09 DEC 16 – Executive Intelligence Summary

EXECUTIVE INTELLIGENCE SUMMARY – 09  December 16 🔒

[wcm_nonmember]In this EXSUM… (3165 words)

• Significant critical infrastructure reporting
• Russia, China, North Korea SITREPs
• North Korea nuclear SITREP
• Universal Basic Income hitting peak (for now) interest
• Senate proposes Chinese sanctions bill
• Koskinen should be an HVT for impeachment
• And more…

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Bottom Line Up Front: Two important pieces of news came out this week that could bolster the case that the US is preparing for a potential conventional war.

The first is that the US Navy will be unveiling a new strategy for surface combat on 10-12 January, just two years after their move to what’s called distributed lethality.  That means that Navy ships, instead of operating in one mass formation, will break up into several smaller formations.  This focus on splitting into small groups and increasing lethality means that adversaries will have more numerous target groups, adding to the potential that adversaries don’t fix all positions, yet will have to deal with the same amount of lethal weapons.  The carrier strike groups will remain operational, but will launch aircraft and missiles from the rear of a sea battle.  This is most likely in response to recent Chinese weapons developments, which includes a series of upgrades to anti-ship missiles, and the expectation that a naval conflict is growing more likely.

And the second is that the Army announced that Fort Stewart, Georgia’s 3rd Infantry Division will be changing the 2nd Brigade Combat Team, which is light infantry, into an armored brigade combat team equipped with Abrams tanks.  After 15 years of fighting in mostly irregular wars, leaders at the Pentagon and their concept of reality has been quickly hurtling back to earth.  For years, there was a Pentagon battle over force structure and becoming lighter, faster, and more lethal to respond to small, global contingencies, or maintaining the ability to fight large scale conventional wars.  Some leaders didn’t see the need for maintaining conventional readiness because up until about four years ago, few people were ringing alarms about conventional warfighting.  But now that a conventional war in Europe looks like a growing possibility, the Army is renewing focus on military readiness and increasing conventional warfighting capabilities, while playing catch up to electronic and cyber warfare, both of which will undoubtedly play a role in the next war.  2nd BCT’s sister brigade, the 1st Heavy Brigade Combat Team, and other units from the 3rd Infantry Division completed several rotations to Europe as a part of Operation Atlantic Resolve in 2015.  Operation Atlantic Resolve is part of the $3 billion package called the European Reassurance Initiative, which is meant to bolster the defense of Europe against Russian aggression.

 

Priority Intelligence Requirements:

PIR1: What are the current indicators of systems disruption that could lead to a SHTF event?

PIR2: What are the current indicators of an outbreak of global conflict?

PIR3: What are the current indicators of military, government, political, or social-related instability or violence that leads to widespread domestic conflict?

PIR4: What are the current indicators of economic, financial, or monetary instability that leads to civil unrest?

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PIR1: What are the current indicators of systems disruption that could lead to a SHTF event?

(Indiana) Bullet causes $400K in damage to power substation*

Indiana Conservation Officers are investigating on November 30 after a Heartland power substation near Amboy, Indiana, lost power November 25 after someone shot the substation transformer with a rifle, causing an estimated $400,000 in damages. (Source)
(Maryland) Exelon leaks causes problems at nuclear plant*

Exelon Corporation officials reported that Unit 2 of the Calvert Cliffs Nuclear Power Plant in Lusby, Maryland, automatically shut down December 3 after hydraulic fluid leaked in the system that opens and closes turbine steam valves on the non-nuclear side of the plant. Unit 1 remained at full power while crews worked to repair Unit 2. (Source)

 

(Global) US DOJ takes down international hacking servers *

The U.S. Department of Justice announced December 5 that a multinational operation involving arrests and searches in four countries successfully dismantled Avalanche, a complex network of computer servers that allegedly hosted more than two dozen of the most severe types of malicious software and facilitated financial crimes and money laundering campaigns worldwide.  The Avalanche network reportedly served clients operating as many as 500,000 infected computers worldwide on a daily basis and caused hundreds of millions of dollars in losses.  (Source)

* These reports are sourced from the Daily Open Source Infrastructure Report published by DHS.  We read each daily report for significant threats and vulnerabilities to critical infrastructure, and include those events in this EXSUM.  Please use this reporting section to form a baseline for the type and frequency of threats to critical infrastructure.

