Can Higher Wages Grow An Economy?

Around the world, China is increasing her presence as we speak.  As China grows her global presence in geopolitics and world economy, competitive countries such as the United States have to worry about the future in which China will have more influence in all things global.  If China is going to be too dominant and overtaking the United States in the influence of global affairs, the United States may have to find ways to cooperate with China.  If the future isn’t about the cooperation of the two biggest countries in the world in term of economics and raw power, then the future is certainly going to be very grim.  How grim?  Perhaps in such a grim situation, the grimmest outcome might be of a zero sum game.

I can’t imagine the kind of hell that a zero sum game is going to be waged by the two most powerful countries in the world in a nuclear age. The implication of such a zero sum game in our time is definitely scary.  If the United States and China are going to have a hot war in the future, both United States and China will force other countries to take side.  This means we might have a new world war if the two most powerful countries in the world are going to have a hot war.  Any sane person in my opinion would not want to witness a hot war between any two most powerful countries in the world, and so I think it’s very important for us humans to push for more cooperations to weed out the warmongers among us.  In order for one society to cooperate with another, we need to understand each other.  This means, the people in the United States need to understand more about China, and the people in China need to understand more about the United States.  I believe more cooperations between the two giants of the world can only bring more peace and prosperity to the rest of the world.  Most importantly, the cooperations between the two giants can also raise the quality of life for the people who are living in both countries (i.e., China and the United States).

In the video right after the break, professor Yasheng Huang gives a lecture on how capitalism has been developing in China, contributing to the huge growth of the Chinese economy that we’re seeing today.  I think his lecture is profound. In the lecture, he honestly points out hidden problems that are existing and may exist within China.  This means being a big country such as United States or China doesn’t mean big challenges are not there.  In fact, I think the bigger the country the bigger the problems are going to come out of the woodwork.

In the video, professor Yasheng Huang insists that personal income dictates the real wealth of a country.  He mentions how desperate a banker can become if regular people cannot afford to spend or buy house.  By this he implicates that the regular folks are the healthy roots that hold the strong economy together.  If regular folks cannot afford to spend on necessary things and housing, then businesses and housing construction have to slow down.  This means the bank institutions become poorer as people won’t have money to spend and deposit and businesses won’t have money to pay back loans and whatnot.  The real economy will decline if the everyday people cannot afford to spend on important things such as housing.

Personally, I partly agree with professor Yasheng Huang on the point that everyday folks with higher wages can grow the economy.  Nonetheless, I think professor Yasheng Huang needs to also lecture on how inflation can play a pivotal role in dictating the real strength of the personal income.  Inflation is very important in my opinion, because personal income can either be grander or weaker depends on the inflation.  For an example, one dollar can purchase a cart of lollipops yesterday but can only buy one lollipop today has great effect on how people spend their personal income to grow an economy.  In fact, I think a growing economy is the result of many positive economics factors, and the optimization of the balance of personal income and inflation is one of those very important, positive economics factors.  This is why I think China is not only wanting to grow her economy in quality and quantity, but she also wants to control her inflation in a way that it makes sense for everyday people in China.

Since we’re living in a global market, inflation can be exported and imported.  This means inflation policy in influential countries such as the United States can have great implication for the inflation in China.  Currency war is one of the tools that a country can use to import and export inflation.  If the United States imports inflation by weakening her currency exchange rate to promote export competitiveness, she can induce high inflation in China for China has accumulated United State’s treasury bonds over a trillion of dollars.  Simply put, if United States weakens her currency can induce China to mimic the United States’ inflation policy to keep China’s export market and United States’ treasury bond value up.

Nonetheless, weakening one own country’s currency to induce higher inflation means to weakening the personal income of everyday people.  I think currency war is going to hurt the everyday people a lot more in the end.  I know China knows this, and this is why we’re seeing China is gradually moving away from accumulating more treasury bonds from the United States.  Nonetheless, by doing this China can push the United States into hyperinflation as the dollars cannot find a home abroad.  More dollars will rush back to the United States, pushing the inflation to the unstoppable rate.  If this to happen, the United States economy will crumble as the everyday folks will not be able to utilize the dollar for purchasing whatever at a hyperinflation exchange rate.  Of course, the United States can reduce the inflation rate by buying up the treasury bonds herself and introduce higher interest rate, but this will make her already huge national debt harder to manage.  As right now, according to usgovernmentdebt.us website, United States’ national debt is at $18,176,295,505,000.  It’s a very hard situation for the United States to be in.

