There is little the United States can do militarily to change the outcome in Ukraine…but this does not mean the United States is helpless. No sooner had the Russian invasion become clear than the White House announced the possibility of economic sanctions against Russia….By implementing such sanctions, the United States has moved in the direction of a new kind of warfare — not kinetic war involving ships, planes and missiles — but financial war involving cash, stocks, bonds and derivatives. The policy question, and an important question for investors, is how far can this type of financial warfare go and how effective can it be? What will the impact of financial war be on markets in general and investors in particular?
So says James Rickards in edited excerpts from an article* posted on darientimes.com entitled Rickards: The new balance of financial terror.
[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Rickards goes on to say in further edited excerpts:
The answer is that such financial warfare tactics will not go very far and will not be very effective. The reasons for this go back to the Cold War doctrine of Mutual Assured Destruction or “MAD.”
During the Cold War, the United States had enough nuclear missiles to destroy Russia and its economy and Russia had enough missiles to do the same to the United States. Neither adversary used those missiles and the leaders were quite careful to avoid escalations that might lead in that direction…The reason was that no matter how devastating a nuclear “first strike” might be, the country under attack would have enough surviving missiles to launch a massive “second strike” that would destroy the attacker. This is what was meant by “mutual assured destruction” or the balance of terror. Neither side could win and both sides would be destroyed, therefore they went to great lengths to avoid confrontation and escalation in the first place.
In financial warfare between the United States and Russia, a similar balance of terror exists. It is true that the United States has powerful financial weapons it can use against Russia. The United States can:
- freeze the assets of Russian leaders and oligarchs that can be found both in United States banks and foreign banks that do business in dollars,
- deny Russian access to the dollar payments system and work with allies to deny Russian access to the SWIFT system in Belgium that processes payments in all currencies, not just dollars…
but, Russia is not without financial weapons of its own. Russians could:
- refuse to pay dollar-denominated debts to United States and multilateral lenders
- dump the billions of dollars of United States Treasury notes they own thus driving up United States interest rates and hurting the United States stock and bond markets or, most ominously, Russia could
- unleash its hackers, among the best in the world, to crash United States stock exchanges…
In short, the United States has no interest in intervening in Ukraine militarily and even its economic response will be muted because of new fears of mutual assured financial destruction emanating from Russia and elsewhere…[but that] does not mean that the situation in Ukraine will not impact markets. Stock markets dislike uncertainty of any kind and Russia’s intentions with regard to the rest of the Ukraine outside of Crimea certainly add to uncertainty. [Indeed,] Russia’s victory in Crimea may embolden China to assert territorial claims to certain islands in the South China Sea, which will increase tensions with Japan, Korea, Taiwan and the United States…
Investors may not be able to change this dangerous state of the world, but they are not helpless when it comes to preserving wealth.
A modest allocation of investable assets to physical gold will help to preserve wealth in the face of financial war or unexpected catastrophic outcomes. Gold is not digital, cannot be wiped out by hackers, and is immune to crashing stock markets and bank failures.
Russia has increased its gold reserves 70% in the past five years. China has increased its gold reserves over 200% in the same time period. Do they know something you don’t?
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.darientimes.com/29678/rickards-the-new-balance-of-financial-terror/ (© Hersam Acorn. All rights reserved.)
The unintended consequences of five years of QE are coming home to roost! In May or early June the stock market parabola will collapse…followed by a massive inflationary spike in commodity prices – particularly gold & silver – that will collapse the global economy. Read More »
We are now starting the hyperinflationary phase in the USA and many other countries – and this will all start in 2014. What will be the trigger? The answer is simple – the fall of the U.S. dollar. Read More »
Compare and save! Who is the most reputable, cheapest and most reliable precious metals dealer to buy your physical gold and silver from? There are hundreds of dealers touting their wares but when it comes to direct comparisons only a few rise to the top of the list. Here they are. Words: 262 Read More »