National Intelligence Bulletin for 28 September 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… (3,428 words)

  • InFocus: How Democracies Die
  • Al Qaeda: America is the main enemy
  • After the Big One: Understanding aftershock risk
  • Google’s Schmidt’s says there will be ‘two Internets’
  • Most future wars fought by gangs, cartels 
  • Trump again slams Jeff Sessions: “I don’t have an Attorney General”
  • Carlos Curbelo, Stephanie Murphy sound alarms on ‘deep fakes’
  • Trump administration to look into Google and Facebook
  • Snapshot: Republicans share Trump’s dim view of Sessions
  • APSA Conference roundup: Research on political polarization on social media and the U.S. Congress
  • How secure are our voting systems for November 2018?
  • Trump administration targets public benefits 
  • When no banks are failing, you’ve got a silent canary in a coal mine
  • Understanding emergent market financial risk
  • Capitalism and Millennials: The 2018 James Q. Wilson lecture
  • Record-low 12% cite economic issues as top U.S. problem
  • Cramer: ‘Game is over’ for U.S. companies in China
  • Economic/Financial roll-up

 

InFocus: Since I read How Democracies Die, which was honestly a good book written by Leftist political scientists, I’ve been thinking about guardrails. (You can read my review here.) In the book, the authors survey the history of democracies in decline, and I should point out that “democracy” is used to describe systems of government where the people supposedly have power, as opposed to monarchies, for instance.

The authors accuse President Trump of ‘taking down the guardrails’ of civil discourse and eroding political norms. They argue that those norms help keep a balance of power and democracies running fairly, and without those norms, the United States runs the risk of its own dying democracy.

To drive this point home, the authors provide a laundry list of examples: Italy and Germany in the 1930s, Argentina in 1943, Chile in 1973, the Philippines in the 1970s, Venezuela in 1998, Nicaragua, Peru, Ghana, Russia, Brazil, Turkey, Greece, Ukraine, Guatemala, and lots of other nations which have had their ostensibly democratic government structures overturned by dictators.

The authors clearly intend to leave the reader with a sense of uncertainty that maybe Trump will lead the United States down a path of dictatorial rule. The book’s conclusion probably worked well for those already inclined to believe that, but it wasn’t enough to convince me. Even Mark Bray, the Leftist author of the Anti-fascist Handbook, had to admit earlier this year that President Trump is no fascist.

I agree that civil and political norms are being eroded in the United States. It’s certainly not the first time in U.S. history, but it’s our time in U.S. history and I’m concerned about how American society is responding.

I read an opinion piece this week that argued America is not close to a civil war because the prospect of thousands of Americans fighting each other in the streets is unrealistic. That opinion completely overlooks the possibility of a real civil war that features political, economic, and information warfare more prominently than organized violence, which is where we are now.

To be perfectly transparent, I do have to keep my eternal pessimism in check because we know that the more extreme the scenario, the less likely it is to occur. There’s certainly enough evidence to justify a pessimistic outlook, but I tend to identify my best-case scenario and worst-case scenario, then make sure to consider the possibilities towards the middle.

Doing that, I still see us in a period of conflict (there’s not much upside potential in the next three to five years, in my view), and I do believe that domestic conditions will get worse before they get any better. The 2018 mid-terms, now less than six weeks away, will be a major hurdle for the Trump agenda and, either way, are likely to be a driver of domestic unrest. Should the Republicans keep the House, we could absolutely see an increase in political violence as more on the Left view the current government as illegitimate and unrepresentative of the country. Should the Democrats take the House, we’ll see two years or grid-lock and political instability as the Democratic Party will be in control of the House Intelligence, Judicial, and Ethics committees, which is a considerable amount of political and legislative power. And then in two years, we’ll be faced with two more sources of instability: the 2020 general election and a growing risk of recession.

And that brings us back to guardrails. The Left views President Trump’s erosion of political norms as carte blanche to take down the guardrails of civil discourse. One good turn deserves another, so they say. It’s for this reason that, unless Americans find a way to put the guardrails back on government and society, we’re likely to experience worsening animosity and potentially organized political violence. And as long as America swings from far left to far right administrations, my chief concern is that, wanting to avoid a lesser hand, one party illegally stops that pendulum from swinging back. That’s how our “democracy” will die. – S.C.


