National Intelligence Summary for 20 April 2018 – Forward Observer Shop

National Intelligence Summary for 20 April 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… (3,226 words)

  • InFocus: Replay of 2008 recession ahead?
  • Russia is sponsoring cyberattacks in U.S. homes, businesses
  • Iran-tied ‘sleeper cells’ said to be ready to attack U.S. infrastructure
  • We could see $100-a-barrel oil again — here’s how
  • David Hogg calls for boycott of Smith & Wesson and its financial backers
  • Florida bill targets gun ownership through designating organized militia
  • Sanctuary policies leading to the release of gang members
  • Federal authorities are refining their approach to cyber war
  • National Guard Bureau says more than 1,000 troops deployed to U.S.-Mexico border
  • Three-fourths of ultra rich are forecasting a recession
  • And more…

InFocus: One of the trends we’ve followed since I started Forward Observer is the gradual degradation of systems in the United States. The message shouldn’t be taken as an alarmist, although it is alarming. I’ve written and talked about the unlikelihood of a sudden collapse scenario, and instead compared the country’s situation as a “slow burn”. The economy is running so hot that the Federal Reserve is raising interest rates, people are getting back to work, some workers are enjoying raises, some corporations (driven largely by the oil and gas sector) are increasing capital expenditures in 2018 — all these are good signs of a stable economy. Earlier this year at Davos, hedge fund founder Ray Dalio (who runs the largest and most successful hedge fun in the world) warned that he sees a lot of instability in the future. Explicitly referring to a recession around 2020, he warned that inequality was going to lead to a social unrest. But, in reality, that’s just the start of it. This week, CNBC published an article on the results of a JP Morgan survey that found 75 percent of its high net worth investors foresee a recession, possibly as soon as 2019. (Details can be found in PIR4.)

We’ve survived past recessions, like the one in 2008, but only because of intervention by the Federal Reserve. I’ve pointed this out in previous National Intelligence Bulletins, but it bears repeating here: the Federal Reserve historically has to cut interest rates by three percent to spur enough economic growth to pull us out of recession. The Federal Funds Rate as of last month stands at 1.51 percent. The Federal Reserve, then, is going to be forced to raise interest rates as quickly as possible to reach as close to three percent as it can before a recession hits so that it can turn around and begin cutting interest rates. If this plays out like it traditionally does — with the Fed raising interest rates to prevent the economy from overheating, and then cutting interest rates to spur economic growth — then we’re looking at a monetary roller coaster in the next two years. This could have a profound effect on everything from the stock market and small business lending, to the global economy and foreign trade.

On top of this, we have a toxic social environment with the rise of far right and far left authoritarian movements, and we’re facing above average odds that the Democrats will hold the House and the Senate after mid-term elections this year. This is a perfect storm of turmoil, and all these things are going to have a profound effect on socioeconomic stability.

I hate sounding like an alarmist — I have no specific predictions other than an expectation of increased instability — but this is very alarming to me. To be sure, life will go on. The world is not ending, and we’ll have to play the hand we’re dealt. It’s impossible to foresee right now the end result of the convergence of these factors, but I do believe we should, at a minimum, be prepared for a replay of 2008 and possibly much worse.

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?

Russia is sponsoring cyberattacks in U.S. homes, businesses

U.S. and UK cybersecurity officials are warning that Russian hackers working on behalf of the Kremlin are engaged in attacks for possible use in espionage or to steal intellectual or personal data from American businesses and homes. Officials said attacks have targeted millions of computer networks around the world and are being conducted through equipment like routers, switches, and firewalls, say officials from the Department of Homeland Security and the FBI, as well as their counterparts in Britain. Government and private organizations, including Internet Service Providers, are being targeted, officials say. “We hold the Kremlin responsible,” said Jeanette Manfra, assistant secretary for cybersecurity at the Department of Homeland Security. The attacks are not always intended to steal data. Some are designed to lay groundwork to seize control of computer networks and equipment for future attacks. U.S. military officials have long known that Russian generals would consider cyberattacks as part of kinetic warfare in the event of hostilities. [source]

