National Intelligence Bulletin For 19 October 2018

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… (4.118 words)

  • InFocus: Escalation with China risks systems disruption
  • US weapons systems are vulnerable to cyber attacks
  • How Chinese hackers target American democracy
  • Millions of voter records found for sale on the Dark Web
  • New York man built 200-pound bomb to detonate on election day
  • Why do Millennials like Socialism?
  • Latest caravan crosses Guatemalan border
  • DHS unveils EMP defense strategy
  • Counter-terrorism and U.S. Border Security
  • New coordinated efforts against the cartel
  • And more…

 

InFocus: I just finished reading an article at Vox, the Leftist social-justice-narrative outlet, about the threat of nuclear war. Despite the obligatory Trump-bashing, the article admits that the threat of nuclear war is low. But I noticed something interesting: despite the very low likelihood of nuclear war, a Georgetown University professor who teaches a course on nuclear war, along with his students, now believes that the use of nuclear weapons is likely in the future. That development, the professor says, happened in the past two years. And it’s yet another way that a misunderstanding of President Trump is guiding professors and their students to adopt an end-of-the-world mindset that they feel makes resistance against him more urgent. Yes, President Trump is brash and willing to push negotiations to the brink, but I don’t think he’s stupid. The reason why the talk of war with China is heating up is not because the president is a idiot but because the Trump administration is engaging the Chinese Communist Party in a meaningful and at times confrontational way. They’re applying pressure on decades of economic espionage, intellectual property theft, and unfair trade practices. The Chinese have waged a cold war against the United States for decades, and the Trump administration is willing to acknowledge that. Even prior to President Trump, the Chinese have been confrontational themselves, especially through militarizing the South China Sea and extremely aggressive espionage that probably should have been considered at act of war. The president is finally standing up to China, and he likely believes that he can save “Pax Americana” — which was abandoned by the last administration — but it has to be through solving our economic problems first and then dealing with China. He’s trying to do both, albeit in a style not customary of more recent U.S. presidents. That’s the “Trump put” — the big bet that something can be done to stave off an American decline seen as inevitable by the last administration.

This week, Defense Secretary Jim Mattis met with his Chinese counterpart and was adamant that the United States was not trying to “contain” China. Technically that may be true: what U.S. leaders want is a China that adheres to the established international order. What they don’t want is China’s rise to global supremacy and subsequent revision of that order, yet that’s exactly where the world is headed. So the U.S. is only trying to contain revisionist China, which is to say: yes, the United States is clearly trying to contain Chinese dominance in Asia and in the world.

Chinese leaders are confounded by Trump’s actions. They don’t know what they should do in the short-term because for so long they’ve had punching bag presidents. The majority of Chinese espionage directed at the U.S. today remains economic and industrial in nature; specifically the theft of U.S. intellectual property so state-backed Chinese companies can re-engineer a competitive product and offer it to the world at a lower price. That makes U.S. business fundamentally less competitive against the Chinese, which is a decades-long practice. But Chinese espionage directed against the U.S. government is aimed at informing Chinese policymakers about what Trump will do next.

There’s that famous line from a German general officer during World War II about the Army. He said, “The reason that the American Army does so well in wartime is that war is chaos, and the American Army practices chaos on a daily basis.” It could be said that the Chinese don’t know what Trump will do next because he doesn’t know yet, and I certainly think that’s an apt description. It’s been said that the Chinese plan for 40 years into the future and D.C. plans for 40 seconds into the future. And that was before Trump was elected president. But the Chinese plan in five year increments and they have a multi-decade strategy to defeat the United States short of actual war. They’re leading with an economic, political, and diplomatic strategy. Over the summer, at the height of the U.S.-E.U tariff dispute, a Chinese delegation approached European Union officials and offered them a trade pact against the United States. E.U. officials declined, but the attempt was a brazen demonstration of what China wants for the United States.

