All we hear is the sounding of war horns regarding North Korea and the US. In-the-know officials and the general public all fear such a scenario, especially China, Korea, and Japan.
Of course, the US establishment paints itself as a reasonable, civil entity prepared to attack a pariah state (I can think of other pariah states who are American “friends”) because North Korea is an unpredictable danger.
Yes, North Korea has a short fuse gap from conventional warfare (ie artillery) to nuclear warfare, a frightening prospect for its neighbors and the planet.
Admittedly, any country with nuclear warheads is a threat to the survival of humanity, including the US with its willingness to use tactical nuclear weapons or “miniaturized/small nukes,” which still radiate, burn and destroy.
However, there’s another facet to the North Korean crisis – a financial one.
The North Koreans want to be accepted in the global community and to be credibly recognized, but the Americans won’t accommodate them. This denial of credibility has probably fueled Kim Jong Un’s paranoia and fear. Instead of saber-rattling, reinstating the Six-Party Talks could de-escalate the rising desire to “save face,” as the Chinese say, and stop this feared conflict. But maybe even the US doesn’t want a hard conflict but rather to convince every party involved that a destabilized North Korea is going to happen. This propagation of fear doesn’t only have North Korea in the crosshairs as a military target, but has Japan and South Korea as financial targets of “pump and dump” rhetoric.
The cunning of the US knows no bounds
The US prints dollars for export and earns a vast return of dollars into the US economy from foreign investment allowing credit expansion. A lot of these dollars are owned by the South Koreans and Japanese. The US needs to borrow these dollars back because funding its own deficit through US Treasury bonds is an efficient scheme.
How does the US promote American treasury bonds to investors? Well, these bonds have a reputation for being the safest in the world. They seem to be the most stable because other bonds are more vulnerable to geopolitical risk, and may be less safe depending on their location on the planet. And what better way is there to siphon wealth from areas flush with US dollars like Japan and South Korea than to beat the drums of war? Making other foreign investments less attractive to worried investors to promote your own economy is such a subtle tactic it might have worked on many occasions.
As far as the Chinese military and leadership are concerned, a secondary objective of the US is to fuel tensions with North Korea to financially target the available US dollars in South Korea and Japan
According to Alasdair Macleod of goldmoney.com, Chinese military strategist Major-General Qiao Liang of the People’s Liberation Army presented an idea that the US makes a lot of money by exporting US dollars and pumping them into foreign economies for years, letting the capital grow, then initiating destabilization, war, and tensions. The US would then siphon all the grown liquidity and capital back out and into the US economy in the form of treasury bonds.
The idea has legs. It wouldn’t be the first time the US has done something clever and underhanded. The US needs to borrow dollars without raising interest rates against its debt as that will send its economy into a new spiral of recession and credit crisis. It’s why the Federal Reserve is raising interest rates gradually; for fear of the private sector debt. And so, the US Treasury department or military brass try to whisper in Trump’s ear to make economical regions appear risky (ie conflict zones) and make US treasuries look attractive and safe.
Kill it, not with fire but with a heavy brick of yellow metal
As far as the Chinese military and leadership are concerned, a secondary objective of the US is to fuel tensions with North Korea to financially target the available US dollars in South Korea and Japan. These tensions would also convince Congress that yet again, the US has a national interest to increase debt limits ahead of the possibility of any short-term conflict. The Chinese are loath to allow the Americans to pump and dump economies and siphon valuable capital out of those countries, upsetting China’s economic objectives, especially with Japan having vast manufacturing investment in China.
Reciprocally, China has moved to insulate itself by moving to price purchases of oil in gold futures contracts and in yuan future contracts, or even a gold-backed yuan note. In other words, China plans to reestablish some form of pre-1971, when the US dollar was just a settlement link, and tying gold to commodities just as the dollar was before its hegemonic ubiquity was sealed through being backed by a floating oil price and confidence. The idea of a “con” game is alive and well.
By doing this, China, as well as Russia, know their issuance of gold-backed currencies will push the dollar-based commodity and pricing inventory away, causing a worldwide disruption to the current monetary system. The Chinese aren’t flippant with the knowledge of how wide this disruption would stretch and seem aware of how much the power dynamic of the world’s economies would change.
Think of the shift in the value. It won’t be a mild effect, especially for countries like Panama with a per capita of 25,000 tons of gold and a population 100 times less than the US. They’re ready for a gold- or copper-backed Central American dollar, with their millions of pounds of copper. Mexico would also benefit with their long-rumoured and sought after silver-backed Mexican peso. Countries like Kyrgyzstan will only gain in power. European powers like Britain will only weaken as their ratio of gold in grams per person is quite low, while Portugal is near a scale of Italy, and the Low Countries and Germany trail Switzerland at 128-9 grams per citizen.
This is why China hasn’t rushed into initiating this gold-backed system. They could promote it with as much fanaticism as their Belt and Road initiative if they wished, but for now they are establishing it slowly. The Chinese are going to wait until this system’s infrastructure is fully established but they could use this strategy to shock the US economy if Washington persisted in causing a hard power event with North Korea to pump US dollars out of Japan and South Korea, and into US treasury bonds.
We had nearly 50 good years
The US dollar may be strong but its backer, oil, is weak. As one of gold’s biggest fans, Smaug the Terrible would say, oil has been “laid low.” Oil is getting weaker at the moment, yet the dollar is climbing. That is a fork between the currency and its backer, which means the US dollar is in for a shock. Things don’t add up. Cracks are showing in the confidence of the US dollar as the reserve currency. Confidence will grow for gold as the credit crisis hits the US, Canada, the EU, and perhaps China, albeit through a housing crash, a stock market crash, a bond crash, a lack of youth being able to pay for the privileged life of their forebears, or the activation of gold as a money by China.
Simply put, gold threatens the dollar and silver threatens the price of gold, especially when China, Russia, and India are buying the total supply of yearly gold production ahead of its actual production.
We could almost say the Chinese are actually contributing to propping the dollar up because they know the shock a failed dollar will cause. However, the Chinese want to dispose of their US dollar treasuries steadily but slowly, without being seen as a financial act of war, as they will sell treasuries for commodities and energy, and usher this scenario into being within the next few years.
If the paper gold and silver markets such as the Comex were impeded from continuing their heavy suppression through regular paper dumps by bullion banks, conservatively an ounce of gold would be $3,000 or $4,000 per ounce. Again, that’s conservative.
That will shock the the bullion banks and all banks loaning gold will call in their loans. This would cause a nasty chain reaction for all leasing agreements, and especially gold ETF’s, as no shareholder will be able to get their gold; there’ll be too many shared pieces to claim. Somebody will get it, but the all other shareholders, the average Joe, will lose out.
The coming realization
The US is not about to leave the stage quietly. All options to sustain the prevalence of the US dollar are open including, perhaps, continuous saber-rattling to attract foreign dollars back into the US economy to add support to its inflated economy. However, the clock is ticking, a paradigm shift in the monetary system is going to occur, and all you have to do is look east and ask “when”?
An insightful article. Thank you Andrew !
Frightful scenario for Americans. Let’s move to Mexico.
A very well-written, reality-based article.
I’ll add that the US dollar is backed by the US military as much as oil, if not more so.
China will probably wait till its military has achieved overall parity with the US and NATO before starting the move to dethrone the USD as global reserve currency.
The per capita gold tonnage for Panama (25000) must be a typo or misprint.
That’s a persuasive way to carry out Trump’s plan of making Mexico pay for the border wall, and perhaps with the added benefit of forcing Mexico to build one on its side as well.
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