All-Out Economic War?

By Kevin Freeman
January 22, 2015Jan 22, 2015

Last year, we warned that a Cyber-Economic War was coming and that it might be the spark of World War III. The truth that an economic war is underway echoes around the world but remains largely unheard in the United States. For example, the only deflation our media wants to discuss has to do with the footballs in New England. This may be an indication that the economy has improved and the impact of the last crisis has largely passed. Or, it may be reflective of the Administration's desire to put out messages that all is well with the American economy. The persistent talking points are that times are good again.  In other parts of the world, however, this isn't very true.

It's kind of hard to spin good times when the European Central Bank (ECB) is forced to announce a monthly buying binge over 70 billion Euro–over 1 trillion total. The Russian economy has collapsed. China grew at the slowest pace in two decades. Emerging markets are in trouble. But the band plays on in the United States with most completely ignorant of the turmoil developing around the world.

A great example of global awareness comes with the understanding of currency wars happening right now. This doesn't directly impact Americans, at least initially, because the dollar has been strengthening in this environment. The dollar remains the world's primary reserve currency so when other nations or regions devalue their currency, ours becomes relatively stronger. So, the initial impact for Americans is seemingly positive. For global multinational companies based in the U.S., however, it will dramatically impact earnings. Even then, on a net basis, a stronger dollar is not a systemic threat. But the currency wars potentially are.

Now, consider this from the UK's Telegraph:

Central bank prophet fears QE warfare pushing world financial system out of control

Former BIS chief economist warns that QE in Europe is doomed to failure and may draw the region into deeper difficulties

By Ambrose Evans-Pritchard, in Davos 20 Jan 2015

The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world's financial system going into 2015. Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West.

"We are in a world that is dangerously unanchored," said William White, the Swiss-based chairman of the OECD's Review Committee. "We're seeing true currency wars and everybody is doing it, and I have no idea where this is going to end." Mr White is a former chief economist to the Bank for International Settlements – the bank of central banks – and currently an advisor to German Chancellor Angela Merkel…. [To CONTINUE Reading…]

We are seeing such huge instability that the Swiss franc jumped 30% in minutes when it was un-pegged from the Euro. Today's ECB action will undoubtedly lead to further monetary easing as countries race to lower their currencies to support domestic industry. This could lead to sufficient instability and shocks that the global monetary system could collapse and that would hurt America. Much of our global strength is tied to the fact that the dollar is the primary reserve currency.

Another serious threat, believe it or not, can be found with the collapsing oil price. There are two reasons. First much of America's relative economic strength has been the result of a domestic energy renaissance. Most of the growth of America has occurred in regions that produce energy. If that is ending, will our economy suffer? Worse still, if oil is half the price that it was, doesn't that mean that global demand for petrodollars (U.S dollars used internationally to trade oil) has also been drastically cut? This removes one critical foundational support for the American dollar going forward. And, this comes at a time when Russia has been leading a global effort to remove the dollar's special status.

The other issue tied to oil prices is Economic Warfare. The average American sees sub-$2 gasoline as a great thing, lowering living costs. American pundits call it the equivalent of a nice tax break. The rest of the world, however, sees it as economic warfare, pure and simple. To illustrate, consider this article from RT (Russia Today) quoting Willem Middelkoop, the Swiss-born, Netherlands-based founder of the Commodity Discovery Fund and author of The Big Reset (bold added):

Oil price drop is ‘economic warfare against US enemies'

January 21, 2015

The current oil price decline can be explained by heavy selling in US future markets which is part of an all-out economic war between the US and countries like Russia, Iran and Venezuela, says financial journalist, Willem Middelkoop.

RT: Falling oil prices are a serious problem for some producers. What hope is there that a solution can be found in Davos?

Willem Middelkoop: We as investors just started to buy oil, given the price decline by 50 percent in just three to four months. I agree oil price should be bottoming out because the market fundamentals do not support current prices. I looked at the latest predictions by the IEA [International Energy Agency] – they claim that total world demand will be around 92 million barrels per day and total world production will be a share of 93 million barrels per day. So there is a very small surplus in the oil market.

RT: If the market fundamentals don't support those oil prices, some are suggesting that this is a result of energy warfare, targeting Russia, Venezuela, and Iran. Is that how you see it and how many participants at Davos see it as well?

WM: The current price can only partially be explained by technical factors like growing US oil production which increased by a million barrels per day in the last year. But I think it's quite reasonable to expect that the price declines, which we've seen over the last few months, were also caused by heavy selling in the American future markets, and you could call that a form of economic warfare – it is an [all]-out economic war between the US and Russia now. If we see who has more problems [caused] by current oil – they are Russia, Iran, Venezuela – these countries can be seen as enemies of the US.

