National Intelligence Bulletin for 05 April 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.

 

ADMIN NOTE: This past weekend, I was in Lake Charles, Louisiana for the Cajun Navy’s Search & Rescue Games. It was good to see what their operations look like, and I have some new ideas about how we can make Forward Observer reports better. Friday was a travel day for me so this week’s summary is a bit light. I’m playing catching up today. I’ll be publishing this week’s report on Thursday, before I head to North Carolina.

 

In this National Intelligence Bulletin

  • Far Left Roll-Up
  • Economic Financial Watch

 

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?

 

Far Left Roll-Up

“Mitch McConnell is setting a precedent that it’s OK to change the Senate rules to confirm more of your side’s judges. Democrats should take this ball and run with it once we regain power.” – Brian Fallon, director of Demand Justice

“It’s not just about winning an election. It’s about winning an era.” – South Bend (Ind.) mayor and Democratic presidential candidate Pete Buttigieg

“If we’re going to be successful as Democrats, and going into 2020 with a very, very fragile majority, we got to be on the same team.” – Cheri Bustos, chairwoman of the Democratic Congressional Campaign Committee

“We want to pass a full $15 minimum wage bill. Not a regional bill. We’re very clear about that. Being in Congress means leading, and we need to lead on minimum wage.” – Rep. Pramila Jayapal (D-WA)

“I don’t know why [Republicans] are continuing to pursue this except that they want to ram through judges, they want to ram through Justice Department people. It will be a sad day for this chamber.”- Sen. Amy Klobuchar, speaking about the new Senate nuclear option

“[Republicans are] always going to do [cast Democrats as extreme], no matter who the candidate is, because they don’t want to have a debate about how Americans deserve health care. They don’t want to have a debate about making sure prosperity is broadly shared.” – Matt Duss, foreign policy advisor for Bernie Sanders

“We are confident this progressive leader will have a strong support from the people of the US. Democratic revolutions are built upon democratic elections.” – Bolivia’s socialist president Evo Morales

“The far right have internationalised. They cooperate and coordinate across borders, so if we are to defeat them, we need to do the same. Bernie gets that in a way I’ve not seen from any other presidential candidate.” – Ross Greer, member of Scotland’s Green Party

“The #YellowVests in France are the perfect example of what happens when you don’t address economic & social justice in the same sweep as climate policy.” – Rep. Alexandria Ocasio-Cortez

“This extraordinary, unprecedented concentration of wealth and power and privilege must be broken apart, and opportunity must be shared with all.” – Robert Francis “Beto” O’Rourke, Democratic presidential candidate

“I’m not sure that anything we do [in the Democratic House] is going to reach the floor of the [Republican] Senate. That’s the reality.” – Rep. John Yarmuth (D-KY)

“This is a perilous time for our country… The Trump administration is a walking, talking, living, breathing threat to national security, and we just have to call it out.” – Sen. Elizabeth Warren

“The crown jewel of America… is our refugee resettlement program.” – Rep. Nancy Pelosi

“My worry is that the next time the Republicans are in power, they will do the same thing.” – Sen. Bernie Sanders on what could happen if the Democrats pursue a court packing scheme

Senate Majority Leader Mitch McConnell (R-KY) “has done a whole bunch of unpatriotic things, has really been a force for polarization in this nation… History will not be kind to him.” – Former attorney general Eric Holder

Trump supporters are “cowards… [and] they will be judged harshly.” – DNC chairman Tom Perez

“We need a young and vibrant workforce. And if we’re not careful, if we don’t get this right, in 20 or 30 years this nation is going to be begging for immigrants to come to this country.” – Julian Castro, Democratic presidential candidate

“One thing is certain, it’s time to fix our immigration system and provide a pathway to citizenship. This is one of the most important issues our country faces and Texas is on the front lines of this issue.” – Cristina Tzintzun Ramirez, executive director of Hispanic voter outreach organization Jolt Texas


 

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

Economic/Financial Watch

Last month, the 10-year and 3-month yield spread inverted, with the 10-year dipping below the 3-month. That suggests more uncertainty in the long term than the short term, which is a good indicator of a recession. Since 1969, this inversion precedes a recession by an average of 10 months. Since 1990, however, the average lag time is over 16 months. Of course, a recession could occur sooner or later than 16 months, but the average puts us in a recession by late summer 2020. Also, I want to add that basing our expectations of the future off one or two indicators is risky.

The 10-year and 2-year spread is on a razor’s edge at .16, which is down from .47 a year ago and 1.13 two years ago. An inversion, on average since 1969, occurs 12 months before a recession. Since 1990, that number is over 16 months.

