National Intelligence Bulletin for 11 January 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

  • Food stamp programs funded through February
  • Democrats express concern about Trump emergency powers
  • Eric Holder’s plan to “save democracy”
  • CNN abandons local news source
  • Alabama election manipulation deeper than previously reported
  • Chinese VC: AI will replace 40 percent of jobs globally
  • Fault Lines commentary
  • WSJ profiles a Russian intrusion into the power grid
  • Stack: Expect a housing slowdown
  • Gundlach: “Are we really growing at all?”
  • Economic/Financial Watch commentary

ADMIN NOTE: I’m still working on incorporating forward-looking indicators into the Early Warning Indicator system. This next iteration will be a more accurate gauge of the future, so I appreciate your patience.

 


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

Food stamp programs funded through February

Trump administration officials reported that food stamp programs would be funded through February.  The latest statement from the USDA did not say what its plans were for March or beyond, should the partial government shutdown continue. (AC: Roughly 39 million Americans rely on some type of federal food stamp benefits, but fears about EBT cards running out should be allayed for another month. It’s almost inconceivable that the government would not find a way to fund food stamp programs, knowing of the potential effects, including violence and general unrest. I would be surprised if the government didn’t find some way to fund it through existing funds. I’ll continue to report on the issue, as it’s the most serious social problem we’ve dealt with in a long time.)

Democrats express concern about Trump emergency powers

As President Trump mulls the national emergency option to get his wall built, the Brennan Center for Justice is warning that emergency powers would include the ability to “take over or shut down certain communications facilities” to include the internet, “take certain economic actions” like freezing bank accounts and “prohibiting financial transactions” of certain individuals, and deploy military forces in the interest of national security. Although there are around 136 powers President Trump would gain, the director of the Brennan Center says these three powers specifically “keep me up at night”. [source]

Eric Holder’s plan to “save democracy”

Obama-era attorney general Eric Holder appeared on The Ezra Klein Show from Vox Media to explain his plan to “save democracy”. Holder founded and chairs the National Democratic Redistricting Committee (NDRC), which recently merged with Organizing for America (OFA). As the website explains:

“Incorporating OFA’s grassroots network fully into our efforts is not only a natural extension of the work we’ve already done together, it is also a major step toward building the extensive grassroots capacity we will need to advocate for fairness during the redistricting process in 2021.” [source]

Holder recently called his work “a partisan effort at good government” and blamed Republican gerrymandering in 2011 for the GOPs relative success in state legislatures and the House. Noting that Democrats would “do just fine” if their efforts are successful, he says that “demography is trending our way”. Furthermore, Holder says that the goal isn’t to turn Wyoming or Idaho blue, but to rebalance power in states like Ohio, Wisconsin, Michigan, and North Carolina; the latter of which has a Republican state legislature that he accuses was unfairly gained through gerrymandering. [source]

Analyst Comment: Holder and other progressive activists are doing behind the scenes work to return Democratic dominance to Washington and thereby coast to coast. Holder mentions a progressive talking point that within a couple of decades, 30 percent of the Senate will represent 70 percent of the people (never mind that the Senate doesn’t represent people, but the states — every state gets two senators regardless of its population). The complaint is that states like Wyoming will retain two Senators, the same as California or New York, despite having a fraction of the population. This complaint is tied to a progressive movement aptly named “Abolish the Senate”, which wants to either abolish or rebalance Senate power so that red state representation more accurately reflects their declining populations, as compared to the 15 most populace states which are predominantly Democrat. Should a worst case scenario happen in 2020 — the Democrats take the Senate and presidency — what could follow is a Democrat-led redistricting process that puts any prospect of a GOP House out of reach, the abolition of the electoral college (which Holder tap dances around), followed by amnesty; all of which could ensure that Democrat candidates win the popular vote. Such a disaster scenario would likely preclude another Republican president, and relegate the GOP to a regional party. It’s a worst case scenario, and I’m not taking into consideration how Republicans will push back against this agenda because I don’t know how they would, aside from the courts. The point is that progressives want to make big changes that are going to reshape America’s political landscape for generations.

In the interview, Holder says that 21st century America should question 18th century American wisdom regarding government rules and structure. A return of Democratic power, which I’ve explained is likely inevitable within the next few years to a decade, would give them the opportunity to follow through on the ideas they’re proposing now. My concern is that after the guardrail bending of President Trump (especially if he follows through on the national emergency option to build the wall), Democrats may be more willing to bend their own guardrails to ensure what many of them really want, which is absolute one party rule.

