STEVE INSKEEP, host:
Let's follow up now on how economic problems can become national security problems for the United States. Yesterday on this program, our own Tom Gjelten explained why the downturn could produce political instability and damage the ties that hold countries together. That's why intelligence officials - some of them - believe that the economy is now the top threat to our nation's security.
Today, Tom Gjelten explores how countries around the world might even be tempted to engage in financial warfare.
TOM GJELTEN: The CIA and other U.S. spy agencies are now convinced they need to pay close attention to the international financial crisis in order to understand how it is jeopardizing U.S. national security. The problem is U.S. intelligence officers aren't necessarily prepared to analyze this new threat, so they've brought in outside help.
James Rickards, an expert in the emerging field of threat finance, is advising the director of national intelligence.
Mr. JAMES RICKARDS (Adviser to Director of National Intelligence): Obviously, they had economists and they looked at, you know, what is the GDP of Russia, what is the GDP of China - that kind of macroeconomic work always went on. But this is different.
GJELTEN: The concern now is not the gross size of countries' economies, but how money moves between countries, and the way those movements can turn into a kind of financial warfare. Take China and the United States.
The Chinese now hold about $1 trillion worth of U.S. debt, including Treasury notes and other securities. That gives them enormous power over the U.S. economy. Were they to suddenly sell those securities, the U.S. dollar would tank. James Rickards says China could set out to conquer the United States this way or it could simply decide that such a move made good economic sense.
Mr. RICKARDS: You can envision scenarios where they launch a financial attack, you know — a Pearl Harbor on the dollar, if you will. And those are the things that I think national security professionals rightly think about it. But it doesn't have to even be that. It could just be China acting in its own best interests in ways that cause interest rates to go up, the dollar to go down.
GJELTEN: If the Chinese were to dump their U.S. dollar notes all at once, they'd hurt themselves almost as much as they'd hurt us, because the value of those assets would drop so sharply. But Rickards said China could take a halfway step — exchange long-term U.S. debt for short-term notes.
Mr. RICKARDS: Don't think the Chinese aren't sophisticated about this. There are plenty of economists in China who went to MIT and Harvard and University of Chicago who know more about this than anyone. So, those are the kinds of little plays within the bigger picture that I think people are not paying attention to, and they're potentially threatening.
GJELTEN: Another critical area is Eastern Europe. Governments from Poland to Romania are seeing their currencies plummet compared to the dollar and the euro, this means a decline in the countries' standards of living. After the collapse of the Soviet bloc, these countries turned away from socialism and toward free markets and Western democracy.
David Gordon is the former national intelligence officer for economic issues.
Mr. DAVID GORDON (Former National Intelligence Officer for Economic Issues): For these countries, this is the first time anything like this has happened. Now, they did have a lot of economic change at the end of communism, but this is really the first time you've had this very, very deep crisis that really could challenge the Westward orientation, the orientation towards markets.
GJELTEN: Another danger is that Russia could take advantage of the economic vulnerability of these countries and try to reassert control over them, perhaps by offering new loans — or withholding energy supplies. Russia has been hurt far more than the United States by the economic crisis.
But David Gordon, now head of research for the Eurasia Group, says the downturn has strengthened the position of aggressive, hard-line elements in Russia, making them more determined to challenge U.S. economic and political power.
Mr. GORDON: Their perception was they were doing things right, and now the United States has brought on this financial crisis that is undermining them. So, I think it's reinforced a reflexive anti-American view.
GJELTEN: The other big financial warfare threat involves al-Qaida. Osama bin Laden has made clear how much he would like to bring down the U.S. financial system, but he does not have the tools or expertise or capital to manipulate the U.S. financial markets the way China or other players could.
David Gordon is less concerned about this scenario.
Mr. GORDON: I think they have a very symbolic view of this. I think their view of bringing down the U.S. financial system is, you fly a plane into Fort Knox. I don't think they have a practical orientation to this.
GJELTEN: James Rickards, the threat finance expert, agrees, but he says al-Qaida could wreck the U.S. economy simply with a well-timed attack.
Mr. RICKARDS: If you launch a terrorist attack in a prosperous economy, we kind of bounce back. If you launch the same attack in a weak and getting weaker economy, there could be a multiplier there that could drive markets down very extensively, very quickly.
GJELTEN: Add it all up, and the financial crisis means the United States finds itself today in an especially precarious situation.
Tom Gjelten, NPR News, Washington.
INSKEEP: You can see Tom's earlier report on the economic crisis and national security at NPR.org.
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