National Intelligence Bulletin for 04 January 2019

The National Intelligence Bulletin is a weekly look at domestic systems disruption, and threats to social, political, economic, and financial stability in the United States. This report is available each week for Intelligence subscribers.


 

In this National Intelligence Bulletin

  • InFocus: The inevitable SHTF scenario
  • Effects of partial government shutdown risk worsening
  • Steyer: “It’s past time” for impeachment
  • Tlaib: “Impeach the [expletive]”
  • Democrat introduces bill to abolish electoral college
  • Fault Lines commentary
  • Update on recession talks
  • Economic/Financial Watch commentary

 

ADMIN NOTE: I’m having to make some major changes to the Early Warning Index, so there is no EWI chart or score this week.

 

InFocus: Rep. Alexandria Ocasio-Cortez (D-NY), a newly elected democratic socialist, appeared in a 60 Minutes interview in which she called for a tax increase to 70 percent for top earners, the elimination of all fossil fuels and carbon emissions, and forced adoption of electric vehicles within 12 years. She admits that her plans will require rapid and radical change, but added “it has only ever been radicals who have changed this country”.

Analyst Comment: To be sure, the freshmen representative wields very little influence inside the Democratic establishment behemoth, but she’s heralded by many as the future of the Democratic Party.

One of the major themes of this report is that demographics, specifically the difference among generations, is fundamentally transforming the nation’s politics. According to empirical data, each generation has become more consistently liberal, from the Silent Generation, to the Baby Boomers, to Generation X, and Millennials, who are the most consistently liberal on record. After the 2018 mid-terms, Millennials now make up nearly six percent of the U.S. House of Representatives with 26 seats. That may not seem like a lot, but it’s up 420 percent from the five seats, or one percent, in the 115th House. Not every Millennial is a progressive, but the average Millennial is more likely to be consistently liberal than consistently conservative. The 116th Congress is being celebrated as the most diverse ever, which is to say the most progressive ever. As much as I report on the coming fiscal avalanche, there’s a coming demographic and political avalanche, as well. I do remain concerned about “black swan” events, such as grid-down conditions, but they’re extremely rare and virtually impossible to predict with any certainty. Yet there are potentially catastrophic conditions in the making right now, and the lurch towards progressive dominance of government is one of them. The next two years will be the country’s first taste of prominent democratic socialist influence in the House, and I believe that influence will continue to grow.

My chief concern is that the next recession is already being blamed on “late-stage capitalism”, which will be a staple source of criticism that feeds left wing economic populism. If Ocasio-Cortez and other bona fide members of Democratic Socialists of America are the future of the Democratic Party, then the coming financial and economic hardships are likely to accelerate that future. What’s more, those in power who allow ideology to inform their reality will put the country at greater risk of financial malaise due to misguided policies (like the Obama-era policy of raising taxes going into a recession, which unnecessarily bogged down the promise of economic growth).

I’m sometimes asked about my recommendations for preparedness, which I’m reluctant to offer for several reasons. The first reason is that the work of intelligence is understanding and communicating the threats and potential or likely conditions in the future so that decision-makers can make informed decisions. The work of intelligence is not to make those policy decisions, nor to offer recommendations. The second reason I’ll mention is because everyone’s situation is different, and sound recommendations for one may not necessarily be appropriate for another. Consider this, however: pending a black swan event, my baseline “SHTF scenario” is the next time Democrats control both the White House and Congress and can again set a progressive agenda for the country. Little would be more deleterious to the American public than the advancement of democratic socialist policies at the highest levels of government, yet I do believe that’s the most likely scenario going forward. I hate to keep harping on this, but I’m seeing two successive generations — Millennials and Generation Z — who’s economic health, lifetime earning potential, and ability to save and invest, will be disrupted by recession (which is typically followed by double digit economic growth in recovery — not so post-2008). Those financial health factors will also be limited by very poor underlying economic conditions. The national debt is now $22 trillion, we’ll be running trillion-plus-dollar deficits in at least each of the next four years, and within a decade it’s a near certainty that we’ll have a major financial crisis, and/or serious disruption to entitlement spending that will affect a growing number of Americans who are retirement age. There’s a $100 trillion avalanche here and, in addition to affecting those living on pensions and social security, it’s going to negatively affect younger people — Millennials and Generation Z — who are supposedly entering their prime earning years. Higher taxes on their income, which is also a near certainty, is going to severely limit their own financial health, and it’s going to be a gigantic mess for everyone.

