14 JUL 17 – Executive Intelligence Summary

EXECUTIVE INTELLIGENCE SUMMARY – 14 July 2017 🔒

[wcm_nonmember]In this EXSUM… (4126 words)

  • Aging waterway infrastructure threatens U.S. economic future
  • U.S. not ready for ‘cyber 9/11’
  • Russia, China, Koreas, & Middle East SITREPs
  • FOIA docs reveal Antifa tactics
  • WSJ: Recession signals?
  • Dimon: There is unknown global economic in the future
  • Technology keeping American wages down
  • And more…

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ADMIN NOTE: I’d like to officially welcome Jon Dougherty to the Forward Observer Team.  Jon and I are teaming up to write the weekly Executive Intelligence Summary, to expand on our scope and depth of reporting, and ultimately to build a much better product.  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 a BA in political science from Ashford University and an MA in National Security Studies/Intelligence Analysis from American Military University.  Welcome, Jon!

As a reminder, we will be moving to https://forwardobserver.com in early August when our new and improved website goes live.  Your login information should stay the same; you’ll just be logging in at the new website.  I’ll be sending out emails with additional information.

 

Bottom Line Up Front:  I nearly fell out of my chair this week when K from Combat Studies Group sent me the picture below.  That’s Federal Reserve Chairwoman Janet Yellen speaking in front of Congress.  Two rows behind her and to the left is a candidate for Man of the Year holding a sign that reads, “Buy Bitcoin”.  For years, alternative economists and Bitcoin fortune tellers have prognosticated the end of the dollar.  That’s going to be true eventually, however, when I start seeing cryptocurrency activism like this, I have to agree that we will undergo a paradigm shift once these currencies are more widely adopted.  There’s a certain amount of freedom in cryptocurrencies as long as privacy-related blockchain technology outpaces the authoritarian drive to deny us financial privacy (cryptocurrencies like Monero are currently leading the way in this effort).  Bitcoin, Ethereum, and cryptocurrencies like them hold enormous potential, but I get concerned when I see monied interests like large banks and other financial institutions get involved (see: Enterprise Ethereum Alliance).  I really wonder how international bankers will try to control decentralized financial transactions.  Whether or not you’re an owner of cryptocurrencies, want to get involved, or consider it too risky (cryptocurrencies have zero intrinsic value, after all), this is an issue that should be at the forefront of our efforts to push back against authoritarian government.  When the serfs untether from the necessity of financial institutions, we can gain back some freedom.  That’s a fight that we should all get behind.  Please let me know if you’re interested in learning more about cryptocurrencies.  I’ve written a few items in previous EXSUMs, and would be more than happy to start sharing more information about what’s going on in the industry and the markets as well.  – Sam Culper

 

Priority Intelligence Requirements:

PIR1: What are the current indicators of systems disruption or instability that could lead to civil unrest or violence.

PIR2: What are the current indicators of an outbreak of global conflict?

PIR3: What are the current indicators of organized political violence?

PIR4: What are the current indicators of economic, financial, or monetary instability?


PIR1: What are the current indicators of systems disruption that could lead to instability, civil unrest, or violence?

Legalization of marijuana in some states driving Mexican cartels to export harder drugs

The government of Mexico has been waging a drug war against the various drug-trafficking cartels throughout the country for more than a decade, with limited success — that is due mostly to huge demand for drugs north of the border in the United States. But profits for a key cartel export — marijuana — has dropped precipitously and, if more states follow suit and legalize the drug, the cartels’ share of profits from marijuana smuggling will drop even further.  We’ve already seen a shift to the production and trafficking of harder drugs like heroin, and an increase in opioid-related problems, leading to increased deaths in the United States.  Deaths from opioid overdose have reached epidemic proportions in some parts of the U.S.; expect this to get worse as more states legalize marijuana. [source]

 

PwC: Robots and automation to eliminate 57 million U.S. jobs

A recent study by accounting and consulting firm PwC claims that due to rapidly advancing technologies in artificial intelligence and robotics, about one in four Americans, or 38 percent of the workforce, or 57 million jobs, could disappear within the next decade. [source] The research team projected that the job losses will be more widespread in the United States than other advanced economies, noting that jobs at risk of being lost to automation in the United Kingdom, for example, is only 30 percent, which the figure in Germany is close to 35 percent and in Japan, 21 percent. While it’s expected that as many jobs are lost to automation and robotics, there will be other jobs created. However, the big unknowns are 1) whether there will be enough new job creation to offset those lost; and 2) whether the newly created jobs will pay better or worse. Massive job losses with no viable alternative historically leads to social unrest and risks societal breakdown.

