Thursday, August 12, 2010

Is China Executing a Cunning Sun Tzu Strategy to Destroy the Dollar and Cause an Upward Price Explosion in Gold?

By Elizabeth Brinsden

Could China be coveting the role of the next economic superpower, thereby supplanting the USA? If so, is China planning to do this by design or is it simply awaiting this result by default as a result of the total collapse of the American economic system?

Whether we like it or not, China has already become the 800 lb Gorilla in the dining room, economically speaking. We ignore this fact at our peril. Thus it may be advisable to reorientate our thinking from that of the rationalist, pragmatic thought processes which arose out of the Enlightenment and complement our thinking with something more akin to that of the Chinese.

In order to accomplish this, it is constructive to take a closer look at the ancient Chinese philosopher, Master Sun Tzu. In an earlier article , based on a book by Harro von Senger on this theme[1], I have attempted to do this in connection with the Special Drawing Rights[2], as advocated by the Chinese earlier this year. However, I will now examine this idea in the context of the the Chinese possession of US Bonds, a subject not only of relevance to these two countries, but also for the stability of the entire international economic system.

At a superficial level, it may appear to the onlooker that China has been sucked into a giant malinvestment by purchasing these bonds, but a closer look at Master Sun’s stratagems may reveal a well conceived and even cunning plan.

At the outset, according to the US Treasury website, China stopped purchasing US bonds in May, 2009[3]. With that, our attention must turn towards the possibility of a massive sale of these bonds on the part of the Chinese and the consequences this would have for the international economic system. This scenario is not new; it was the subject of a very interesting book published at the beginning of the 1990’s by James Dale Davidson and Lord Rees Mogg[4] . At that time it was Japan which held the most US bonds but the principle, as expounded by these two authors, still applies today.

Could this ever happen? To the Western thinker, the massive sale of US Bonds would amount to the self infliction of wounds on the part of the Chinese and thus would be deemed inconceivable . But perhaps Master Sun can provide a different perspective into this matter.

Master Sun Tzu was born in 544 BC and died in 495BC. ( whereby it must be pointed out that there is no proof that this was a real person at all ) His most famous work was The Art of War , which laid out 36 stratagems, originally conceived for application in war , but which have since penetrated other fields as well, particularly that of the business sphere. Even in the West , business conjures up overtones of a battle field. The question now becomes which statagems could be applicable to this case and here it becomes relevant to divide the discussion into two broad categories; acts of commission and acts of omission.

First of all , those which can be described as acts of commission. In this case, at least four stratagems could be applicable.

Stratagem Nr. 15

To entice the tiger down from the mountain

Here the humiliation of the debtor, the USA, towards the creditor, China, forces the economic superpower to descend from its throne to a level playing field with the so called lesser power.

Stratagem Nr. 19

To withdraw the wood from under the boiling pot

Ceasing to purchase US bonds, must eventually have an impact on the debt driven economic growth of the borrower.

Stratagem Nr. 28

To entice onto the roof and then pull away the ladder

The easy sale of US bonds to the naive purchaser must automatically lull the debtor into complacency whilst the ladder (i.e. bond sales) is removed.

Stratagem Nr. 30

The reversal of roles in which the guest becomes the host.

This stratagem must be considered to be the most important for the purposes of this article whereby the once economic superpower, is forced to assume a role of subservience to the newly emerging power of the creditor, China.

What about an act of omission in the form of a default on the part of the USA? How can the 36 stratagems be applicable in this situation?

Stratagem Nr. 4

Awaiting at one’s ease the exhausted enemy

If America defaults the answer should be self explanatory. But the question arises, how do we account for the self affliction of damage onto the creditor? A look at the recent ascent of the gold price may offer a possible explanation.

From an article written on the 23rd September, 2009[5], we learn that China has been purchasing gold and has raised its level to nearly 1050 tons from a mere 400 in previous times. It is reasonable to assume that this trend will continue unabated and it might be of interest at this point to take a short look at the the history of paper money in China[6].

The Chinese were the first to use paper money , for a period of about 300 years between the years 1050 to 1450 - during the S’ung, Yuan (Mongol) and Ming dynasties. The first use of paper money resulted in abuses but the most successful period was that during the early Yuan dynasty. These currencies were theoretically redeemable in some form, and were therefore not fiat money as we have experienced it since President Nixon cut the last tie to gold redeemability in 1971.

In the opinion of this author, present day China may well be heading in the direction of pegging its currency in some form to something else and that that something else, is very likely to be gold. Then China could offload its US bonds by sale , once again raising the price of gold dramatically which in turn would compensate for the dollar losses. But this could spell disaster for the international economy if done so at a too rapid rate.

Not only would this give China the only trustworthy currency in the world, but it would simultaneously and conveniently constitute the knock-out blow to the USA as the economic superpower. In other words, stratagem 4 , the awaiting at ease of the exhausted enemy , may offer an explanation for an otherwise seemingly sensless act of omission on the part of the Chinese.

