Throughout the ages, war has been the engine of finance. The collusion between Russia and China in the last few weeks and months in order to bypass the US dollar in the international monetary system is equal to – if not more important than – the North Korea apocalyptic headlines (without excluding the possibility that the latter could serve the role that the Archduke’s assassination played in 1914).

History teaches us that military power without economic power is an illusion. Economic decline usually follows currency decline. The latter is usually the outcome of overreaching (credit overextensions that lead to debts and bubbles), military overstretching, and inability to back up the currency with hard assets. Let’s recall some pivotal events over the course of the last 2000 years:

• The Roman Empire, due to military overstretching, debased its currency and the silver purity of the denarius dropped from 99% to less than 5%

• Successive military conquests of various Chinese dynasties (206 BCE-1279 AD) disallowed China to capitalize on its inventions

• The Spanish Empire dissolved due to over-indebtedness caused by continuous wars and the “Price Revolution” due to currency debasement

• England that succeeded Spain as the Empire where the “sun never sets” repeated the mistake of continuous wars that led to the “Financial Revolution” (a.k.a. paper promises/IOUs) and ultimately to its decline

• The American Revolution was the natural outcome of taxes imposed by Britain to pay for debts accumulated due to British overstretching and overreaching

• The French Revolution and the Reign of Terror that followed was the natural outcome of the inability to pay the interest on the war debts and of the mania to print the assignat

• Britain cheated the system and issued a lot more pounds than the gold it held. By 1914 Britain had flooded the world with pounds by holding only 4% of global gold. The Kaiser was looking for an excuse, and hence World War I

• An attempt to re-establish the gold standard at prewar parities created the bubble of the 1920s, and the hyperinflation in Germany along with the Depression of the 1930s became the seeds of World War II

• The depletion of gold reserves in the US due to the Korean and Vietnam wars and the war on poverty led to the abolition of the Bretton Woods system, and to the oil crises of the 1970s

• Since the abolition of Bretton Woods system, we can count at least 15 crises and wars where the US was actively involved.

The recent Russian-Chinese collusion to undermine the dollar has a few distinct characteristics whose combination could prove to be pivotal in forthcoming global events. Specifically:

• The war games that they have jointly conducted (as well as the Zapad war games that Russia started separately on September 14th) want to portray a military alliance capable of facing the US

• The Russian central bank opened an office in Beijing last week, sending a message that a China-Russia alliance is ready to bypass the USD as the international trading currency

• That office will back bond issuances and align with other countries in advancing bond and goods trading denominated in currencies other than the USD

• China has been importing gold from Russia to back up the yuan with hard assets if needed

• Yuan-denominated gold futures now trade both in Shanghai and Hong Kong

• China, in association with Russia, is planning to launch an oil futures contract priced in yuan but convertible into gold. Let’s not forget that China is the world’s biggest oil importer. Such a move will allow Russia and Iran to circumvent sanctions.

Given the above historical facts, along with the switching of the price tags and of the headlines, we humbly would like to ask: Is it time for another war? Should we be looking for the money printing machine since in that case money supply would go up, and not just the monetary base?