National Intelligence Bulletin for 14 December 2018 – Forward Observer Shop

National Intelligence Bulletin for 14 December 2018

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

  • Private corporations take up the mantle of ideology discrimination
  • Budget deadline and partial shutdown now one week out
  • Social Democratic Party as large as Trump Populist Party
  • Fault Lines commentary
  • Market and social conditions to lead to more volatility
  • Global economic slowdown could be spreading
  • Risk of war with China sooner than expected?
  • Economic/Financial Watch commentary


ADMIN NOTE: This week, I introduce a new section to this report. Fault Lines will feature quotes from politicians and other notable figures regarding the potential for civil unrest, political violence, or outright domestic conflict. Since all three have entered into the Beltway zeitgeist, I’m very interested to read and report on what prominent figures have to say. Fault Lines will appear at the bottom of PIR1.



Early Warning Index: There were no changes to the Early Warning Index this week. Indicator P1 remains under the most pressure due to the Mueller investigation and media reporting on the topic, and M1 is going to persistently foment social and political instability for the foreseeable future. The partial government shutdown next week isn’t expected to move any needles, unless it drags on for more than a few days. There are obvious long term threats to Indicators E1-E5, but right now I don’t expect them to be significantly affected until at least Q2 of 2019. I’ll be spending part of this weekend revising some of the sub-indicators, so you can expect these numbers to change in next week’s report. Please bear with me until I can fine-tune everything before we get into 2019. – S.C.


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
  • Continued turmoil 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


Rep. Lieu urges private companies to regulate speech in lieu of government

Appearing on CNN this week, Rep. Ted Lieu (D-CA) offered his thoughts on the regulation of free speech. “I would love to be able to regulate the content of speech. The First Amendment prevents me from doing so… I would urge these private sector companies to regulate it better themselves, but it’s really nothing that I believe government can do. ” [source]

[Analyst Comment: Canada and the United Kingdom have successfully introduced “hate speech” laws, which their governments say place a “reasonable limit” to the otherwise “freedom of speech”. In fact, governments in those countries routinely arrest and charge citizens for infractions on social media. One British man was charged with “malicious communications” — inciting racial or religious hatred — on Facebook following the murder of British soldier Lee Rigby at the hands of an Islamic terrorist (in the famous 2013 “butcher knife” killing). [source] Will America ever get around to introducing hate speech laws?

Food for thought: A 2015 survey found that 51 percent of Democrats favor hate speech laws. [source] More recently, however, a 2017 Cato Institute survey found that 40 percent of Americans overall would support hate speech laws; while 59 percent would be against them. [source] Maybe a majority of society hasn’t turned that tide yet, but progressives in government love the idea that social media platforms can regulate speech as they see fit. And since they’re mostly run by fellow progressives, major social media platforms agree that there’s no such thing as “free speech” on their services. Speech enforcement in their domain, however, goes well beyond “hate speech” and into the realm of point-of-view discrimination.

Rep. Lieu doesn’t qualify his desire to “regulate the content of speech” based on hatred alone. So one question facing the GOP (and, by extension, any candidate running against the preferred Democrat) is ‘At what point does limiting the reach on a social media platform begin restricting political speech?’ Have social media platforms altered their algorithms to benefit one political candidate over another, and what would the consequences be if that were to happen? Has it already happened? Maybe Democrats will pursue hate speech laws in the next decade, but the greater near term risk is plainly that social media companies are free to enforce point-of-view discrimination — barring speech that isn’t remotely hateful.

The value and curse of social media is that, unlike being published in a newspaper, there’s no meritocratic filter. No editor has prevented anyone from hitting the ‘Publish’ button on a platform. Prior to 2016-2017, there’s been no real gate keeper outside of terms of service agreements, which are unevenly enforced. As pointed out previously, white nationalist Jared Taylor has been permanently banned from Twitter, but Nation of Islam’s Louis Fararrakhan, who has a long history of anti-Semitic statements, is still free to tweet. Additionally, Twitter’s Terms of Service reflect their willingness to permanently ban accounts for offline activities — speech or behavior that doesn’t even occur on their platform — as they cited for the banning of Alex Jones. Yet numerous Antifa accounts still exist for chapters who have engaged in cases of well-publicized violence. What’s more, Twitter has gone so far as to ban the accounts of conservatives who’ve not said anything remotely “hateful”, other than express their opposition to social justice — “justice” without due process and upon which punishment or rewards are bestowed on the basis of class, race, or gender alone —  which is inherently unjust.