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 and lack of repair pose sporadic but enduring threat to critical infrastructure

Al Qaeda: America is the main enemy

Ayman al Zawahiri, Al Qaeda’s leader, released a message on the anniversary of the 9/11. This message was titled “How to Confront America” and its goal was to reiterate the group’s view of America as an enemy. In the message, Zawahiri calls for Muslims around the world to confront America as it is the “chief enemy of Muslims.” Ultimately, he calls for people across the Middle East and Africa to come together as one to wage a war on the common enemy, the United States.

Zawahiri reiterated the long standing belief that the United States is apart of a “Zionist-Crusade.” He warns the people of Middle Eastern countries partaking in Western practices like elections. He believes this will only lead to losses and “spoiled [potential] gains” for jihadists.

Finally, the Al Qaeda leader criticized Abu Baker al-Baghdadi and his Islamic State. In  his statement, he claims that the jihadists across the Middle East and Africa must unite against the United States and its imposed order. He orders that cooperation with the United States under any circumstances should be “impermissible.” [source]

After the Big One: Understanding aftershock risk

The forces acting on an area after an earthquake can be broken down to normal stress and shear stress. Normal stress is direct perpendicular strain from the earthquake while shear strain works parallel to the earthquake. The combination of the stresses is what is used to measure the severity of an earthquake. With the development of more input information, data can be used to predict the location of aftershocks. This input information is known as artificial intelligence and uses algorithms to estimate stress and output locations. Over the next few years, increasing the input information will allow for more accurate predictions in aftershock location and help in preparation. [source]

Google’s Schmidt’s says there will be ‘two Internets’ 

Eric Schmidt, the former CEO of Google and executive chairman of Alphabet, predicts that eventually the internet will be divided into sections, one led by the U.S. and one by China. China’s reliance on the internet is huge.
According to Schmidt, “The Chinese Internet is  a greater percentage of the GDP of China, which is a big number, than the same percentage of the US, which is also a big number.” Recently, Google has been developing a search engine that would work with the censorship policy in China. The project is called “Project Dragonfly” and would suppress results and block sensitive materials. Overall, Schmidt said that viable internet companies in the long run will be judged on what is valuable rather than what is addictive. [source]
Most future wars fought by gangs, cartels 
Mexico provides an example of what most future wars may look like.  At least 200,000 people have been killed in Mexico since 2006 when the country intensified its war on drugs.  These deaths came as the result of competition between the Mexican military, police, cartels, and criminal factions.  The situation in Brazil and a number of other Central and South American countries is similar.  In fact, similar civil conflicts are being waged around the world.
Although criminal and terrorist elements may not necessarily aim to displace recognized governments, in many cases these groups are the de facto rulers of large swathes of territory, leading to the displacement of millions of refugees.  Although the violence generated by crime wars is indistinguishable from that generated by conventional war, current international law does not allow for criminal organizations to be considered enemy combatants and subject to war crimes prosecutions.  The result is that refugees in such situations are not generally given the same consideration as those fleeing conventional conflicts. [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

 

Trump again slams Jeff Sessions: “I don’t have an Attorney General”

President Trump expressed further displeasure with Attorney General Jeff Sessions on Wednesday, September 19th. This stems from Jeff Sessions recusing himself from the Russia Investigation and asserting that he will not bow to political pressure. Trump has stated that he will not fire Sessions before the November elections. [source]

Carlos Curbelo, Stephanie Murphy sound alarms on ‘deep fakes’

Two Florida Congress members have called for Dan Coats, the Director of National Intelligence, to identify “deep fake” videos as threats to democracy. These videos have the capability of giving words to influential figures and spread misinformation. This poses a threat to democracy and the importance of the American people to rely of trustworthy news sources. The Florida Congress members, Carlos Curbelo (R) and Stephanie Murphy (D), both called for the videos to be addressed because of their close re-elections. [source]

