Economic Warfare

[Global Scout]

Fabius: Excellent post on empowered individuals, I remember when the Asians were blaming on international investor for the fairly recent economic down turn in Asia. Very few investors are putting their money into the U.S. now, I even recently read that they preferred Egypt of all places for "safe" investments!

Kehenry 1: I second slapout's comments, you couldn't have phrased it better, we are dropping bombs on our own position.

What's nice about a democracy and free press is we can educate the people and throw the rascals out and create new polices.

[Norfolk]

Quote - Slapout:

I remember Nixon's comment after leaving BW "We are all Keynesian now" (reference to the UK economist John Maynard Keynes). The separation of the dollar from a gold standard to a "production standard" meaning if your country can expand it's productive capabilities it can expand it's money supply.

If your country adopts a policy of exporting it's "productive capacity" to other countries you will be in deep trouble because your currency will end up being worthless!

-Unquote

And add to that how the "production standard" is so often replaced in practice by a "speculation standard", and the divorce between apparent economic performance and real production output is not so much an indicator of real economic performance as it is an indicator of how much creation of wealth there has been for an absolute minority.

Fabius: Excellent post on empowered individuals, I remember when the Asians were blaming on international investor for the fairly recent economic down turn in Asia. Very few investors are putting their money into the U.S. now, I even recently read that they preferred Egypt of all places for "safe" investments!

Kehenry 1: I second slapout's comments, you couldn't have phrased it better, we are dropping bombs on our own position.

Agreed on practically all counts here, with all parties mentioned. Just to remind though, the events of the Asian Currency Crisis were not the result of a deliberate attempt to subvert the economic order of South-East Asia, but of a speculator handed too much rope by his own superiors trying to disguise bad investments. A deliberate plot by an individual, group, or state, could not have done a better job of disrupting the economy of entire region.

The potential of economic warfare along the lines of 4GW Theory is demonstrated here, but it is a way of war no more exclusive to 4GW actors than it is to state actors and the like. It is a capability afforded to all who possess the means at hand.

[Fabius Maximus]

Is it war when speculators from western nations damage a foreign nation for their personal profit? It's not conventional war, as we know it in the post-Westphalian order. Perhaps more like Drake and Hawkins raiding Spanish treasure ships, licensed pirates who dutifully split their take with the Crown/IRS.

For another perspective, we should ask the people of SE Asia who were reduced to poverty -- by their standards, far far below the US poverty line. I wonder what they would have deemed an appropriate response, had their nations had sufficient strength.

Have SE Asians forgotten 1997-98? If not, they might prove less-than-helpful when America hits hard times.

I strongly recommend anyone interested in modern warfare read Unrestricted Warfare. {The link I gave below no longer works}. Note these quotes:

During the 1990's, and concurrent with the series of military actions launched by nonprofessional warriors and non-state organizations, we began to get an inkling of a non-military type of war which is prosecuted by yet another type of non-professional warrior. ... Judging by this kind of standard, who can say that George Soros is not a financial terrorist? ...

We believe that before long, "financial warfare" will undoubtedly be an entry in the various types of dictionaries of official military jargon. Moreover, when people revise the history books on twentieth-century warfare in the early 21st century, the section on financial warfare will command the reader's utmost attention. The main protagonist in this section of the history book will not be a statesman or a military strategist; rather, it will be George Soros. …In addition, we have yet to mention the crowd of large and small speculators who have come en masse to this huge dinner party for money gluttons, ...

[slapout9]

And add to that how the "production standard" is so often replaced in practice by a "speculation standard", and the divorce between apparent economic performance and real production output is not so much an indicator of real economic performance as it is an indicator of how much creation of wealth there has been for an absolute minority. Quote by Norfolk


Hi Norfolk, agree absolutely and this is done through the separation of economic policy form what is called monetary policy. It is done intentionally, this not a phenomenon of nature and it allows people to make money instead of creating wealth (useful life support as opposed to changing numbers on a piece of paper) and power will accrue to a concentrated few again regardless of who is elected. It is not called war but it can create the same effect as war because you can most certainly impose your will upon them.

[Global Scout]

We believe that before long, "financial warfare" will undoubtedly be an entry in the various types of dictionaries of official military jargon.

Whose military? Perhaps the Chinese who have some thinkers who may approach war in more holisticly than simply massing their forces on so called decisive points. I can't help but wonder if when the Department of Defense was called the War Department, if it was as restricted to what we commonly call conventional warfare, or if it was more holisitic in its approach? Obviously an area I need to study more, but DoD is not capable (primarily due to authorities) to address financial warfare, so the response would have to come from another, or combination of, other government agencies, orchistrated by the National Security Advisor. DoD could help facilitate blockades, use special operations forces to conduct economic sabotage, or simply seize valuable territory such as the oil fields in Nigeria (or Iraq), but I don't think they would take the lead in developing a response. Where do we develop the strategic thinkers to address these challenges? What is their authorities?

