Pentagon preps for economic warfare

This was an interesting read:

The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis.

The two-day event near Ft. Meade, Maryland, had all the earmarks of a regular war game.

But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies.

Their efforts were carefully observed and recorded by uniformed military officers and members of the U.S. intelligence community.

In the end, there was sobering news for the United States – the savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game.

The United States remained the world’s largest economy but significantly degraded its standing in a series of financial skirmishes with Russia, participants said.

And it’s hardly science fiction. China recently shook the value of the dollar in global currency markets merely by questioning whether the recession put China’s $1 trillion in U.S. government bond holdings at risk – forcing President Barack Obama to issue a hasty defense of the dollar.

Several participants said the event had been in the planning stages well before the stock market crash of September, but the real-world market calamity was on the minds of many in the room. “It loomed large over what everybody was doing,” said Bracken.

“Why would the military care about global capital flows at all?” asked another person who was there. “Because as the global financial crisis plays out, there could be real world consequences, including failed states. We’ve already seen riots in the United Kingdom and the Balkans.”

Participants described the event as a series of simulated global calamities, including the collapse of North Korea, Russian manipulation of natural gas prices, and increasing tension between China and Taiwan. “They wanted to see who makes loans to help out, what does each team do to get the other countries involved, and who decides to simply let the North Koreans collapse,” said a participant.

At the end of the two days, the Chinese team emerged as the victors of the overall game – largely because the Russian and American teams had made so many moves against each other that they damaged their own standing to the benefit of the Chinese.

And second, Bracken says, the event left him questioning one prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time. Bracken said the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. “There’s a graduated spectrum of options here,” Bracken said.

Still, the event conjures images of the ultimate Hollywood take on computer strategizing: the 1983 film “War Games” in which a young computer hacker nearly triggers a nuclear apocalypse.

The film and the reality had one similarity: The characters in the movie used a computer called WOPR, or War Operation Plan Response. The computer system used by the real life war-gamers? It was called WALRUS, or Warfare Analysis Laboratory Registration and User Website.

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