Thus it seems highly likely, that China has America well and truly cornered from whichever angle one cares to examine the situation.

What could constitute a refutation of this conclusion?

One possible reservation could jusitfiably be raised that the gold reserves do not constitute the entire economy. That is indeed the case but from a historical point of view,i.e. for the last two hundred years at least, the country which has had the largest gold reserves, has also been annointed the economic superpower.( England in the 19th century, America in the 20th)

Now another possible objection could take the form of pointing out that America still has the largest gold reserves in the world, something in the vicinity of 8,700 tons. However , according to a chart from the year 2005[7], these reserves are encumbered , i.e. either sold or leased. In fact rumours are rife , (in their most extreme form) , that maintain that the once almighty Fort Knox may even be empty! Indeed the ultimate irony would have to be if some of these reserves should already have found their way into the vaults of China.

In conclusion ,when approached from the perspectives adapted from Master Sun’s 36 Stratagems, it is indeed highly likely that China is in fact intending to supplant the USA as the next economic super power and may very well succeed in so doing.

On this note , it may well be prudent for all Central Bankers et al., to take heed of something another famous Chinese thinker, Confucious, once said:"hold gold."

Dr. Elizabeth Brinsden is a senior lecturer on the Faculty of Socioeconomics at the University of Jana Evangelisty Purkyne in the Czech Republic. . She can be reached at


[1] SENGER, HARRO von. The 36 Stratagems for Business. 1st ed., Singapore: Marshall Cavendish Business,2006

ISBN 1-904879-46-2

[2] BRINSDEN, ELIZBETH. China/USA, Special Drawing Rights and Master Sun’s 36 Stratagems . 3rd, 2009.

[3] http://www.treas/TIC/US Gross External Debt

[4] DAVIDSON, JAMES DALE and MOGG, WILLIAM REES. The Great Reckoning. Touchstone, January 1994

ISBN: 0671885286.

[5] MILLER,DON. How China became the “800-lb” Gorilla in the Gold Market. http://

[6] RAMSDEN, DAVE. A very short History of Chinese Paper Money.


[7] http://


  1. How can anyone "destroy" the dollar when it is already worth zero. This was ruled by the judge who refused to accept two paper dollars for an appeal of his famous Credit River Decision. America has been bankrupt since 1933 as revealed by James Traficant in the house of representatives in his 1993 famous speech. Paper dollars are debt notes backed by faith alone.


  3. China doesn't have to do anything but wait for the US government to finish the destruction of the dollar and the US economy. Even if all the US government debt they own becomes worthless it will be a lot cheaper than than the way the US tries to defeat it's "enemies", by idiotic, poorly run wars that bleed the country dry.

  4. Looks like Lizzy has been reading Marc Faber's "Tomorrow's Gold" in which he posited, years ago, the idea that China might consider a $2T loss on ForEx reserves to be the cost of becoming the world's only superpower.

  5. Someone forgot to notice that you can not eat gold, and the US is the largest exporter of food, while China is the largest importer.

    It would be nice if writers did not simplistic views of complex subjects.

    In case of economic or other international stress, I suspect that we can rely on Canada who is also a large exporter of food.

  6. @RealEstateGuy

    Oh you're one of those guys that doesn't like gold because you can't eat it. I ran into another guy like you once:

  7. You can't eat paper notes either...

  8. Hey Real estate guy, how is your "housing always goes up, buy now or be priced out forever, you never lose money on owning a house" slogans working out for you lately?

    Oh, and by the by, I can't drink crude oil, I guess that makes crude oil worthless too.

  9. silly argument. of course we can't eat gold...but we certainly can exchange it for food and other commodities.

  10. First of all they aren't paper they are printed on cotton.
    People do eat gold leaf on desserts and other foods.

    Until there is a point of recognition in society, the dollar will be just fine. Currencies will never be backed by metal because of DEFLATION risks. You have to continually mine more out or you have the masses on your rear. They are better pegging it to Coal or another mineral that is readily and easily abundant. Won't happen.

    Sure the shadow market caused this system to get way to levered but I have news for you all... The us government can't even come close to issuing enough debt to offset the tsunami of bad debt out there. That is deflationary.
    If China tries to dump debt, another central bank or money center bank would offset the imbalance. If the imbalance is a quick shock, well kids you now have 200million china men/women unemployed. Think the square incident was bad, just wait for the panic and fear occurring in that nation.

    The funny thing about this is all the press on how the USA doom that or this... it is to obvious for it to be on blogs like this or on bloomberg.

    The other funny thing is I bet 9 out of 10 readers believe that the FED is actually printing money via QE. LOL that is far from the truth. They haven't printed one dollar if you actually understand how the system works.

    Good luck, don't forget the Reynolds wrap for your forehead. You will see government bond yields much lower over the time to come, expect bounces and trade them.
    When everyone is gaga googoo government bonds, then you may want to look elsewhere.