RT: The country which doesn't have particular problems with the US and oil prices is Saudi Arabia. It says it could ride out low oil prices for nearly a decade. What impact could that have?

WM: The oil produced by Saudi Arabia and other OPEC countries have a very low-cost base of around $10-20 per barrel. Of course Saudi Arabia can stand current prices but there have been signs and heavy comments from oil experts that the Saudis only support the US in bringing the oil prices down for the current time. Maybe there is a timeframe of another three to nine months that US can bring the oil prices down or keep oil prices down at this level. But there are many experts – T. Boone Pickens, an American oil billionaire, who said [that] the oil price will return to around $100 per barrel within 12-18 months – I think that he could be right. [To CONTINUE Reading…]

Now, we recognize that RT is typically Russian propaganda. But this does provide insight into Russian thinking when you are aware of that fact. And, this is an interview and appears to accurately reflect Middelkoop.

It is particularly notable that Middelkoop credits financial market selling as the primary impact on energy rather than supply/demand factors that he also cites. This is very different from anything you will hear in our financial press. There is no real mention of how financial markets impact commodities, only the opposite. So, high oil prices are always the result of increased demand or falling supply and lower prices must only be higher supply or lower demand (or a combination). But, to a foreign-based commodity expert, the financial markets can and are big determinant factors. Why is this important? Because it shows the potential for financial warfare as a means of economic warfare. We have pointed this out for years, first noticing that the futures market had an impact on the dramatically higher oil prices of 2008 even as supply was growing and demand was falling (circumstances that you might otherwise believe would contribute to falling, not rising prices). Yet, in the summer of 2008 as the economic collapse was swirling, oil reached almost $150/barrel–triple today's level. How and why became a significant story explained in the book, Secret Weapon; How Economic Terrorism Brought Down the U.S. Stock Market and Why It Could Happen Again.

Financial market speculation can seriously impact oil prices (at least in the short run). This has been documented by a top oil trader. The head of Exxon-Mobil agrees. As do the Saudis. And Goldman-Sachs. And, even recently the Saudis have declared that the price drop was also driven by financial market speculation. Oil is not a traditional economy. Consumers don't have enormous flexibility to adjust purchases based on price, at least not in the short run. We don't drive twice as much when prices are down, for example. Likewise, producing nations are more often more revenue-driven, constrained by their budgets. So, lower prices mean they need to pump more, not less. This leaves the "fast money" speculators to push prices in the short run. This, of course, leads to the potential to manipulate markets and achieve real-world objectives–if you have sufficient resources. We demonstrated that the large Sovereign Wealth Funds of the Middle East could buy oil futures to keep the real world price high. In fact, Goldman Sachs estimated that every one million barrels held in the futures market would push the price per barrel up by about $0.10. That actually provides some powerful leverage for OPEC, which produces 30 million barrels per day. Of course, many argued with our point, suggesting that if that were true that speculators could likewise push prices down as well. And, they said, "that doesn't happen." Well, now Willem Middelkoop and the Saudis (and the Russians) would say they are wrong. We are seeing it now.

So what are the implications? Maybe it is simply that the long-only oil buyers gave up the trade and this accounts for the lower oil price. Maybe the Saudis have signaled the markets that they want a lower price to hurt Russia, Iran and the American Shale Industry. Or maybe it really is just supply and demand. It really doesn't matter. The Russians believe that Saudi Arabia and the United States have colluded to push prices down as an act of economic warfare. Given the fact that sanctions are in place against Russia, this is certainly an understandable conclusion. And, it could create repercussions. How? Cyber attacks. Financial market manipulations. Attacking our Currency.

Does this really mean an "all out cyber-economic war?" Possibly, and it may be happening now. But, we may not be told about it in America until it is way too late. That's why we are worried about the dollar even as it seems to be stronger. We are concerned about the massive Federal debt and deficits. And, we are focusing on cyber.

What can you do about it?

First, get educated. Look at international press and not just that of the United States. Read this Blog and our books (see Next, take a look at your personal vulnerabilities, including cyber. We give some practical tips in regard to your investments and personal life in the book, Game Plan; How to Protect Yourself From the Coming Cyber-Economic Attack. Then demand that politicians understand reality and not just sing along with the American media narrative. Take a look at your State efforts (Utah has passed a fiscal-risk responsibility bill, for example). Finally, take stock of what really matters. It is not only/always just about money. Our nation was founded on much more than that. Serving God and loving our fellow man is what really matters. If we are starting an "all-out cyber-economic war," wouldn't it be best to get right with God? Second Chronicles 7:14 offers a roadmap.