But can we really blame China?  China is also wanting to balance her inflation at a sensible rate that can help induce her own economic strength!  I don’t think there is an easy solution to the ever struggle between countries’ inflation import and export.  I guess in the end, it’s the local economy strength that helps a country to weather the inflation storm.  To fight insensible inflation rate, I guess a country needs to have strong employment and high personal income wages.  In the end, I think professor Yasheng Huang is onto something here, because I agree with professor on the importance of higher wages for everyday people.  Professor Yasheng Huang also emphasizes on the importance of building human capitals, but I guess you have to watch the video for the details as I’m going to end my blog post here.

Per Capita Income Cannot Be Used To Compare How Wealthy A Country Has Become

I’ve seen some people used per capita income as an argument for how progressive an economy has been.  Nonetheless, these people could have been deluding themselves with this argument all along.  Perhaps, if they’ve known the truth, they might want to visit the past to wipe off their smirks on this very topic.  How come?  Per capita income is very distorted in my opinion.

Per capita income equation is PCI = TPI/P.  TPI is total personal incomes of everyone in a country and P is the population of a country.  So, let’s assume a fictional country A has 4 trillion TPI and the population of 80 millions, then the per capita income for the fictional country A is 50 thousands.  We can safely assume that this fictional country A has a high per capita income.  In a perfect world where a country has everyone makes the same amount of income per year, it means each and everyone in this fictional country has the ability to make 50 thousands (money) per year.

Some people like to use the per capita income to boast about one’s own country wealth and progressiveness.  Nonetheless, the simplistic per capita income equation doesn’t account for inflation.  Since inflation isn’t being included in per capita income equation, per capita income cannot really be used to compare the wealth and progressiveness of countries.

Why inflation is important?  Inflation is super important in an interconnected contemporary world like ours.  Countries are trading with each other a lot more so than ever before, thus each country relies on endless information that come out from other countries that are known as global trade partners.  Inflation is one of the important information that can help one country to assess a global trade partner’s economic stability.

Since inflation is important, we need to understand the simple concept which inflation represents.  According to my layman conception of inflation, inflation is a measurement of the strength of market prices according to supply and demand.  Although a currency for a country isn’t exactly meant to be a commodity in a market, but it’s too being affected by inflation.  Since currency is too being affected by inflation, thus inflation can measure the implicit innate price of a currency.

For an example for why inflation is an important measurement of a country’s economic stability, let’s assume a fictional country A got into too much debts and has lost the trust from global trade partners.  Since the fictional country A doesn’t have a stable economy and clean national budget, the global trade partners aren’t willing to lend the fictional country A some money, fearing the fictional country A cannot repay the future loans.  Since each country has different currency, thus there must be a conduit to allow the measurement of currency exchange to occur.  Once the conduit exists, each country can then use the currency exchange rates to decide how much a country’s currency is worth globally.  Let’s assume the fictional country A has lost the trust of global trade partners and can’t receive more foreign loans, the demand for the currency of the fictional country A is shrinking massively on a global scale.  Less demand for a country’s currency in the global market means the currency of such a country cannot be used effectively to bargain for global goods.  Since nowadays, all countries are relying on global goods than ever before, thus local inflation can now be imported and exported.  By this I mean although inflation can be used to measure the strength of prices for local goods and currency, but in the interconnected global world like ours inflation can also be used to measure the prices of goods and currency that are meant to be imported and exported for a country.  The fictional country A is going to have to adapt to high inflation since the demand for its currency is very weak globally.

High inflation means too much money is chasing after a product, thus weakening the strength of the money and strengthening the strength of the price of a product.  In the currency situation, high inflation means too much currency is chasing after a global trust.  If the world decides to not trade with the fictional country A unless the fictional country A uses some hard assets or whatever that is valuable to exchange with another country’s reserve currency for the purpose of foreign trades, then the fictional country A’s local currency has become totally useless for global trade.  This means high inflation for the fictional country A.  People who are living in the country A can make 50 thousands (money) a year, but their 50 thousands income cannot really afford them to buy goods abroad, because the local currency is too weak to have a fair exchange rate in the global market.  The fictional country A has to promise hard assets or whatever that is valuable to be traded with foreign loans (in a reserve currency) so the fictional country A can have some money to import global goods such as anything that needs to be imported.

