National Intelligence Bulletin for 23 March 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 National Intelligence subscribers.

In this National Intelligence Bulletin… (3,496 words)

  • InFocus: Trump tries to pick up cans being kicked down the road
  • Outdated infrastructure is making clean water more expensive for Americans
  • Iranians charged with conducting cyber theft campaign directed at U.S.
  • Pacific Northwest expects another busy fire season
  • City of Atlanta experiences ransomware attack
  • White enrollment at Ivy League schools dropping
  • College graduates increasingly align with Democratic Party”
  • New Aspen initiative to “find common ground”
  • SIC hearing on election security
  • Expect some economic turbulence if Chinese trade war escalates
  • Stockman: Kudlow and Trump ‘sleepwalking into tremendous fiscal collision’
  • And more…

In Focus: The Congress avoided a government shutdown early this morning — approving 2,232 pages of spending in just 29 hours — and at the cost of the $1.6 trillion omnibus spending plan. I’ll give you a recap of what’s included, but first, here’s one thing that made me pretty happy: in a bid for greater government transparency, the Congressional Research Service (CRS) was ordered to make available for the public all non-confidential Congressional research reports. There’s a ton of great information that comes out in those, and we’ll be cross-posting relevant reports in the Forward Observer Library. Now for the the highlights:

  • The military gets a raise, and the Pentagon gets more money, including a 22 percent increase in research and development spending.
  • A handful of immigration programs were reauthorized, including the EB-5, which allows immigrants a fast-track to citizenship if they invest $500,000 or more in job-creating ventures in the U.S. E-Verify, which allows employers to confirm an employee’s legal status, gets extended for another year.
  • The Secret Service is getting more money for overtime pay, and the Omnibus package also includes $14.3 million for a new White House fence.
  • Security spending will increase for the Supreme Court, and overall spending, as well.
  • President Trump’s border wall is not included in the spending plan.
  • Cuts to the Environmental Protection Agency were rejected.

But the Omnibus isn’t the only major headline from the past 24 hours. General McMaster is out as national security advisor, and former U.S. Ambassador to the United Nations John Bolton is in, starting on 09 April. Bolton is often accused of being a neo-conservative warhawk, and I expect he’ll try to extend the lifespan of “Pax Americana”, the post-1945 era in which the U.S. has been so dominant. Bolton’s going to do that by targeting Russian and Chinese vulnerabilities, and will try to remove advantages those countries have built in the past decade. For eight years under Obama, Washington D.C. had a fatalist attitude toward the inevitable decline of the U.S., driven in no small part by Obama’s anti-colonial ideology — and the world, including Russia and China, noticed. It was almost as if Obama wanted to punish the United States and remain deferential towards the rest of the world — and the world, including Russia and China, responded. And that’s where we are today, with two revisionist powers like Russia and China throwing their weight into creating the multipolar world that will drastically change America’s standard of living and quality of life (it already has in part through globalization, which largely benefited China). The era of fatalism and deference is obviously over, but if the Trump-Bolton team are going to delay the onset of late stage empire, it’s likely going to come at the great risk of war (or perhaps the risk of ‘great power’ war). The shift in trajectory will likely be turbulent, and unless the United States can grow its way out of a coming economic and financial crisis, it’s a longshot.

Back when Alan Greenspan was the Federal Reserve chief, the term “Greenspan Put” was used to describe his commitment to use loose monetary policy to boost economic growth. (A “put” is a options trade that allows a trader to sell an asset at a set price in the future, despite the future market price.) Under his successor, Ben Bernanke, the “Bernanke Put” was also used to describe the absolute limitless commitment to lowering interest rates (to basically zero) and printing trillions of dollars to bail the economy out of the 2008 recession. Bernanke is credited in financial circles with averting a total economic collapse, but the “Bernanke put” also just delayed financial reckoning for the next generation. And this is how I view President Trump’s economic policy, now bolstered by economic advisor Larry Kudlow, of cutting taxes and regulations to spur growth. The one thing that’s not happening is drastic cuts to government spending that accompany those tax cuts, setting us up for the “Trump put”. President Trump and Larry Kudlow believe that the U.S. can grow its way out of the coming fiscal contagion of national debt and unfunded liabilities. We see this by Kudlow’s recent comments that he hopes the Fed will back off raising interest rates:

“Just let it rip, for heaven’s sake. The market’s going to take care of itself. The whole story’s going to take care of itself. The Fed’s going to do what it has to do, but I hope they don’t overdo it.”