My universal and absolute best recommendation is to begin making your community a self-sufficient and resilient one with a localized economy. History shows that countries going through fiscal crises experience volatile fluctuations in the value of their currency and routine disruption to the availability of goods. Citizens of Mexico, Argentina, Venezuela, and numerous other nations that have gone through financial turmoil tell stories about how the cost and availability of goods have varied by the day, and sometimes grocery store prices would vary by the hour, depending on exchange rates. That would be an unfortunate scenario for the United States one day, but it’s one that we can’t discount. The more self-sufficient you become, the better you will be able to weather our fiscal and economic future over the next couple of years and decades. The time to start a food co-op or support your local farmer’s market and begin building those relationships is right now.

One last thought on the Democrats’ eventual return to power: we can look at Rep. Ocasio-Cortez and others who support the “New Green Deal” agenda, and see that they’re much more aggressive on the environment than was Obama. Yet under Obama, we saw several scenarios which ran the risk of causing significant or widespread violence: Bundy Ranch, Sugar Pine Mine, and the Malheur Occupation to name three. We could also throw in the Dakota Access Pipeline protests as another example of environmental activism, but going the other way. If the next Democratic administration pursues anything to the Left of Obama’s environmental policies, which is a safe bet, then we will probably see other instances of Western ranchers pushing back against federal policies. The concerns of contemporary “range wars” will be back with us.


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
  • Polarization risks future election integrity
  • Simmering social grievances based on race, class, and political ideology contributing to sporadic violence
  • Ongoing culture war features information operations and economic warfare

Effects of partial government shutdown risk worsening

President Trump met again with “Chuck and Nancy” today, the Senate Minority Leader and new Speaker of the House, to negotiate a budget deal and end the partial government shutdown. Neither side made any progress, and President Trump said that the shutdown could last “months or even years”. A deal doesn’t look like it’s on horizon as both sides stand firm, but now the federal court system is reporting that it has enough money to stay open through 11 January 2019. After that, nonessential employees from the country’s 94 district court systems would stay home, leaving judges and courts to decide on a case-by-case basis if they’ll postpone operations or continue with essential judicial tasks. As with anything under this partial shutdown, government is able to absorb the fallout from short-term disruptions, but if President Trump proves prescient that the shutdown lasts for months or years, expect backlogged court systems to become more disruptive to political and social stability.

Steyer: “It’s past time” for impeachment

Billionaire and possible 2020 presidential hopeful Tom Steyer led the charge in the 2018 mid-terms by backing progressive Democratic candidates who supported the impeachment of President Trump. Steyer continued his calls for impeachment now that the Democrats control the House, writing recently: “There’s never just one cockroach, but the sheer volume of Mr. Trump’s corruption is amazing. The longer we wait, the more damage he does. It’s past time to get the impeachment ball rolling.” [source] (Analyst Comment: Steyer’s support for impeachment is nothing new, but his influence and constant cheerleading is a major driver of House plans to impeach President Trump. Articles of impeachment have already been introduced by progressive Democrats, but there are still fireworks to come as House committees begin their investigations into Trump, Inc. In the near term, I don’t expect any major movement on impeachment as it seems clear that Democratic leaders want to allow House committee investigations to take their course.)

Tlaib: “Impeach the [expletive]”

Freshman congresswoman Rashida Tlaib (D-MI), the first Palestinian-American and Muslim congresswoman in U.S. history, recently spoke at a private event where she told a cheering crowd, “We’re going to go in there and impeach the motherf—er.” In an interview with Detroit media, she later said, “I stand by impeaching the president of the United States. I ran on that.” [source] (Analyst Comment: I add this only because it’s recent and is a really great example of the freshman class of Democratic representatives. They did, indeed, run on impeaching the president and if these House investigations find significant wrong-doing, I do believe President Trump will be impeached.)