We look at some of China’s short-term goals, specifically their “Made in China 2025” strategy which dictates that China will be the world’s high-tech manufacturing hub by the year 2025. That’s part of their path to economic dominance. Much of that strategy is built on continued economic espionage against the U.S., Europe, and Asian countries, a cheap currency, and massive sovereign debt that funds Chinese infrastructure (in addition to the Belt and Road Initiative). And what is President Trump trying to do? Disrupt Chinese espionage through focusing on cybersecurity and last month’s loosening of the rules for U.S. cyber retaliation. Love them or hate them, the Trump tariffs are starting to have an effect in China. The Shanghai Index is down nearly 23 percent this year, the Chinese economy is slowing down, investors are starting to talk about a Chinese recession in 2020 (which could coincide with a U.S. recession; i.e., another global recession), and China’s potentially $5.8 trillion in hidden debt now serves as a warning that all is not economically well in China. (An S&P analyst said that the hidden debt, which may actually be more than $5.8 trillion, is a “titanic credit risk” threatening a 2008-esque financial meltdown in China. It’s certainly something to chew on as we consider the range of potential events through 2020.) A few months ago, I thought that President Trump would ultimately win this tariff war; I still believe that and Chinese leaders are starting to feel a lot of pressure to come to the negotiating table. And President Trump is still mulling further economic action against China.

But that’s not to say that China is powerless to retaliate, which we should all acknowledge. President Trump recently warned that the Chinese were engaging in an information campaign targeting red state voters to end his presidency, referring to an ad appearing in the Des Moines Register (Iowa) where a four-page insert from China Daily sought to urge farmers to end their support for President Trump. In June, the Australian parliament adopted a new set of laws targeting foreign influence directly because of Chinese meddling in Aussie politics. Similar cases have appeared in Cambodia and New Zealand, and one former CIA analyst says that China’s goal in the U.S. is “to turn Americans against their own government’s interests and their society’s interests.” [source] And we know from previous reporting that China is well-equipped to launch cyber attacks aimed at U.S. critical infrastructure. They have the capability to start shutting things off, which is an absolute worst-case scenario. Point being is this: President Trump’s actions to save Pax Americana and disrupt the ‘inevitable’ rise of China to global supremacy does risk war. It risks escalating China’s cold war against the United States, which we’re already starting to see through political, economic, and diplomatic warfare. That risk of escalation carries risk of systems disruption. As long as the United States and China are both at a cold war with each other, we do risk escalation and potential conflict. This is about who controls the second half of the 21st century.


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

 

US weapons systems vulnerable to cyber attacks

A new report by the Government Accountability Office (GAO) revealed that “nearly all” weapon systems developed by the US military from 2012 to 2017 are vulnerable to cyber attacks. The weapon systems were tested by Department of Defense hackers who “routinely found mission-critical cyber vulnerabilities in nearly all weapon systems that were under development.” During the testing, DoD teams were able to hack into the weapon systems and even take complete control of them with relative ease. According to the report, in one hour a single, two-person team gained “initial access to a weapon system,” and was able to gain “full control of the system” in just one day. Pentagon spokesperson Major Audricia Harris told CNN that the DoD “takes threats to our nation seriously,” and that they are “continuously strengthening our defensive posture through network hardening, improved cybersecurity, and working with our international allies and partners and our defense Industrial Base and defense Critical Infrastructure partners to secure critical information.”  [source] [source]

How Chinese hackers target American democracy

Retired NSA Chief Mike Rogers recently stated in an interview with Forbes that China is aggressively attempting to infiltrate U.S. organizations to “gather intelligence” on our elections. According to Rogers, China’s involvement in U.S. elections differs from Russia’s not only in their tactics, but also in their intent. Russia is only attempting to undermine US democracy, while the Chinese are investigating what the implications would be if one party won over another, and what their position on China might be. Despite their differences in strategy and intent, Rogers cautioned that both nations have become “very aggressive” towards U.S. democracy. [source]

Millions of voter records found for sale on the Dark Web
Two cybercrime intelligence groups on the Dark Web discovered 23 million U.S. voter records for sale from voter registration databases in 19 states. In a report on the discovery, the seller of the voter data has advertised that the data is being received by “contacts within state governments.”
“Certain states require the seller to personally travel to locations in-state to receive the updated voter information. This suggests the information disclosure is not necessarily a technical compromise but rather a likely targeted campaign by a threat actor redistributing possibly legitimately obtained voter data for malicious purposes on a cybercrime forum.”