Iran-tied ‘sleeper cells’ said to be ready to attack U.S. infrastructure

Intelligence officials and former White House officials recently testified before Congress that Iran-backed militants are currently operating around the U.S. mostly uninhibited, raising concerns among lawmakers that the “sleeper cell” agents are set to launch large-scale attacks against various high-value, important infrastructure targets. U.S. authorities have already discovered agents linked to Iranian proxy militant group Hezbollah operating inside the country, which has led to increased concerns that Tehran could direct attacks inside the U.S. if tensions between Washington and the Islamic republic worsen. The officials confirmed to lawmakers last week that such attack scenarios are not only plausible but fairly easy for Iran to carry out. Rep. Peter King, a member of the House Homeland Security Committee and chairman of its subcommittee on counterterrorism and intelligence, said that Iran poses “a direct threat to the homeland.” When asked if Iran could use Hezbollah to conduct strikes on the United States, a panel of experts including intelligence officials and former White House insiders responded in the affirmative. “They are as good or better at explosive devices than ISIS, they are better at assassinations and developing assassination cells,” said Michael Pregent, a former intelligence officer who worked to counter Iranian influence in the region. “They’re better at targeting, better at looking at things,” and they can outsource attacks to Hezbollah. [source] Analyst comment: At the same hearing, it was revealed that between 50,000 and 60,000 Hezbollah militants are “battle-tested” in Syria and elsewhere, and that it wouldn’t take many of them to infiltrate the United States to pose a threat to the homeland.

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

We could see $100-a-barrel oil again — here’s how

You may have noticed that prices at the gas pump are inching upward. Mostly, for now, that is due to the typical spring-summer vacation cycle that is approaching, but it also has to do with production cuts in the Middle East imposed by OPEC. Now that tensions are heating up again in the Middle East, and in particular between the U.S. and Russia, as well as their allies, any major conflict there will send oil prices per barrel to triple digits again, say analysts. And while the imminent danger of a wider war between great powers appears to have passed for now, conflict in the volatile region could erupt at any time, which would dramatically impact oil prices. “I don’t think its unfeasible to see triple-digit oil prices at some point this year if things really kick off in the Middle East,” Anish Kapadia, founder and managing director of Akap Energy, said. He added that market analysts were “laughed out of the room” six months ago when some were predicting oil in the range of $60-$70, which is where we are today. [source]

Parkland, Fla. gun control advocate and student David Hogg calls for boycott of Smith & Wesson and its financial backers

After calling for a boycott of Fox News host Laura Ingraham’s show that was moderately successful, David Hogg, who was present during the Valentine’s Day school shooting in Parkland, Fla., is now calling for a boycott against iconic gun maker Smith & Wesson as well as the company’s financial backers. In a series of tweets earlier this week to his 764,000 followers, Hogg directed them to target five investment companies, but emphasized two most — Blackrock and Vanguard Group. The others he named are Invesco, Voya Investment Management and Credit Suisse. According to a chart he tweeted, all five companies hold assets in the hundreds of billions or trillions of dollars. [source] Analyst comment: It would be easy to just dismiss this young man out-of-hand — the boycott against Ingraham had some initial success but her program ratings soared and some companies are coming back — but his actions are reflective of a broader trend being implemented by the political Left of targeting the financial instruments used by gun manufacturers. The strategy seems to be if gun control activists are thwarted by the Second Amendment, then they’ll target Wall Street instead, with the strategy being that without capital and financial support, gun makers will have to cease operations and a ‘de facto ban’ on guns will occur. Some financial institutions have already agreed to stop doing business with gun makers. Bank of America has announced it will stop lending money to makers of “military-style weapons.” The decision seems overtly political but in reality BoA took a look at the numbers and decided a) the company would not be out huge sums of money by dropping that portion of business; and b) the financial institution got some political mileage (and media coverage) from the decision. The point is that other banks could follow suit. Gun sales, while robust at times, do not comprise a significant portion of banking business. 

