The Golden Gun: Economic Warfare in the 21st Century

Posted: Monday, February 1, 2010
Author: Andrew Baer

In his just-released memoirs On The Brink, former Treasury Secretary Hank Paulson alleges that top Russian officials made overtures to their Chinese counterparts suggesting coordinated economic disruption (warfare?) against the United States in the Summer of 2008. Paulson claims that during the 2008 Summer Beijing Olympics Russian officials pressed China to dump its Fannie Mae-Freddie Mac holdings, suggesting “that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies.” Central bank data confirms that Russia sold all 65.6 billion dollars worth of its Mae-Mac holdings mid-2008. Though China rejected Russia’s proposal, the incident highlights the potential for state-level, non-military disruptions as a potential blind-spot in U.S. National Security thinking.

While we have been hearing for years that the role of the state has diminished in the threat environment, arguably these kinds of non-military disruptions, i.e. the use of international events as a diversionary tactic, state cooperation in economic manipulation, etc., may serve to shift focus back to state-to-state conflict. And with the Department of Defense and U.S. government so fixated on countering guerilla insurgencies and christening irregular or asymmetric warfare as the sound trumpet of the future, Paulson’s experience should highlight the danger of state-to-state economic warfare.

With $13 trillion worth of debt, much of it owned by foreign entities, the United States is increasingly vulnerable to hostile coordinated economic maneuvering by competing powers, such as Russia and China. China is the largest foreign US debtor owning nearly 24% of the debt backed by foreign entities totaling just under 800 billion dollars. OPEC follows in fourth with 185 billion dollars, or 6 %, and Russia, seventh, with nearly 118 billion dollars, or 4%. Political common sense would otherwise dictate that being indebted to your competition is folly.

Or maybe Thomas Jefferson was on to something when he wrote the following: “The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale.”