Chief executive officer of Anomali, Hugh Njemanze, has stated that the sale could potentially threaten the 2018 midterms:

“With the November 2018 midterm elections only four weeks away, the availability and currency of the voter records, if combined with other breached data, could be used by malicious actors to disrupt the electoral process or pursue large scale identity theft.”[source]

New York man built 200-pound bomb to detonate on election day

A New York man has been arrested after threatening to detonate a bomb in Washington D.C. on election day. The arrest was made after 56-year-old Paul Rosenfeld sent letters and texts to a reporter at NBC News, in which he wrote that his intention behind the bombing was to draw attention to his political beliefs. (Analyst Comment: According to prosecutors, Rosenfeld is a “proponent” of sortition, an ancient Athenian political system in which government officials are randomly selected.) Following his arrest, Rosenfeld’s home was searched by law enforcement officers who found a 200-pound explosive device. Rosenfeld reportedly faces up to 20 years in prison if convicted and is believed to have acted alone. [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

 

Waters: Kavanaugh “won’t rest easy”
During an interview at the 2018 Merge Summit, Rep. Maxine Waters (D-CA) stated that Justice Brett Kavanaugh will not “rest easy in his job.” Representative Waters made the statement after being asked to provide advice to those who feel “dejected” about the confirmation Kavanaugh. Waters answered by saying:
“Even if you’re feeling a little down, get a good night’s rest and get up and get ready to go all over again. Never stop. That is what we have to do with what happened to Kavanaugh and this confirmation process. It was heartbreaking, but I think women are not going to recede. Women are going to continue to confront what took place in that confirmation and him. He won’t rest easy in his job.”
Later in the interview when asked how people who are not educated politically can become involved and come to a better understanding of politics, Waters stated that “people have to stop and listen, and analyze what people are saying and what is being said in the media. You’ve got to make that a part of your life to determine you want to know what’s going on.” [source]

 

Why do Millennials like Socialism?

Education Secretary Betsy DeVos stated in an interview with The Daily Signal’s Rob Bluey this week that the attraction that Millennials have towards socialism can be primarily attributed to their lack of education in civics:

Bluey: “We’ve seen recently some polling to indicate that socialism is on the rise in terms of a belief system that many young people seem to be clamoring for. And you even see it in some of the Democratic politicians in our country. Do you believe this is a cause of the education system and some of the beliefs that are being taught to students? Or is there another factor why they are gravitating toward such a destructive force like socialism?”

DeVos: I think, No. 1, students aren’t getting the kind of foundation in civics and government that I recall getting as a student in K-12 education. And they’re coming then into higher education without the background to even know and understand competing ideas, and then without the ability to discuss and debate them…. there is a very important need for students to know the foundations of our country and the ideas around which our country was formed. And to then have the ability to discuss and debate those ideas freely on their K-12 campuses and on their higher ed campuses.”

During the interview DeVos also expressed her efforts towards the restoration of local control of education, and stated that higher education is one of the priorities of the Trump Administration. [source]

Latest caravan crosses Guatemalan border

As of this week, the 1,600 Honduran migrants who are on their way to the United States have crossed over the Honduras-Guatemala border after Guatemalan police failed to prevent the entrance of the migrants. In response, President Trump threatened in a tweet to cut off aid to Honduras, Guatemala and El Salvador if the migrants are not stopped and returned to Honduras:

“We have today informed the countries of Honduras, Guatemala and El Salvador that if they allow their citizens, or others, to journey through their borders and up to the United States, with the intention of entering our country illegally, all payments made to them will STOP (END)!”

