Prophecy in today's headlines

Forget Nukes Watch Out for Economic War

Fought with currencies, embargoes and hackers, economic warfare may lack the “shock and awe” of conventional battles but it could still pose a threat to the U.S., especially in these troubling economic times.

Picture this hypothetical dreamed up by a national security expert obsessed with economic catastrophe:

Angry that U.S. policies aimed at boosting the economy have devalued their $2 trillion of currency reserves, the Chinese decide to stop buying Treasurys just as America tries to finance its massive spending plans.

In response, the U.S. imposes trade sanctions against China, which in turn pushes for a global currency. From there, the U.S. accuses China of manipulating its own currency and things escalate further.

Without a shot being fired, those actions represent a type of unfriendly economic competition that some are very worried about.

‘Unstable Escalation’

“I think it’s very likely the participants wouldn’t call it a war. Each side would say they are acting in their best interest. But this could lead to an unstable escalation,” said James Rickards, co-head of threat finance and market intelligence at consulting firm Omnis.

The struggling U.S. economy and scary financial crisis could make such an escalation more likely and more damaging.

“On the one hand, you could say it [would have] less of an impact because we’re already in a more defensive posture due to the recession,” said Dan Goure, vice president of the Lexington Institute, a nonprofit public-policy research organization. “On the other hand, we’re closer to the edge so we have fewer resources.”

Rickards was more unequivocal, saying flatly, “It definitely raises the stakes which could play out in some financial warfare scenarios.”

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