Regular readers are familiar with the thesis that currency wars lead to trade wars and finally to shooting wars. This was the sequence in Europe and Asia from 1921 to 1939, and something similar is playing out today.
The new currency war started in 2010 and the new trade war began in 2018. Both the currency war and the trade war are raging side-by-side right now. The question is whether these conflicts can be resolved or mitigated or whether another shooting war is the inevitable outcome.
The news in this article is not encouraging in this regard. Japan is sending assault vessels to the South China Sea to confront a more aggressive posture by the Chinese. Japan has had a clause in its constitution since the end of World War II that prevents the creation of an offensive military capability. However, the line between offensive and defensive capabilities has long been ignored and Japan has a robust navy and air force.
Japan has been more overt in recent years about displaying and deploying its military forces. A robust debate is going on in Japan today about amending the constitution to permit an explicit offensive military capability. Japan is sending a message to the Chinese about its efforts to dominate the Western Pacific Ocean and the waters around Japan.
The U.S., India and others have joined Japan is this effort. For its part, China refuses to back down and insists on its control of the South China Sea.
For now, no shots have been fired. Yet, the chance of an accidental shooting confrontation keep going up as more nations send vessels and aircraft to the area.
Let’s hope the situation does not play out in accordance with the 1930s script. Investors are well advised to increase allocations to cash and gold in case it does
Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.