The “Trump Put”, like the Greenspan Put and the Bernanke Put, is betting the house that getting Americans back to work, loosening regulations that stifle growth, fostering a good environment for economic investment, and repatriating trillions of corporate dollars currently stashed overseas, is going to cause growth that outpaces long-term financial risks. They’re betting we can just grow our way off the fiscal cliff.  As President Trump said at Davos earlier this year, “America is open for business and we are competitive once again”.

After introducing steel tariffs, which have since been peeled back for Canada and Mexico, the European Union, Argentina, Brazil and strong U.S. allies Australia and South Korea, Trump officials are negotiating a new bilateral trade agreement with Japan, renegotiating the North American Free Trade Agreement (NAFTA), and developing a number of other trade pacts in efforts to boost U.S. production and job growth. I’m not a proponent of the theory that President Trump plays 4D Chess while everyone else is playing checkers, but I do see a method to the madness. Trump is a big proponent of being loud and bold initially, and then trading essentially free modifications for concessions. In case of the tariffs, I don’t think he ever intended on levying tariffs against allies, but now the exclusions are signs of goodwill towards Mexico and Canada to improve the NAFTA renegotiation. Trump understands very well the concept of the “Overton window”. If you’re trying to sell a $2,000 watch, you don’t compare it to a $15 dollar watch. If you’re trying to sell a $2,000 watch, you compare it to a $10,000 watch, because it looks comparatively less expensive. When everyone else shudders at an initial starting point from Trump, most conservatives have learned that he should be taken seriously, but not literally, as has been often stated. And that’s why Trump starts by selling a $10,000 watch before changing it to the $2,000 watch. It leaves negotiators, be they in Congress, in government, or around the world, feeling that they’ve bumped Trump off his initial plan. They may say to themselves, “You know, $2,000 is more than I wanted to pay, but it isn’t such a bad deal compared to $10,000.”

But economic growth is only one part of the Trump Put. The administration has to go after China, too, and they are, especially now that Kudlow and Bolton are at the White House. Former chief at the National Security Agency, retired general Keith Alexander, has described the past 30 years of Chinese espionage as the “greatest transfer of wealth in history”. “All they’re doing is stealing everything they can to grow their economy,” he told the Senate Armed Service Committee in 2015. This 30 year campaign has so far gone relatively unpunished (and in most cases rewarded), until Thursday when the Trump administration levied some $50-60 billion in tariffs against China in a direct response to their technology theft. In previous reports, I’ve gone so far as to say that Chinese espionage has been so great that it could be considered an act of war. The opposition media, many economists, and financial talking heads are rightly concerned with blowback and potential side effects of a trade war with China, but they ignore that we’ve already been getting blowback for the decades that China has been at economic war with the United States. As China gets to ignore human rights and environmental regulations, their industrial base has benefited greatly by being able to manufacture goods cheaper than anywhere else. China is the world’s top polluter, they use slave labor in their factories, they impose unfair regulations on U.S. companies operating in-country, and they’ve stolen U.S. technology to benefit their own military and economy. And their just reward? In 1994, then-President Bill Clinton gave China our most-favored-nation trade status. In 2001, President George W. Bush granted permanent normal trade relations to China, welcoming them into the “rules-based trade system”. The Obama administration’s use of ideology to inform its reality led the U.S. to largely ignore what China was doing. In 2011, Obama met with then-president Hu Jintao and said,“There has been an evolution in China over the last 30 years since the first normalization of relations between the United States and China. And my expectation is that 30 years from now we will have seen further evolution and further change.” The Obama administration believed that as China developed, they would liberalize and become democratic, yet just the opposite has happened. China has become more authoritarian and more economically and militarily aggressive. Sure, cheap Chinese goods have been great for retail business and our consumer-based economy. And if you ask corporations, they hate the tariffs against China. Why? Because it means their profit margins go down, and for eight years, corporations were business partners with the Obama administration, ensuring access to cheaper labor via immigration and access to cheap goods for greater profit margin. For corporations, free trade and free immigration were great for their bottom lines. And there are financial talking heads like Jim Cramer, who recently said on his “Mad Money” show on CNBC: “Sure, the Chinese may steal our trade secrets. Yes, they take our manufacturing jobs, but boy, oh boy, do our companies make money there. Starbucks is huge in China. FedEx is the shipping company of choice for their exports,” so of course corporations have a vested financial interest in not rocking the boat. And so for eight years, Obama did basically nothing, either to retaliate against Chinese theft or to make America more competitive. (This is basically economic treason). In that same 2011 speech, Obama went so far as to defend China, saying: “China has a different political system than we do. China is at a different stage of development than we are. We come from very different cultures with very different histories.” China took that as a signal to continue what they were doing because, hey, they just have a different culture and that’s okay. Treating China for eight long years as a developing democratic peer instead of an economic and potential military competitor was extremely short-sighted, and America continues to pay the price for that oversight.