 

Aging waterway infrastructure threatens U.S. economic future

The country’s system of dams and locks making commercial river traffic possible — along with the shipment of millions of tons of commodities annually — is at risk of failing, causing major economic disruption, because of age.  President Trump has pledged to spend $1 trillion on new infrastructure, but none of that money has been approved yet by Congress. What’s more, it takes several years to make upgrades to many structures, owing to funding delays, weather, materials shortages, and labor issues. Water transport of goods is one of the most efficient methods, and cheapest; without an effective and ongoing upgrade program, it’s likely that these systems will begin to fail, costing the nation jobs and revenue. “The infrastructure has reached the end of its useful life,” one U.S. Army Corps of Engineers official said recently. [source]

 

U.S. not ready for ‘cyber 9/11’

As cyber attacks on critical financial, private and public infrastructure have become much more common and likely, the U.S. still does not have a coherent, comprehensive program aimed at concentrating cyber defense efforts and thus is woefully unprepared for a “cyber 9/11” event.   It’s not that there hasn’t been any action on improving the nation’s cyber preparedness, but rather there are too many programs and the effort is disparate and thus, the effect diminished. Currently 11 federal agencies all claim some sort of mantle of responsibility for nation cyber security preparedness: the Central Intelligence Agency, National Security Agency, Department of Homeland Security, Treasury Department, three branches of the military, and three federal banking agencies. Analysts argue that Congress should merge the disparate programs into one Cabinet-level agency, for efficiency of action and to emphasize the importance of the task. [source]


PIR2: What are the current indicators of an outbreak of global conflict?

The prospects of global conflict continue to revolve five geopolitical actors: Russia, China, North Korea, Iran, and the Middle East. In the event of war with any of these nations, consider domestic systems disruption a distinct possibility.

NATO-Russia SITREP:

In June Russia media reported the deployment of another road-mobile 9K720 Iskander-M missile system, capable of carrying nuclear warheads, which followws a pattern of equipping brigades in eastern Russia with these upgraded systems. Indeed today, there are more of these advanced systems in Russia’s Eastern Military District than anywhere else. [source] That means there are more of them aimed at China than at any other potential adversary in the region, lending credibility to the theory that despite recent overtures between Moscow and Beijing for closer military and economic cooperation, Russian President Vladimir Putin obviously feels like China’s growing military power is at least somewhat of a threat. In addition to the deployment of these advanced missile systems, Russia has also been staging large-scale military exercises in the east as well, another signal, if you will, of Moscow’s unease. “Vostok 2014 [a military exercise] much like its earlier incarnation in 2010, contains strong evidence that the Russian General Staff continues to consider China a potential threat to Russia,” said Dr. Roger N. McDermott, senior fellow in Eurasian military studies at the Jamestown Foundation, in a recent analysis he authored. Of note: The Iskander-M system has the ability to deliver a range of cluster munitions, making it particularly deadly for massed Chinese infantry and armor in the event of conflict. The system can also deliver nuclear warheads. Dr. Alexei Arbatov and Major General Vladimir Dvorkin (Ret.) observed in a 2013 Carnegie Endowment for International Peace report, “it may be assumed that Russia’s strategic nuclear forces, as well as some of its non-strategic nuclear weapons, do serve a mission of containing China.”  [See Also:  Understanding Russia in Context, Forward Observer’s first video brief.  Subscribe to our channel to see future videos.]

 

South China Sea SITREP:

As China continues to make outsized claims to the entire South China Sea, it not only represents strategic concerns to the United States and the West, but also poses direct security, economic and maritime threats to regional players, which is why Vietnam has reached out to India in pressing New Delhi to play a greater regional security role. It is a role India appears eager to accept, especially after successful meetings earlier this year between Indian PM Modi and President Trump. India has closely monitored the Chinese navy’s ascent, which it views warily. Back in 2012, Indian Navy Chief D.K. Joshi described the rise of the People’s Liberation Army Navy (PLAN) as “impressive,” and suggested the Indian Navy may have to defend Indian economic interests in the region at some point.  That said, the Vietnam-India collaboration makes sense, militarily and otherwise. Both navies share interoperability, operating Russian-built Kilo-class submarines; a number of Vietnamese submariners are trained in India. And they share freedom of navigation interests in the region, as both are threatened by China’s encroachment into their traditional economic exclusion zones. What’s more, Vietnam, by itself, cannot contain China, and while India may also have difficult in doing so, together Hanoi and New Delhi pose a significant challenge to Chinese hegemony — especially if progress over improving ties with the United States continues. (AC:  One trend we’ve also observed are increasing defense budgets among pro-US Asian nations, including US military partners.  Southeast Asian partners are at least ten years behind in defense spending and technological advancement.)  [source]

