The National Intelligence Bulletin is a weekly look at national security, domestic systems disruption, the risk of failing critical infrastructure, 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: Early Warnings and Triggers
- Iran may launch cyberattacks in retaliation for new U.S. sanctions
- Security experts fear hackers are using AI for attacks
- China is the top long-term threat in cyberspace
- U.S. desperately needs tech-savvy lawmakers
- Twitter adds to political polarization
- The opportunity costs of ‘soft socialism’
- U.S. indicts 9 Chinese cyber spies
- Microsoft: Governments must cooperate on cybersecurity
- DHS maintains ‘heightened’ posture following elections
- Crude oil plunges into bear market
- Economic/Financial Roll-Up
- And more…
InFocus: In next week’s report, we’ll feature the initial results of our early warning indicator system, which will help us track and potentially predict political, social, and economic instability that could result in what we traditionally consider to be extreme event. For the first time, using 129 indicators across six categories, we’ll be able to quantify the risk and objectively determine short, medium, and long-term trends. In addition to tracking trends and indicators, we’ll be looking for triggers. Here are two:
1) Florida’s legal battle is a situation to watch. Yesterday, outgoing Florida Governor Rick Scott, who’s also running for a Senate seat, filed a lawsuit against the Broward County Supervisor of Elections over alleged violations of federal laws. Both Broward and Palm Beach counties are still in the process of counting votes, but Broward County’s election supervisor Brenda Snipes had refused to release official numbers on how many people voted in the election, and the current status of counted and uncounted votes. This is problematic because Snipes has a long history of association with voter fraud, including a conviction for illegal ballot destruction. In other cases, she’s been accused of facilitating voter fraud, secretly opening mail-in ballots, and counting late ballots. It also appears that her office is in violation of election laws for failing to provide official results of early voting that ended on Sunday. Governor Scott’s camp is insinuating that Snipes refused to release official vote counts until such a time that extra ballots could be counted to ensure a victory for Scott’s Democratic challenger. Senator Marco Rubio (R-FL) also highlighted an irregularity when he posted a video purportedly showing ballot boxes from private vehicles being loaded into a rented truck. The videographer asks whether or not ballots were being destroyed and “replaced by [a] set of fake ballots”. [source]
Right now, Democrat and Republican lawyers are rushing into Florida in expectation of another 2000-esque legal showdown. Both sides are accusing the other of attempting to steal an election. This morning, President Trump weighed in with a series of tweets:
As soon as Democrats sent their best Election stealing lawyer, Marc Elias, to Broward County they miraculously started finding Democrat votes. Don’t worry, Florida – I am sending much better lawyers to expose the FRAUD! [source]
Rick Scott was up by 50,000+ votes on Election Day, now they “found” many votes and he is only up 15,000 votes. “The Broward Effect.” How come they never find Republican votes? [source]
There are several other tweets along similar lines, but suffice it to say that Florida is now an issue of national political interest. From the looks of it, no matter the results of the re-count, either side is likely to feel cheated when it loses. Florida and the country certain carries some risk of political violence resulting from what will be perceived as a stolen election. (And we could also have the DeSantis gubernatorial victory flipped to his Democratic opponent, as well.) There are currently some anti-Snipes protestors outside the Broward elections office. [source]
2. Mere hours ago, media outlet TMZ released a photograph of a gaunt Supreme Court Justice Ruth Bader Ginsburg being released and wheeled out of the hospital. Ginsburg, who reportedly broke three ribs in a fall this week, is 85 years old. Her retirement from the Supreme Court, which is unlikely to be voluntary, would give President Trump his third Supreme Court pick. A successful confirmation of an ultra-conservative by a Republican Senate is another development that could cause political violence.
My team and I are really looking forward to piecing together the trends and early warning indicators each week, and I firmly believe that they’ll give us a better understanding of how close to an eruption of political violence we are.
Our next step is to begin generating regional- and state-level intelligence reports. We’re looking at how much support there would be for Appalachian and American Redoubt threat reports. If you’re interested in taking part or getting access to those, please let me know via email.
Priority Intelligence Requirements
PIR1: What are the new significant indicators of systems disruption and threats to critical infrastructure?
PIR2: What are the new significant indicators of potentially disruptive social, cultural or political conditions or events?
PIR3: How are state and federal agencies preparing for domestic conflict, emergencies, or other instability?
PIR4: What are the new significant indicators of systems disruption and threats to the economic or financial industry?
PIR1: What are the new indicators of systems disruption and threats to critical infrastructure?
Major Trends
- Nation-state and criminal hacking groups pose persistent threat to critical infrastructure
- Natural disasters pose sporadic but enduring threat to critical infrastructure
Iran may launch cyber attacks in retaliation for new U.S. sanctions
A recent study determined that because U.S. oil sanctions are beginning to take effect on Iran’s economy, they are “likely to retaliate” with cyber warfare. The study, which was published by the Foundation for Defense of Democracies’ (FDD) Center on Sanctions and Illicit Finance, details how Iran might respond to the sanctions with “aggressive cyber attacks on its regional neighbors” and the expansion of their “global cyber infiltration operations.”