According to The Washington Examiner, Mexico has reportedly sent hundred of federal officers to their southern border with Guatemala to prevent the migrants from entering. [source[source]

Young activist actors a source of progressive push

“The Hate U Give” star Amandla Stenberg recently told The Guardian during an interview that, “I’m part of a generation that understands the potential of the work that we do [in Hollywood]. I’m lucky to be coming of age in an era… where we’re upending the infrastructure of Hollywood that has existed since its creation.” Stenberg, who is half black, is a vocal proponent of the Movement for Black Lives and created a YouTube video in which she criticized white pop stars for using ‘cornrows’ in their hair braids. “The Hate U Give” is a coming-of-age movie about a young black who is witness to her friend’s shooting by police. It’s the latest in a series of films aimed at propelling the ‘social justice’ movement into the lives of young people. Says Stenberg: “Of course I think it would be a lot easier to keep my politics and my art separate… It’s your moral responsibility to be aware and to use your voice.” [source]


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

DHS unveils EMP defense strategy

In a recent press release the Department of Homeland Security (DHS) announced that they are taking the necessary steps to ensure the protection of our critical infrastructure against threats such as an electromagnetic pulse (EMP) or a geomagnetic disturbance (GMD). The DHS’s new strategy will also assess the potential of geo- and electromagnetic attacks and “highlight the importance of interagency cooperation between federal, state and local authorities including private sector critical infrastructure owner-operators.” According to Sputnik News, in addition to this new strategy, the DHS is currently “developing an implementation plan” that will “allow the agency to evaluate progress toward addressing identified capability gaps.” [source]

Counter-terrorism and U.S. Border Security

According to the Trump Administrations new National Strategy for Counterterrorism, U.S. land borders are “vulnerable to infiltration by Islamist terrorists,” and preventing their vulnerability is one of the primary goals of the new strategy. Two priority actions for securing the borders against Islamic infiltration are including in the strategy. The first is to “Enhance Detection and Disruption of Terrorist Travel,” while the second is “Secure Our Borders From Terrorist Threats.”

These priority actions are in response to the US State Departments 2017 “Country Reports on Terrorism” report, which suggests that our land borders are vulnerable to terrorist infiltration due to “porous borders throughout Latin America and the ease with which migrants from terrorist-harboring nations can obtain visas and fraudulent travel documents to get into the Western Hemisphere.”

The new strategy provides two ways to counter this threat. The first is by the sharing of intelligence information with “our partners to enhance travel security and border protection to prevent terrorists fleeing conflict zones from infiltrating civilian populations,” and the second is to help “foreign law enforcement agencies arrest and prosecute them long before they reach U.S. borders.”

According to the Center For Immigration Studies, the Trump Administrations new counterterrorism strategy is based on “intelligence-driven analysis.” [source]

 

New coordinated efforts against the cartel

The Departments of Justice, Treasury and State have announced a coordinated effort to “target and dismantle” the Cartel Jalisco Nueva Generacion (CJNG). (Analyst comment: CJNG is a drug cartel operating out of Mexico that is one of the largest and most dangerous criminal organizations in the world.)

According to the three departments, the effort will include “the unsealing of 15 indictments, the State Department’s approval of large rewards, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designations, and the establishment of a citizen tip-line.”

Attorney General Jeff Sessions said in a statement that the Justice Department will be continuing to:

“Hammer transnational criminal organizations like the Cartel de San Jalisco Nueva Generacion, or CJNG…. The DEA has said for three years in a row that Mexican drug cartels are the single gravest drug threat that this country faces.  President Trump recognizes this, and the day I was sworn in as Attorney General, he ordered me to dismantle transnational criminal organizations, including the cartels.  We have been faithful to that order.”

Director of the Office of Foreign Assets Control, Andrew Gacki, stated that the Department of the Treasury’s goal is to:

“Disrupt the cartels’ finances, which are overwhelmingly generated from drug sales that occur in the United States, and deny them access to the U.S. financial system. OFAC is committed to working with the Department of Justice and Mexican counterparts in order to apply economic pressure on CJNG and the Cuinis organizations until they are effectively dismantled.”