In the interconnected world like ours, the fictional country A cannot be counted as a wealthy country, because its currency is too weak to be used as money for global goods.  With high inflation, the fictional country A’s per capita income becomes meaningless unless the fictional country A’s currency is the most valuable and sought after for global exchange and reserve currency purposes.

Can the United States’ high inflationary and low interest rate policies help China to grow even more?

Can the United States’ high inflationary and low interest rate policies help China to grow even more?  As we know how the United States is trying to keep the inflation rate high and interest rate low to promote consumption spending and bring in more revenues for government agencies.  United States is doing this while also cutting back some spendings in general, because the United States needs to deal with both huge foreign and internal debts and the interest of the foreign debts.  As United States prints more money to keep inflation rate high, this affects China’s inflation rate big time.

Why?  China’s Yuan is still pegging to the Dollar, and so China’s inflation rate is probably shooting up really high when the inflation rate in the United States skyrockets.  As China’s middle class is growing in astounding number, China’s middle class is sure to have a lot of cash to spend.  Although Chinese tradition is to save more and spend less — Chinese had been poor for a long while since the downfall of China’s ancient kingdom and during Mao’s time — with more money Chinese people are sure to be able to afford better modern accommodations.  As in the United States, high inflation may encourage Chinese to spend more since they may fear that prices are keep climbing for the accommodations (e.g., household items, cars, furnitures, electronic items, smartphones, etc…) that they need.

In the time that the Chinese are having a lot of money, they are sure going to spend for whatever that they must have and need. With the high inflation rate in China to boost the domestic Chinese consumers to spend even more, Chinese internal market may heat up even more and growth in consumption may as well skyrocket.  This in turn will boost firms and companies from abroad to bet even bigger on the Chinese market as Chinese market is set to grow a lot higher in term of consumption lead.

Unlike the United States in term of forgoing home manufacturing capacity, China may boost consumption even without letting go home manufacturing capacity.  Why?  Out of 1.4 billion of people or so, if I’m not wrong on this China’s middle class is roughly around 300-400 million of people or so, and so around 1 billion more Chinese are still working their way toward becoming the new middle class citizens.  With so many more Chinese that aren’t yet achieved the middle class status, they’re sure working hard in the home manufacturing based entities/market in hope of making a better living.  This is why China may not yet be able to forgo the home manufacturing capacity for cheap labor is still possible in China’s poorer areas.

Meanwhile, China may try to boost their service sector to grow even more to compete with foreign service industries.  On the top of all of that, China doesn’t need to print so much money as the United States to boost inflation rate, because the United States’ inflation rate alone is already pushing China’s inflation rate up. I think China’s market will grow even more as the United States prints more money to boost the inflation rate at home. The question is if the United States decides to tapering, what will happen to the markets and economic growths in China and the United States?

Can The Euro Replace The Dollar As The Next Reserve Currency?

After finishing my reading of Chapter 5 for “Death of Money: The Coming Collapse of the International Monetary System,” it seemed at this point of the book the author viewed Euro as a potential challenger to the dollar as the reserve currency.  The author James Rickards surmised that the Eurozone could regain strength and vitality as long Germany and other Eurozone member countries could go ahead and reform several internal problems.

Although I don’t remember all of the internal problems James Rickards described that needed to be reformed for Eurozone, I think he’d mentioned about labor mobility and several others.  Nonetheless, James Rickards imagined that if Eurozone could move the unemployed workforces from Eurozone member countries to employment resource scarce countries such as Germany, then the unemployment problem for the Eurozone could be alleviated.  In effect of this, the revitalized workforces that were moved could once again contribute growth in terms of consumption and investment and so on in general.

