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Commodities include not only obvious things like gold, oil and copper, but also the stocks of mining companies that own commodities—an indirect way of owning the commodity itself—and agricultural land that can be used to grow commodities such as wheat, corn, sugar and coffee. Also included is the most valuable commodity of all—water. Special funds are being organized to buy exclusive rights to freshwater from deep lakes and glaciers in Patagonia. The Chinese can invest in those funds or buy freshwater sources outright.

These commodity investment programs are well under way. Most prominently, between 2004 and 2009 China secretly doubled its official holdings of gold. China used one of its sovereign wealth funds, the State Administration of Foreign Exchange (SAFE), to purchase gold covertly from dealers around the world. Since SAFE is not the same as the Chinese central bank, these purchases were off the books from the central bank’s perspective. In a single transaction in 2009, SAFE transferred its entire position of five hundred metric tons of gold to the central bank in a bookkeeping entry, after which it was announced to the world. China argues that the secrecy was needed to avoid running up the price of gold due to the adverse market impact that arises when there is a single large buyer in the market. This is a common problem. Nations usually deal with it by announcing long-term buying programs and giving themselves flexibility as to timing, so the market cannot take undue advantage of one buyer. In this case, China went beyond flexible timing and conducted a clandestine operation.

What other financial operations are being pursued in secret today? While the Chinese proceed on numerous fronts, the United States continues to take its dollar hegemony for granted. China’s posture toward the U.S. dollar is likely to become more aggressive as its reserve diversification becomes more advanced. China’s hard asset endgame is one more ticking time bomb for the dollar.

Collapse

After this Cook’s Tour of financial hot spots, it is daunting to consider what may be the greatest risk of all—correlation. As applied to global financial warfare scenarios, correlation refers to two or more threats originating abroad that might produce adverse shocks at the same time, either because of coordination or because one acts as a catalyst for the others. If Russia wanted to launch a natural resources attack on the West through a cutoff of natural gas supplies, it might make good sense for the Chinese to accelerate their efforts to diversify away from paper assets into hard assets because of the expected price spikes produced by Russia’s move. Conversely, if China were ready to announce an alternative reserve currency backed by commodities, it might make good sense for Russia to announce that it would no longer accept dollars in payment for oil and natural gas exports, except at a greatly devalued exchange rate to the new currency.

At a more malign level, China and Russia might find it beneficial to secretly coordinate the timing of their commodity and currency assaults so as to be self-reinforcing. They could accumulate large positions in advance of their actions using leverage and derivatives. This not only would be a financial attack but would involve advance insider trading to profit from their own misdeeds. Iranians with access to Dubai banks observing these developments might decide to trigger a war with Saudi Arabia or a terrorist attack, not because they were necessarily communicating with the Russians or Chinese, but because the financial force multiplier from an attack would be that much greater.

Throwing a Russian resources assault, a Chinese currency assault and an Iranian military assault at United States interests in a near simultaneous affront would produce predictable effects in the hair-trigger world of capital markets. Markets would experience the financial equivalent of a stroke. They would not just collapse; they might cease to function entirely.

The foregoing threats are fast