  11. The article states in relation to pegging the Chinese currency to gold : "Not only would this give China the only trustworthy currency in the world"
    Not true, what about the ECB member banks and their 10800 Tons of the yellow stuff?
    We hardly ever read anything about the ECB's mark to market concept of it's gold holdings. Last Q the ECB's gold reserves where 60% of total reserves.

    So, nor China nor the ECB will "PEG" their currency to gold. It is more than enough for them to let the price of gold rise and to keep this gold as a "wealth asset" on their books supporting their currency and economy.(no more gold standard, no return to "hard currency")

    So China might not be in the middle of a plot to attack the US and the dollar - could it be they are only defending themselves from the inevitable demise of the dollar?

    If I have both USD and gold on my books, all I have to do in a USD crisis is let the price of gold rise accordingly. The price of gold then is completely arbitrary, let it rise as much as needed to balance things.

  12. @realestateguy
    Been drinking much koolaide lately?
    You got a degree in economics? You need a refresher course in money vs. value, how's that paper taste? Eat any houses lately?
    How about dirt?
    Get used to the taste, of dirt.

  13. @RealEstateGuy China certainly does have a problem with insufficient water, which is why they are importing it in the form of food. However, I don't think it's anything to brag about that the US is exporting raw materials and importing finished goods! I call this reverse mercantilism. As I learned in grade school, the country that sells the finished goods has a huge advantage over the commodity producer. Add to that the Chinese near-monopoly on rare earth minerals necessary to high tech goods and the US is in real trouble.

  14. 1. Sun Tzu said: The art of war is of vital importance
    to the State.

    2. It is a matter of life and death, a road either
    to safety or to ruin. Hence it is a subject of inquiry
    which can on no account be neglected.

    3. The art of war, then, is governed by five constant
    factors, to be taken into account in one's deliberations,
    when seeking to determine the conditions obtaining in the field.

    4. These are: (1) The Moral Law; (2) Heaven; (3) Earth;
    (4) The Commander; (5) Method and discipline.

    5,6. The Moral Law causes the people to be in complete
    accord with their ruler, so that they will follow him
    regardless of their lives, undismayed by any danger.
    Consider the truth behind 9/11 and the anthrax attack 9/18/01.

    Consider the events 7 year later in 2008.

    The moral law is You shall not kill.

  15. More key details from ‘The Art of War’

    I Laying Plans

    18. All warfare is based on deception.

    19. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.

    20. Hold out baits to entice the enemy. Feign disorder, and crush him.

    22. If your opponent is of choleric temper, seek to irritate him. Pretend to be weak, that he may grow arrogant.

    Attack by Strategem

    2. Hence to fight and conquer all your in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting.

    VI Weak Points and Strong

    1. Sun Tzu said: whoever is first in the field and awaits the coming enemy, will be fresh for the fight: whoever is second in the field and has to hasten to battle, will arrive exhausted.

    2. Therefore the clever combatant imposes his will on the enemy, but does not allow the enemy’s will to be imposed upon him.

    3. By holding out advantages to him, he can cause the enemy to approach of his own accord; or, by inflicting damage, he can make it impossible for the enemy to draw near.

    23. Rouse him, and learn the principle of his activity or inactivity. Force him to reveal himself, so as to find out his vulnerable spots.

    The Chinese honor their ancestors and their wisdom greatly, too bad so many in the US treat the great men and women of the past as ignorant know-nothings.

  16. " First of all they aren't paper they are printed on cotton. "

    Stop that nonsense. Paper is paper, it doesn't matter if it is made of cotton (rag paper), hemp, cellulose pulp from wood, leather, grass or anything else. It is still called paper.

  17. Surely the value of gold is no greater than the acceptance of gold as money. If no one accepted that gold was money then it would only be worth its value as a decorative material (<$50 an ounce?) and if it was the only accepted form of money then it would be worth >$100000 an ounce. No government currently requires taxes to be paid in gold and Saudi Arabia chooses to sell its oil for dollars -surely those are the key factors in confering value to any form of money. Surely if China, the USA, Japan, EU, Saudi Arabia etc decided to have a commodity backed currency system and choose platinum (or Dodo feathers, or whatever) as the currency then that commodity rather than gold would attain immense value instead. I guess a more realistic future is that paper money will continue but debt will no longer be issued when governments spend. Tax would be used purely as means of moderating inflation and the idea of taxes paying for government spending would be quietly forgotten. Paper money ensures persistant inflation and persistant inflation is the most easily enforcible way to encourage the consumerism and waste that our civilization is based around.

  18. I live in a west african country. I am thinking why should i buy bullion at its current price when i might be able to go to some mining communities and buy unrefined gold for cheap refine it and voila 2 ounces for the price of one! I've never tried this before though.

  19. Watch the fires burning across the river (隔岸觀火/隔岸观火, Gé àn guān huǒ)