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Mutually Assured Financial Destruction
(Sometimes refered to as Mutually Assured Economic Destruction MAED)

Mutually Assured Financial Destruction (MAFD) is derived indirectly from the concept and doctrine of Mutual Assured Destruction (MAD). This is strategy and policy was used and coined during the Cold War. Mutually Assured Destruction (MAD).

The Mutual Assured Destruction MAD doctrine assumes that each side has enough nuclear weaponry to destroy the other side and that either side, if attacked for any reason by the other, would retaliate with equal or greater force. The expected result is an immediate escalation resulting in both combatants' total and assured destruction. (From Wikipedia)

Mutually Assured Financial Destruction is an idea less then a doctrine, it implies that large economies are dependant on each, specifically large holders of currency or debt. The Chinese for example hold billions of United States (US) dollars and own large amounts of US treasuries. The US owes billions of dollars to the Chinese and other large economies. (Navin Doshi, May 19th, 2010)

China buys resources in dollars, and must buy dollars to keep its exports competitive. Hence, it sees US consumption ambivalently. Americans buy Chinese goods, but also push up the price of commodities. The US welcomes both cheap Chinese manufacturing and the Chinese appetite for US Treasuries, but chaffs at having to shape policy around Beijing’s moods. (Global Times July 27 2009)

Larry Summers calls it the “balance of financial terror” in which one false move by either side could bring down both, and probably the entire global financial system.

Larry Summers is former Director of the White House National Economic Council and past President of Harvard University from 2001 to 2006

It creates a deadlock in the financial centers of the world because these "debt bombs threaten the stability of the whole world economic system". Hence, the media and politicians now use these common phrases, Mutually Assured Financial Destruction or Mutually Assured Economic Destruction to describe this phenomenon.

(Jeanne Sahadi, senior writer Money.cnn.com America's hidden debt bombs March 1, 2010)