So here we are: President Trump is dealing with two significant cans that have been kicked down the road. For one, he’s finally dealing with China, something that no other president has done in the past 30 years since they’ve joined the global economy. And he’s trying to grow the economy out of the coming fiscal cliff. And while America is being put First, upending decades of America Second and America Last policies, we should expect a fair amount of turbulence regardless of the outcome, which could range from a trade war or an outright hot war with China.

Priority Intelligence Requirements

PIR1: What are new the indicators of systems disruption and threats to critical infrastructure?
PIR2: What are the new 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 indicators of systems disruption and threats to the economic or financial industry?

PIR1: What are new the indicators of systems disruption and threats to critical infrastructure?

Outdated infrastructure is making clean water more expensive for Americans

Researchers at Michigan State University expect water prices to increase by 41 percent over the next five years as water utility companies begin to replace aging water infrastructure. According to the paper, 14 million U.S. households struggle to afford their water bills, and if the research is correct then low income Americans could experience a significant amount of instability as a result. [source and original source]

Iranians charged with conducting cyber theft campaign directed at U.S.

Nine Iranians allegedly working on behalf of the Iranian Revolutionary Guard Corps were charged with a cyber theft campaign targeting U.S institutions. The cyber ring stole 31 terabytes of academic data and intellectual property from “more than 140 American universities, 30 American companies, [and] five American government agencies”, according to the indictment. The DOJ described these activities as “one of the largest state-sponsored hacking campaigns ever prosecuted by the Department of Justice”. [source]

Pacific Northwest expects another busy fire season

Wildland firefighters are expecting another busy fire season in the Pacific Northwest. Less rain and snow are contributing to earlier and longer wildfire conditions. “If I were to pick one place that might experience above-average fire danger, it’s the Yakima Valley and the eastern slopes,” said one meteorologist. [source]

City of Atlanta experiences ransomware attack

While hackers are demanding $51,000 worth of Bitcoin, the FBI and DHS are investigating the latest ransomware attack, this time against the City of Atlanta, Georgia. According to news reporting, at least some computers were being held ransom by the malware, which encrypts computers and makes them inaccessible. [source]

PIR2: What are the new indicators of potentially disruptive social, cultural or political conditions or events?

White enrollment at Ivy League schools dropping

Although non-Hispanic Whites make up about 60% of the country, many Ivy League and other private schools are batting below average on admissions of white freshman. According to information published in the Common Data Set, Princeton, Yale, Penn, MIT, Stanford, Vanderbilt, Dartmouth, Cornell, Northwestern, Rice, Duke, and Carnegie-Mellon all admitted more minorities than whites last year. For instance, just 32.1 percent of freshman at MIT in 2017 were white. Stanford, Carnegie-Mellon, Cornell, and Rice all had 2017 freshmen classes that were less than 40 percent white. [source]  Many believe that since America is still 60 percent white, that whites should be about 60 percent of total enrollment. But this statistic is somewhat misleading because these freshman classes no longer come from 60 percent white generations. As I pointed out in previous weeks, every generation on record is slated to be less white. Millennials are 55.8 percent white, and “Post-Millennials” (or Generation Z) are about 51.5 white, according to Brookings. [source] This trend will be the norm, and it’s likely going to be reflected in college admissions, as well.

College graduates increasingly align with Democratic Party”

A recent Pew Research study finds that “College graduates increasingly align with Democratic Party”. It’s being hailed as proof that Trump voters are backwards and uneducated racists, and the Democrat Party is full of learned scholars who always know what’s best for America. New findings are that, among registered voters, women (56 percent) and the college educated (58 percent) are more likely to be Democrats than Republicans. Some 59 percent of Millennials also identify as Democrats. Democrats have the support of 84 percent of African Americans, and about 63 percent of Hispanics. And Pew points out that their findings in 2016 show that “Republican and Democratic electorates are less alike than at any point in the past quarter-century”. [source]

New Aspen initiative to “find common ground”

New York Times columnist and quasi-conservative Never Trump activist David Brooks joined the Aspen Institute, where he announced that he will “lead a new initiative to understand and reduce the growing fragmentation, alienation, and division in the US.” Brooks asks rhetorically about his new mission: “To me the core problem is a crisis of social solidarity, a crisis of fragmentation. What’s the purpose of our country? What is the thing that unites us?” [source] (Analyst Comment: Society is becoming more fragmented because this is always what happens when homogeneous societies become less homogeneous. Fault lines are evident along ideological, ethnic/racial, and religious lines, and they’re getting wider and deeper. A once primarily traditional, white country is becoming less traditional and less white, and it’s causing resentment about the future direction American identity and what that is. This is always what happens to multicultural societies. America can have an ideological divide, it can have a racial divide, it can have a religious divide, but when it has all three, we see the results: America is absolutely fracturing and throughout history, these conditions generally lead to domestic conflict.)