Democrat introduces bill to abolish the electoral college

Several weeks ago, I reported on the growing movement to abolish the electoral college. Today, Rep. Steven Cohen (D-TN) introduced a bill that would do just that, although it has no chance of passing. “Americans expect and deserve the winner of the popular vote to win office. More than a century ago, we amended our Constitution to provide for the direct election of U.S. Senators. It is past time to directly elect our President and Vice President,” Cohen said. [source] (Analyst Comment: The bill would also revoke the president’s ability to pardon himself or family members, which is clearly aimed at President Trump.)

 

Fault Lines

“[S]everal leading indicators of political instability look set to peak around 2020. In other words, we are rapidly approaching a historical cusp, at which the US will be particularly vulnerable to violent upheaval.” – Peter Turchin, professor of ecology and cultural evolution at the University of Connecticut


 

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
  • Rising interest rates are moderating economic growth, housing strength

 

Update on recession talks

I just want to clear up my take on the recession: yes, there will eventually be one and it’s more likely in 2020 than in 2019. I’ve reported quite a bit on all the professionals who believe 2019 is the year — maybe they’ll be correct — but there are still plenty of those calling for one in 2020 or later. This whole thing got kicked off nearly a year ago when hedge fund manager Ray Dalio warned that a 2020 recession could start near the presidential election and would mark a rise in social and political problems. Since then, it’s been anyone’s guess and there’s been a lot of premature talk. But there are very prominent figures waving off any recession concerns. Most recently, Economic Council Director Larry Kudlow said, “There’s no recession in sight… There’s this loose talk about recession with a lot of very — I don’t know — not hard data, surely. The American economy is growing 3 percent solid. Job gains are huge and businesses are investing big time. So, it’s a much better, more optimistic picture than what we’ve been getting in the last month or two.” [source] For that matter, the Atlanta Federal Reserve’s GDPNow and Blue Chip Consensus still put annual economic growth above 2.5 percent. When those two forecasts drop below one percent, then it’s time to start seriously considering a recession in the future. Until then, we could have another couple years of moderate to low growth.

In recent reports, I’ve written about my observations of “conventional” wisdom and alternative wisdom, where it concerns a disruption of economic and financial performance. Two conventional wisdom outlets — Vanguard, which manages $5 trillion in investments (h/t Joe W.) and J.P. Morgan Chase, which manages $2.5 trillion — both published their outlooks for 2019, and both are calling for a slowdown but not a recession.

Additionally, Federal Reserve chairman Jerome Powell signaled this week that he’d take into consideration the market’s concerns over interest rates, and he appeared to soften his stance on interest rate hikes.

 

Economic/Financial Watch

French investment bank Natixis warns in a recent note: “The [U.S.] economy has become heavily dependent on financial asset prices. The fact that the level of total financial assets as a share of [gross domestic product] is at a record high is troubling.” The note points out that a peak in the ratio of household financial assets compared to GDP peaked just before the last two recessions, and we’re looking at another peak in the ratio in Q4 2018. [03 Jan]

Talks are set to resume in China this week over trade tariffs as U.S. and Chinese officials try again to find a deal. but to boil this down to tariffs is really oversimplifying things. Led by Robert Lighthizer, the U.S. side is negotiating an end to aggressive industrial and economic espionage and forced technology transfers that have given China an unprecedented economic advantage for 20 years. The issue isn’t just trade, it’s ending a system upon which the Chinese economy partially depends. [02 Jan]

What’s on the menu for 2019? Debt. Or, I should say, that’s been on the menu since 2008. Global debt now stands at $250 trillion. Back home, U.S. corporate debt is at $9 trillion, and U.S. consumer debt reached $4 trillion, both of which eclipse debt levels during the 2008 financial crisis. So far, economic growth, rising wages, and the usual numbers cited about a strong U.S. economy, have at least given the appearance that the debt remains manageable. But the problem is that, as an early warning indicator, credit card company default write-offs have risen to 3.1 percent from 2.5 percent two years ago. If credit card defaults are rising during strong economic growth, the logical conclusion is that they will accelerate during an economic downturn. A recession is not imminent, at least not by the numbers, but one thing the numbers do show is that Americans have racked up cheap debt in spite of the lesson of 2008, which is that cheap debt is manageable as long as its cheap and economic times are good. My bet right now is that China leads the next debt panic, which could become a full-blown global debt and financial crisis that looks a lot like 2008 all over again. [02 Jan]

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.

 

// END REPORT

S.C.

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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