Assistant Secretary for International Narcotics and Law Enforcement Affairs Kirsten Madison stated in regards to the State Departments large rewards being offered for information on the CJNG cartel that:

“Effective immediately, the Department of State is announcing an increase to the Narcotics Rewards Program reward for information leading to the arrest of the leader of the CJNG, Nemesio Oseguera Cervantes aka, ‘El Mencho.’ Now $10 million, the reward is one of the largest ever approved for the Narcotics Rewards Program….. This reflects the U.S. government’s strong commitment to bringing Oseguera Cervantes to justice.” [source]


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

Retail giant Sears is filing for bankruptcy after failing to secure a last ditch effort to fund its debt. The company will be closing an additional 142 stores. In the past two years, Sears has already closed down 700 stores across the country. It was last profitable in 2010. [15 Oct]

Brent crude prices rose to $81 this morning, as oil traders fear that Saudi Arabia could use oil as a political weapon should the Trump administration punish the kingdom over the disappearance and alleged murder of Saudi journalist Jamal Khashoggi. A sharp and sustained spike in oil prices could quicken a recession. [15 Oct]

According to Oxford Economics, the probability of a recession in the next six months remains around 20 percent. [15 Oct]

An interesting report from Capital Economics shows the major factors contributing to 45 recessions in G7 economies since 1960. In order of most prevalent causes to least:

  1. Tight monetary policy (29)
  2. Burst credit bubble (19)
  3. Oil price shock (13)
  4. Burst housing bubble (13)
  5. Banking crisis (11)
  6. Tight fiscal policy (8)
  7. Exchange rate shock (8)
  8. External demand shock (8)

The Federal Reserve’s tightening of monetary policy — raising interest rates while reeling in the money supply created during the last recession — is a major factor in how quickly the next recession rises. [16 Oct]

There’s lots of good economic news out recently. Consumer and homebuilder optimism is up, unemployment is down, there’s a record 7.1 million job openings, economists are finally starting to talk about wage growth, lots of companies are beating earnings estimates, the permanent layoff rate continues to decline, there’s been four consecutive monthly increases in U.S. manufacturing and 16 straight months of increased manufacturing capacity, and the World Economic Forum recently named the U.S. as the most competitive economy on Planet Earth. [17 Oct]

President Trump continues to refer to the Federal Reserve as “my biggest threat,” with regard to the Fed’s policy of raising interest rates even as inflation levels off. [17 Oct]

According to September’s Federal Reserve minutes released yesterday, the Fed saw a potential downside risk to the U.S. economy as the dollar appreciated against emerging markets. Some Fed officials were concerned that the emerging market crisis, spurred on by a strengthening dollar, could spread. (Analyst Comment: When the dollar appreciates in value, paying back dollar-denominated debt in foreign currencies becomes more difficult. That’s the crux of the emerging markets crisis in countries like China, Iran, Turkey, Argentina, Brazil, South Africa, Indonesia, and others. Dollar-denominated debt accrued in foreign countries could lead to loan defaults if the dollar continues to strengthen, risking a 2008-esque financial crisis for some emerging markets. Another problem is that a stronger dollar makes the cost of doing business more expensive. A Turkish importer of Argentine Malbec has to exchange his Turkish Lira for U.S. Dollars, and then make a purchase from an Argentinian winery. A stronger dollar means more Lira for the same amount of wine. Examples like this are why the Fed is concerned that a strong dollar could lead to worsening economic conditions in emerging markets.) [18 Oct]

New estimates from JPMorgan shows a 60 percent chance of recession in the next two years and a 28 percent chance in the next 12 months. Within three years, JPMorgan sees the probability at 80 percent. [19 Oct]

Yesterday, President Trump ended a nearly 150-year old agreement that charges lower postal rates from China as the rest of American competitors pay to ship within in the States. It’s another way that the president is trying to level the playing field — and maybe level China. Yesterday’s numbers on Chinese economic growth, officially at 6.5 percent but in reality probably closer to half that, missed expectations causing some to ponder the R-word for the world’s second largest economy: recession. The Communist Chinese Party blamed the news on a “severe international situation”. China, like the United States, is in no imminent danger of recession, but there’s growing speculation that 2020 is the year of the next Chinese recession. 2020 is shaping up to be a bad year. [19 Oct]

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.

 

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