Far out of my area of expertise, but I wonder what type of response is even possible against a non-state actor manipulating the economy through various acts of physical sabotage, subversion, etc.? If a state engages in economic warfare we should have some options, unless that state holds a power card like providing a substantial amount of energy to the emerging world economies, then our options are fewer. Does it really matter anymore if we boycott a product from country X, when every other nation in the world will pay market price for it? 4GW or not, globalism has changed the economy's dynamics and thus the potential responses to economic warfare and to deny that would be, well, to be in a state of denial.

[selil]

One thing to mention is that Keynsian economic theory is not the only theory associated with capitalism. Buddist economics also applies to capitalism quite nicely, but is often mistakenly considered a communist ideology.

Economic warfare is not new (there were early attempts in the thread to link it to 4GW). Nation states have used proxies for economic warfare since long before the "East India Trading Company" in US colonial times. Domestic United States treaties, policies, and as example NAFTA could be considered to create hostile and protectionist policies if you are standing on the wrong side of them. Favored nation status for China, and embargo of Cuba are examples of a similar policies that could be considered equally hostile.

Economic warfare is the "E" in DIME (I guess there's something called MIDLIFE Arghhh). What is likely new is the position the United States is finding itself in with declining dollar. Whether that is totally good or bad is not an answered question and likely will be decided by historians. A declining dollar, receding industrial capability, exploding debtor status, critical energy needs, and a polarized political environment would all be considered the harbingers of societal upheavel. The US consumer though is pretty happy and not reacting from fear. The mortgage foreclosure crisis is hitting the basic consumer fairly hard but from the numbers I've seen it isn't nearly as bad as the early 80's.

The energy crisis of the 70's led to major construction projects in energy development and the last big bang (pun intended) in nuclear energy. The end of the cold war in the 80's included absolute financial recession, the savings and loan fiasco, and substantial changes in economic theory with the creating of the information economy replacing the last vestiges of the industrial economy. There are some suggestions that the replacement of the information economy (transitional actually) will be a bio-engineering economic model which the US lags seriously behind due to internal politics (see the mention of polarization above).

I'm not an expert at these things but this is what I've gleaned from my reading and it seems to make sense.

[Fabius Maximus]

selil correctly reports that the consensus of economists is that the housing crisis will be a normal cyclical event. This is beyond the scope of this thread, but somewhat relevent. There is a minority opinion that this is the end of the post-WWII "debt supercycle" (coined by the people at Bank Credit Analyst)

Each US economic cycle since 1960 has ended with increased household debt. At some point we reach our maximum carrying capacity of debt. That might be now. The housing credit crisis may be the precipitating event. This is known as the Minsky Cycle, and we're at the Minsky moment.

For more on the housing down cycle I strongly recommend this analysis and forecast:
"The Recessionary Macro Effect of the Worst U.S. Housing Bust Ever" by Prof Nouriel Roubini (Economist, NYU). Brief and clear.

[selil]

There is a minority opinion that this is the end of the post-WWII "debt supercycle" (coined by the people at Bank Credit Analyst).....Each US economic cycle since 1960 has ended with increased household debt. At some point we reach our maximum carrying capacity of debt. That might be now.

I looked for a citation and thought Minsky had wrote it, but wasn't the GI Bill and VA home buying loan programs at the end of World War 2 what kicked the debt cycle off? Before WW2 most homes were bought on a cash basis or through family help?

[Norfolk]

It depends upon intentions, means, and consequences as to whether speculators are engaged in war or not. After all, the U.S. Air Force has an unfortunate predilection for friendly-fire, as not only the U.S. Army but also Allied Armies can attest to over the last 60 years or so. The means and consequences were the same for Allied troops as for Axis troops - both died in U.S. Air Force air strikes, but the intentions were much different needless to say. Furthermore, had Allied troops been so disposed, they may have mistakenly considered such repeated incidents for casus belli. But they were not so disposed, and correctly granted the U.S. Air Force the benefit of the doubt, and did not impute an intention to them that they did not have.

Similarly, no such attempt at economic warfare was ever intended by the British financial institution at the heart of the Asian Currency Crisis, though the means and the consequences were much the same as a real economic strike would have been. Utter economic ruin for many, and general economic disruption and lasting damage to lives, not to mention economies. But the intention to do such was completely lacking. That there are those that may have perceived in it either an attempt or an act of war in it reflects on their disposition towards those involved in the means and consequences, not that a war was in fact waged upon the victims by the guilty party(ies).

Fabius Maximus, the work you cite by the two PLA officers was the subject of a discussion on another board. Some of the contributors were experts or at least learned and sensible, although many were not exactly so. But the work in question reveals at least as much about the intentions of some in Asia as it does upon actual means and consequences. Where there is intention together with means and consequences, there is war, in whatever form it is waged.

