benign, but have the same hidden violent nature to them. That’s why they often end up starting real wars.

Here’s an example. Back in the 1800s a very similar set of economic imbalances faced the world. An east-west trade deficit, a western military superpower and greedy crony capitalists rorting a government created, rent seeking opportunity. (That’s an opportunity to make money which is created by the government and is therefore not subject to free market competition or restraint. In this case it was a monopoly on trade given to the East India Trading Company, and a drug prohibition in China.)

The British sold opium grown in India to correct the trade balance and stop British silver flowing into China. The Chinese banned the opium. Merchants from both countries smuggled it into China anyway.

It was all going well for the British until a bunch of drunk merchant sailors beat the pulp out of a Chinese store keeper who refused to sell them more grog. Chinese junks attacked British merchant shipping in retaliation and the Royal Navy took sides. British interests, and all that.

That’s how the Opium Wars began. They ended with the British getting Hong Kong in exchange for giving the Chinese a break from the Royal Navy’s guns. British opium flowed into China freely once more instead of British silver.

Today, it’s the threat of open warfare that keeps our economic system functioning, just as it was in the 1800s. The US dollar is no longer backed by gold, just as the British Pound Sterling was no longer backed by a pound of sterling silver. It was backed by opium and the Royal Navy’s insistence that China buy opium.

Gold and silver are irrelevant when you’ve got guns. You can dictate terms. And so the US dollar is actually backed by Chinese faith in the US military. Remember, economic warfare, such as dumping a nation’s debt or challenging reserve currency status, has proper warfare hidden behind it. Right now the Chinese are testing whether they should have faith in the US military and the balance of power in economic and military terms. Our bet is that they’ll find the Americans about as insistent as the Royal Navy  was.


Nick Hubble+
for Markets and Money

Join Markets and Money on Google+

Claim your FREE Special Investor Report…

Five Fatal Stocks You MUST Sell Now
Markets & Money Free ReportIf Markets and Money editor, Vern Gowdie is correct, the Australian stock market could be headed for a devastating correction to rival the GFC. And these five stocks will be dragged through the financial carnage.

Download this free report now and discover:

  • The five biggest threats to your wealth on the ASX: Discover why these five household–name stocks pose a threat to your wealth… and why they’ll be the first to lose you money when Aussie stocks drop dramatically.
  • The ‘wealth destruction effect’: High share prices in the US have created the illusion of wealth. This ‘wealth effect’ has filtered through to our market and economy. But when the ‘bubble of all bubbles’ bursts in the US, stocks will drag our economy down with them. These ‘fatal’ five will be the first to fall.
  • Get out while you still can: Why we’re just months away from a major correction in the US markets… and how that will swiftly hit the ASX. These five companies make up nearly half the entire Aussie market… and you almost certainly own one of them.

To download your free report ‘Five Fatal Stocks You MUST Sell Now’ simply subscribe to Markets and Money for FREE today. Enter your email in the box below and click ‘Send My Free Report’.

We will collect and handle your personal information in accordance with our Privacy Policy.

You can cancel your subscription at any time.

Nick Hubble

Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

Leave a Reply

1 Comment on "Violence and the Dollar in the South China Sea"

Notify of
Sort by:   newest | oldest | most voted

ADIZ in East China Sea Not South China Sea

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to