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PIR2: What are the current indicators of an outbreak of global conflict?

The prospects of global conflict continue to revolve around the usual players: Russia, China, and the Middle East. The ways in which global conflict could cause or contribute to a SHTF scenario in America are myriad and they largely depend on which conflict is initiated. We’re certainly at risk of cyber attack in the event of conflict in any of the three regions. Systems disruption, like the price and availability of fuel, is also a top concern that could cause a SHTF event.

NATO-Russia SITREP

NATO – US Congressional leaders this week are hoping that they can pass a bill aimed at countering “active measures by Russia to exert covert influence over peoples and government by exposing falsehoods, [utilizing] agents of influence, corruption, human rights abuses, terrorism, and assassinations carried out by the security services or political elites of the Russian Federation or their proxies.”  It seems that most of Congress is aware of and prepared to counter Russian influence activities, however, they may be at odds with Trump once he takes office.  And a response to Russia is likely to be a point of contention between Trump and his Defense Secretary, retired General James Mattis.

 

Russia – The Russian FSB (Federal Security Service) recently announced that it had foiled a cyber attack against Russian banks perpetrated by “foreign intelligence services.”  The attack was scheduled for 05 December, and was designed to target the Russian financial system.  In addition to a cyber attack, the FSB said that text messages sent to banking clients and false stories published on social media would have been released to cause fear and panic around the financial system.  According to Russian state security officials, the country experiences “dozens of millions” of cyber attacks each year, but while those usually include criminal attempts to steal money from bank accounts, this attack was unusual because it targeted the banks and the financial system.

We generally have to be cautious about news like this because part of the Russian government’s job is to ensure that feelings of patriotism and nationalism are bolstered among the Russian population.  As long as Russians feel threatened by outside forces (whether they’re perceived or real threats is immaterial), they’re going to support Putin’s foreign policy, which includes dismantling NATO and the EU.  But if this story is true and the FSB did disrupt a major cyber attack that could have caused a Russian financial crisis, then the first of several logical conclusions is that the attack was set up by the West.  Remember that back in October, Vice President Biden mentioned on Meet the Press (14 Oct), that the US has the capacity to carry out a cyber attack against Russia, and that the Obama administration wanted to ‘send a message’.  “And it will be at the time of our choosing. And under the circumstances that have the greatest impact,” Biden said.  Currently there’s no public proof that the cyber plot was even real, or that it was carried out by Western intelligence services.

Meanwhile, Russia’s Northern Fleet (which covers the Baltic, Arctic, and Mediterranean Seas, and the Atlantic Ocean) is gearing up for a busier 2017.  In addition to receiving a handful of Sukhoi-30SMs (Russia’s 4th Generation Plus fighter jets intended to counter the US F-35), the Northern Fleet will make defensive improvements to the Arctic a top priority.  And the Baltic Fleet will carry out 10 new voyages in 2017, although the Russian Defense Ministry declined to say exactly where in the Baltic region those ships would patrol.  This is a continuation of Russia’s plan to expand their force projection to challenge the US and European navies.  It’s a direct result of the expansion of NATO, and there’s undoubtedly an arms race in the region, especially considering that Russia is cutting budgets elsewhere and draining cash reserves to modernize and equip their military.  Low oil prices have dampened Putin’s outlook on upgrading his military, however, when oil prices boom later in 2017 or 2018, the Russian Defense Ministry is going to be flush with cash, and I think they’ll take a more aggressive stance once their finances aren’t so dire.

Finally, this morning officials from Russia and Cuba signed a defense technology cooperation pact aimed at helping Cuba modernize its military.  “This is the first time that we, on the request from the Cuban side, took part in creating a long-term program of modernization, upgrade and restoration of equipment that was previously delivered to Cuba,” said a Russian official.  The agreement is not slated to include new deliveries of military arms.  But in addition to military advisement, agreements were also reached for Russia to aid Cuban “transportation, healthcare, construction and power generation” systems.

