National Intelligence Bulletin for 10 May 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

  • ALERT/RECOMMENDATION
  • Political Trends & Key Data Points
  • “Constitutional crisis” to be carried through 2020 election
  • Pelosi: Democrats can’t accept Trump to be re-elected
  • Biden: Give healthcare to illegals
  • Congress: Donald Trump, Jr. faces arrest
  • Comey: Trump faces criminal charges after leaving office
  • Poll: Democrats believe Trump committed treason
  • Friedman: Republican needed to split vote in 2020 election
  • AFL-CIO threatens Delta with guillotine
  • Far Left Roll-Up
  • Economic Trends & Key Data Points
  • Economic Financial Watch

 

ADMIN NOTE: I know some of these reports can be quite lengthy, and that not everyone is an avid reader. I’ve started a “Key Trends & Data Points” for both political and economic issues to summarize what’s being reported this week. Look at it as an executive summary before diving into the weeds.

Additionally, as a reminder, I’m updating the Economic Instability Matrix at the beginning of each month. It will return in the first week of June. See last week’s report for the latest version. Once the new website update is live, we’ll have a Strategic Warning page with all our indicators for easy reference.

 

ALERT: The U.S. military continues to send additional assets to the Middle East/Central Command Area of Responsibility (AOR). Additionally, the U.S. Navy’s Fifth Fleet commander recently warned that he could sail an aircraft carrier strike group into the Strait of Hormuz, which would be seen as not only escalatory, but also as a potential target by Iranian forces. That would significantly increase the risk of military confrontation. Iranian military commanders in previous months have warned that they might block the Strait of Hormuz. Additionally, the U.S. claimed in recent days that they received intelligence of a credible threat involving preparations of an Iranian attack on U.S. forces in the region, who remain on alert. As we reported before it happened, an emergency meeting was held at the Pentagon to discuss a way forward with Iran.

RECOMMENDATION: Remain cognizant of the risk to fuel prices. Sharp increases in fuel prices will lead to increased costs of goods and services, and spikes have led to economic recessions.


 

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?

This week’s Political Trends & Key Data Points

  • Democrats have developed enough avenues to keep “Constitutional crisis” going through 2020 election
  • House & Senate Democrats threaten subpoena noncompliance with fines and jail
  • Democrats planning vote to hold more than one Trump official in contempt of Congress; Barr at a minimum, likely to include Mnuchin and/or McGahn (or others)
  • Democratic presidential candidates continue to trade welfare and direct payment programs for votes
  • Substantial support for running a conservative candidate against Trump in the Republican primary and 2020 general election

 

“Constitutional crisis” to be carried through 2020 election

House Speaker Nancy Pelosi (D-CA) continues to bring up her disfavor of impeachment, but her reluctance may be softening. Previously, Pelosi said that impeachment was off the table unless there was bi-partisan support. But just a few days ago, Pelosi said:

“As you probably know on the articles of impeachment for President Nixon, article 3 was that he ignored the subpoenas of Congress, that he did not honor the subpoenas of Congress. This is very, very serious. But my judgment [on impeaching Trump] will spring from the judgment of our committee chairs… Let them work their will and then we’ll go to the next step… I think that the statements being made by the president of the United States has given a blanket statement that he’s not going to honor any subpoena is obstruction of justice. I think that all–many of the statements that the–that the administration has made has been about obstruction of justice.”

Clearly she’s drawing a precedent for impeachment on the grounds of obstruction. There exists the distinct possibility that Pelosi wants to hold impeachment proceedings, but at a time closer to the election, or perhaps if Trump is re-elected. She’s previously balked at impeachment, believing that it will hurt Democrats’ chances in 2020 elections. “Trump is goading us to impeach him. That is what he is doing every single day — taunting, taunting, taunting,” Pelosi said on Monday.

Meanwhile, Rep. Jerry Nadler (D-NY) continued to characterize the Trump-Congress showdown as a Constitutional crisis. “We’ve talked for a long time about approaching a constitutional crisis. We are now in it. Now is the time of testing whether we can keep a republic, or whether this republic is destined to change into a different, more tyrannical form of government. We must resist this.”

During a press conference this week, House Speaker Nancy Pelosi (D-CA) said she also believes we’re in a Constitutional crisis. “Yes, I do agree with Chairman Nadler because the administration has decided that they’re not going to honor their oath of office.” Pelosi also warned that other Trump officials may be on the docket when the full House holds a vote on contempt of Congress for Attorney General Bill Barr. Expect Democrats to keep pressing the existential dangers posed by a second Trump administration as we enter into election season. Trump is reportedly focusing on the threats to socialism, while Democrats are likely to focus on the threats of fascism and dictatorship.

Pelosi: Democrats can’t accept Trump to be re-elected

In a speech this week, House Speaker Pelosi warned that President Trump’s re-election was unacceptable:

“We have to make sure — this will sound political but we have to make sure that the Constitution wins the next presidential election. We can’t be worrying about well, how long is this going to take? Well, that will take as long as it does. And we will press the case so that in the court of public opinion, people will know what is right. But we cannot accept a second term for Donald Trump if we are going to be faithful to our democracy and to the Constitution of the United States…

So we have to operate on many fronts. We have to operate in the Congress, in the courts, and in the court of public opinion, and we must win the next election.”