Included in the study is a list of recommendations on how the U.S. can come to a better understanding of the Iranian cyber threat, strengthen its cyber defenses, and “impose costs on Iran for its malicious cyber operations.” The following are a few of the recommendations that are given in the reports:
- The U.S. and its allies should participate in cyber wargames to build and test interoperability
- The U.S. government should provide operational, usable, and actionable information to cleared private sector entities so they can take protective measures
- The U.S. military should be prepared to use cyber and kinetic capabilities to hold at risk the assets that the Islamic Republic most values
The Senior Advisor and Principal Investigator of FDD’s Cyber-Enabled Economic Warfare (CEEW) project, Samantha Ravich, wrote in the report:
“No nation has felt the full power of U.S. economic coercion quite like Iran, and therefore no regime is better positioned to understand how attacks on economic assets can undermine a nation’s military capabilities … Iran cannot compete with the United States on the traditional military or economic battlefields. But by using cyber campaigns, the regime has already demonstrated the capacity and will to cause massive economic damage to U.S. allies.” [source]
Security experts fear hackers are using AI for attacks
A survey conducted by American technology company Neustar revealed that 46% of the surveyed organizations were the victims of a DDoS (distributed denial-of-service) attack during the third quarter of 2018. In addition to nearly half of the surveyed organizations claiming they received a DDoS attack in Q3 2018, 87% out of the 301 senior technology and security workers who were surveyed stated that Artificial Intelligence (AI) will “make a difference in their company’s defense” and 82% of those surveyed said that they fear the usage of AI against their company.
The head of the Neustar International Security Council, Rodney Joffe, stated in the new report:
“Artificial intelligence has been a major topic of discussion… Organizations know the benefits, but they are also aware that today’s attackers have unique capabilities to cause destruction with that same technology. As a result, they’ve come to a point where they’re unsure if AI is a friend or foe.”
Other notable results from the survey include 22% of the surveyed security professionals saying they are most concerned about DDoS attacks, while 20% are concerned about system compromise, and 15% are primarily concerned with ransomware. [source]
China is the top long-term threat in cyberspace
The head of cybersecurity strategy for the business data and computer security company Illumio, Jonathan Reiber, wrote this week that due to the rise China’s economic and military prowess, China poses the most significant “long-term challenge to U.S. national interests.” According to Reiber, the Chinese have been making investments into their military cyberspace forces and that “today’s cyber theft could be tomorrow’s influence operation or disruptive attack on infrastructure.”
Reiber provides five steps that he believes to be necessary in order for the U.S. to be prepared for the increasing threats posed by China in cyberspace:
- Prepare to “stop threats before they hit their targets”
- Secure U.S. critical infrastructure against breach
- Harden U.S. weapons systems
- Surpass China’s advanced Science and Technology capabilities
- Establish adaptive diplomacy and alliances across Eurasia [source]
PIR2: What are the new indicators of potentially disruptive social, cultural or political conditions or events?
Major Trends
- Ongoing political instability due to the Russia collusion investigation
- Simmering social grievances based on race, class, and political ideology
- Sporadic political violence
- Ongoing culture war featuring information operations and expanding to economic warfare
Twitter adds to political polarization
The opportunity costs of ‘soft socialism’
“The historical evidence suggests that the socialist program for the U.S. would make shortages, or otherwise degrade quality, of whatever product or service is put under a public monopoly …. The pace of innovation would slow, and living standards generally would be lower. These are the opportunity costs of socialism from a modern American perspective.”
The following are a few noteworthy quotes from the 55-page report:
“Whether socialism delivers on its appealing promises is an empirical question. We begin our investigation by looking closely at the most highly socialist cases, which are typically agricultural economies, such as Maoist China, Cuba, and the Union of Soviet Socialist Republics (USSR). Their nondemocratic governments seized control of farming, promising to make food more abundant. The result was substantially less food production and tens of millions of deaths by starvation. Even if highly socialist policies are peacefully implemented under the auspices of democracy, the fundamental incentive distortions and information problems created by large state organizations and the centralized control of resources are also present in industrialized countries, as is currently the case in Venezuela. Lessons from poorly performing agricultural economies under socialist regimes carry over to government takeovers of other modern industries: They produce less rather than more.”“Although they are sometimes cited as more relevant socialist success stories, the experiences of the Nordic countries also support the conclusion that socialism reduces living standards. In many respects, the Nordic countries’ policies now differ significantly from what economists have in mind when they think of socialism … It may well be that American socialists are envisioning moving our policies to align with those of the Nordic countries in the 1970s, when their policies were more in line with economists’ traditional definition of socialism. We estimate that if the United States were to adopt these policies, its real GDP would decline by at least 19 percent in the long run, or about $11,000 per year for the average person.”