Trump administration to look into Google and Facebook

An executive order proposed by the President would lead to an antitrust investigation into Google and Facebook. The investigation would focus on a bias against Republican and Conservative leaders by promoting left leaning ideology. Both platforms are owned by the parent company Alphabet. Several conservatives have voiced displeasure with these platforms because of what they believe to be political alignment with the left. While the order is in its preliminary stages, it would be difficult to pursue the matter because of the First Amendment. [source] [source]

Snapshot: Republicans share Trump’s dim view of Sessions

President Trump has voice displeasure with Attorney General Jeff Sessions. This in turn has led to Republicans have an unfavorable opinion of the Attorney General. As it stands now, 49% of Americans view Sessions unfavorably while the other two quarters split between favorable and no opinion. Overall, Attorney Generals historically have not had favorable opinions with the public as Eric Holder also was unfavorable with the public. Robert Mueller, leader of the Special investigation into Russian involvement, fairs quite differently. Mueller is favored heavily by Democrats while looked poorly upon by Republicans. Mueller is favored more by Americans than the people he is investigating. [source]

APSA Conference roundup: Research on political polarization on social media and the U.S. Congress

A study done to assess the effects of social media on political ideology has determined that exposure to conflicting content leads to more steadfast beliefs. Republicans who were exposed to bots with opinions counter to their own were more likely to maintain their views that Democrats according to the study. The most divisive ads were primarily from groups that did not release their funding source. While political leaders should act civil, incivility leads to the most attention. Overall, information gathered from social media often is viewed with preconceived biases. [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

 

How secure are our voting systems for November 2018?

Hugh Njemanze, CEO of Anomali, indicated that we are more secure than before but not out of the woods yet. Election services and other aspects are now classified as critical infrastructure. This means that they are deemed vital to national security. According to Njemanze, no matter how many steps are taken nothing can prepare for all attacks on something like voting. Whether the attacks come from false information or the election itself, the opportunity is available for undermining of the process. Attacks to elections have been around since before electricity and probably never will go away. The ability to protect vulnerabilities and limit damage done by attacks will now be more important than thwarting all attacks. A benefit of the current election system is that it is decentralized which make one large attack difficult. However, it is also difficult to maintain protection across all spheres when dealing with voting infrastructure. Information sharing between agencies is vital in the protection of elections. [source]

Trump administration targets public benefits 

A new federal rule could lead to immigrants that use public benefits being denied legal status in the United States. This serves as a deterrent to immigrants coming to America to rely on food stamps, Medicaid, or free housing. Those who are refugees or are seeking asylum do not apply and would not be penalized by the rule. Currently, immigrants can take advantage of non-cash benefits like healthcare. Supporters argue that the primary goal is to reduce the taxpayer strain while the opposition believe that the goal is to limit non-white immigration population. [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

Shiller warns stock prices are too high

Robert Shiller (Yale) appeared on CNBC this week warning that the stock market was overvalued. He said that corporate earnings and stock prices, on average, have risen at about the same rate, but a 1:1 rate puts stock market growth higher than it should be. Shiller said that he’s less concerned today than he was before the 2008 recession. He also said that the markets could continue to increase for years, but he does describe the current situation as “risky”.

When no banks are failing, you’ve got a silent canary in a coal mine

From 2004 to 2007, not a single national bank failed in the United States. This should have been a warning sign for the imbalances in the American banking system, according to Brookings. Since 1933, very rarely has a full calendar year gone by without a single national bank failing. A 32 month stretch should have been an indicator of an issue with practices that were taking place. During the time, 7,000 banks were working across the United States. While these statistics make bank failures seem common, very rarely do more than ten banks fail in one year. After this period, nearly 500 banks failed and cost more than $70 billion. It is clear that a lack of failure should indicate an issue. A situation like “too big to fail” should not arise again if regulators raise larger concerns with financial regulations. If no banks fail through September, this will be nine months. This is no call for distress, but also not a economical success. [source]

