National Intelligence Bulletin for 01 February 2019

The National Intelligence Bulletin is a weekly look at threats to social, political, economic, and financial stability in the United States, and provides early warnings and indications of America’s volatile future. This report is available each week for Intelligence subscribers.


In this National Intelligence Bulletin

  • InFocus: SHTF Risks through 2020
  • GOP politicos in Texas on being ‘turned blue’
  • Far Left Politics Roll-Up
  • Klarman on “social friction” and economic conditions
  • Summers: U.S. risks hyperinflation
  • Economic/Financial Watch commentary


 ADMIN NOTE: Last night, I held January’s Intelligence Brief and Conference Call. Jamison will edit it over the weekend, and it will be available for viewing on Monday. I’ll continue to hold those sessions on the last Thursday of every month. The next Intel Brief and Conference Call will be Thursday, 28 February 2019.


InFocus: Let’s talk a bit about the next few years, with regard to SHTF events. Pending a black swan that no one can predict (a solar flare/CME, an EMP, sustained cyber attack, etc.), we do have a few known potential SHTF hurdles coming up.

The first, which could happen before the 2020 election, is the turmoil and various effects of the Mueller report and House committee investigations into President Trump and his periphery. Democrats expect a bombshell from Mueller; most on the other side are adamant that nothing major will come of it. The truth is that no one knows what will come out of the Mueller report because his investigation is unlimited. I’m a bit more concerned, however, about House investigations. Mueller may have the appearance of impartiality — something to live up to — but the Democrat-controlled House Intelligence and Oversight committees don’t. My expectation is that House committee investigations will be deep and wide-ranging and used in a politically advantageous way; i.e., presenting findings during the 2020 campaign season. Speaker Pelosi has said that House impeachment proceedings, if they were started, would be bipartisan. She may find that position to be more malleable closer to the general election. House investigations don’t need a smoking gun to be effective; they need a ‘preponderance of the evidence’ — so much potential wrongdoing that, even if unproved, casts a shadow on President Trump. A few points could swing the entire election. That’s a worst case scenario for 2020 and could have some profound implications for social friction.

The second is the economic downturn. As I said last night, I expect a recession is more likely to begin in 2020 than in 2019. Economic conditions right now, as they’re measured, are strong. The global economy, however, is beginning to slow. There are some domestic economic factors that appear to be slowing down as well, but most analysts are projecting positive economic growth for the foreseeable future. A deal between President Trump and China’s Xi Jinping that alleviates tariffs and trade fears is going to give a boost to economic conditions and morale, and they could reach an agreement before March’s new tariff deadlines.

But as we move closer to 2020, gloomier financial forecasts and conditions could precipitate a recession. That’s a chief concern of the White House economic council, specifically that premature talk of a recession affects economic psychology. The economy is made of transactions, so if Americans begin to spend less and save more, corporations hold off on investments and capital expenditures, inventories begin to build up, companies are ordering less products, so on and so forth, we could see a sharper slowdown. If Americans are fearful of a 2008 all over again, then some of those effects could be more blunt. As for a 2008 redux, the next recession will be painful but I don’t expect it to be as bad. Rather than a traditional “economic collapse” scenario, I think 2020 is more likely to usher in a “lost decade” scenario of post-recession low growth, poor stock market performance — something that Bridgewater’s Greg Jensen described as “protracted” at Davos last month. Frankly, by 2030, a recession in 2020 should be the least of our worries. The average pension fund is predicated on seven percent growth in the stock markets. Once managers, pensioners, and pension-contributers realize that pension funds are going backwards — and many are actually already facing a funding shortfall — then the crisis will begin heating up. We’ll probably see sovereign debt crises, 2008-esque panics, and it’s going to get worse in the United States because our fiscal conditions are so dire. There’s a $184 trillion shortfall — unfunded liabilities — over the next 30 years. More Americans will have growing troubles retiring, but with underfunded pensions and a lack of jobs, I think we could be headed for a windfall for the Democrats. Consider this: between the effects of the recession on employment and economic opportunity, low growth, higher taxes across the boards, and the extreme actions the Treasury Department and Federal Reserve will pursue to make up those funding shortfalls, I think we’re likely to see a shift towards left wing populism, which represents our third significant “SHTF risk” within the next decade.