I have to wonder though, would Germany and other employment resource scarce countries, assuming jobs are abundant and requiring to be filled, want a flood of migrants from Eurozone member countries to disrupt the local employment flow?  Nonetheless, it seemed that China had successfully implemented something like this by allowing migrants from rural area to migrate into the cities, consequently expanding the cities’ size, reach, productivity, and so on. As Chinese migrants are readily earned city’s incomes, they can then export some of their earnings back to the rural areas for whatever.  Perhaps, some of the migrants will have enough money to go back home and open up businesses of whatever, and this in turn slowly urbanizes the rural areas.  As China’s urban cities got crowded, overused, overpopulated, and so the labor demand for such cities cannot grow more — wages for such cities might be higher as workers expect cities’ wages and not of rural areas’ wages — the flood of migrants will slow down.  Nonetheless, China’s coastal cities can relocate factories and other essential industrial capacities into the inner China where rural areas are common, and in this process China finds cheaper labor and urbanizes the inner rural cities.

James Rickards imagined Eurozone member countries could do something as China’s labor mobility but without the factor of urbanization.  After all, many Eurozone member countries may not need urbanization at all if I’m not wrong on this.  I think Eurozone member countries can definitely improve the labor mobility to improve the Eurozone as a whole, but internal political strifes among Eurozone member countries may prevent this to be done without danger.

Imagine Germany’s political force may not want to see the German workforce order to be disturbed too much, because once the workforce order got disturbed it could be a lot harder for such a workforce order to be reversed back to its normal flow.  To make my point, let’s assumes that Germany is experiencing growth in general and demanding bigger labor workforce, migrant workers from Greece and elsewhere within Eurozone can migrate to Germany to fill up the labor demand.  The problem is when Germany begins to experience economic downturn, the huge number of migrants will not be viewed favorable to the local population.  At this point the migrants will stop migrating to Germany, and the migrants that are already in Germany will go elsewhere within Eurozone to find jobs.  If everything works out the way the supply and demand force is meant to behave for the labor demand in Eurozone, things will not be so bad.  Nonetheless, will Germany in an economic downturn easily find it to be easy to accept migrant inflow when the economy picks up again?  The bigger question is what if the whole Eurozone experiences economic downturn, where the migrants who work in Germany migrate to within the Eurozone?  Perhaps, the migrants may have to go beyond the Eurozone for jobs, but it’s not easy for the migrants to migrate beyond the Eurozone for jobs for obvious reasons (i.e., documentation issues, immigration issues, etc…).

It’s hard for me to imagine Eurozone as a whole uses a single dominant language for facilitating economic conditions.  French will forever speak French, German will forever speak German and so forth for the whole Eurozone.  I assume this will be the same for writing too for the Eurozone member countries.  My point is that every time migrants from Eurozone relocate themselves elsewhere within Eurozone, they may have to learn new language (e.g., writing, speaking) in order for them to be effective at their new jobs.  This won’t be easy if the economies within the Eurozone change too frequently (e.g., economic downturn, economic upturn).

I think we can pretend that many economic models and facts and equations can point out the problems and provide solutions for an economy, but we fail to realize that what matters most is the irrational behavior of humans.  We humans don’t behave rational all the time, because we are not the robots.  Robots follow the rules of the algorithms without theirs own rationalization.  Us humans tend to do things on our own as if we know best, thus when we become irrational we don’t think that we are irrational.  As a collective whole humans can be very irrational, and this shows why our history is full of wars and tragedies.  Our economies behave the way we are, and so when we are not so rational, our economies become irrational.  With this notion, I don’t think few simple suggestions such as labor mobility and so forth can be implemented with certainty.  Even with labor mobility and so forth could be realized, the global economy as a whole has too many moving parts, and these moving parts can be counter productive to the positive trends that occur within the Eurozone.  For an example, United States will not want to see the Euro rises for obvious reason (i.e., dollar’s reserve currency status must be upheld).  China too wants its currency to become a reserve currency in the near future.  With the two biggest economies in the world, United States and China, with very powerful military mights to back their agendas, it’s easy to imagine there are so many more moving parts within the global economy as a whole.