Understanding emergent market financial risk

Turbulence in emerging markets can be caused by “idiosyncratic” factors. Country-specific factors can include preexisting imbalances much like in Argentina and Turkey. A similar issue arises when the Federal Reserve increases interest rates to avoid inflation and spike a return on assets. However, when the dollar strengthens it becomes more difficult to repay loans. Other weaknesses could follow with potential trade wars. Tariffs can lead to increased prices which will in turn contribute to inflationary pressures. The Federal Reserve will raise rates. However, the trade war with China has identified some of China’s domestic weaknesses. With such a heavy reliance on imports from emerging markets, stress could leave a negative impact on the global economy. It is clear that the United States is not immune to the global economy. The best action is to increase capital buffers and correct interest rates that have been a record-low for nearly a decade. The best course for the Federal Reserve to take is to work to adjust interest rates and increase surveillance with regulation of agencies with direct connections to the economy. [source]

Capitalism and Millennials: The 2018 James Q. Wilson lecture

A recent study has found that 51% of Americans between the age of 18 and 29 do not think capitalism is a viable economic system. Edward L. Glaeser answered questions from millennials and younger Americans concerning the validity of capitalism. He began by address the statistics regarding the variation of economic leaning based on age. As one would expect, as ages trend upwards the belief in capitalism increases. The Democrat Socialists of America has grown in membership size from 5,000 to 49,000 in three years. Glaeser addressed the idealized Scandinavian model of Socialism and argues that each country has to cater to model that works with specific entrepreneurship. He also argued that the social democracies of Greece, Spain, Italy, and Portugal are often forgotten in the argument. We could not be sure that would not end up like Sweden rather than Greece. Glaeser also cited a professor, that grew up in China, who argued that millennials have thoughts of grandeur when perceiving communism. Ultimately, Glaeser argued that socialism is not just a threat to capitalism but a threat to general freedoms. A system that restricts freedoms and denies citizens of potential opportunities should be frowned upon rather than promoted. [source]

Record-low 12% cite economic issues as top U.S. problem

A record low of Americans believe that the economy is the biggest issue we are facing. The leading response was dissatisfaction with government at 29%. This is reaching the all time high of dissatisfaction which was 33% in October of 2013. 37% of Americans are satisfied with the direction that the United States is headed. While the economic trends seem similar to the late 1990s, the satisfaction level is much lower. This is believed to be because of the way America is being governed. There is also a schism between parties with only 12% of Democrats satisfied while 68% of Republicans are satisfied. Overall, the improved economic situation of the nation is recognized but the dissatisfaction with leadership reflects poorly on ratings. These ratings could lead to turn out at the polls. Democrats could show up in hope of change but Republicans could also show up to maintain the current trend. [source]

Economic/Financial Roll-Up

Last night, Bloomberg TV featured a Trump tariff countdown as they interviewed financial analysts from around the world on just what the effects would be. Some analysts said they’d be watching for the impact the tariffs have on a Chinese economic slowdown. Futures were down this morning due to fear of the tariff fallout. [24 Sept]

The Federal Reserve is scheduled to meet on Wednesday and Fed watchers expect another interest rate hike at .25 percent. As of this morning, the Federal Funds Rate sits at 1.91 percent. [24 Sept]

Over the weekend, Murray Gunn, head of global research at Elliott Wave International, shared his thoughts about the next recession. “We think the major economies are on the cusp of this turning into the worst recession we have seen in 10 years… Should the [US] economy start to shrink, and our analysis suggests that it will, the high nominal levels of debt will instantly become a very big issue.” This is nothing that we haven’t already covered in this report or in the National Intelligence Bulletin, but it does underscore that a growing number of analysts feel confident talking about the next recession. That’s a good indicator that they see reasons to start speaking up. None of this, however, suggests that the next economic downturn is imminent. [source] [24 Sept]

Last week, President Trump tweeted to OPEC to have them increase production to lower oil prices. The president is concerned that higher oil prices could threaten economic growth. Yesterday, OPEC declined to signal an increase in production, and oil is hitting a four-year high this morning around $80 per barrel. [24 Sept]

In a speech on Wednesday, Federal Reserve chairman Jerome Powell played down the risk of recession signaled by a flattening yield curve, saying: “There’s no reason to think that the probability of a recession in the next year or two is at all elevated. We look at the yield curve but it’s one factor. It’s not inverted now.” A cross over of the 10-year Treasury yield (3.037) below the 2-year yield (2.815) has been a reliable leading indicator of recession for the past 50 years. [28 Sept]

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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