 

China SITREP

This week, Senator Marco Rubio introduced a bill to sanction Chinese leaders and organizations involved in the military expansion into the South China Sea.  In July, a UN court ruled that Chinese installations were being built outside Chinese territory, and were therefore illegal, however, there was effectively no enforcement of the decision and China continues its military buildup.  Given Trump’s statements on China and expected Congressional approval of Trump’s policy on China, there’s obviously a growing risk of confrontation.  I think there’s a small chance that we escalate into a sustained military conflict, however, that largely depends on the Chinese response.  As I often say, tactical decisions have strategic consequences here, so a mistake in perception could lead to shots fired, which could tumble into something much worse.  But what’s more likely is that China continues what it’s been doing: issuing warnings while building up a strategic assets, especially anti-access/area denial weapons in the region, and approving nationalist hacker groups to exploit foreign industries and governments.  I think the greatest risk right now, though, continues to be an economic conflict or trade war, especially if Trump goes through with his pledge of applying tariffs on Chinese goods coming into the US.  A similar event happened early on during the Obama administration — actually, China tested both George W. Bush and Obama early in their first year — when Obama decided to tax Chinese tire imports.  China responded by applying tariffs to US goods, but a deal was soon worked out before a full-on trade war exploded.

Another developing situation that has displeased the Chinese Community Party (CCP) is Trump’s phone call with the Taiwanese president.  The CCP still pursues a ‘One China’ policy and doesn’t recognize Taiwan’s independence, nor does it conduct diplomatic relations with their government.  Trump is the first US president or president-elect to have acknowledged direct contact with a Taiwanese president in 40 years, which should signal to China that Trump won’t be as weak as Obama.  (On a side note, a Chinese delegation recently met with analysts from the American Enterprise Institute.  One Chinese official asked if Donald Trump was strong, to which an AEI analyst said, to the effect, ‘Yes, America elected Donald Trump because he’s a strong leader.”  After a moment of silence, the Chinese official said, “Our president is strong, too.”)

In all, Chinese policy makers are probably puzzled, and therefore concerned, about Trump’s actions that will disrupt the previous eight years of relative ease with which China has pursued its regional interests at the expense of its neighbors, many of whom are US allies.  Retired General James Mattis, likely to be the next Secretary of Defense, has made numerous remarks about increasing the size of the navy in order to protect the South China Sea.  Nearly two years ago, Mattis was quoted as saying, “While our efforts in the Pacific to keep positive relations with China are well and good, these efforts must be paralleled by a policy to build the counterbalance if China continues to expand its bullying role in the South China Sea and elsewhere.”  As long as Trump and his defense chief maintain their stance towards China, I think it’s safe to expect increased volatility in US-Chinese relations over Taiwan and freedom of navigation in the South China Sea.  And, of course, that carries the risk of conflict.

 

North Korea nuclear SITREP

A retired Russian general this week stated that North Korea is “already capable of fitting nuclear warheads onto tactical missiles,” which are within range of Japan and South Korea.  And taking that a step further, former director of the CIA and NSA, retired Gen. Michael Hayden, stated that, “I really do think that it is very likely by the end of Mr. Trump’s first term the North Koreans will be able to reach Seattle with a nuclear weapon onboard an indigenously-produced intercontinental ballistic missile.”  Hayden continued: “Now, will it be a high-probability shot? They have technical issues, so probably not.  But then again, what kind of odds are you comfortable with when it comes to Pyongyang?”

But a researcher at the Heritage Foundation, who was the CIA’s deputy division chief for North Korea, says that North Korea already has those capabilities.  He says, “After the December 2012 launch, the South Korean navy dredged up off the ocean floor the stages of the North Korean missile.  South Korean and US officials assessed the missile had a 10,000-kilometer range, which covers a large part of the US.”

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PIR3: What are the current indicators of military, government, political, or social-related instability or violence that could lead to domestic conflict?