Third: it could be two years, or six, or eight, or more (although I don’t think we’ll need eight), but history shows that we’ll be due for another major political shift in Washington. I think we’re facing a scenario where post-Trump America swings left, just like the pendulum very frequently swings to the opposite side, and based on what Democratic politicians are saying, I think left wing economic populism will be the snake oil panacea they sell. (And several suveys show that socialism is more popular than capitalism among younger Americans.) I’ll play devil’s advocate for a moment and propose that the current “Woke Olympics” — the social justice parading — is just meant to play to the Democrats’ progressive base, and those messages will moderate closer to the election. I don’t think Democrats get a president in 2020 on this Far Left, confiscatory and re-distributive platform, so I do expect them to swing back towards the center during the election. But post-recession, during this coming economic malaise where inequality is made the central economic issue — forget jobs and getting Americans back to work; ‘the rich are why the poor are poor’ — I think left wing economic populism will be more appealing. That’s likely the future of the Democratic Party. With Democrats in control of the White House and Congress, I think they’re more likely to carry out their, best case scenario, progressive and most likely scenario quasi-socialist agenda with far greater abandon than the Trump administration pursued their agenda. As with any major political swing, social friction will heat up and we could significant political violence during this period.

Here’s one caveat: these are three distinct possibilities that I’m watching. These aren’t predictions and I can’t predict the future. But I can look at trends; I look at tons of data every day and can pick out patterns and trajectory. What I described above is our general trajectory, even if it’s not specifically and incredibly accurate on every point. Regarding this “lost decade”, its severity will be impacted largely by economic and monetary policies. The next president’s policies are unknown, but despite those unknown policies, I think the 2020-2030 decade is more likely to be an order of magnitude worse than better. There are just too many economic headwinds, too much uncertainty, and too much debt to paint a rosier picture than I’ve painted. I think we’re likely to look back on 2017-2018 as “the good times”. – S.C.

Priority Intelligence Requirements

PIR1: What are the new significant indicators of disruptive political, social, or cultural conditions or events?

PIR2: What are the new significant indicators of threats to economic or financial stability?


PIR1: What are the new significant indicators of disruptive political, social, or cultural conditions or events?

Major Trends:

  • Ongoing political instability due to high stakes political warfare
  • Removal of political guardrails increases risk of reaction
  • Simmering social grievances based on race, class, and political ideology contributing to sporadic violence
  • Ongoing culture war features information operations and economic warfare


GOP politicos in Texas on being ‘turned blue’

“The challenges we face in Texas are very real.” – Texas GOP Chairman Jim Dickey, warning that Texas may not be a shoo-in for Trump in 2020

“Because of what happened organically on the Democrat side, Republicans in Texas have a large organizational gap that exists. In 2018, we simply did not have the kind of people and activists at the scale the Democrats enjoyed. This is a significant advantage the Democrats have going into this cycle.” – Chris Homan, GOP strategist

“If Texas turns back to a Democratic state, which it used to be, then we’ll never elect another Republican [president] in my lifetime.”- Sen. John Cornyn (R-TX) [source]


Far Left Politics Roll-Up

“About 1 in 3 American families have zero to negative wealth—and the wealth gap continues to grow. That gap is especially stark between races with white young people today having 16 times the wealth of black young people. My bill will help close that gap.” [source] – Sen. Cory Booker (D-NJ)

(AC: Senator Booker’s “baby bonds” plan would give each American newborn a $1,000 Treasury bond, and add annual contributions for children in low-income households. Those bonds would be released upon the child turning 18 and could be worth up to $46,000, on average, Booker’s staff says. The money would be available to spend towards higher education, buying a home, and retirement. Booker has not declared whether or not he’s running, but he’s expected to make an announcement soon.

“I’m running to fight for Medicare for All, universal pre-K, debt-free college & more. To guarantee middle-class families a pay increase of up to $500/mo with the largest working-class tax cut in decades — paid for by reversing this administration’s gifts to big corporations & the top 1%.”Sen. Kamala Harris (D-CA), who announced her presidential candidacy yesterday

“I think a lot about intergenerational justice… You’re going to be dealing with the consequences of what they’ve done to the debt; you’re on track to be the first generation ever to make less than your parents, unless something changes” [source] – Mayor of South Bend, Indiana, Pete Buttigieg (D), who announced his candidacy last month

Former Starbucks CEO Howard Schultz’s bid as a centrist independent president candidate “would provide Donald Trump with his best hope of getting reelected. I would suggest to Mr. Schultz to truly think about the negative impact that would make… [Trump’s] only hope, if things stay the same, is to get a third-party [candidate] to siphon off votes.” – Julian Castro, former Obama Housing and Urban Development secretary [source]

“Don’t help elect Trump, you egotistical billionaire a**hole!” – A stranger at a Howard Schultz book event. (AC: Schultz’s run as a “centrist independent” is widely seen by the Left as helping President Trump win re-election.)