Florida bill targets gun ownership through designating organized militia

Stop the Killing Committee, a Florida-based anti-gun organization, recently published a bill it wants to be considered by the Florida legislature. Bill 18-03, entitled “Well Regulated Militia and Firearms – Stop the Killing” wants the state to designate and recognize “the Florida National Guard and other organized police forces as the well-regulated militia of the State and [authorize] them to keep and use military style weapons”. The move would essentially outlaw the individual ownership of “military style weapons” in the state of Florida, unless the resident is a member of an organization officially recognized as the state militia. So far the bill has been approved to be considered, but it currently lacks enough statewide signatures to require a review. The aim is to have the bill put on a future ballot. This may be an attractive avenue for other states to ban the individual ownership of firearms. [source] (H/t Donovan)

Sen. Rand Paul suggests that Syrian chemical attack was false flag

In an interview with an American media outlet this week, Sen. Rand Paul, R-Ky., suggested that the Syrian government might not have been behind the recent chemical attack that killed some 40 people, including children, and injured more than 100 others. During a discussion about whether President Trump’s stalling of new sanctions on Russia was a good idea, Paul questioned whether the attack was even real. “I think before you talk about sanctions, we ought to talk about what evidence is there that Russia was complicit in this attack. In fact, for that matter, I still look at the attack and say Assad either must be the dumbest dictator on the planet or maybe he didn’t do it. I have yet to see evidence that he did do it. The intelligence agencies claim they have that evidence. But think about it: does it make any sense?” He noted further that Assad has been “winning the war” and “the only thing that would galvanize the world to attack Assad directly is a chemical attack.” He added: “So before we get to the Russians, we have to first determine that Syria was implicated, and then we outta determine what the connection is between Russia and Syria on this attack.” [source] Analyst comment: Paul is not the only one to suggest the attack may have been perpetrated by, say, the Syrian rebels themselves in order to illicit a response against the Syrian forces they are fighting. Two things come to mind: 1) Trump’s attack really didn’t do any damage to Assad’s war fighting ability so that wasn’t much of a help to the rebels, militarily; 2) When an elected leader who is fairly close to Trump openly questions his veracity as well as that of the U.S. intelligence community and military, that is a further sign that our country’s divide is only worsening.

Sanctuary policies leading to the release of gang members

So-called “sanctuary” policies regarding illegal aliens are leading to the release of dozens of dangerous gang members, a new study has found. Over a nine-month period in FY 2017, according to information provided to the Senate Judiciary Committee by federal immigration agencies, 142 gang members that Immigration and Customs Enforcement sought to deport were released by local law enforcement agencies rather than being transferred to the agency. Two-thirds of those releases occurred in California, which passed a law last year making the entire state a “sanctuary” for illegal aliens (forbidding state law enforcement from notifying, in most cases, ICE when illegals in custody are released). Fifteen of the aliens who were released belong to the notorious MS-13 gang, while 127 were members of various other gangs. Of the MS-13 members released, most were in Maryland, where there is a significant, and growing, MS-13 presence. Three MS-13 gang members were released in Washington. [source]

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

Federal authorities are refining their approach to cyber war

Team Trump on Thursday sent over a formal cyber war policy to the Congress, after the 2018 National Defense Authorization Act required the White House to submit a strategy. The document reportedly covers both defensive and offensive cyber operations, although the details haven’t been published. Also this week, the Department of Homeland Security announced they’ll be releasing a “how-to manual” for its offices to address “systemic risk” in local, state, and federal agencies. As I addressed throughout 2016 and 2017, the Obama administration constantly lacked the ability to advance cybersecurity strategies, and it resulted in endemic confusion as to who was responsible for what in the event of a major cyber attack. NSA, U.S. Cyber Command, DHS, FBI, and other organizations have their hands in the cybersecurity pot, and the Trump administration has been reportedly working on developing a unity of effort approach to address cyber threats. [source]

National Guard Bureau says more than 1,000 troops deployed to U.S.-Mexico border

The chief of the National Guard Bureau, Air Force Gen. Joseph L. Lengyel, told a Senate panel this week that the service has deployed 965 members to the U.S.-Mexico border as part of President Trump’s call for up to 4,000 troops to assist U.S. Border Patrol and federal immigration agencies with a surge of illegal immigrants. The Defense Department under Secretary James Mattis has authorized the Guard to deploy those troops, though it’s not yet clear where all of them will come from and whether the end-strength of 4,000 will ultimately deploy. Guard troops are involved in “primarily things that enable Customs and Border Protection agents to leave nondirect border security jobs and go to the border and provide border security, and doing things like maintenance, communications, transportation, the operation of perhaps heavy equipment, analysis, trend analysis, and using some intelligence and surveillance and some aviation assets to assist in those endeavors,” Lengyel said. “What they are not doing is [having] any direct civilian law enforcement operations, and they are not doing any direct contact with migrants unless … explicitly authorized by the Department of Defense, and that has not yet occurred,” he added. [source] 