 

Korean Peninsula SITREP:

Tensions between the United States, its allies and North Korea have been high for months, escalating anew last week when, over the 4th of July holiday, Pyongyang tested another ballistic missile, this one reportedly with intercontinental range. The Trump administration has been pressing the North’s principle ally and trading partner, China, do to more to put economic and other pressure on leader Kim Jong-un, in an attempt to convince him to end the country’s nuclear weapons and missile development programs. President Trump in particular has been vocal in pressing Chinese President Xi Jinping into stepping up pressure against the Kim regime. Thus far, the Chinese have been reluctant to do so, fearing that real pressure in the form of cutting trade ties as well as exports of food and fuel could lead to the collapse of the Kim regime, followed by a flood of North Korean refugees into China. Also, Beijing fears a Korean unification in which a major U.S. ally, South Korea, would absorb the North under its democratic system.

But this week the Chinese government made a rather startling claim: solving the North Korean dilemma is not its responsibility. [source] Further, Beijing appeared to sign onto a plan offered by newly elected South Korean President Moon Jae-in, who has repeatedly said he favors more diplomacy to resolve issues with the North. His plan has two parts: 1) The South only wants peace and will guarantee the North’s security if Pyongyang fully dismantles its nuclear program; and 2) Moon offered improved economic development, including the North in “a new economic map on the Korean Peninsula.” The second part of the plan would include a restart of nonpolitical exchange and cooperation, featuring — among other things — reunions of family members living on opposite sides of the demilitarized zone (DMZ).

“Chinese President Xi Jinping and I also reached a consensus on this matter,” Moon said of the South’s leading role. Chinese Foreign Ministry Spokesperson Geng Shuang added further: “As we said repeatedly, the crux of the Korean nuclear issue rests on the conflict between the DPRK and the U.S. and it is in essence a security issue. The Chinese side is neither the focal point of the conflict of the Korean nuclear issue nor the catalyzer for escalation of tensions at present, and it does not hold the key to solving the Korean Peninsula nuclear issue.” He went on to criticize “certain people” for “exaggerating and playing up the so-called ‘China responsibility’ theory,” a comment we believe is an obvious reference to President Trump.

South Korea stepping up and assuming a leadership role will provide some relief for China, but not for long. President Trump has said repeatedly he intends on solving the North Korea nuclear issue one way or another, and now that the North has a missile that can theoretically reach U.S. soil, he and his national security team will undoubtedly double down on an earlier determination that Pyongyang represents a “clear and president danger” to the U.S. and her allies in the region.

 

Middle East SITREP:

The Iranians are continuing to shop around for illicit nuclear and missile technology, according to German intelligence officials. In particular, Iran appears to be looking for parts for its heavy water reactor, shut down under the terms of the Obama administration’s 2015 nuclear deal, but overall, Tehran is looking to advance both its nuclear weapons and ballistic missile development programs, despite the agreement. In fact, a second report from Germany’s Baden-Württemberg’s state intelligence agency report states: “Regardless of the number of national and international sanctions and embargoes, countries like Iran, Pakistan and North Korea are making efforts to optimize corresponding technology.” The report cites Iran’s illegal procurement and terrorist activities 49 times, and it includes cyber warfare and espionage activities. A third intelligence report, this one from a different German state, claims that companies located in Rhineland-Palatinate had been contacted by the Iranians, North Koreans and Pakistanis seeking to procure items for their programs illicitly. A summary report by German’s equivalent of our FBI noted that the Iranians were not curbing their ballistic missile development at all, which was part of the nuclear deal. [source]


PIR3: What are the current indicators of organized political violence?