Similarly, there is a difference in gravity of intentions, means, and consequences between an armed robber on the one hand, who takes down a bank and kills a few people in the attempt, or a brigand who raids towns and kills dozens, even hundreds of people, and an army that conducts wholesale pillage of a country. An armed robbery affects a relatively few people directly, and entails no substantial loss to the society as a whole, and so does not constitute war. Brigandage and piracy are more serious, being as it were organized criminal gangs, but normally amount to little more than glorified irritants to general society and as such do not rise to the level of war; where they do constitute serious threats is to small or weak societies or in striking vital targets, and they can amount to low-level warfare. An army is something with real capacity to do grave harm to a society, and when it is engaged in such, it is war.

And so to return to Hedge Funds, Private Equity Companies, and their ilk: do they wage war? They can, provided they have intention, means, and consequences that are grave, and all simultaneously. But that does not mean that they automatically are engaged in war whenever they cause serious, even grave damage, but rather crime; it does mean that they are criminals when they do so without full intention of causing such damage, rather than "warriors" deliberately engaged in inflicting such damage upon their enemies (I use the term "warriors" in an extended sense of the term that frankly sickens me to hear it used). So no, Hedge Funds do not wage war when they seriously damage economies, when they have no intention of doing so in order to deliberately harm their victims - they are engaged in crime; they are often nonethless criminals in doing so when what they do they know will cause harm, but not out of deliberate malice towards their victims.

War can be waged by anyone who simultaneously has the intention, using means, that result in serious or even grave consequences to a society or civilization, be they an individual, a group, or a state, or either of those in the service of another.

[Fabius Maximus]

Hedge funds are not criminal under our system of laws, no matter how much harm they cause. When they collapse companies or even nations, they are considered agents of the "invisible hand" (Adam Smith) spurring "creative destruction" (Joseph Schumpeter) in the interest of greater economic efficiency.

As we perhaps approach "regime change" (in the economic sense), the rules might change -- as the folks making the rules change. Creditors make the rules, probably over time becoming Asian (in a broad sense) and Middle Eastern elites. They might have different views of speculators, and enforce them.

On the other hand, history shows many instances of societies at first condemning weapons, then adopting them. Like the crossbow and strategic bombing. Perhaps other nations will adopt our methods of (in their eyes) economic warfare, but now wielded by the State (not investors) for national (not private) ends.

[Norfolk]

Hedge funds are not criminal under our system of laws, no matter how much harm they cause. When they collapse companies or even nations, they are considered agents of the "invisible hand" (Adam Smith) spurring "creative destruction" (Joseph Schumpeter) in the interest of greater economic efficiency.

As we perhaps approach "regime change" (in the economic sense), the rules might change -- as the folks making the rules change. Creditors make the rules, probably over time becoming Asian (in a broad sense) and Middle Eastern elites. They might have different views of speculators, and enforce them.

On the other hand, history shows many instances of societies at first condemning weapons, then adopting them. Like the crossbow and strategic bombing. Perhaps other nations will adopt our methods of (in their eyes) economic warfare, but now wielded by the State (not investors) for national (not private) ends.

Whether our laws formally codify the gravely harmful actions of Hedge Funds and the like as criminal or not, they are not the less criminal for lack of it. Slavery was not legally defined as a crime in much of the U.S. until the end of the Civil War, but it was not less any less criminal. Crime is not unlike pornography, you may not be able to define it, but you know it when you see it. The victims of the Asian Currency Crisis would not disagree that they had been the victims of a crime.

"Crimes Against Humanity" did not exist in any body of law when War Criminals were tried for such crimes at Nuremberg. "Crimes Against Humanity" was a legal term invented for the Trials; but what the War Criminals did were not less crimes by virtue of the absene of any such legal codification of such actions as formal crimes at the time that they were committed.

The actions of Hedge Funds and their kind, when they result in grave harm without deliberate malice towards societies, are not less crimes for the lack of a legal definition somewhere that they are such.

[slapout9]

Hi Shek, I am not advocating that we return to a gold standard as you say there were certainly problems with it. But I think you are missing the point of a gold standard. A paper note for 5$ could be turned in for 5$ gold coin measured by weight!!! that is why it is a universal standard of value and you buy and sell it by the weight!!! the difference in fiat money(called currency) is reflected by the price (an accounting store of value set by policy...which makes it subject to manipulation) but five ounces of gold is five ounces of gold no matter where you are and that cannot be changed (by man) because it is a physical quantity.

The problem as Keynes pointed out is that is not a very good way to run a modern economy so if you have sound economic policies (tied to physical production of life support) linked with sound monetary policy you can manage large modern economies. But if you have unscrupulous people that manipulate monetary policy mainly divorcing it from physical economic policy you can cause your own country serious problems not to mention use it as a weapon against other countries.