Biden: Give healthcare to illegals

While campaigning in California yesterday, Democratic presidential front-runner Joe Biden said that he had an “obligation” to provide healthcare to illegal immigrants. “I think that anyone who is in a situation where they’re in need of healthcare, regardless of whether they are documented or undocumented, we have an obligation to see that they are cared for. That’s why I think we need more clinics around the country.” [source]

Congress: Don, Jr. faces arrest

Threats to fine or jail Republicans who don’t comply with Congressional subpoenas continue. After Donald Trump, Jr. was subpoenaed by the Senate Intelligence Committee, Sen. Richard Blumenthal (D-NY) said, “If Donald Trump Jr. defies his subpoena, he ought to be jailed.” In another statement, Sen. Blumenthal doubled down: “The subpoena should be enforced. If he refuses to obey it, he should be locked up.”

Comey warns Trump faces criminal charges after leaving office

Appearing on CNN last night, former FBI director James Comey warned that President Trump did commit obstruction of justice, and could face legal action after he’s out of office: “The Justice Department will have to take a serious look at that.”

Poll: Democrats believe Trump committed treason

In a recent poll, Scott Rasmussen found that 57 percent of Democrats believe that “President Trump is guilty of treason” for his actions involving contacts with Russian officials. Just seven percent of Republicans and 30 percent of Independents agreed, according to the poll results. [source]

Friedman: Republican needed to split vote in 2020 election

Writing an opinion piece at the New York Times entitled, “How to Defeat Trump,” author and pundit Thomas L. Friedman warns: “For America to stay America, Trump has to be defeated.” Friedman continues that he’s not calling for impeachment, nor for a third party candidate. Rather, Friedman prescribes a Republican who not only challenges Trump in the Republican primary, but also makes the general ballot in all 50 states. “Yes, we need a Republican who will do the most high-minded, patriotic thing I can imagine today — fall on the Trump grenade. That is, run against Trump from the right in the national election…” [source]

AFL-CIO threatens Delta with guillotine

In a since-deleted tweet, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) threatened Delta with an image of a guillotine. Delta warned its workers that unionizing would cost them $700 per year. The AFL-CIO responded by saying that a guillotine only costs $1,200 to build, as if that were the alternative to unionizing.

 

Far Left Roll-Up

“[Executive orders are] basically the only way to govern now. It’s kind of a way of life.” – Andrew Feldman, Democratic strategist

“All of the presidential candidates recognize that the [Republican] Senate will be where good policy goes to die.” – RL Miller, Climate Hawks Vote


 

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

This week’s Economic Trends & Key Data Points

  • The ongoing trade war saga dominated this week’s financial news
  • The Federal Reserve warned of the downside risks to the leveraged loan market, and drew attention to high corporate debt levels ($9 trillion)
  • Gundlach continues to warn that economic growth is fueled only by debt expansion; questions what happens after economic downturn
  • Inflation ticks above two percent; some see another interest rate hike this year

 

Economic/Financial Watch

We’re still awaiting China’s response to trade tariffs being raise today from 10 percent to 25 percent on $200 billion worth of goods. Quoted in the Global Times, a former Chinese senior trade official said, “I think China will respond very soon. China will also have to make good on its own words, otherwise it will be at a huge disadvantage to the US team at the negotiations.” [source] Chinese Vice Premier Liu He is in Washington today to continue trade talks, but expect China to soon raise tariffs on U.S. goods. [10 May]

Worst case scenario: While it seems unlikely, China can always dump their $1.1 trillion holdings of U.S. Treasuries — an action referred to as the “nuclear option”. U.S. markets reacted poorly to the news this week that the trade war was escalating. It’s entirely possible that a reference or threat to pursue the nuclear option could have a deleterious effect on the markets, an event which already happened last year, and that might encourage President Trump to make a deal. A more likely response is cutting back on U.S. soybeans and hurting Trump politically in agricultural, pro-Trump states. This is coming down to an issue of honor and embarrassment for the Chinese Communist Party, and they’ll respond in a significant way. Still, the Chinese are pressured to make a deal as well: the government resorted to the direct purchase of shares yesterday to prop up their stock market, which was spooked by the worsening trade war news. [10 May]

Core and headline inflation ticked up to 2.1 percent in April, which is just above the Federal Reserve’s desired rate. Inflation is expected to be tempered, but if the rate of inflation continues up, the Fed will be more likely to raise interest rates, putting a damper on both President Trump and U.S. economic growth. [10 May]

The New York Fed released its latest data on the likelihood of recession: just 27 percent over the next 12 months. For what it’s worth, the New York Fed’s 12-month recession likelihood was at 25 percent before the start of the 2001 recession, and about 40 percent before the start of 2008 recession. Based on what we know today, I don’t expect a recession until late 2020 at the earliest. [09 May]