“We’ve broken the social compact… At some point, people decided they didn’t want to pay to educate other people’s kids.” – Christopher Eisgruber, president of Princeton University

“I’ve talked to six dozen Democrats, and the overwhelming sentiment is that [Howard Schultz] will be pushed out by this incredible wave of disgust and disdain rolling his way… The flaw in Schultz’s logic is that we’re living in this massively abnormal moment. When you’re on the head of a pin, even 500 votes in the wrong place can be existential… The bottom line is: Nobody thinks this is sustainable.” – Unnamed Democratic political operative who believes that liberal backlash against Howard Schultz will prevent him from running, reported by Axios

“[Schultz] can’t win, and he could seriously damage our ability to beat Donald Trump. He should either run as a Democrat, or spend his time and money doing something that won’t ruin the world.” – Jim Messina, Obama 2012 campaign manager, reported by Axios

“A majority of Democrats, 57 percent, said they would be more likely to support a candidate who backs Medicare for all, in which all Americans get their health insurance from the government, the poll shows.” – Steve Shepard, reporting for Politico [source]

“I’m a cisgendered woman, I will never know the trauma of feeling like I’m not born in the right body. That is a privilege I have no matter how poor my family was when I was born.” – Alexandria Ocasio-Cortez, admitting her cisgender privilege

“It’s easy to call what ‘AOC’ (Rep. Alexandria Ocasio-Cortez) is doing as far-lefty, but nothing could be farther from the truth. When you advocate for economic policies that benefit the broad majority of citizens that’s true centrism… [Howard Schultz] is not the centrist, AOC is the centrist.” – Leftist venture capitalist and entrepreneur Nick Hanauer

“I don’t believe what Elizabeth Warren stands for. I don’t believe the country should be heading to socialism… I think she believes in programs that will lead to a level of socialism in America.” – Howard Schultz, maybe a ‘centrist independent’ presidential candidate

“I know that there are a lot of rumors… And I think we need to delve deeper into that and find out what is going on and whether or not money laundering has been involved and whether or not there are connections with the oligarchs of Russia. So, we think that in addition to what Mr. Mueller is doing and now what we are able to do with our subpoena power, we’ll find out more and we’ll be able to answer that question directly.” – Rep. Maxine Waters (D-CA) speaking on ongoing Trump investigations

“I want these billionaires to stop being freeloaders. I want them to pick up their fair share. That’s how we make a system that works not just for the rich and the powerful, but works for all of us… That is your obligation. That’s part of the social contract. That’s part of being a citizen of the United States of America.” – Sen. Elizabeth Warren (D-MA)

“All I’m asking for is a little slice from the tippy, tippy top. A slice that would raise… about $2.75 trillion over the next 10 years.” – Sen. Elizabeth Warren (D-MA)

“‘Everything stays on the table. You keep it all on the table. Don’t take anything off the table.” – Sen. Elizabeth Warren (D-MA) on removing the Senate’s supermajority requirement once the Democrats take back the majority

“The fairest way to reduce wealth inequality, invest in the disappearing middle class and preserve our democracy is to enact a progressive estate tax on the inherited wealth of multi-millionaires and billionaires… From a moral, economic and political perspective our nation will not thrive when so few have so much and so many have so little.” – Sen. Bernie Sanders (I-VT)


PIR2: What are the new significant indicators of threats to economic or financial stability?

Major Trends:

  • Trade war with China poses risk to U.S. farmers and manufacturers, emerging markets
  • Slow in global economic growth poses risk to emerging and developed economies
  • Unsustainable national debt to increase due to trillion dollar budget deficits
  • High potential for an economic recession around 2020 that causes significant financial disruption


Klarman on “social friction” and economic conditions

“Social frictions remain a challenge for democracies around the world, and we wonder when investors might take more notice of this… Social cohesion is essential for those who have capital to invest… It can’t be business as usual amid constant protests, riots, shutdowns and escalating social tensions…There is no way to know how much debt is too much, but America will inevitably reach an inflection point whereupon a suddenly more skeptical debt market will refuse to continue to lend to us at rates we can afford. By the time such a crisis hits, it will likely be too late to get our house in order.” – Seth Klarman, Baupost Group, which manages $27 billion