U.S. ally Japan discovers massive trove of rare-earth minerals

Japan has discovered a massive deposit of rare earth minerals estimated to be about 16 million tons — enough to meet world demand for centuries to come. The discovery was made in Japan’s exclusive economic zone off the Ogasawara island chain about 1,250 miles southwest of Tokyo. Researchers said that it’s very plausible that technology can be developed fairly quickly to extract the deposits in sufficient quantities to make the effort worthwhile (i.e. profitable). Rare earth minerals are vital components in all kinds of high-tech products, and in fact, the U.S. could not field more of its most sophisticated military systems without them. Processing them has some drawbacks, though. They are toxic and must be handled with care. Also, processing is expensive. But what makes this discovery noteworthy is that right now China is the country that processes around 95 percent of all rare earth materials. If the U.S. and China step up their economic war, it’s possible that China could limit its exports of processed rare earth minerals and the technologies they are used in. Japan is a solid, long-time U.S. ally, so it would behoove Washington and Tokyo to jointly develop this find. [source]

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

Three-fourths of ultra rich are forecasting a recession

Fully 75 percent of ultra-high net worth investors believe that, despite the fact that the U.S. economy appears to be doing just fine, there will be a new recession in the next two years. And of those who believe the economy will suffer a downturn, 21 percent think it will begin in 2019 while 50 percent think it won’t hit until 2020. The predictions are likely surprising to some since there is generally strong growth throughout the country, along with robust corporate earnings and the lowest unemployment level in 17 years. Recent GDP growth for 2018 was pegged at about 2.9 percent for the year. “But there is debate among economists as to whether this growth — fueled by a synchronized global upswing and stimulus injections like the recent Tax Cuts and Jobs Act, which slashed corporate taxes, and an enlarged federal spending package — will last beyond 2019.” And some economists believe that growth won’t keep up with the U.S. budget deficit, which is soaring again despite record tax revenues. [source]

China seeks to reshape global oil market with ‘petroyuan’

Late last month the Chinese government launched its first crude oil futures contracts priced in its own currency, the renminbi, or yuan, in what appears to be an attempt to restructure the global oil order away from petrodollars. The world’s second-biggest importer, China buys about 9 million barrels daily and is seeking to use its own currency to make purchases of the world’s most-traded commodity. For decades oil has been traded in U.S. dollars; launching contracts in its own currency means China is attempting to give the yuan a much bigger role in world oil trading. In addition, Beijing is tackling the two most-used world benchmarks for crude, West Texas Intermediate (WTI) and Brent, both of which are priced in dollars. “For now, it doesn’t mean many changes. Oil is still going to trade in the US dollar, but increasingly over time, there will be more transactions … but this is not a gamechanger, yet,” Michal Meidan, Asia analyst for Energy Aspects, said. ”The goal is for China to establish an Asian benchmark that will reflect Chinese consumption and more broadly Asian demand patterns”, but he believes “it’s highly unlikely” that the yuan will challenge the dollar in the near future. [source] Analyst comment: Having the world’s reserve currency like we do gives Washington incredible influence over the global economy. What happens, though, if another currency overtakes the U.S. dollar as the global reserve? Some say the massive U.S. debt, now topping $21 trillion, would be unserviceable. Also, China could begin selling off much of its $1 trillion worth of U.S. debt holdings, further devaluing our currency. The clock is ticking.

Jon E. Dougherty is a political, foreign policy and national security analyst and reporter with nearly 30 years of experience in both fields. A U.S. Army veteran of Operation Enduring Freedom, he holds BA in Political Science from Ashford University and an MA in National Security Studies/Intelligence Analysis from American Military University.

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