PIR3: How are state and federal agencies preparing for domestic conflict, emergencies, or other instability?

SIC hearing on election security

On Wednesday, the Senate Intelligence Committee held a hearing on election security, and one elections official warned that they have “one chance to administer an election and ensure that it accurately reflects the will of the voters they serve. There is no margin for error. Election officials must get it right every time.” DHS Secretary Nielsen and former DHS Secretary Jeh Johnson both testified. There are a couple of sticking points for upcoming elections. Some states report they aren’t “getting all the information they feel they need to secure their systems.” Another problem is quickly and accurately attributing cyber attacks, which was described as a “continuing challenge”. Senator Richard Burr (R-NC) warned that, regarding elections security, “If we start to fix these problems tomorrow, we still might not be in time to save the system for [2018] and 2020.” Senator Ron Wyden (D-OR) pointed out that five states don’t have paper backups of their voter rolls, which means that electronic lists could be altered with “no way to prove the numbers that voting machines put out is legitimate.” Secretary Nielsen replied, “Yes sir, if there’s no way to audit the election, that’s absolutely a national security concern. We are working with states to do that. We absolutely have to have a way to audit and be able to verify the integrity of the information of the votes.” Secretary Nielsen pointed out that in 2016, DHS didn’t even know who to get into contact with in order to share information on threats to election infrastructure.

PIR4: What are the new indicators of systems disruption and threats to the economic or financial industry?

Expect some economic turbulence if Chinese trade war escalates

China responded this morning to U.S. tariffs with their own, according to a post on the Chinese commerce ministry’s website. [translated] Some 128 U.S. products are tentatively listed to have tariffs levied on them, and include “fresh fruit, dried fruit and nut products, wine, modified ethanol, American ginseng, and seamless steel pipes… pork and processed products, [and] recycled aluminum”. The tariffs are valued at about $3 billion, which is a drop in the bucket in overall trade, however, that $3 billion is expected to hurt U.S. producers if the tariffs are applied. Meanwhile, the Chinese will pursue legal actions at the World Trade Organization against the U.S. tariffs.

Stockman: Kudlow and Trump ‘sleepwalking into tremendous fiscal collision’

About a year ago, I included a warning from David Stockman, former budget director under the Reagan administration. Here it is, from the 17 March 2017 intelligence summary:

Lately I’ve been posting any negative news that I can find, however, it’s been a mixture of informed opinions and crystal balls.  There are traders who say that a market crash is imminent (as they have said for the past several years) and there are others who say that the market has reached a new floor (Dow 30,000!).  There are economists who point out that consumer and CEO confidence are at the highest levels in years, and there are those who say that the Trump bubble is about to burst, leading the US into a recession.  Just a week or two ago, David Stockman called for March 15 to be the top of the market, which he described as the “Ides of March” and warned of an impending market crash on that date… It should come as no surprise that few forecasters are ever accurate, and almost none are consistently accurate.

I’ve been following the likes of Jim Rickards, Jim Rogers, Marc Faber, Mohammad El-Erian, Nouriel Roubini, David Stockman, Gerald Celente and others — some might call them “alternative economists” because they’re often contrarian — most of whom have been predicting varying degrees of a massive market/economic/financial collapse at least since 2008 when I started following them (and anyone who’s been predicting an imminent collapse has been wrong up to this point — so far).

Oddly enough, after Stockman’s 15 March financial panic prediction came and went, he revised that date to April 2017, which also failed to materialize. Last week, Stockman was on CNBC again warning that President Trump’s new economic advisor, Larry Kudlow, was “going to help Trump sleepwalk right into a tremendous fiscal collision in the next few months, unfortunately”. Stockman characterized Kudlow as believing that the U.S. economy can grow out of growing budget deficits caused by tax cuts, and warned that the deficit problem would be hitting the U.S. in the fall of 2018. Despite a history of ill-timed calls, Stockman — like Rickards, Rogers, and Faber — will eventually be right. We’ll continue to monitor economic and financial conditions, of course; but know that, like Stockman, we do expect a fiscal collision — we’re just not putting a date on it because no one can time the markets or economy. [source]

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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