share article

Share on facebook
Share on twitter
Share on linkedin

Currency Wars: The Biggest Game in Town


Now back to the main business. I trust given that I alerted you, on the 29th April, to James Rickards “Currency Wars: The making of the next global crisis” book you were not blindsighted by the FaceBook Libra Associates intervention? The original audience for his book was the US defence and intelligence community. It has since garnered a wider audience and appreciation. I am absolutely certain Zuckerberg and his Facebook team have studied Rickards work in depth. Rickards states “By providing an understanding of the structure of the [financial] system, I could give the reader adequate means to assess subsequent events. Indeed, the benefit of understanding any dynamic is that you can see the future without a crystal ball. Understanding the dynamics of a currency war enables one to look over the horizon and see clearly through the haze of market turmoil and political risk.”(p259). This understanding of dynamics applies to 5G SA and the 4th Industrial Revolution.

First, for a sanity check on what follows, I would draw your attention to the FT article “Rocky road awaits any US attempt to weaken dollar” Eva Szalay, 17th July 2019. Of course, a newspaper journalist who can move markets needs to be circumspect in what she says. I do not. 

Rickards analysis has so far held up. He is of the view that it shall be all over bar the bragging rights by 2020. Perhaps so. His analysis allows the rise of cryptocurrencies to be viewed in their proper perspective along with Brexit and the rise of President Trump. Post ”The Last Crisis” the first US Quantitive Easing project of flooding the world with money, began in December and was immediately followed in January with the publication of the original BlockChain Bitcoin paper. Interestingly Rickards missed this technological intervention in his 2011 analysis. He also missed the strategic ambition of the Paypal Mafia. A small oversight? Perhaps not for his focus was elsewhere. 

Rickards states regarding his first presentation to the DoD community at the Applied Physics Lab’s: “My presentation focused on the dark side of Sovereign Wealth Fund investment, how they could operate through what intelligence analysts call cutouts, or front companies, such as trusts, managed accounts, private Swiss banks and hedge funds. With these fronts in place, SWF’s could then be used to exercise malign influence over target companies in order to steal technology, sabotage new projects, stifle competition, engage in bid rigging, recruit agents or manipulate markets. I did not assert that such activities were common, let alone the norm, but rather that such activities were possible, and the US needed to develop a stronger watch function to protect its national security interests. Along with these specific threats, I suggested an even greater threat: a full-scale attack on Western capital markets to disable the engine of capitalist society. My presentation included metrics and system specifications to monitor sovereign wealth fun behavior, to look for behind-the-scenes malign acts and to identify financial choke points – the information age equivalent of the Suez Canal or the Strait of Hormuz – which could be monitored to prevent or fight off future financial attacks” (p8). Alas all these financial choke points run through The City of London.

Furthermore, Rickards states “The stock market can crash, yet the bond market might rally at the same time. The bond market may crash due to rising interest rates, yet other markets in commodities, including gold and oil, might hit new highs as a result. There is a way to make money in one market while another market is falling out of bed. However, stocks, bonds, commodities, derivatives and other investments are all priced in a nation’s currency. If you destroy the currency, you destroy all markets and the nation.This is why the currency itself is the ultimate target in any financial war. Unfortunately, these threats are not given sufficient attention inside the US national security community. Bill Gertz, reporting in the Washington Times, noted “US officials and outside analysts said the Pentigon, The Treasury, and US intelligence agencies are not agressively studying the threats to the US posed by economic warefare and financial terrorism. “Nobody wants to go there,” one official said. An overview of the forces of globalisation and state capitalism, a new version of seventeenth-century mercantilism in which corporations are extensions of state power, is a step toward understanding the grave dangers facing the world economy today. Financial warfare threats can be grasped only in the context of today’s financial world. This world is conditioned by the triumph of globalisation, the rise of state capitalism and the persistence of terror. Financial warfare is one form of unrestricted warfare, the preferred method of those with inferior weapons but greater cunning.” (p146).

That was then and now PM Johnson expects those who bet against Britain in the Currency War to lose their shirts? We shall see.

What led me to this insightful book was that it began with an account of the US DoD’s first Financial War Game and ends with the scenario I sent you from his chapter Endgame . Paper, Gold or Chaos? The key to understanding Rickards analysis and foresight is the application of the obscure International Emergency Powers Act of 1977, (IEEPA). He points out: “The use of IEEPA is subject to two preconditions. There must be a threat to the national security or the economy of the US, and the threat must originate from abroad.” (p251)

Alas, in a previous blog I also pointed out that President Trump was not elected as an independent but had the unconditional support of both wings of the Republican GOP. The important point to discern is: what issue would unite these Republican wings in an uncritical bond? The one answer appears to me to be the elimination of the US Fiscal Deficit. Achieved in a scenario not unlike the one Rickards proposes? This would require President Trump to clissify the threat as “Currency Manipulation”. In May the US Treasury began to lay the legal framework for this eventuality. Given that President Xi is not stupid, would you not agree with me that China would strike first? If so how and when? After the US democratic candidate is inplace and before the next G20? Or in the lead up to a G7 or G20 Financial Ministers Summit? Perhaps. Surely though before he is re-elected? 

In short, I believe President Trump was elected by both wings of the Republican Party to eliminate the Fiscal Deficit through application of IEEPA and to take the rap if things go wrong. The evidence for this view is now clearly emerging through his application of IEEPA as the US deficit racks up $22tn. Once you accept this prism of his zero-sum game to make America Great Again all begins to fall in place. 

