China/Russia Updates

May 21, 2000

It's fitting that I write this essay on the twentieth anniversary of the Mt. Saint Helen's Volcano. To truly understand raw power there's nothing quite like observing an exploding volcano from a safe distance. One wit even put a white dust mask on Joan of Arc astride her statue horse. We all wore them. We figured that if it had been Mt. Hood Portland would have been renamed Pompeii.

The Chinese and Russian governments currently in power understand the nature and use of power and intimidation. In "China and the Art of War" I laid out the reasoning and strategy the Chinese are using in their campaign to regain Taiwan. This essay will highlight on of their tactical methods as reported on the Associated Press. Intimidation and threats, saber rattling in American slang, are credible military tactics. The AP is reporting that American Intelligence thinks China will blockade the southern Taiwan port of Kao-hsiung later this year. A stroke of genius right out of the textbook in my view. The Americans also think China will do nothing in response to the May 20th inauguration of new independence minded Taiwan President. The Chinese pacifism has to do with their not wanting to jeopardize the trade pact likely to pass the Senate and House this month.

Before I take a look at Beijing and its submarine blockade threat, a candid look at the economic effects is in order. After that, some political musings and a few more snide comments on the new Russian tyrant Rasputin.

In a word, the likely economic effects would be noticeable, as in immediately. Following the immediately noticeable short term effects, would be the significant long term effects. Short term is defined as 72 hours and long term is defined as 30 days onward. The short term effects would be concentrated in global stock and precious metals markets. First, the Taiwan Stock Market would undergo a period of confusion and possibly be shut down to prevent collapse. Taiwan's implosion would like cause chaos in the Asian markets in a best case scenario. The worst case would be massive percentage drops across the region. Europe, Wall Street and the NASDAQ would open into a Chinese military deployment of naval combat forces designed to crush and intimidate Taiwan. Europe, Wall Street and the NASDAQ would open into a level of political, economic and military uncertainty not seen since 1973's Yom Kippur War. As every stock analyst I've ever heard, bull, bear or plain jackass, has said, "The markets hate uncertainty." I'll leave it to gold-eagle.com's intelligent readers to fill in the blanks. Personally, I wouldn't expect a market rally.

There have been two times in my life when the world has been on the edge, both in October for some reason. The first was 1962's Cuban Missile Crisis, of which recently declassified documents show we were a lot closer to the abyss than we knew at the time. The second was the Egyptian and Syrian attack on Israel. If watching a volcano is impressive, then being on active duty in the US Army during the Yom Kippur war is an indescribable experience. We wondered if the Arabs would win and we would be sent in to prevent another Holocaust. When Israel began to win, we wondered if the Russians would drop Airborne Divisions into Jerusalem to save the Arabs. And then we begin to figure if that happened we were going into Armageddon right out of AIT. After that, we stopped figuring because we figured we were dead. So we got stoned and chased women all night and hoped we wouldn't be dead before our 20th birthdays in 1974. If God wanted 19 year soldiers to act wisely, he wouldn't have given us so many hormones. My strong interest in international affairs dates from this youthful trauma.

The global stock markets would likely be somewhat chaotic. Insurance, Futures and Bond markets would also be under stress. For instance, global merchant marine rates would be under duress. The Chinese Navy has just threatened to sink any ship entering or leaving a major world port. Think any merchant crews or shipping companies would want to sail there? If they did, who would insure them and their cargoes? Assuming anyone would insure them, how much would they charge for the risk? What impact would this risk premium have on other carriers, countries and crews insurance rates? What happens if the Chinese actually sink a ship?

All of this funnels into the impact on the precious metals markets. We are told repeatedly gold and silver have lost their place in the new global economy. Any flight to quality always goes towards fiat dollars or US Treasury bonds we are told. Well, maybe not this time. You see, a Chinese blockade would call into question United States resolve to aid one ally threatened by another ally. Remember we granted, or will grant, China trade ally status in May. Yet, here we are within months having them blockading Taiwan. Ignoring George Washington's sound advice against foreign entanglements, we have foolishly acted like we would guarantee Taiwan against a Chinese military adventure. We haven't legally by treaty, but that makes no difference. Everybody, the Taiwanese, the world and even our Congress thinks we have. Except, there is no way the United States will go to war with China over Taiwan. Does anyone think we would send anti-submarine forces to Taiwan and start sinking Chinese Submarines? Does anyone think we would sell Taiwan the weapons needed? Even if we did it would take months for the crews to be trained.

