It is as if the world is back in the 1930s. Back then, it was Great Britain that set off the chain reaction. Following the failure of Austrian bank Creditanstalt and another bank in Germany, Britain was forced off the gold standard and devalued the pound. Norway, Sweden and Denmark quickly followed. America held off until 1933, when President Roosevelt confiscated all gold held in U.S. banks before devaluing the dollar against gold by 41 percent. By 1936, Germany, France and the rest of Europe had abandoned the gold standard and were devaluing too, all in an attempt to renege on debts and steal trade. When the short-term boosts gained through currency devaluation were exhausted, nations increasingly turned to tariffs, taxes and trade barriers to protect local industries and jobs—all of which worked to retard economic recovery, increase social unrest, and escalate grievances between nations. What happened next in 1939 is well known. The currency-war-turned-trade-war was transformed into World War ii by a madman. Today, we see history repeating. In January, Jin Liqun, chairman of the China Investment Corporation (China’s massive sovereign wealth fund), warned America that “[t]here will be no winners in currency wars,” and that America’s money “printing machine will have to slow down for people to have full confidence in the dollar.” It was a thinly veiled reminder of what several Chinese officials have intimated over the past few years: that America’s biggest creditor nation holds a disproportionately important role in maintaining the dollar’s status as the world’s reserve currency—and that if America isn’t careful, China could strip the dollar of that coveted status. China isn’t alone in preparing for the post-dollar world. In March, China joined with Brazil, Russia, India and South Africa to create a brics bank to fund international development outside the purveyance of the U.S.-based financial system and the World Bank. In March, China also announced a $30 billion currency swap with Brazil designed to make each nation less reliant on the U.S. dollar. That same month, it also announced that it was concluding a deal with Australia to cut out the U.S. dollar middle man and conduct bilateral trade in yuan. In this case, it seems to be Australia that is pushing for the deal. The two countries conduct a whopping $120 billion in trade each year. China is also bypassing the dollar in bilateral currency deals with Japan, India and Russia. We are now in the late stages in the run-up to World War iii—locked in a vicious currency war that is getting ready to morph into a trade war. And in today’s high-speed electronic world, the train wreck will happen much faster. The slide from currency war to trade war to hot war could be orders-of-magnitude faster—and orders-of-magnitude more damaging. Experts say those countries that first devalue their currencies gain the most. The same could be said about actual war. Those countries that act first—surprising their rivals—gain a distinct advantage. When Japan surprise-attacked Pearl Harbor on Dec. 7, 1941, it hoped it would be a catastrophic blow to America, and it could have been. Today, most Americans have no idea an economic war is being waged, but they will soon. Only this time, instead of awaking to the sound and images of bombs exploding over Hawaii, America risks awaking to the sounds of riots, images of frantic bankers and empty store shelves—and to newspaper headlines calling today “The Day the Dollar Died.”
Posted on: Sun, 07 Jul 2013 03:50:09 +0000
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