Summers: U.S. risks hyperinflation

In a Foreign Affairs op-ed, former Treasury Secretary Larry Summers downplayed the risk of the national debt, but did provide this warning: “Although the U.S. government will remain solvent for the foreseeable future, it would be imprudent to allow the debt-to-GDP ratio to rise forever in an uncertain world. Trying to make this situation sustainable without adjusting fiscal policy or raising interest rates, as recommended by some advocates of modern monetary theory, is a recipe for hyperinflation.” [source]


Economic/Financial Watch

After a month of reporting, Chinese officials finally arrived in Washington D.C. today to begin talks with the Trump administration and bring an end to the trade war. China is beginning to feel the effects of Trump’s economic policies, and those effects threaten to undermine President Xi’s vision for China’s future. [28 Jan]

One thing that really concerns me is not just the national debt, but that 2019 will be the second year in a row that we run trillion dollar deficits. And the Congressional Budget Office reports that the federal government will be running trillion dollar deficits for several years to come. On the chart below, 2010-2018 represents the economic recovery. This is a debt-based recovery, which is no recovery at all. My concern is that if the government is having to borrow money at this rate during “good times”, what will they be forced to do during the coming bad times? [28 Jan]

This week, we’ll get a much better picture of how the corporate economy is playing out. Facebook, Amazon, Apple, Google, Caterpillar, Pfizer, Shell, and Exxon are the big players due to report earnings. Any weakness here is going to cause ripples and add to warnings of the slowdown. (UPD: Caterpillar missed earnings and it’s already leading the media to point out that the global economy is slowing.) [28 Jan]

Trade talks between U.S. and Chinese officials resume tomorrow, and both sides are pumping up the importance. “The scope of these talks will be the broadest and deepest in U.S.-China history. We’ve never had anything this comprehensive,” said White House economic advisor Larry Kudlow. The Chinese will reportedly offer larger purchases of American farm and energy products, but I wouldn’t count on substantial structural changes that the Trump administration wants. [29 Jan]

Forecasts for Q1 GDP are dropping this week as major financial firms take account of the cost of the government shutdown. JPMorgan revised an initial 2 percent down to 1.75 percent. Morgan Stanley also sees 1.7 percent growth, which is down from an estimated 2.5 percent. Barclays has a somewhat rosier forecast: 2.5 percent, down from 3 percent. [30 Jan]

The Federal Reserve is scheduled to release a policy statement this afternoon. After that, Fed chair Jerome Powell will hold a press conference and give some insights into how the Fed sees the U.S. economy shaping up in 2019. This is actually a pivotal press conference because the Fed has been accused of tightening financial conditions too sharply. And there is, by the way, the historical precedent of the Fed hiking interest rates into a recession, so many will be keen to see whether or not the Fed pursues maintaining or lowering interest rates this year — something referred to as “maximum flexibility”. [30 Jan]

Yesterday, Federal Reserve chairman Jerome Powell said he didn’t anticipate additional interest rate hikes, likely signalling that further rate hikes from here would actually harm the economy. He vowed to be “patient” on economic and financial conditions. When we get down to it, the markets reacted poorly to the last rate hike and Powell has listened to market makers: don’t rock the boat. [31 Jan]

Chinese manufacturing is slowing down, Japanese industrial output slowed for two straight months, Germany’s economy reported to the lowest growth rate in six years, and Italy is officially in a recession. These are the latest signs of a global economic slowdown. Conventional financial analysts do not expect a global recession this year. [31 Jan]

As for China’s latest numbers: ouch. There are around 2,400 Chinese companies that have reported 2018 numbers, and 373 of them have reported losses for the year. To rephrase that, 15 percent of reporting Chinese companies have posted losses for 2018, and 86 percent of those were profitable in 2017. “We’re only just seeing the beginning of deterioration in corporate earnings as the economy slows further. Things will continue to go downhill,” said one Chinese investment fund manager. [31 Jan]

According to a recent economic survey, fourth quarter GDP grew at a 2.6 percent annual rate, but first quarter 2019 projects are at 1.8 percent. “The economy is slowing but not enough to derail the expansion. The bad news is the straws on the camel’s back are really piling up and the back’s beginning to bend,” said the chief economist at Grant Thorton.

These economic/financial briefs appear each morning in the Early Warning intelligence report. You can sign up for this email on your My Account page.




Samuel Culper is a former military intelligence NCO and contract Intelligence analyst. He spent three years in Iraq and Afghanistan and is now the intelligence and warfare researcher at Forward Observer.

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