In today’ hyper-charged world where different centres of power are
emerging nuclear arsenal has become
frightening mantelpiece . It involves more optics and less operational value.
Financial war has become “Hyper-strategic” weapon, as it can easily be masked and juggled
with. Government itself
doesn’t generate any money. It doesn’t have any of its own money, It prints
money, get it by Tax collection, borrow from local private banks or from abroad.
In
Corrupt nations elite echelons of society conduct like lechers not leaders, as
parasites on host body of the community more like the “rent seekers”. They like to stash wealth by
non productive means. This is how post
modern finance works.
On
August 15, 1971, President Richard Nixon banned dollars to gold conversion and
introduced the new economic policy. Dollar crisis spreads through equity and commodity
market . When dollar collapses, dollar denominated markets also collapse, Panic
spreads quickly throughout the world. Deflation is closely correlated and normally accompanies deflation. There is tug
of war between inflation and deflation and Dollar serves as a rope to bear the
stress.
Printing
dollar out of thin air in US means,
inflation in China, higher food and other commodity prices elsewhere. Devaluation
of dollar in US makes exports expensive from others countries
to US, which results in more
unemployment in developing economies. To tackle this other countries have to
devalue their local currencies to keep their exports alive. Which cause
inflation in their own countries.
Some
economists lobby for global currency called SDR (special drawing rights). It
would be extremely dicey to have SDR
without tackling current currency pligt. Pentagon is cognizant of how financial markets work under the age of
greed, shortsightedness, deregulation, speculative mindset and bad intent, In
the best of times Wall street is like wild west, but with globalization it has
become more out of control.
There
are four components to GDP growth i.e 1. Consumption 2. Investment. 3.
Government spending,4. Net exports. Currency wars are usually fought
internationally but are driven by domestic
distress i.e insufficient
internal growth. In case of total financial melt down, US still had massive
gold reserve, which is not stored in civil banks but military bases i.e Fort
knox in Kentucky , west point along Hudson river in New york, which ensures the
connection between national wealth and national security. Dollar or any other
paper currency can be printed by the central bank but a currency backed by hard
asset or commoditiy has real value attached to it and can’t be printed out of
thin air.
In
order to cut exports cost US cuts interests rates. Which makes dollar
less attractive in foreign market or by devaluation of dollar. A worst form of protectionism, by
devaluation, embargoes and tarrifs on exports from other countries.
Gold
has always been a “Gold standard” as a currency. It had been standard since 600
B:C to modern Turkey. England had gold
backed currency from 1717 until it debased it in 1931. France in 1936 debased
its currency from gold, Germany until 1915 had the fourth largest gold reserves
after US, Russia and France.
Before
1945 pound sterling was the major reserve currency in the world, reduced to 26
% in 1965. US dollar is 61 % of
identified reserves currencies as of
2011, it was 71% in 2000, euro is about 26 % in 2011. This is due to expansion
of trade between Europe and Asia and within Asia itself. Perhaps it is 49 % which is tipping point when
dollar will lose dominance and its
importance as world’s single major reserve currency. Charles deGaule in 1965 said
in a speech that world should return to gold standard , It is the reserve which
doesn’t have any particular country’s mark.
Chinese
case is rather very compelling and there are many lessons to be learned from
Chinese miracle. Modern Chinese miracle began
in 1975 , announced by Zhou Enlai with modernization in four main areas, Agriculture, industry,
defence and technology.
Deng
Xiao Peng in 1979 took monumental decision to establish special economic zones
offering enabling and encouraging work rules, reduced regulation and tax
benefits designed to entice foreign investment, particularly in manufacturing,
assembly and textile industries. China
launched a program of development of economic zones along the coastal cities of
eastern china in 1984. In 1997 US trade
deficit with china was 50 billion $, which increased to 234 billion $ in 2006
. Chinese growth is mainly driven by
foreign direct investment which is 48 % of total GDP while it is 12% in US. China
has emerged as the manufacturing powerhouse over few decades, together it manged
to pull out millions of slum dwellers from abject poverty.
Euro
in the eurozone is a sweet spot for Germany.
As export nation Germany favours weaker Euro. Weaker Euro is in favour
of Germany, it makes German exports and from the countries who trade in euro
cheaper and more competitive . European debt crisis over the years gave Germany
a dominant position in Eurozone because it has surplus Euro liquidity for years.
Germany has emerged as the major lender in Euro zone and thus it managed to
extend its political clout as well.
In
global vista if a country has annual trade surplus in excess of 4% of GDP,
it is an indicator that currency of
surplus country to be re-valued in order to shift the trade balance from the
surplus country towards trade deficit country. This is something which happens
under classical gold standard automatically. With paper currencies countries
themselves artificially revalue.
For
every war there is neutral venue, and in currency war Dubai is the venue .Dubai
is world’s largest trans-shipment point for paper currencies. There are some
secure sites near Dubai international airport where massive amounts of
banknotes are stored, awaiting return to their issuing banks.
Gold
is not only a commodity but money which has a real value attached to it. All
discovered gold can be fit into cube of 20 meters cube on each side. Gold supply per year is around 1.5 % . Financial worth of Nation’s currency is its Achilles
heel . If currency collapses everything else
collapse. Paper currency
can be produced at anytime by any central bank but Gold or any other currency
backed by hard asset can’t be produced . Having and international reserve
currency backed by hard asset i.e Gold, Silver or any other agreed commodity
would end the unfair play of manipulating with local currencies. This would
create an autonomous balance between trade-surplus and trade- deficit countries.
Countries which have more the 4 % of their GDP and surplus would loose the
advantage and their exports would not remain competitive.