And banning goes far beyond just social media: recently Patreon, the crowdfunding website, banned the account of “Sargon of Akkad”. Sargon, who’s real name is Carl Benjamin, rose to popularity on YouTube for pushing back against white nationalism and debating white nationalists in public forums also broadcast on YouTube. But as Sargon explains, he did use a racial epithet online, which he says was taken out of context [source], and for that indiscretion, Patreon banned his account for activity that had nothing to do with Patreon (!). The ban removes his primary source of income, as thousands of his supporters donated to him each month for the production of intellectual and social commentary on his YouTube channel. (So 2018.)

Point being, these bans go far beyond trying to wrangle against racists and prevent hate speech from turning into hate crimes. (Although, action against hate speech is primarily directed towards white racists, and largely overlooks racists among racial minorities.) These platforms — to reiterate, which are overwhelmingly controlled by social justice warriors — are crossing over from policing hate speech to enforcing point-of-view discrimination. And when considering that a ban from a crowdfunding website like Patreon disrupts a primary source of income, it’s difficult not to label this as economic dislocation, which is a form of economic warfare.

From time to time, I think about this and ask, “So what? A handful of Internet personalities have been banned from some online platforms. It’s not that big of a deal.” But my second thought is that this is really the future of censorship; this is how a government can get around issues of the First Amendment. Today it’s social media. Tomorrow, it’s your credit card account, your financial institution, your ability to get a home loan; or some other industry that’s pressured to stop doing business with you. Ideology and political affiliation, unlike race or sexual orientation, is not a protected class. This could absolutely be the next logical conclusion in the Left’s culture war, especially because Rep. Lieu and his fellow progressives are happy to have private sector companies take steps to regulate the content of speech or behavior, even if government can’t (yet).]


Budget deadline and partial shutdown now one week out

I won’t write too much this week about the budget deadline and partial government shutdown, except to say a few things.

First: the deadline and shutdown occur at midnight on 21 December.

Second: President Trump, whose refrain is “border security is national security”, is asking $5 billion for the border wall, but Democrats are only offering $1.6 billion for border security with no wall. President Trump said that he’s gladly willing to take on the responsibility of a partial shutdown if Democrats aren’t willing to fund his border wall.

And third: According to the DHS spokesman, “DHS prevented 3,755 known or suspected terrorists from traveling to or entering the U.S. in FY 17. That’s in addition to 17,526 criminals, 1,019 gang members, and 3,028 special interest aliens.”


Social Democratic Party as large as Trump Populist Party

I came across this 2016 image from The Economist, which shows U.S. elected representatives from the two major parties as if they were divided into their various voting blocs. [source] I was surprised to see the “Social Democratic Party” to be as large as it was, and it’s likely larger in 2018 than just two years ago.

In the special elections of 2017, we watched the most successful year for the Democratic Socialists of America (DSA), who picked up 15 seats in local elections across the country. (That doesn’t sound like a lot, but it’s more momentum that they’ve ever had.) In the 2018 mid-terms, DSA-endorsed candidates picked up two seats in the U.S. House of Representatives, for a total of three members.

If you haven’t noticed all the positive press Representative-Elect Alexandria Ocasio-Cortez (D-NY) is getting, you should. A couple weeks ago, she was live streaming on Instagram as she ate macaroni and cheese with a coffee stirrer and talked about politics. That’s peak Millennial. Now imagine Ted Cruz eating instant mac and cheese while live streaming on Instagram — the elite Republican donor class would be in shock. But the progressive donor class loved it because it resonated with her electorate, who see it as being authentic (and it actually is authentic).

For all the press over whether or not Hillary Clinton, or Joe Biden, or any other old white Democrat is running; there’s a lot of talk about choosing someone younger to head the Democratic Party in 2020. Whether or not the Democratic Party goes younger, more populist, and farther Left, it’s difficult to see the momentum being built by Democratic Socialists and not expect them to one day be the future of the Democratic Party.