FOIA docs reveal Antifa tactics

A recent delivery of documents from a Freedom of Information Act (FOIA) request to the Department of Homeland Security (DHS) [DOWNLOAD] reveals antifascist tactics, as recorded by Federal Protective Services, during a June pro-Trump rally in Portland, OR.  Portland is a hotbed of Leftist violence, and is a top contender for the unfortunate title of Ground Zero for political-related violence in the nation.  In the FOIA release, DHS officers report on observations during Operation Columbia Crest.  To wit, law enforcement observed:

  • “Protestors are using some sort of irritant against law enforcement (OC spray?)”
  • “Police are still taking sporadic projectiles – rocks etc”
  • “Both [Federal Protective Service] and [Portland Police Bureau] are taking rocks, bricks, bottles, and thrown/launched fireworks”
  • “Counter protest group building stocks of rocks and other projectiles”
  • “FPS and PPB has taken additional fire from wrist rockets and marbles”
  • “Balloons with an unknown foul-smelling liquid are being thrown at FPS and PPB”
  • “Open source reporting here shows light incendiary devices (smoke bombs, road flares) taken off counterprotestors and two Molotov cocktails”

This is typical of violent Leftist counter-demonstrations, however, it’s been very interesting to see how influential blogs like Crimethinc and It’s Going Down have been influential in publishing popular tactics.  After the J20 protests, several blogs began publishing best practices for committing violence, and we’ve seen these tactics proliferate across the country.  I included a summary of one prominent blog post in March:

An anarchist/anti-capitalist blog called A Las Barricadas (To the Barricades; a popular leftist/anarchist song during the Spanish Civil War) recently published an interesting take on the black bloc movement.  (Black bloc doesn’t refer to a specific organization, but to a tactic and a movement.)

The author, who is apparently a committed anarchist with anti-capitalist and pro-social justice leanings, begins by opining that many people involved in black blocs don’t actually understand how they work.  The goal is to use protests as cover for black bloc action, which could include destruction of property, propagandizing via making the news, and preventing the police from arresting protestors or black bloc members.  The article goes on to outline some advice for black bloc members who are resisting police action, usually during a riot.  That advice includes using shields and protective gear; making Molotov cocktails; using slingshots to injure police; and creating oil slicks peppered with marbles to create a barrier that will injure police and their horses.  It’s an insightful look into what black blocs of the future might look like.  (SOURCE: https://barricadasblog.wordpress.com/2017/03/05/on-black-bloc/)

 

Antifa Roll-Up:

TN:  Planned Disruption — AmRen Conference — 28-30 July 2017

CT: New Haven rally ‘shut down’ by Antifa

CA: ‘Calexit’ comic envisions ‘occupied’ cities, violence

GA: Atlanta graffiti in solidarity with J20 defendants

Refusing Fascism: Q&A with Antifa organizer

Neo-Nazi beaten and murdered in ‘Antifa’ music video

Charlottesville shuts down the KKK; police attack community

What made large scale resistance possible at the Hamburg G20?

 

PIR4: What are the current indicators of economic, financial, or monetary instability that lead to worsening economic conditions or civil unrest?

WSJ: Recession signals?

Greg Ip, the Wall Street Journal’s chief economics commentator, wrote an op-ed last week citing his concerns about recession risk.  He makes it clear that these signals don’t necessarily indicate recession, although they have in the past.  Here are his indicators:

    • “Implied volatility,” which reflects hedged bets against a major market move, is low.  According to the data, implied volatility in “bonds, stocks, currencies and gold” is near 2007 levels, just prior to the 2008 recession; the lowest in years because few are fearing a massive downturn.
    • US economic growth is in its ninth year, just two years away from the longest in history.  Economic growth is interrupted by recession, as it has on average every six to eight years for the past hundred years.
    • The unemployment rate (4.3% — the lowest in 16 years) shows that the economy is at or near full-capacity (5% is considered maximum employment).
    • Stocks are trading at 22 times price to earnings, which mirrors just before the 2008 recession, and “home prices have returned to their pre-crisis peaks in major American cities.”
    • Corporate debt as a share of GDP “is at levels last seen just before the past two recessions.”
    • Add to these factors that the Federal Reserve is now tightening monetary policy by raising interest rates, and he makes a case that a recession could be on the horizon.(SOURCE)

I saw two reliable recession indicators come and go at the end of last year, and there are an even greater number of recession indicators in the first half of this year — yet we’re not close to a recession, unless it’s trigger by a black swan event.  There is economic vulnerability, that is for certain, so I remain wary of the economic joy and optimism.  According to the BCI Index from mid-June, a recession was unlikely in 11 (31 AUG) and 20 weeks (02 OCT).