I think the author is too optimistic about the whole Eurozone as a whole.  I do think the author does have many good points on why the Euro won’t collapse and Eurozone won’t be breaking apart, because he explained well why United States and China do not want to see the collapse of Euro and Eurozone.  James Rickards mentioned that the United States had been wanting to keep inflation high in the United States and interest rate low for revitalizing exports and easy debt payments.  By printing more dollars, the United States can push inflation up.  By printing more dollars, the United States also keeps the Euro strong.  Besides United States exports deflation to Eurozone member countries, China too wants the Euro to stay strong for many reasons.  One noticeable reason which James Rickards mentioned is that China wants to diversify its foreign investments.  Instead of only investing in United States treasury bonds (i.e., dollar holding), China wants to convert some of its Dollar holding to Euro holding and other Eurozone investments.  This way, China does not have to put all of its eggs in one basket.  After all, how can one be sure that the dollar will be alright for indefinitely?

Entering Russia and so the picture of global economy becomes even more complex.  Russia does not want the dollar to be the only reserve currency, and Russia isn’t having a good relation with the United States since forever.  Especially since Syria, Libya, and Ukraine crises/conflicts, United States-Russia relationship has gotten worse than ever before.  In fact, many people think this relation is making a full circle (i.e., getting worse to the freezing point of the cold war).  Russia is an energy export country, and so Russia’s energy geopolitical maneuver has great impact on the world.  As United States boosts its own energy export sector, it’s in conflict with Russia in the energy export market.  Meanwhile Eurozone member countries are depending on Russia for energy supplies such as natural gas.  This is a big security issue for Eurozone member countries, because Russia can blackmail Eurozone member countries into submission by raising prices or producing less energy resources.  Can the United States help Eurozone member countries to rely less on Russia’s energy resources?

Anyhow, Russia with its own geopolitical agenda can make the whole global economy a lot more complex.  It’s already happened as Russia and China signed the $400 billion natural gas deal.  With this deal Russia will not have to worry about too relying on Eurozone member countries for natural gas export.  As Ukraine conflict continues, United States and Eurozone member countries continue to sanction Russia.  Returning the favor, Russia cuts more ties with the United States and Eurozone member countries.  With these economic sanctions between them (e.g., Russia vs United States and Eurozone member countries), the outlook for the global economy might be dampened by a lot.  Meanwhile Japan, Philippines, and Viet Nam are in territorial disputes against China.  China might play hardball and sanction these countries.  If the tension between these countries against China are not dying down, the global economy as a whole might get even worse.  Simply put, there are way too many uncertainties and moving parts for the author, James Rickards, to be certain that Eurozone will be able to reform without issues.  Without reforming appropriately, the Eurozone will not be able to perform.  If things got really bad, the Eurozone might even see the collapse of the Euro.  This is why China isn’t exactly put all of its eggs into the Eurozone.  Although China is cutting back on the buying of the United States’ treasury bonds, China isn’t exactly cashing out all of United States’ treasury bonds.  It means that China is still hedging between the United States’ dollar and the Eurozone’s Euro.

In summary, I think the author is too bullish on the Euro even though the Eurozone isn’t exactly doing too well at the moment.  If the Eurozone fails to reform as how James Rickards had advised in “Death of Money: The Coming Collapse of the International Monetary System” book, the Euro may suffer great setback.  Furthermore, Ukraine conflict might add more energy, economic, and political issues for Eurozone to be dealt with.  If the United States sees the Euro as the potential rival for the dollar’s currency reserve status, the United States might not want to see the Euro rise.  China might not want to see the Euro rise also, because this might dampen the potential for the Yuan to become the sole reserve currency.  Nonetheless, what if the Euro rise will happen anyway and China will insist the Yuan to become another reserve currency?  This will be very problematic for the United States for obvious reasons.  One noticeable reason would be the world will use the dollar even less as the reserve currency, and this will make it harder for the United States to print more dollar to pay off debts.  In a nutshell, the global economy is a mess and a battlefield, and James Rickards might be very wrong for being too bullish on the Euro.

Contrarian View To Free Market

One would argue central planning could not foster a good economy in a long term basis, because the overall economy is too complex for central planning to be efficient and correct.  Nonetheless, such an argument is based on ideology and not on relative circumstances.  I would argue that even with pure or mix market (with some central planning) orientation of economy, mistakes can be piled as high as the mountain, consequently outweighing the benefits of the efficiency of the free market.

