Pentagon's Economic War Game With China "May Spell Disaster"

Given record levels of indebtedness all around the industrialized world, it’s probably an inopportune moment in time for the US to be stirring the political pot with China through weapon sales to Taiwan and other measures. The rising Asian power holds in its arsenal trade restrictions, hackers, and, probably the most significant area of concern, the “debt bomb” that China’s been steadily building.

Of what particular importance are the tools China is stockpiling? Well, from the New York Post, Arthur Herman reminds us of how one simulation of economic conflict unfolded:

“Last March, the Pentagon held its first-ever economic-warfare war game, with China as the putative opponent and with economists and bankers (including from UBS) helping out.

“Details of what unfolded are still classified. However, sources told Fox Business News that the scenario played out as planned. That was the good news.

“The bad news is that China won.

“Today, some experts argue that rational self-interest will prevent China from waging this kind of economic warfare, because crippling the US would also severely wound its own economy. However, on an issue like Taiwan or Japan, rational judgment can take a backseat to national pride, and the desire to reverse old humiliations.”

China won that economic conflict simulation and would likely be an even stronger opponent today. With the new US budget, “42 cents of every dollar the federal government spends will have to be borrowed.” Without a doubt, it is China and Japan that support over 40 percent of that Treasury debt.

You can read more details about this potentially mutually destructive behavior in the New York Post on how America’s number one creditor possesses the ultimate weapon.

The Daily Reckoning