CHAPTER 8
Globalization and State Capital
“It is a doctrine of war not to assume the enemy will not come, but rather to rely on one’s readiness to meet him; not to presume that he will not attack, but rather to make one’s self invincible.”
Sun Tzu, The Art of War, Late fifth century BC
Historically a currency war involves competitive devaluations by countries seeking to lower their cost structures, increase exports, create jobs and give their economies a boost at the expense of trading partners. This is not the only possible course for a currency war. There is a far more insidious scenario in which currencies are used as weapons, not in a metaphorical sense but in a real sense, to cause economic harm to rivals. The mere threat of harm can be enough to force concessions by rivals in the geopolitical battle space.
These attacks involve not only states but also terrorists, criminal gangs and other bad actors, using sovereign wealth funds, special forces, intelligence assets, cyberattacks, sabotage and covert action. These financial maneuvers are not the kind that are the subject of polite discussion at G20 meetings.
The value of a nation’s currency is its Achilles’ heel. If the currency collapses, everything else goes with it. While markets today are linked through complex trading strategies, most still remain discrete to some extent. The stock market can crash, yet the bond market might rally at the same time. The bond market may crash due to rising interest rates, yet other markets in commodities, including gold and oil, might hit new highs as a result. There is always a way to make money in one market while another market is falling out of bed. However, stocks, bonds, commodities, derivatives and other investments are all priced in a nation’s currency. If you destroy the currency, you destroy all markets and the nation. This is why the currency itself is the ultimate target in any financial war.
Unfortunately, these threats are not given sufficient attention inside the U.S. national security community. Bill Gertz, reporting in the Washington Times, noted, “U.S. officials and outside analysts said the Pentagon, the Treasury, and U.S. intelligence agencies are not aggressively studying the threats to the United States posed by economic warfare and financial terrorism. ‘Nobody wants to go there,’ one official said.”
An overview of the forces of globalization and state capitalism, a new version of seventeenth-century mercantilism in which corporations are extensions of state power, is a step toward understanding the grave dangers facing the world economy today. Financial warfare threats can be grasped only in the context of today’s financial world. This world is conditioned by the triumph of globalization, the rise of state capitalism and the persistence of terror. Financial warfare is one form of unrestricted warfare, the preferred method of those with inferior weapons but greater cunning.
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