 

On Friday, White House economic advisor Larry Kudlow said he wanted the Federal Reserve to cut interest rates by half a percent, which would make borrowing money cheaper and spur economic growth. “Looking at some of the indicators — I mean the economy looks fundamentally quite healthy, we just don’t want that threat [of lower growth or recession]. There’s no inflation out there, so I think the Fed’s actions were probably overdone.”

But Minneapolis Fed chairman Neel Kashkari says that cutting rates isn’t prudent… yet. “Some of the risks have shifted to the downside, so pausing to get more information, to see if this really is an economic slowdown or if it’s just a blip, I think that’s the right move,” Kashkari said.

President Trump maintains that lower interest rates are preferable, going so far as to criticize the Fed for repeatedly raising rates after he took office. That suggests that economic growth may have been stronger in 2018 than it was, but it would also have risked higher inflation. And Kudlow’s desire for a rate cut is concerning because he’s acknowledging that higher interest rates could lead to a recession, even as the Federal Reserve had expected two more rate hikes in 2019. There’s plenty of Fed-bashing to go around, and there are legitimate reasons for the Fed-bashing. Investors reacted negatively to the last rate hike, and because reported inflation remains below the Fed’s target of two percent, many believe that the Federal Reserve was being a too hawkish.

My bottom line: Federal Reserve policy is reactive. Even Kashkari admits that the Fed is waiting to see what the data looks like from the previous quarter before resuming normal policy for the future. The danger here is that Federal Reserve misreads economic data — which they’ve often done before — and continues to hike interest rates right into a recession, which they’ve also done before.

In his annual letter to shareholders, JP Morgan Chase CEO Jamie Dimon lashed out at socialism, stating that “Socialism inevitably produces stagnation, corruption and often worse – such as authoritarian government officials who often have an increasing ability to interfere with both the economy and individual lives – which they frequently do to maintain power. This would be as much a disaster for our country as it has been in the other places it’s been tried.”

Dimon went on to warn shareholders that the “U.S. economy will be confronting a wide variety of issues in 2020 and 2021. It’s hard to look at all the issues facing the world and not think that the range of possible outcomes is broader and that the odds of bad outcomes might be increasing.”

Dimon also warned that banks will have less operating room during the next downturn. “When the next real downturn begins, banks will be constrained – both psychologically and by new regulations – from lending freely into the marketplace, as many of us did in 2008 and 2009. New regulations mean that banks will have to maintain more liquidity going into a downturn, be prepared for the impacts of even tougher stress tests and hold more capital because capital requirements are even more procyclical than in the past. Effectively, some new rules will force capital to the sidelines just when it might be needed most by clients and the markets.” [source]

In the past 30 days, the Atlanta Fed’s GDPNow, which estimates economic growth, has risen from 0.4 percent (expectation) to 2.1 percent for Q1 2019. JP Morgan also upwardly revised their expectations to 2 percent, up from 1.5 percent. That’s an astounding increase, especially considering that the partial government shutdown, which lasted through most of January, was expected to have very detrimental effects on the economy. The change is due to better-than-expected numbers from the economy.

According to a study by the World Inequality Database, half of Americans have a negative net worth, as reported by the New York Times this morning. The wealthiest one percent, as the story has been for decades, continue to growth their net worth. Is this serious? Well, it’s becoming more serious. Wealth and income inequality drives social unrest around the world. I’m no so much concerned over economic unrest right now, largely because the economy is perceived to be in good shape. But there are two major hurdles where social unrest will likely be inflamed. First, whenever the next recession hits — perhaps in 2020 or 2021, maybe sooner, maybe later; no one yet knows — we should expect increased agitation, especially for political reasons. And second, when the effects of automation and job loss are appreciably felt by up to millions of workers, we could easily see a movement similar to the Occupy Wall Street protests — but this time against corporations shedding jobs in favor of artificial intelligence and robotics.

Meanwhile: the Democratic Party is already making its solution to wealth inequality known by its many calls for wealth redistribution. A new plan by Senator Ron Wyden (D-OR) would force investors to pay capital gains taxes at the regular income tax rate (instead of the lower cap gains rate). The plan would also require investors to pay capital gains taxes on the unrealized gains of their investments each year. In other words, under this plan, Americans would be forced to pay capital gains taxes each year based on their investments’ current value, regardless of whether they’ve sold and actually made any capital gains.

Considering the coming fiscal tsunami of $183 trillion over the next 30 years, Americans should absolutely be prepared to face higher taxes. Taxes alone will not solve this problem, but higher and more creative taxation is certain to be part of the government’s solution.

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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