Global Economic Warfare or Global Economic Depression?

I don’t view an economic depression as a natural phenomenon, an event that is likely to happen once in a century. To me, an economic depression, in our current situation, a potential global economic depression, is a tool of warfare, similar to weapons of mass destruction. Many are curious to know what is the reason for such an economic warfare. The answer is the growing power of emerging and developing countries over the past twenty years. Below is the recent shares of global economy according to IMF.



As you can see, very soon US and major western powers (the G7 nations) will lose their dominant economic share if the economic growth of emerging markets such as India, China, Russia and Saudi Arabia continues. Such a structural shift in economic control from the West to the East also means a shift in global powers. Why would the west give up their powers so easily without some kind of a fight? My theory is that the West is using the global credit crisis as a way to significantly reduce the wealth of the major emerging economies preventing them from overtaking the economic dominance of major Western powers. Such intention is becoming very obvious to me. Below is a list of ways the global economic slump and credit crisis can destroy the astounding growth enjoyed by major emerging Eastern powers for the past two decades:

1. Making emerging markets to buy trillions of US and European issued sovereign debt
China and Russia are among the largest creditors to the United States. Masked by artificial deflation, soon the US would be forced by inflation/hyperinflation to increase the interest rate on its treasuries causing a massive devaluation of the US sovereign debt. This situation is going to cause a tremendous loss in treasury reserves of countries like China and Russia, possibly pushing these countries to the brink of an internal fiscal crisis.

2. Lure these so called sovereign funds of emerging markets to invest in Western equity markets that are collapsing
This is the most obvious one. Look at ridiculous losses incurred by sovereign funds such as China’s Chinese Investment Corporation (CIC). CIC lost a massive amount of money on its investments in Blackstone, Morgan Stanley, private equity deals with J.C. Flowers and mortgage related fixed-income securities. Also, look at the billions of equity losses incurred by the Saudi wealth fund in its investments in Citigroup.

3. Forcing emerging economies to waste massive amount of their accumulated wealth on the useless economic stimulus packages
This phenomenon is increasing its momentum since the beginning of the Obama administration. These stimulus plans can only have a very short term effect on the economy and it only further sustains the problems caused by the credit bubble in various asset classes such as real estate and leverage in the capital markets. With US taking the lead to follow this destructive path, everyone else has to follow its footsteps as well. Soon we will see the failure of China’s recent multi-billion dollar stimulus plan along with those of Japan, Russia, Singapore and others.




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