CNN abandons local news source

During a recent San Diego-based KUSI News segment, two anchors explained that a CNN producer reached out to the KUSI station to request a local reporter to appear on a CNN show to explain the local view of the border wall. After KUSI reported that the border wall is “not an issue” for San Diego and that local officials believe the wall is effective, CNN dropped the appearance request. “They didn’t like what they heard from us,” said one anchor. [source] (Analyst Comment: It’s no surprise that CNN and other news programs shop for viewpoints and opinions favorable to a desired narrative, but this is the first instance I’ve seen of a local news channel pointing it out. One reason why indicator “M1: Media Contributing to Social Instability” rates so highly is partly because media outlets push political agendas instead of pushing the news. There’s no doubt that media sensationalism is contributing to social instability and, as in previous cases, actual unrest violence.)

Alabama election manipulation deeper than previously reported

In a story first reported by the New York Times, Democrat operatives ran a second false flag disinformation campaign targeting Republican voters ahead of the Jones-Moore senate election. According to the report, the goal was to “enrage and energize Democrats” and “depress [Republican] turnout” in the December 2017 special election. In a new story published this week, further details emerged that the same organization also ran an ad campaign called “Dry Alabama” which urged Moore backers to support a law that would make the state alcohol-free (“Re-enact Prohibition and make Alabama dry again!”). That ad ran on both Facebook and Twitter with the goal of dissuading moderate Republican support for Roy Moore. Matt Osborne of Florence, Alabama, a progressive activist involved in the “Dry Alabama” campaign, accused Republicans of engaging in similar behavior (without evidence), and said, “If you don’t do it, you’re fighting with one hand tied behind your back. You have a moral imperative to do this — to do whatever it takes.” [source] [previous reporting] (Analyst Comment: While initial reports downplayed the impact of the disinformation campaign, the “Dry Alabama” ad campaign had 4.6 million Facebook views, and its videos had been watched 430,000 times — hardly inconsequential in a race determined by 21,000 votes. While there’s debate over the actual effects of the two campaigns, my concern remains that campaigns run so close to election can be difficult to detect and stop, and that an American public already struggling with fake news and information literacy could be bombarded by very targeted campaigns designed to sway close elections. Future campaigns could call into question election integrity and produce political violence.)

Chinese VC: AI will replace 40 percent of jobs globally

In a “60 Minutes” interview, Chinese venture capitalist Kai Fu Lee said that artificial intelligence (AI) is already replacing jobs, and will replace 40 percent of jobs globally within 15 years. “[Artificial Intelligence] will increasingly replace repetitive jobs, not just for blue-collar work, but a lot of white-collar work. Chauffeurs, truck drivers, anyone who does driving for a living– their jobs will be disrupted more in the 15-25 year time frame. Many jobs that seem a little bit complex, chef, waiter, a lot of things will become automated … stores … restaurants, and altogether in 15 years, that’s going to displace about 40 percent of the jobs in the world… I believe [AI] is going to change the world more than anything in the history of mankind. More than electricity.” [source] (Analyst Comment: The economic disruption of automation is way more disruptive than Congress, the federal government, U.S. corporations, or American workers are prepared for. There have been numerous articles and several books written about a “workless” future and why automation and AI will free humans to pursue their interests and hobbies. The basis is that ultimately, robots produce more than humans and cost less than humans, and that through taxes, governments will be able to provide a universal basic income to its citizens. I’m still making up my mind on the validity of this argument. Either way, at least initially, AI and automation will more likely be fundamentally disruptive and more likely to cause unrest and instability than to cure it. It’s a future worth preparing for, especially if that future is within 15 or 25 years. On a side note, the U.S. and China are entering an AI arms race. Kai Fu Lee says that for the next five years, both countries will be equal with regard to top researchers, intimating that China may take the lead within five years. The first country to master AI for economic and military purposes will have a unique and potentially lasting advantage over their competitors.)

Fault Lines

“I think that America is actually engulfed by its second civil war now.” – Dmitry Rogozin, head of Russia’s Roscosmos State Space Corporation, who recently cancelled his trip to the United States


 

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

 

WSJ profiles a Russian intrusion into the power grid

According to a recent Wall Street Journal profile, Russian hackers targeted utility engineers with malware to gain access to “computer systems that monitor and control electricity flows”. Hackers targeted systems in 24 states, although government officials haven’t named the utilities that were targeted. A former assistant secretary for cyber policy at DHS told WSJ, “What Russia has done is prepare the battlefield without pulling the trigger.” [source] (Analyst Comment: We call this “Intelligence Preparation of the Battlefield,” which is analysis of data on a target or area prior to operations taking place. This type of exploitation should be considered as pre-operational surveillance and reconnaissance. It doesn’t necessarily mean that Russians will attack or disrupt the power grid, although I retain the belief that there are several scenarios where they would. The first is an outright conflict, which is why we monitor the NATO-Russia flashpoint in Strategic Intelligence. Norway’s defense minister recently said that war with Russia is no longer outside the realm of possibility, which significantly raises its prospects. And the effects of the next war, whether with Russia, China, North Korea, or Iran, will likely be felt at home. The second is any real or perceived threat to Russian sovereignty, where Russia would consider attacking vital points, like power, internet, or communications, to end offensive operations against Russia or its own vital interests. And the third is in response to U.S. operations that cause significant disruption to Russia, its periphery, or its strategic or operational goals. Vladimir Putin has shown that he’s willing to take large risks to make a point, and demonstrating the range of Russian cyber operations would include a psychological impact on the American public.

