"Financial war is a form of nonmilitary warfare which is just as terribly
destructive as bloody war, but in which no blood is actually shed...when
people revise the history books...the section on financial warfare will
command the reader's utmost attention." 

A few months ago in my report "China and the Final War for Resources" I pointed out that the Government of China realizes that in order for their country to grow and survive in the years ahead, they must secure resources, primarily oil supplies. They also view the United States as a major hindrance to this objective, not only because the U.S. is the world's biggest consumer of oil but the U.S. government itself is viewed as being unpredictable, aggressive, and warlike as far as the Chinese leaders are concerned.

To win this war, the hard line doctrine taken from the treatise "Unrestricted War: China's Master Plan to Destroy America" instructs that currency revaluation or devaluation is a primary weapon which when initiated, will create financial turbulence and economic crisis within the U.S. and thus give the Chinese the opportunity to advance their own version of national security.

In analyzing the precarious predicament that has $1.94 trillion U.S. Treasury debt owned by foreign banks, most notably China, the overloaded U. S. debt burden is already teetering on a fine line. Any hint of a problem in maintaining support of U.S. bonds would create an instantaneous meltdown of the greenback with a simultaneous surge in the price of gold.

However despite this, the Treasury Department warned China last month they have until November to make their exchange rate more flexible or they will be labeled as currency manipulators. This charge would start bilateral talks on the exchange rate and possibly retaliatory action.

Currently the yuan is pegged with the U.S. dollar at 8.3:1 giving China, with its low labor costs, an excellent trade advantage which both Republican and Democratic politicians have been strongly complaining about for the last few years.

Provoking China is a dangerous game and could have extremely serious consequences not only for the U.S. economy but the world economy. If China ever pulls the trigger on their "primary weapon" the dollar will crash and gold will break $600 in a heart beat and just keep going.

Zhu Min, general manager and advisor to the President for the Bank of China was quoted in the
China Daily last year saying that: "The United States is benefiting from China using its trade
surplus to buy U.S. Treasury paper as a reserve currency, along with other Asian nations. But in
the long run, this is not sustainable.... China will focus more and more on domestic demand, 
which is growing fast. Then we won't be able to finance the U.S. deficit."

 "All Beijing has to do is to mention the possibility of a sell order going down the
wires. It would devastate the U.S. economy more than a nuclear strike."

Last year, the Wall Street Journal observed that a sell off of U.S. treasuries from a large debt holder like China would put the U.S. economy into a tail spin. Long term interest rates   would climb and bond yields would sky rocket. This could start a stampede of selling which   would devastate the stock market. This is the treasury trap America is in.

In May The People's Bank of China said it would not respond to a US Treasury report calling for the central bank to move to a more flexible exchange rate within six months. A bank spokesman stated that "We have no comment whatsoever on this. We have made very clear our policies on China's foreign exchange reform."

China's Premier Wen Jiabao also weighed in saying China will not bow to outside pressure on the exchange rate for its currency.

All this rhetoric has gotten the attention of United Nations economists who have stated that China has an important role in the world wide economy and recovery. However in the same breath they also warned that the U.S. had better reduce it's deficit or there could be  serious repercussions not only in the U.S. but globally.

These thoughts have also echoed an International Monetary Fund (IMF) report that described
the deficit as "perilous" in the long term and poses "significant risks" to the rest of the
world. "The United States is on course to increase its net external liabilities to around 40 percent of its GDP within the next few years - an unprecedented level of external debt for a large industrial country." The bottom line of the report quite correctly forecasts this current dilemma will create a further meltdown of the dollar.

In light of the U.S. government's huge and increasing debt load, the politician's aggressive stance on the free trading issue of the yuan, the need of China and other foreigners to bank roll the $ 1.9 trillion of U.S. debt, warnings from the U.N. and IMF about America's out of control spending - you must wonder what the hell these U.S. bureaucrats are thinking?

These are serious issues which I hope you, dear reader, will take to heart. A strategic analysis of your current equity portfolio would be advisable with emphasis on real assets in the form of precious metals and energy equities. No matter what happens in the future at least you will  sleep and night and profits in the process.