 

Dimon: There is unknown global economic in the future

The central banks of the US, Europe, and Japan have run up $14 trillion balance sheets, which is unnerving for JPMorgan chief Jamie Dimon.  “We’ve never have had QE like this before, we’ve never had unwinding like this before.  Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before… it could be a little more disruptive than people think.  We act like we know exactly how it’s going to happen and we don’t.” (SOURCE)

 

The shrinking American middle class

The so-called American “middle class” has been declining in status for decades, but a new set of economic indicators proves the trend is continuing. [source] A Harvard University report shows that the number of Americans who spend in excess of 30 percent of their incomes on housing alone has doubled since 2001, from 16 million who could not afford their homes to some 38 million by 2015, a 146 percent increase. In all, the number of Americans considered “middle class” has fallen from around 60 percent in the early 1970s to below 50 percent today, making it a minority for the first time in the post-World War II era. The shrinking middle class can be largely attributed to the declining real wages and a steadily rising cost of living — food, health care, clothing, utilities, just to name the basics.  If you want a quick glimpse at what widespread loss of economic opportunity will do to a once-thriving population, the mayhem gripping Venezuela today is a classic example.

 

State pension plans are imploding and breaking state governments

Scores of public pensions throughout the country are in danger of imploding, a mounting financial crisis of epic proportions that could see entire states be declared insolvent. The first among them: Illinois. [source]

Illinois’ financial position is precarious at best. The state government has been waging a losing battle for years in its struggle to fully fund $250 billion in promised pension payments to current and upcoming retirees, even passing a large tax increase this month — the state’s second large increase in a decade. But even that may not be enough to stave off fiscal disaster: Ratings firm Moody’s is threatening to reduce Illinois to junk-bond status, which would worsen its fiscal position by raising borrowing and financing costs.

Large cities — such as New York City and Chicago — are also in dire financial straits, in part due to fiscal mismanagement and in part due to over-promised benefits. [source]

Some experts believe imploding pension plans will turn into the country’s next major financial crisis, perhaps even on par with the economic devastation seen during the Great Recession of 2008-09. [source] Some pension plans are looking to cut back on benefits in order to at least stave off disaster, but they are facing pushback — from legislators in some cases but also from pensioners who are not eager to vote to trim their own retirement pay.

Couple the emerging pension disaster with the likelihood that Social Security and Medicare will, within 15 years, also teeter on the edge of bankruptcy, and you can begin to appreciate the scope of danger our oldest citizens face as they reach a point in their lives when they are supposed to be enjoying the most.

Lawmakers on the state and federal levels have some serious decisions to make regarding what to do about reforming retirement benefits for an aging nation that will not take lightly the prospect of living in poverty as they approach the twilight of their lives. They have two choices and, politically speaking, neither of them are good: 1) Cut back on benefits; 2) Dramatically raise taxes and other revenues to fund more than $1 trillion in pension shortfalls around the country. If they do neither, systems (and entire state governments) will begin to collapse, requiring another politically unpalatable decision: Whether or not to bail them out with tax dollars and thereby rewarding years of fiscal and political mismanagement.

 

Technology keeping American wages down

A new analysis of the effects technology is having on the U.S. labor market is revealing in that tech is keeping American workers in many industries from earning more money. “[R]obotics, automation, artificial intelligence, [and] the daily disruption of technology are all killing wage expectations,” Bank of America Merrill Lynch strategist Michael Hartnett said in a note Wednesday. “[C]orporations continue to emphasize cost-cutting over risk-taking and wide swathes of the labor market see that their ability to maintain wages & incomes are under enormous threat from technology.” He described these changes as the “Amazonification of Main Street,” noting that the giant online seller is dramatically impacting traditional brick-and-mortar retail outlets throughout the country. But advancing technology is making once-costly goods cheaper, holding back inflation and, as such, wage growth. The U.S. Department of Labor said average hourly earnings only rose by 2.5 percent last month. “”The profound implications of technological disruption may ultimately require profound policy changes such as: making robots living entities so they can be taxed, governments introducing living wages, significantly higher taxation of Silicon Valley profits, and so on,” Hartnett wrote. [source]

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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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