A new round of tariffs against Chinese goods is scheduled to go into effect tomorrow. Chinese officials have vowed to retaliate, seeking “necessary countermeasures” if the new round goes through. That could mean additional tariffs levied on U.S. goods, or the suspension of Chinese purchases of some U.S. goods. Meanwhile, Chinese officials are in D.C. today to negotiate an end to the trade war after being accused by President Trump of breaking their previous negotiation commitments. [09 May]

This morning, President Trump tweeted that China’s top trade official was ‘coming to make a deal’ on the trade war. One trend we’ve been following is China’s minor financial crisis of corporate debt defaults. So far this year, Chinese corporations have defaulted on $5.8 billion worth of loans, which is triple the pace of 2018, which was four times higher than in 2017. The entire Chinese bond market is $13 trillion, which not entirely at risk; but China will have a much larger problem in 2019 if the trend continues. I’ve previously discussed the trillions in debt contained in China’s shadow banking system, which Chinese president Xi Jinping is reportedly trying to reform. Goldman Sachs warned in an investment note yesterday: “Credit stresses are higher than what the defaults are showing.” Now is a really good time for China to make a U.S. trade deal that allays fears of China’s economic slowdown. A deal will also be positive news for the U.S. economy. [08 May]

And speaking of the U.S. economy, DoubleLine Capital’s Jeff Gundlach warned during a CNBC interview yesterday that our economic growth is not all it’s cracked up to be. First, Gundlach, who’s at the very top of my Economic Warning Matrix, says that a few months ago there were no indicators of recession, but now it’s “not a lock” that we’ll make it through the 2020 election before a recession hits. “We’re so late in the cycle, the data is weakening, and interest rates, amazingly, have been tightened to a level that’s causing economic concern.” Piling on, Gundlach, who previously warned that our GDP growth is illusory, reiterated that view. “People are starting to realize that the.. deficit and the national debt are totally out of control… [In 2018] the national debt increased by over six percent of GDP. Nominal GDP rose by 5.1 [percent]. What that means, Judge, is if we hadn’t increased the national debt at all in 2018, GDP [growth], nominally, would have been negative. And in fact that’s the truth for the last three years, and the last five years; that the national debt growth is responsible for all of the growth in the U.S. GDP.” Gundlach asks,” What’s going to happen when we turn down?” [source] [08 May]

On Monday, President Trump dimmed the hopes of a trade deal with China, saying that he’d raise the current 10% tariff on $200 billion worth of goods to 25% on Friday. U.S. officials are accusing China of “reneging” on some of their commitments in the talks. “Over the course of the last week or so, we’ve seen an erosion in commitments by China, I would say retreating from commitments that have already been made, in our judgment,” said U.S. Trade Representative Robert Lighthizer. Chinese officials are traveling to the U.S. this week to continue talks. (AC: China is underperforming their strong GDP numbers as they face both economic headwinds and a potential financial crisis of their own. Trump is turning the screws on his previous promise to raise tariffs if substantial progress isn’t made with Chinese negotiators. While it may be the least palatable option for Chinese president Xi Jinping, he may be best served by striking a deal seen as a win for Trump now, and then shuffling his feet on actually following through. Enforcement of this deal — especially enforcing an end to industrial and economic espionage against America — is the real key, and that’s a short lever for Trump. If the trade deal doesn’t include an espionage clause, then it’s meaningless. The potential course of action being overlooked is what China does after Trump, when they can simply reset all their commitments and pretend like the Trump trade deal never happened. Striking a deal now when China is weaker seems the prudent thing to do, so they can renegotiate years later when China is stronger.) [07 May]

The Federal Reserve flagged the sale of risky corporate debt as the top vulnerability to the financial system. Leveraged loans are a $1.1 trillion market that grew by 20 percent in 2018 as loan standards were eased. “Borrowing by businesses is historically high… with the most rapid increases in debt concentrated among the riskiest firms amid signs of deteriorating credit standards.” The Fed warned that global events combined with “the rapid growth of less-regulated private credit and a weakening of underwriting standards for leveraged loans” could lead to a crisis. (AC: It’s easy to look at public and private debt in America and come to the conclusion that a substantial part of our economic growth is debt-fueled and has been since the end of the 2008 recession. The $9 trillion corporate debt market, for instance, is likely in bubble territory. That’s not to say that it will necessarily burst. The Fed’s warning could spur action to slowly deflate the bubble, as opposed to a sudden burst. If the Fed is warning about it, they’re trying to deflate it for a reason.) [07 May]

Futures plunged over the weekend as President Trump warned China that another round of tariffs would soon go into effect. Several outlets reported last week that the two sides were nearing a trade deal, and could possibly approve the deal during a Trump-Xi summit in May. (Analyst Comment: The Chinese economy remains under threat of its own financial crisis and President Trump reportedly remains angry at the Chinese for decades worth of economic exploitation of the United States. This is likely Trump’s way of turning the screws on China, because China needs this deal much more than the United States.) [06 May]

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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