With this notion, I argue that central planning isn’t better or worse than pure or mix market orientated economy.  I think in pure or mix market orientated economy, policy can be rolled out in boldest way and yet the benefits might still have an upper hand against the odd of ill fortune.  With central planning, boldest policy might topple the central planning economy with lightning speed.

Without the invisible hand of the market, central planning mistakes might be just too large for policy makers to realize and reverse the mistakes in time.  Nonetheless, there is no such thing as pure market orientated economy, because government has and forever will play a governance role for the economy — government rolls out policies for economy in a free market oriented economy still.

The difference between free market orientated and central planning economies is that the market orientated economy allows price discovery to be more certain.  In a central planning economy, the tendency of policy makers to fix prices is too great, thus price discovery cannot be so certain.  Without proper price discovery function, the economy might not be able to function properly.

With central planning economy, one cannot be too bold in rolling out policies, instead one must be testing the water temperature at a careful pace for each economic policy rollout.  You can also say it’s like feeling the stones when crossing a violent stream.  Nonetheless, I think a pure central planning economy is very ugly, because all it takes is one big, boldest mistake to ruin the whole mighty economy.

In conclusion, I think whether central planning is better or worse off than market orientated economies, with proper speed of rolling out proper thoughtful policies, both central planning and market orientated economies can be done right.  After all, there is no such thing as pure free market.  If there is a pure free market, then there are no governance and rules — chaos will ensue!  Vice versa, pure central planning economy requires no big, boldest mistake at all — a very hard thing to do!

Can Financial War Foretell That A Physical War Is Near?

After I had done finished the reading of Chapter 2 for “The Death of Money: The Coming Collapse of the International Monetary System” By James Rickards, I’m convinced that financial war could precede the physical war.  In fact, I think financial war might be one of the early telltale signs that may point out that the physical war is near.  After all, financial war is designed to be first strike of first strike, because it helps the attackers to damage the enemy’s economy, consequently weakening the enemy’s ability to conduct physical war in the long term basis.  Nonetheless, it doesn’t mean that a physical war is definitely going to happen when a financial war has happened.  It’s just that I think financial war is definitely preceding a physical war, because financial war can be used to weaken an enemy’s economy.

In the digital age we’re living in, financial war can cause havoc beyond imagination, because trillions of dollar could be vanishing in digital wipe.  Perhaps, the digital wipes could come in waves such as stock market collapse, bank runs, bond market collapse, and so forth.  Systemic collapse such as the financial crisis in 2007 was experienced waves of paper wealth loss, and the same thing can be happening again either by targeted attack by designed or by another unseen consequential event which happens naturally by the design of nature (such as systemic risk).

By digital wipe I meant that our money (more like the world money) can vanish in the digital world even though paper wealth loss might be the eventual explanation.  After all, money nowadays can be zeros and ones in the digital world.  Stock market is trading in the digital age with digital technology.  The book suggested that successful cyber-attacks could amplify the financial war in general.  In fact, cyber-attack method is one of the methods a state can employ to launch a financial war.  Nonetheless, cyber-attack method isn’t the only mean for financial war, because financial war in general is a lot more complex.  Such as sanction and other means can be employed too!

Anyhow, once the financial war attack begins, I bet the chain of big events will eventually follow.  Until the point of an enemy’s economy can no longer be weakened by the means of financial war, then the physical war might follow unless one of the war participants decides to make peace and prevent the physical war.  Of course, physical war between major powers such as China, Russia and United States cannot be breaking out easily, because these are nuclear power states.  Besides financial mutual destruction capability, these states can probably annihilate each other with radioactive capability such as nuclear bombs/missiles and so forth.  They might deliver these nuclear weapons at hypersonic speed which is up to 10 times the speed of sound, consequently making it very hard for a defense apparatus to shoot down such nuclear weapons before these devastated radioactive weapons reach the intended targets.

As the book suggested, perhaps physical war might not happen as one side might back down from further conflict as the financial war might be devastating enough to dictate the winner in the conflict.  The book suggested further that major forces such as China and Russia are preparing for such possibilities by accruing gold.  The book detailed that at the height of financial war between United States and Iran, Iran was partly successfully circumvented the United States dollar sanction by accepting gold as payment for the oil export.  Until when the United States told its allies to stop trading goods with Iran using gold, it was then that Iran had to import and export goods using its allies local currencies such as Yuan, Ruble, and Rupee.