Fault Lines

“My concern is that if impeachment is moved forward on the evidence that we have now, at least a third of the country would think it was just political revenge and a coup against the president. That wouldn’t serve us well at all.” – Sen. Angus King (I-ME) [source]

“I’m not concerned, no. I think that the people would revolt if that happened.” – President Trump answering a question about his concern over impeachment [source]  (Analyst Comment: This seems unlikely if President Trump were merely impeached, but it certainly increases the risk of unrest and political violence. I would especially be concerned about daily protests and acts of civil disobedience by the Left, with a promise of daily disruption until President Trump was removed from office. That seems like a greater risk of violence. It’s highly unlikely, based on the available evidence from the Mueller investigation, that President Trump is impeached and removed from office. I used to believe that Mueller was saving the best for last — his final pièce de résistance — but I’m now more inclined to believe that he’s grasping at white collar crimes because there’s little no evidence of actual collusion. Still, if for whatever reason President Trump is impeached and removed from office, from anecdotal evidence alone, we would likely see an increase in talk about a civil war, if not actual political violence. In the off chances that were to happen, we’re going to see just how strong, serious, and committed the MAGA movement is.)

“We will use every area of the law to investigate President Trump and his business transactions and that of his family as well. We want to investigate anyone in his orbit who has, in fact, violated the law.” – New York Attorney General-elect Letitia James [source] (Analyst Comment: AG-elect James is also hopeful that a new law will pass the New York legislature that removes the state’s ban on double jeopardy charges so she can pursue state criminal charges against anyone President Trump might pardon before leaving office. According to an NBC News report, James is relying on the advice of former U.S. attorney general Loretta Lynch “to help her identify important hires for her office with an eye on bringing in experts for its Trump-related investigations”. Proponents can call this “justice served,” but it looks more like political warfare than anything else.)

“The fact is that the G.O.P., as currently constituted, is willing to do whatever it takes to seize and hold power. And as long as that remains true, and Republicans remain politically competitive, we will be one election away from losing democracy in America.” – Economist Paul Krugman, New York Times column [source]


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

Significant Developments:

  • 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
  • Rising interest rates are moderating economic growth, housing strength


Market and social conditions to lead to more volatility

Speaking to CNBC on Monday, billionaire investor Paul Tudor Jones said he expects more up and down volatility in the markets through 2019. “I think we’re going to see a lot more of what we just saw, which is a lot more volatility… I think in the next year it will be, from where we are today, … at least 10 percent down and 10 percent up; maybe 15 percent either way from where we are right now.” (Analyst Comment: President Trump publicly staked so much of his economic recovery on stock market performance. The “Trump Bump” — a $1.5 trillion commitment for infrastructure spending, a more business friendly regulatory environment, and tax cuts for Americans — undoubtedly made an impact in greasing the wheels of economic transactions, and increasing small business and consumer confidence. But rising interest rates, the Fed’s quantitative tightening, and some real negative pressures on the economy are taking a toll; that’s why President Trump says he supports low interest rates. Cheap money typically means spending, and spending often means economic growth. That cheap money, however, does appear to have formed bubbles in several industries, like commercial real estate, and auto loans and other consumer credit. It’s safe to say that the effects of the Trump Bump are diminishing, putting at risk sustained strong economic growth going forward. He’ll have to answer for slowing economic growth while running for re-election, and he’s likely to blame Federal Reserve policies. One other thought: Since President Trump on numerous occasions publicly tied economic health to stock market performance, the volatility described by Paul Tudor Jones is likely to mean that the perception of the Trump economy will be volatile, as well, because the economy is often conflated with the stock market. Furthermore, 2019 could well be President Trump’s toughest year in office as the House Oversight, Ethics, Intelligence, and other committees, soon chaired by Democrats, launch investigations into the Trump Organization and other Trump associates. Unless he’s hiding a bombshell, the Mueller investigation looks increasingly like they’ll peg Trump on accusations of campaign finance violations, which are on shaky ground, and not the Russian collusion many have so hoped. Regardless, these developments and the potential for House impeachment will further increase volatility in 2019.)

Jones has a similar warning shared by other financial elites; namely that capitalism as it’s currently practiced is leading to too much wealth and income inequality, and those factors will increasingly drive social unrest. Referring to a survey finding that 51 percent of American Millennials have a negative view of capitalism, Jones says the current system of “these lifeless entities [corporations] that do nothing but make profits” are not equally benefiting the working class. He warns that the current social structure will become unsustainable, and that “this great system [capitalism] that we have is not going to continue as we know it now.” Jones also says that wealth inequality “is the single greatest threat we have to our capitalist way of life, which is the best form of economic governance”. Interestingly, Jones co-founded Just Capital, which encourages corporations to pursue essentially social and economic justice.