We would sell them out. We wouldn't call it that of course. We would yell at China. We would quietly tell Taiwan to sit down with Beijing. The world would heave a giant sigh of relief and go back to playing with the stock markets. It would be 1938 and Munich all over again. Peace in our time, for a little while longer.

It is said that gold and silver will only be credible again when people lose confidence in the American dollar. I believe that this Taiwanese sellout, however artfully disguised, would reveal the United States complete military, political, economic and spiritual bankruptcy. It would be clearly revealed to the whole world that we are frauds and cowards. The lesson would not be lost on our enemies who watched us cave in. They would be emboldened to strike at us. The lesson would not be lost on the Europeans and others who loathe our economic dominance. Full faith and credit of the dollar doesn't mean much if you just screwed an ally to save your butt. Full faith and credit doesn't mean much if everyone knows you just screwed an ally to save your butt. Around the world will be heard the sound of people going "hmmn, maybe the Americans will screw me too, maybe I should sell off some of my Treasury bonds, reduce my exposure in the stock market, maybe I should demand payment in the Euro or my own currency." "Maybe I shouldn't trust these Americans with their huge trade deficit, huge national debt to pay me back at all, much less with their fiat dollars." "Maybe I should buy some gold and silver just in case."

Assuming the crisis could be solved within thirty days, there might not be major economic damage unless the physical infrastructure of Taiwan was destroyed. Taiwan is a major producer of computer components and the basic chemicals used in many manufacturing processes. A prolonged crisis would disrupt Just in Time delivery systems the same way the earthquake caused problems. However, a quick crisis, a round of shuttle diplomacy and a not too blatant sell out could prevent sustained damage. The first 72 hours would be forgotten. The only legacy would a disgraced superpower shown to be a fraud. I believe that disgrace would permanently damage the fiat currency called the dollar and open the way for the barbarous relic horde to reclaim the citadel from GreenSpan and the heathens. The United States would be seen for the arrogant opportunist empire that it has become. An economic empire only interested in itself and using its fiat money to oppress the whole world. All of which is possible if you can keep the rest of the world in line through superpower mind games. Unfortunately, China's Kao-hsiung blockade would expose the United States and its child king leader for the whole world to see.

China is fully capable in a naval sense of calling our Taiwan bluff without firing the first shot. The internal pressures in China are pressuring the leaders to a quick resolution of the Taiwan problem. China simply will not allow the giant advertisement for freedom and democracy, this Tienamen Square called Taiwan, to continue luring its other regions into rebellion. China has more than enough submarines to seal the port through which 66% of Taiwan's imports and exports flow. Taiwan does not presently have the military capacity to effectively resist this blockade. The United States would risk a direct military confrontation with the Chinese Navy if it sent naval forces to break the blockade. China is gambling that the United States would pressure Taiwan into sitting down and negotiating away its freedom. A shrewd and correct gamble in my opinion.

As for Russia and its tyrant, my comments will be brief. Rasputin is quickly and effectively consolidating central command and control over Russia. He is harassing what's left of the free press into silence with his "tax raid." A raid carried out the same day that Putin was meeting with Ted Turner of CNN fame I might add. Rasputin has divided Russia into 7 new super regions run by a politician loyal to him personally. This political hack in turn is directly in charge with the regional military commander who also reports directly to Putin. There is a word for this: it's called dictatorship. The list goes on and on. I read the AP breaking news daily and it usually has a story about Putin increasing his power or murdering more Chechens. The Russians are modernizing their nuclear forces on the ground, air and sea. The Russians are engaged in war crimes in Chechnya. All of which gets Mr. Putin an invitation to meet the Queen of England. There is only one thing left for Russia to do. It must invade the Middle East in order to appease its Islamic allies and fulfill Biblical prophecy. This will come soon enough.

Buy some gold and silver while it's still cheap and everyone thinks goldbugs are fools.

WHO WILLS CAN-WHO TRIES DOES-WHO LOVES LIVES

There is no worse bitterness than to reach the end of your life and realize you haven't lived. -- M. Scott Peck

78 percent of the yearly gold supply is made into jewelry.

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