In these two early chapters, the book already suggested that United States unintentionally pushed Iran to stop using the dollar as the reserve currency.  This might suggest that other countries are looking at Iran and fearing that one day they maybe in the Iran situation, thus they might have to face U.S. dollar sanction, consequently putting their economy at risks of collapsing.  These other states may already have been diverting and diversifying their dollars into something more tangible such as gold and so forth.  In China and Russia case, these two countries are now ramping up their natural gas deals and whatever else to partly diversifying their dollar reserve holding.  So too hoarding gold is among the plans of their diversifying activity in case the dollar is in trouble.  The United States government was shutdown not too long ago, because of the debt limit ceiling bickering between the political parties — this had further added the anxiety for the states that are currently holding dollar as their reserve currency for oil trading and so forth.

Even if a physical war breaks out, the book suggested that the winner of the physical war in the end might still regain the financial war lost.  After all, the winner can dictate the terms in the end right?  Nonetheless, in my opinion nobody knows how the next great war will turn out to be since we’re living in the nuclear age.  The nuclear fallout is beyond my imagination.  Sure, I have seen movies’ depictions of the nuclear fallout, but how close to the reality the movies’ nuclear fallout depiction is remaining to be seen.  Nobody knows the future I would say!  If God forbid that the nuclear fallout might occur and be so devastated, the victor of a physical war might not be able to regain the financial war lost, because the situation got so bad that dictating terms at such time might not be even feasible or sensible for all involved parties/states.

Perhaps, the nuclear age is so scary that major powers such as United States, China, and Russia, if sensible enough, may dare only to engage in financial war — leaving physical war to be carried out by the Hollywood movies.  If this is a possible scenario, I must say that financial war is even more important than otherwise.  After all, the victor in financial war will be able to dictate terms that are favorable for a victor’s state in today globalized world in the aftermath.  Perhaps, financial war will be able to be used as a targeted weapon which isn’t involving too many states at the same time, because it’s not as destructive as a physical great war such as World War II.  Because World War III may go nuclear!

As the case of United States sanctioned Iran from the dollar payment system, it was clear that United States could orchestrate a targeted financial war against a single state.  Sure, the United States did involve its allies to stop trading dollar for Iran goods; these so called allies had their own interests to be contented with, consequently forcing them to not carry out their financial war against Iran at 100% effort.  Moreover, Iran got the oil that could be bought at cheaper price during the height of the  United States’ Iran sanctions, and the so called allies had allowed Iran to export oil for gold and so forth.  With accruing gold, Iran could then trade the gold with its allies such as China, Russia, and India for other goods and services.  Even when the United States had involved allies such as Germany and so forth to stop Iran from exporting oil for dollar and gold eventually, Iran survived the sanction and the allies were humming fine.  This demonstrated that the financial war could destroy the targeted enemy’s economy without ending humanity.

Knowing financial war can destroy an enemy’s economy without ending humanity, nuclear war might only be the last desperate attempt for a state to defend itself.  This might encourage states to use financial war more frequently to push the boundary of bargaining at world stage.  Nonetheless, since we are living in the digital age and globalized world, financial war can be very consequential.  In the United States case, if an enemy is successfully bringing down the economy of the United States through financial war, it may not destroy the United States in short term.  In the longer term though, a successful financial war against the United States can be devastated for the overall health of the United States economy.  Furthermore, if the United States gets weaker financially, United States won’t be able to maintain her military might and so forth.

Certainly, it’s in the United States’ best interests to not let a financial war attack to bring down the United States economy, because in the longer term the United States may not be able to grow normally again.  Certainly, it’s the case for other countries besides United States to make sure their economy won’t be disturbed by financial war.  After all, I think a financial war can be devastated enough to disrupt even the everyday peoples’ lives.  I think financial war should not be taken lightly and be waged so carefree.  Countries of the world should care more for the health of global finance, because we’re living in a globalized world.  A break in the chain might do more harm in the long run, because things are moving faster in a much more complex globalized and closely finance linked world.

Source:  http://www.washingtontimes.com/news/2014/jan/13/hypersonic-arms-race-china-tests-high-speed-missil/?page=all