The key to understanding China’s potential response is given by Rickards on page 11. “I knew that a real financial attack would not involve anything as obvious as dumping Treasury notes on the open market, because the president has near dictorial powers to freeze any accounts that try to disrupt the market in that way. An attack would almost certainly involve hard-to-identify cutouts and hard-to-track derivatives. Above all, a financial attack would almost certainly involve the dollar itself. Destroying confidence in the dollar would be far more effective than dumping any particular dollar-denominated instrument. If the dollar collapsed, all dollar-denominated markets would collapse with it and the president’s powers to freeze accounts would be moot.”

Libra is just that, an attempt to destroy confidence in the dollar from within and a direct attach on the Washington consensus which its origins in the PayPal Mafia who invested in both Facebook and now has an adviser in the White House. Playing both as the financial markets do sides?

In Rickards defensive measures assessment conclusions, he states ”As applied to capital and currency markets, the correct approach is to break up big banks and limit their activities to deposit taking, consumer and commercial loans, trade finance, payments, letters of credit and a few other useful services. Proprietary trading, underwriting and dealing should be banned from banking and confined to brokers and hedge funds. The idea that large banks are needed to do large deals is nonsense. Syndicates were invented for exactly this purpose and are excellent at spreading risk.

Derivatives should be banned except for standardized exchange traded futures with daily margin and well-capitalised clearinghouses. Derivatives do not spread risk; they multiply it a concentrate it in a few too-big-to-fail hands. Derivatives do not serve customers; they serve banks and dealers through high fees and poorly understood terms. The models used to manage derivatives risk do not work and never will work because of the focus on net risk rather than gross risk.”

None of these defensive measures have been enacted.

Alas, the FT, now owned by Japan, has begun its soothsayer analysis of the forthcoming Derivatives Crisis: with a projection in Q4 2020 from an author from Stanford. It shall be more brutal than anything which has preceded it.

But Facebook shall upend the apple cart with Libra by destroying faith in the dollar. A FT 4th of July (coincidence?) article states: “Democrates urge Facebook to stop launch of digital coin” in which Maxine Waters wrote “it appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival US monitery policy and the dollor” Oh Dear. That is a correct assessment. If Facebook adopt the strategy outlined in Rickard’s analysis between p235 and p247 in respect of adopting a 40% flexible gold standard backing to their stable coin currency basket the day’s of the dollar’s dominance are over. And it in my opinion it spells annilation for Sterling. 

I won’t comment on their appearances before Congress last week as I have not yet had time to digest this material fully, but clearly FaceBook’s $5bn fine by the FTC, and their share rise of over 2%, over the Cambridge Analytica debacle is grounds to believe eventually Facebook shall get around to bringing a liquidating damages claim against UK parties for intefering in US elections and get their money back – timing here matters. Yes – this was UK interference in US elections. Clearly Zuckerberg holds the UK fully responsible. I would speculate here that the with the leak of UK diplomatic cables which are  a godsend for the eventual Democratic Candidate with compromising material on this point yet to be disclosed? 

So, what has this all to do with The City and Brexit? Far, far too many of Rickard’s financial choke points go throught it. So, I believe next year in Q2 – the first opportunity – post Brexit, a situation shall arise which will force the ejection of Sterling as an IMF Reserve Currency before the oncoming Derivatives Crisis. Consequences for your Magazine and the companies and readers you serve? 

Two further aspects. Further to the 31st October Brexit extension the Internationa Currency Markets priced in a Sterling Drop from 1.2974 to 1.10. Post the Referendum’s unxpected result over twenty Hedge Funds, including the four owners cited in the FT, made a financial killing. This time, with Brexit, the markets are ready. Indeed, Richard Branson, one businessman who understands technology, pointed out that pre the referendum the value of the pound stood at 1.53 and could drop below parity with the dollar. Alas this is not about what value for money tourists in London and New York get, psychologically what would this do to English society?As Rickards points out, quoting Keynes, “There is no subtler, surer means of overturning the existing basis of society than to debauch the currency”. 

Yet PM Johnson believes he can save his people from the currency speculators. Bur what if the ECB floods the market with Euros first?

Secondly, regarding Macrons post G20 leaverage measure of a Tex Tax and the UK playing catch-up, I would draw your attention to the comment “countries are only relevant if they can tax companies” in the “The Fracturing of the global consensus”, by Raana Foroohar, FT 8th July attached. I would be most interested to know which enlightened citizen of nowhere gave that quote. The consensus being of course the 75th anniversry of Bretton Woods this month.

So, Facebook shall succeed not by advancing the privacy argument but once they frame there Libra currency in Virtual Soverignty terms under Freedom of Association and let the US citizens buy-in. To understand where the Paypal Mafia and Facebook are going with all this it is necessary to understand the Nobel Financial Lie, the simultaneous claim of two different people (or organisations) on the same financial resources and the Ignoble Lie concerings the expectation of abundant rewards for sharing resources. On both these pretentions the banking system rests.

Johnston and England, I am sorry to say, has failed to appreciate that the 4th Industrial Revolution is exactly that. A Revolution. Coming soon also to the financial and banking establishment which Adam Smith pointed out are playing “with other peoples money”. 

The brexiteers nonsense about taking back control I have already exposed, but their appreciation of people taking back control of their own money as Facebook intends would be anathema to them. Which is why Facebook intends to launch their new currency in the midst of the US election from Switzerland. An undeclared nation state Currency War has just become a declared Currency War. What now are the signs to look out for? Would you believe that I stumbled into all this as a consequence of looking out for the payment system for 5G SA – which as yet has failed to materialise? Alas the FT  correspondents have yet to get their collective heads around this aspect.  Or as Her Majesty would say “Why did no one see this coming?”

Best Regards

Barry McKeown

25 August 2019

Share this article

Share on facebook
Share on twitter
Share on linkedin

Member Login