In the same interview, Jones criticizes the Federal Reserve, which he says makes policy decisions “by looking in the rear view mirror” instead of by extrapolation into the future. Furthermore, he says: “It’s different this time… [The Federal Reserve] could be hiking [interest rates] at exactly the same point you should be cutting [interest rates].” Jones is talking about economic weakness going into the future, and that the Federal Reserve could be contributing to economic weakness by hiking interest rates instead of cutting them. After pointing out that, in 1974, the Federal Reserve “hiked us right into a recession”, and hiked rates again in 1997 going into the 1998 financial crisis, and then raised rates in 2015, which put the economy “on pause for years”; Jones says, “There’s a high probability that this hike will be… the last one for a long time.” Out of the last 14 rate hike cycles, which we’re in now, 11 of them have resulted in recession. Jones is making this case. [Analyst Comment: If this plays out like it’s looking, then we could see another period similar to the 2008 recession, complete with its effects. The Millennial generation is years behind their parents at their age (some say 20 percent behind) because weak economic conditions diminished their ability to get good paying jobs, save money, invest, and all the other positive benefits a strong economy brings. Lots of data show that Millennials will be chronically worse-off because of the lasting effects of the recession: their lifelong earnings will be lower, their savings will be lower, their investments will be lower. We’re seeing a disruption of financial health due to the several years that slowed their financial well-being. Here’s the compounded problem: We’re probably looking at another iteration of economic setbacks for Generation Z, which would make two successive generations at a distinct economic disadvantage as compared with previous generations. And that’s probably why very prominent financial elites have warned about social instability — because they know that two successive generations will find it much more difficult to be financially independent during increasingly difficult economic conditions. This is likely to be a huge driver not just of social instability, but also of political change. In Homer’s Odyssey, the Siren’s Song lured sailors to their demise after scuttling their ships on rocky shores. These drivers are why I’m gravely concerned about the contemporary version of the Siren’s Song, which today is the lure of democratic socialism. Left wing economic policies, whether they’re populist or not, obviously present a grave threat to America as we know it. Within the next several years, we could see conditions that set the stage for a rapid political shift towards the burgeoning democratic socialist movement.]

Jones also warns of a global credit bubble. “We are probably sitting on a big global credit bubble. I hope I’m not underestimating the impact, the potential negative impact, that popping that bubble [will have].” Jones says that the upcoming interest rate hike will play out in the two of the largest credit bubbles in the world: China and Italy. [source] (Analyst Comment: We’re about to see what happens when several bubbles converge with a reversal on the easy money that inflated them, and the increasing costs of servicing new debt. This doesn’t just apply to the United States, but I do think it especially applies to China, because there are trillions of dollars in off-the-books loans and a substantial amount of shadow banking. China is already printing money to assuage existing negative economic pressure and appear to be headed towards their own version of 2008. If we look at the quickening pace of public and private bond defaults in 2018 as compared to 2017, it’s clear that a financial crisis, or specifically a debt crisis, could already be in the works there.  With regards to bubbles in the U.S., I think many are quick to assume that every bubble will burst very rapidly — and maybe they will — but bubbles could also deflate over time. No one can tell the future, but I’m not sold that some of these bubbles couldn’t begin to deflate under tightening conditions, as opposed to bursting virtually overnight. Still, it’s something I’m watching.)


Global economic slowdown could be spreading

A couple weeks ago, I reported that both Germany and Japan had negative economic growth in the last quarter. Japan’s latest Q3 numbers were recently revised down to 2.5% negative growth [source], and Germany’s initial reports showed a 0.2 percent negative growth rate. They could be temporary. Upon looking into this further, it’s more than just Germany and Japan whose economies are contracting. Italy’s dispute with the European Union could send it two straight quarters of economic contraction [source], and Switzerland posted 0.2 percent negative growth versus an expected 0.4 positive growth in Q3. [source] (Analyst Comment: Right now, I take this as only anecdotal evidence, as some of the negative pressure could be transitory. If we get into early next year and more countries join the list with Q1 negative growth, then we could firm up expectations that the rest of 2019 will be shaky, too.)


An update on the U.S./China economic cold war

(What follows is an extension of what appeared in this morning’s Early Warning.) “Chinese retail sales grew at the slowest pace in 15 years,” begins a report in the Financial Times this morning. One Chinese financial analyst says, “There may even be some corporate lay-offs. All this is causing a decline in [Chinese] consumer confidence.” [source] Regardless of what political pundits are saying, China is feeling the pressure of Trump tariffs. (This is just one news item of many.) And this is causing some in the Communist Party of China (CPC) to question the viability of their ‘president for life’ Xi Jinping, and pushing their military to be more aggressive about the presence of the U.S. military in the South China Sea area. (One Chinese colonel recently suggested that one of their boats rams the next American ship that enters the South China Sea.) After the 2016 election, I mentioned in a Strategic Intelligence report that the U.S. could be doing more to destabilize China’s economy in light of their aggressive economic and industrial espionage, which I described as being essentially an act of war.