Koskinen should be an HVT for impeachment

Considering Trump’s “drain the swamp” rhetoric, Congress has a unique opportunity to pursue corrupt and nefarious officials in the Obama administration.  The new Congress takes over on 03 January, and Obama officials don’t escape until 20 January.  That’s over two weeks that Congress has to impeach government officials, and IRS chief John Koskinen should be a High Value Target.  Under Koskinen’s tenure, IRS employees targeted conservative groups, delayed or denied tax-exempt status for conservative political action committees, obstructed Congressional inquiries into the IRS’s politicization, and destroyed files to cover up their actions.  Koskinen has also been accused of making false statements to Congress, although his defenders say it was inadvertent.  For now, his potential impeachment sits in the House Judiciary Committee, where chairman Mark Goodlatte (R-VA) says that due process will play out.  Koskinen’s job at IRS will expire out in November 2017, unless he’s removed or replaced sooner.

 

Universal Basic Income hitting peak (for now) interest

Since Bernie Sanders talked about a universal basic income (UBI) during the 2016 Democratic nomination campaign, I’ve noticed a steady uptick in the amount of traffic the idea is garnering.  The UBI concept would provide Americans who live below the poverty line with a basic monthly income, which would replace the welfare system as we know it.  Proponents argue that the UBI is ‘more humane’ than food stamps, and cutting the administrative costs associated with the current welfare system would make the UBI more fiscally competitive.  Eventually, I expect the proponents of minimum wage hikes (like the ‘Fight for $15’ organization and others like it) to transition into the UBI movement, and it could happen within the next four years.  Researchers and tech moguls predict that one-third to one-half of all US jobs will be lost due to machine learning and automation, which will be the fundamental driver of UBI policy in the future, if it’s not already.  But in the near term, I think there’s another trend worth exploring.  Let’s look at the relationship between interest in UBI and the minimum wage.

Google Trends is a pretty neat tool I use to look at what Americans are searching for, and the volume at which they’re searching.  Below are two snap shots for “universal basic income”.

 

And here’s an overlay of “universal basic income” (in red) and “raise the minimum wage” (in blue).

I’ve mentioned UBI in a few EXSUMs over the summer and fall.  As a pre-cursor to a movement, we’re at the ground floor, and I think UBI is likely to become a rallying cry, much like Occupy Wall Street, as reporting the fear over job loss to technology consumes the media going into the future.

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PIR4: What are the current indicators of economic, financial, or monetary instability that leads to civil unrest?

Gallup identifies “fundamental weakness” in US economy

According to a recently released Gallup study, there’s been just one percent real per capita gross domestic product (GDP) growth per year from 2007 to 2015.  Increases in costs of housing, healthcare, and education are largely to blame, especially because the quality in each case has actually declined, despite the rising costs.  Making things worse is that wages haven’t kept pace with the increases to the cost of living.  Throw in inflation each year and it’s no wonder that the US economy has “fundamental weakness”.  Gallup finds that unless a new economic strategy is implemented, these persistent flaws will continue to worsen.

Chinese banks hiding $2T in hidden loans

No matter on how you measure an economy, China has passed or will pass the US to become the world’s largest economy, both in terms of Gross Domestic Product and Gross National Product.  And as we saw during the last financial crisis in 2008, the larger the national economy, the more interconnected it is due to globalization.  This week, the Wall Street Journal reported that Chinese banks are hiding $2 trillion (USD) in loans on their balance sheets, through an ‘accounting sleight of hand’.  That $2 trillion represents 20% of those banks’ combined holdings.  It should remind us all of the US in 2008, when an economic slowdown caught over-leveraged banks by surprise and resulted in one of the largest financial disasters in world history.  We include instability among European banks and an uncertain economic future in the US, and we have the potential for a replay of 2008.  And that’s why we need to keep an eye on the coming Chinese financial crisis, because it will absolutely affect other globalized economies.  Investors may be lavishing praise on the Trump bump right now, but we’re likely to experience lots of other bumps in the future (and not the good kind).

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