The definition of a “threat” is anyone having the intent and capability to cause harm. Russia, China, and others have the capabilities, and there may come a time when they gain the intent. The conclusion is that we should remain prepared for temporary or extended disruption to the country’s power grids, and the second- and third-order effects of that disruption.)

Stack: Expect a housing slowdown

Although he says that it’s too early to tell if there’s a housing bubble, Jim Stack does expect a significant slowdown in the housing market. “Expect home sales to continue on a downward trend in the next 12-plus months. And there’s a significant downside risk to housing prices if a recession takes hold.” Last year, Stack, who manages $1.3 billion, saw that housing stocks were up 80 percent despite rising interest rates. He called it ‘exuberance,’ a classic sign of a bubble. [source] [Analyst Comment: An inflated housing market puts home ownership out of reach for more Americans, but higher home prices give current home owners a sense of financial confidence. Back during the 2008 financial crisis, Ben Bernanke, then the Federal Reserve chairman, was deliberate in his approach to re-inflate home and stock prices. It was referred to the “Bernanke Put,” which described his efforts to lower interest and mortgage rates, spur demand for home buying, reinflate the deflated housing market thus improving consumer psychology, which would spur spending and economic growth. The problem is that interest rates remained so low for so long that some are seeing a housing bubble. The threat is here again: the Case-Shiller Home Price Index sits at 206 as of October, which is up from 184 in July 2006 [source] — just before the housing bubble burst. Earlier this year I published a chart that showed the Case-Shiller Index compared to hourly earnings. (The chart below shows different numbers than the the FRED website — 230, up from 210 in 2006 — but the sentiment is the same.) This doesn’t definitively prove a bubble, but there are analysts who describe current conditions as bubble-like. And the risks of a bubble burst in housing or anywhere else, like corporate and consumer credit, remain the same: extreme actions taken by the Federal Reserve or federal government, foreclosures, economic malaise and financial despair — the same feelings of 2008 but cast against 2019-2020’s toxic political environment.]

 

Gundlach: “Are we really growing at all?”

In his annual conference call, DoubleLine Capital’s Jeff Gundlach (who manages $121 billion) asked, “Are we really growing at all, or is it all just debt-based?” He said that U.S. corporations were over-leveraged and had too much debt, warning of a potential corporate debt crisis. Gundlach also called the national debt a “horrific situation”.

 

Economic/Financial Watch

On 02 March, another round of U.S. sanctions is scheduled to be placed on Chinese goods. U.S. and Chinese trade negotiators begin two-day talks this week to avoid that escalation. [07 Jan]

The U.S. economy remains poised for growth, as manufacturing payrolls beat expectations, factories continued to hire, prime age workforce participation continues to improve, and wage growth exceeded economist forecasts. [07 Jan]

Global financial services firm Cantor Fitzgerald released new numbers recently showing that the Global Economic Policy Uncertainty Index is higher now than in at least 20 years. And a new survey from Blackrock, the world’s largest asset management firm, shows that among macro and market influencers, 37 percent say that the end of the economic cycle is the top concern for their 2019 investment strategy, followed by rising interest rates (18 percent) and geopolitical/trade tensions (14 percent). [09 Jan]

After U.S. officials described trade talks with China as productive, the Chinese Commerce Ministry released a statement calling the talks  “broad, deep, [and] detailed”. Both sides agreed to keep in contact and pursue a relationship that will foster more negotiation in the future. But beware: enforcement of any deal with the Chinese is an entirely different animal. [10 Jan]

Financial firm BlackRock published a new six-month forecast where they see tighter financial conditions and slower economic growth, falling to just over two percent growth later this year. Recession conditions aren’t on the horizon through at least the first six months of this year, according to the data. [10 Jan]

In an interview yesterday, Federal Reserve chairman Jerome Powell said of the national debt, “I’m very worried about it… It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.” Powell also described “the long-run fiscal nonsustainability of the federal government,” and added that rising interest rates and costs to service new and existing debt would exacerbate the problem. Additionally CNBC is reporting that Fitch Ratings, a credit rating agency, considers the government shutdown and inability to pass a budget a long-term risk and could be reasons to downgrade the federal government’s triple-A credit score. [11 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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