President Trump is serious — actually, he seems vindictive — about throwing cold water on China’s economic war against America, and I’m concerned because it does look like it’s escalating the likelihood of conflict, if not quickening its pace. If President Trump forces Xi to make some concessions, however temporary or significant they end up being, embarrassment is likely to be etched into national memory — the greater the concessions, the greater the embarrassment. That’s partly because, prior to Trump (and Xi), the CPC had gotten away scot-free with intellectual property theft and forced technology transfers. Previously, it’s been estimated that China stole $200-300 billion worth of U.S. technology per year. That number was recently updated to as much as $600 billion per year. (This doesn’t include the technology acquisition involved in the purchase of U.S. and other Western companies by Chinese corporations, some of which are state-owned enterprises. Notably, that includes Hummer, the GM company sold to a Chinese corporation, which now produces clones of one of the most popular military vehicles on the planet, the Humvee/HMMWV.) The Chinese economy is partially based on the free-flowing theft and reproduction of U.S. and other Western products and technologies. Xi has presided over a disruption to that process, as President Trump is trying to turn the economic tables against China, and potentially to great effect.

I read this week that China is beginning to consider a delay to their ‘Made in China 2025’ agenda, in which China aims to be self-sufficient with regard to technological development (which is to say, they no longer rely on stolen technology from the United States). There’s no denying that the U.S. economy and stolen technology has been the backbone of Chinese economic, industrial, agricultural, and hi-tech advancement. But it actually goes far beyond technological self-sufficiency: China wants to become the world leader in artificial intelligence, quantum computing, robotics, and other next-generation technologies. An achievement like that would put U.S. national security at great risk from China’s offensive cyber and military capabilities. That’s when the regularly scheduled risk of war significantly increases — when China has some unique asymmetric advantages over the U.S. military. That regularly scheduled risk, of course, is pending any black swan event in the South China Sea. But China has to get there first, whether they implement the full plan in 2025 or not.

Another problem right now is what’s going on with the arrest of Huawei executive Meng Wenzhou, a Chinese citizen, in Canada — at the request of U.S. officials — and the follow-on arrests of two Canadian citizens in China, in a tit for tat escalation. Now elevated to an international incident, the Canadian government did relent when it granted bail to Meng, who remains under house arrest at her property in Vancouver. (I should point out, however, that Huawei is a monumentally invasive tech company which is trying to introduce its phones, computers, wearables, and smart home products to U.S. and Western markets. The products are certainly being used to spy on its users, as China competes with NSA. I generally don’t recommend anything, for or against, in this report; however, I will make an exception here: I wouldn’t buy or use anything from Huawei or most other Chinese hi-tech companies. That said, Meng was arrested for alleged violations of U.S. sanctions against Iran, and awaits possible extradition to the United States.)

In the meantime, what we risk before 2025 is much greater fallout during a Chinese financial crisis. There’s a good chance China has their own version of our 2008 debt crisis in the not-too-distant future (its likely inevitable, regardless of when it occurs), and its effects are unlikely to be limited to the region. Much of America’s real estate bubble is driven by foreign investment; principally Chinese in many major metropolitan areas. When Chinese money is no longer driving higher market prices, that bubble is likely to pop. And if Chinese investors feel that there are better prices, better deals, and better long term investments in China than in the United States, so goes that source of investment. It’s entirely possible that the U.S. and Chinese recessions occur simultaneously, which would certainly lead to another global recession. Additionally, there stands some risk that the two countries would go to war, as well, on the bet that war-time spending would help lift their economies out of a recession.