“A large body of evidence shows how the high tax rates, state monopolies, and centralized control of socialism disincentivize effort and innovation and substantially reduce the quantity and quality of a nation’s output. This evidence includes before/after estimates of the consequences of nationalizing agriculture, and later privatizing it; commentary and interpretation from survivors of highly socialist policies; before/after estimates of the effects of a socialist takeover of the oil industry; cross-country relationships between economic freedom, GDP per worker, and other macroeconomic variables; comparisons of the rates of return between “free” and tuition-paid colleges; comparisons of conditional mortality between the U.S. and single-payer countries; and application of a broad body of economic literature on the effects of raising tax rates.”
PIR3: How are state and federal agencies preparing for domestic conflict, emergencies, or other instability?
Major Trends
-
- Large scale efforts to increase election security
- Large scale efforts to increase national cyber security
U.S. indicts nine Chinese cyber spies
Microsoft: Governments must cooperate on cybersecurity
DHS maintains ‘heightened’ posture following elections
PIR4: What are the new indicators of systems disruption and threats to the economic or financial industry?
Major Trends
- Trade war with China poses risk to U.S. farmers and manufacturers, emerging markets
- Unsustainable national debt to increase due to trillion dollar budget deficits in 2019+
- High potential for an economic recession around 2019-2020 that causes significant financial disruption
Economic/Financial Roll-Up
A new study out front the Urban Institute and Brookings Institution shows that student loan debt is set to weigh heavily on the economy. According to their findings, 40 percent of student loans may be in default by 2023. “Eventually all major players are going to have to have a reckoning on what we’re doing. Why is this necessary? Are we sending too many people to college?” asked an economic professor who contributed to the study. [source] [05 Nov]
The head of global multi-asset strategy at J.P. Morgan reported that foresees global GDP growth at 2.5 percent per year for the next 10-15 years. He also stated that 2019 will be a “seminal year” as the U.S. economy either makes a new record for the longest period of economic expansion in U.S. history, or it’s going to “roll over” — referring to a recession and reset of the cycle. [05 Nov]
Nassim Taleb was on Bloomberg TV last week to say that “the world is more fragile today than in 2007”. Taleb, the author of several great books including Antifragile and Black Swan: The Impact of the Highly Improbable, said, “We have the same symptoms. We have absolutely the same disease,” as we did heading into the 2008 recession. “We have a lot more debt today… You don’t get a free lunch… [The debt] moved to governments and corporate balance sheets… Higher rates, more interest. You may enter a spiral… [A debt spiral] is when governments have to borrow more to pay interest [on existing debt]… On top of the debt, you have hidden liabilities that should count like debt…” [05 Nov]
Home improvement chain Lowe’s is closing down another 20 stores across the country, blaming a slowing housing market for the decision. Lowe’s still operates some 1,800 stores in the U.S. and most of the stores closing are within 10 miles of another one, so it’s not a massive economic issue. But these types of closures carry two implications. The first is that lots of stores are closing locations (Sears, Macy’s, JCPenny’s, Kmart, Sam’s Club, etc.) due to an increase in online retail. That trend will continue. And the second implication is that shopping malls and other areas where big box stores close risk becoming depressed, especially where anchor stores are closed. Entire shopping malls have been abandoned due to the closing of a major retailer, which then decreases shopper traffic and negatively affects other stores. Here’s a map showing store closures: [CNBC] [06 Nov]
BlackRock CEO Larry Fink warned yesterday that the current budget deficit would force the U.S. Treasury to find funding abroad, and that President Trump’s escalation of tariffs threatens the ability to find that funding. “The problem is we are living with a deficit that is very large. We are fighting with our creditors right now worldwide. Generally, when you fight with your banker, it’s not a good outcome… Forty percent of the U.S. deficit is funded by external factors. No other country has that.” Fink also warned that increasing interest rates would make these deals more expensive for the Treasury Department and that the high rates would slow down the economy. [07 Nov]
We should maintain some concern over the Federal Reserve policy of winding down their balance sheet while raising interest rates. Banks are reporting an increase in demand for short-term funding for U.S. businesses, and if the Fed continues to wind down their balance sheets then banks could end up having too little cash reserves to meet the needs of business. Further interest rate hikes will also make short-term lending more expensive. When lending becomes more expensive, business take out less in loans, which decreases their ability to expand, which results in fewer economic transactions, and that’s how you get slow downs that lead to recessions. President Trump and others have criticized Fed policy, fearing that rising interest rates would negatively impact economic growth. There have been 13 rate hike cycles since the end of World War II, and 10 of those ended in recession. I’m not suggesting that the Fed is deliberately pointing us towards recession territory, but they likely feel pressure to get rid of the $4.1 trillion still on their balance sheets before the next major downturn. They had $900 billion before the 2008 financial crisis. Furthermore, the Fed continues to be up against the clock. Historically, they’ve cut interest rates by at least three percent to spur growth to exit the recession. The Fed’s stuck in a position where they have to raise rates, so they have rates to cut. Consensus, for what that’s worth, continues to eye the second half of 2020 as the time of our next recession. It could certainly be sooner. [09 Nov]
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.
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S.C.