Economic/Financial Watch

According to new data out this morning, the federal deficit is on track to remain the worst since 2012. Annual deficit spending is nearing $900 billion, and is scheduled to be over a trillion dollars for at least the next four years, according to the Congressional Budget Office. [14 Dec]

The latest edition of Blackrock GPS, the investor report from the world’s largest asset management firm, says that G7 economic growth has likely peaked. The G7 represents the world’s seven largest advanced economies: U.S., Japan, Germany, the United Kingdom, France, Canada, and Italy. “The G7 indicator has been on a more accented downtrend in recent weeks and the regional contributions are less uniform than in 2017. The US has been 2018’s engine of global growth while Japan and Europe have moved sideways,” reads the report; which is to say that when the U.S. economy slows down, the rest of G7 won’t be far behind (if they’re behind, at all). [source] (Analyst Comment: This is another indicator that global economic growth is feeling negative pressure, putting the risk of a global economic slowdown on the horizon.) [14 Dec]

According to a Duke University/CFO Global Business Outlook survey, nearly half of American chief financial officers (CFO) believe that a recession will begin in 2019, and 80 percent believe it will occur by before the end of 2020. In Canada, 86 percent of CFOs believe a recession will start next year, and 67 percent agreed in Europe. “The U.S. outlook has declined, and moreover the outlook is even worse in many other parts of the world, which will lead to softer demand for U.S. goods,” said one of the survey’s directors. [source] [13 Dec]

To give a more balanced view of recession, the chief equity strategist at Goldman Sachs gives a 2020 recession a 30 percent chance; and it’s something he describes as “unlikely” because the U.S. economy continues to grow, although at a decelerating rate. [source] Additionally, last month economist Mohammad El-Erian (whom I respect) said he was still bullish on the U.S. economy, and described the reason why the global economy looks shaky is because “the rest of the world is lagging on pro-growth policies [like the U.S.].” [source] [13 Dec]

On Monday night, former Fed chair Janet Yellen warned of the potential for another financial crisis. “I think things have improved, but then I think there are gigantic holes in the system. The tools that are available to deal with emerging problems are not great in the United States.” After citing overleveraged loans, Yellen said, “I’m not sure we’re working on those things in the way we should, and then there remain holes, and then there’s regulatory pushback. So I do worry that we could have another financial crisis.” Yellen also pointed out that “Interest rates are low [and are] likely to remain lower than they’ve been in past decades.” [source] (Analyst Comment: Just a year and a half ago, Yellen said she didn’t foresee another financial crisis “in our lifetimes,” which was met with considerable derision by financial watchers. Yellen also pointed out that the Federal Reserve typically has to cut interest rates by five percent to deal with a recession; which “means there’s much less scope to cut short-term rates than there’s been historically in the United States.” What she’s describing is a Federal Reserve that will potentially be pushed to take extreme actions to solve the kind of systemic risk that multiple bubbles, like overleveraged loans, present.) [12 Dec]

Kenneth Rogoff, an economics professor at Harvard and formerly the International Monetary Fund’s chief economist, warned in an op-ed last month (I just read it this morning) that China’s coming recession is likely to coincide with a financial crisis of its own, and is likely to affect the United States. Rogoff’s conclusion: “A recession in China, amplified by a financial crisis, would constitute the third leg of the debt super-cycle that began in the US in 2008 and moved to Europe in 2010. Up to this point, the Chinese authorities have done a remarkable job in postponing the inevitable slowdown. Unfortunately, when the downturn arrives, the world is likely to discover that China’s economy matters even more than most people thought.” [source] (Analyst Comment: I’ve previously pointed out that China has trillions in off-the-books loans and an out of control shadow banking industry, which are leading to its own version of our 2008 crisis and what’s increasingly looking like a global recession.) [12 Dec]

A couple weeks ago, I reported that both Germany and Japan had negative economic growth in the last quarter. Japan’s latest Q3 numbers were recently revised down to -2.5% growth [source], and Germany’s initial reports showed a -0.2 percent growth rate. These downturns, however, could be temporary. But upon looking into this further, it’s more than just Germany and Japan whose economies are contracting. Italy’s dispute with the European Union could send it two straight quarters of economic contraction [source], and Switzerland posted -0.2 percent growth versus an expected 0.4 positive growth in Q3. [source] [11 Dec]

While the International Monetary Fund’s chief economist isn’t predicting a global recession, he does say that “The slowdown outside the U.S., to the extent we’re seeing signs of that, seems to be more dramatic [than in the U.S.].” Maurice Obstfeld, who will soon retire, warns that a global economic slowdown is also likely to affect the United States. “For the rest of the world there seems to be some air coming out of the balloon and that, I think, will come back and also affect the U.S.” [source] [11 Dec]

Meanwhile, rising interest rates are taking a toll on house flippers. The number of home loans with a three year term or less is down 11 percent from the same July to September period last year. The end of the housing boom is near. [11 Dec]



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.




Mike Shelby 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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